ERP Optimizes Manufacturing Operation
Expandable Helps Tom's of Maine Increase Production by 10%
A PC-based enterprise resource planning (ERP) system has enabled Tom's of Maine to increase production by 10 percent by giving managers the information they need to optimize the manufacturing process. Unlike the previous system that showed labor and material costs only on a company-wide basis, the Expandable ERP system from Expandable Software, Santa Clara, California, shows exactly how much labor and materials go into each job. This information allows production managers to fine-tune individual processes, such as adjusting batch sizes to coordinate with shift breaks, eliminating downtime. By maintaining accurate and up-to-date inventory records, the ERP system also makes it possible to determine immediately if the production line can be changed in response to a customer request. The ERP system has proven to be extremely reliable, running problem free, around the clock.
Tom's of Maine, Inc., based in Kennebunk, Maine, is the leading manufacturer of natural personal wellness products. Since the company's 1975 introduction of the first natural toothpaste on the market, all of its products have been made with the highest quality plant and herbal ingredients. Tom's products do not contain artificial colors, flavors, sweeteners, preservatives, or animal products, and all are developed using advanced non-animal testing methods. Tom's packages its products in ways that respect the environment and faithfully donates 10% of its profits to charity. Since its inception, the company has continually expanded its product line. Some of the products introduced in 1999 include a unique line of natural cough, cold and wellness products such as Natural Echinacea Tonics, Nasal Decongestants, Cough & Cold Rub/Muscle Balm, and Liquid Herbal Extracts. The company currently employs 130 people at four facilities. Last year's sales were $27 million.
Make it, package it
Tom's of Maine manufactures nearly all of its own products. Raw materials are combined in big vats and heated for pasteurization. The mixture is then pumped to a different part of the facility where it is put into tubes, jars, or other containers. The company's process is somewhat unique because its products contain no preservatives. Every batch that is mixed must be filled in the same day. Any that is not filled goes to waste. In the past, managing production was done primarily with manual means. Managers decided what to produce by looking at the inventory of finished products and seeing what was low. Scheduling was posted on a magnet board. The company performed a complete physical inventory each month. Items that had been removed since the previous inventory represented the cost of goods sold.
Managers used spreadsheets to track overall costs and production levels, but since results weren't broken down by individual jobs, this data did not help much with decision-making. "It was not possible to compare one product against another to tell if one was over-using labor, or if material was costing more than anticipated," explains David Pierce, operations manager at Tom's. It was also difficult to react to shifts in demand since inventory records could be as much as one month out of date. The spreadsheets were not integrated with the company's Wang-based accounting program, creating another drawback. This required someone in accounting to re-enter the manufacturing data by hand before preparing financial statements.
These limitations led Tom's management to consider the implementation of an ERP system as a way of consolidating and accessing critical information about the company's operations. A selection committee evaluated four popular ERP systems. One of their primary requirements was a system that was user friendly so many people within the company could use it. Another requirement was flexibility in terms of getting information out of the ERP database. "Accounting has different ways of looking at monthly results, for example," says Beth Ansheles, Tom's finance team leader. "We look at results by product line, by sales channel (mass market versus health stores), and by sales rep. We needed a system with strong report writing capabilities so we could create and customize the reports we would use regularly. But we also wanted the ability to look up information on an impromptu basis."
The Expandable ERP system met these criteria, and had an additional important point in its favor – that it could be implemented quickly. This system has become known for its quick implementations because it is flexible enough to meet the needs of most companies without requiring customization. Implementation time is also reduced due to the support provided by the vendor, which sends its own representatives to assist in the process. This eliminates the need to find and hire a consultant, and also ensures the involvement of people who are highly trained in the ERP system.
"The people who helped us were familiar with both the manufacturing and accounting aspects of a business," says Pierce. "In addition, unlike third-party consultants who have to know a little bit about a lot of programs, the people from Expandable were experts in their own software." Tom's received the software at Christmas time and had it running by the beginning of March. Expandable also provided on-site training. Users got comfortable with the program in very little time. "Because the structure of the program is so logical, it was easy for people to understand the flow of data through the system," Pierce adds.
Manufacturing to meet demand
The manufacturing side of the company soon saw improvements in its operations as a result of implementing the ERP system. Tom's implemented a multilevel bill of materials within the MRP system. Toothpaste, for example, has one bill of materials that lists the ingredients. Above that is a bill of materials representing the mixture, the filled tube, and the packaging. On the third level is a bill of materials representing all the components within a case of toothpaste. When a job is scheduled, the software's MRP capabilities immediately explode it into the components required to produce it. That capability, combined with a function in the system's Materials Management module called a component availability inquiry, automates what was previously a time-consuming and sometimes inaccurate process. Instead of manually comparing a list of items needed to process a certain product against an inventory list, a manager simply selects that particular job and runs the component availability inquiry. The ERP system compares the bill of materials against the inventory and prints out a list of the items not in stock.
This information is available so quickly that it is now possible to make immediate decisions about production. "If the president calls and asks us if we can change the line and make a particular product tomorrow, I can give him an answer while he's still on the phone," says Pierce. "I simply run the inquiry, which tells whether we have the items in stock and where they are located. If there's an item with an open PO, I can see when it's due in." This capability has improved Tom's relationships with its customers by allowing the company to respond quickly to customer needs.
After determining what products to produce, a job is opened and the required raw materials and ingredients are transported to the manufacturing facility in their original packaging, (pallets, vats, boxes). Therefore, more raw materials than required are supplied to the job. After the product is mixed and packaged, the extra material is returned to the warehouse. The job is told how many units were actually completed that day and the correct quantity of each component is backflushed from inventory automatically. Any exceptions, such as scrap, can easily be entered. The result is accurate inventory balances and cost of good sold accounting.
Production managers at Tom's use information provided by the ERP system to optimize manufacturing operations. For example, prior to installing the ERP system, the company had started producing three separate packages for some of its products, one for use in the U.S., one for Canada, and one for the U.K. After implementing the ERP system, they could see the delay caused by package switching was creating downtime. The solution was changing the sizes of the batches, sometimes making them larger and sometimes smaller, to synchronize them with shift changes and lunch breaks. This eliminated the time wasted, with some employees idle, while new packaging was brought in and machines changed over.
Accounting and the ERP system
The accounting staff also benefits from the improved access to information provided by the ERP system. One example of this is their ability to prepare financial statements faster since it is no longer necessary to manually enter manufacturing data first. That information is already in the database, having been entered by the production managers using the ERP system's manufacturing modules. Financial information is also more accessible with the new system. "If I am working in General Ledger and want to find out if a particular vendor has submitted a bill, I just highlight that vendor and use the inquiry capability to see all the entries for that company," says Ansheles. "It's the same with customers. I can quickly call up a ledger for a customer and see all of the invoices and know immediately which have been paid and which have not."
The ability to search the ERP database to find specific information, either through custom reports or impromptu queries, also contributes to the improved information access with the new system. Ansheles and her colleagues modified some of the invoices and financial reports that came with the software. They were able to do this themselves using the tools provided with the software. When they needed reports that were not included in the ERP system, they used a companion program, Crystal Reports, to generate them. Crystal Reports is also used for impromptu queries. They have found this query language to be very easy to use, and as a result they query the system frequently to access the information they need. One query that is performed monthly, for example, shows all the entries into Accounts Payable. The results are reviewed with the controller to make sure the accounts are correct.
Currently Tom's handles scheduling manually based on reports created from the ERP data. The company is planning to automate scheduling by using the Preactor planning and scheduling software, which has recently been integrated with Expandable ERP. Preactor software provides a major advance over traditional scheduling systems that assume resources have infinite capacity. It plans operations only when resources are available and gives schedulers the ability to easily shift resources from one project to another to meet delivery requirements.
For Tom's of Maine, the implementation of an ERP system has provided the accurate labor and materials cost data the company needed to optimize its manufacturing processes. The system is also helping Tom's serve its customers better. By maintaining an accurate inventory database linked to bills of material, the ERP system helps Tom's adapt production to changing demands and respond quickly customers' requests.
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