Profiting from Simplicity

Tier-Two ERP System Helps Food Producer Manage Growth While Saving Money

Monterey Gourmet Foods, Inc. (MGF) produces more than 120 different fresh gourmet food products that are distributed in more than 9,600 retail and club stores throughout the country. Yet because the company operates on a smaller scale than many food-industry giants, it must be nimbler and more efficient than its competitors to stay profitable. One of the ways it has achieved this goal is by using a Tier-Two enterprise resource planning (ERP) system from Expandable Software that has provided the capabilities the company has needed to manage its rapid growth while offering a substantially lower total cost of ownership than Tier-One systems.

The Expandable ERP system enables MGF to track lots as required by government regulations, and its backflushing capabilities save time by eliminating the need to create work orders for the many batches produced by the company. Simplicity and minimal administrative overhead means that the company’s single information technology person only spends half of his time administering the ERP system.

MGF’s fresh refrigerated gourmet food products are produced at facilities in Salinas (Monterey County), California; Eugene, Oregon; and Seattle, Washington. The company produces food products under a variety of brand names: the company’s Monterey Pasta brand includes the company's traditional pasta and sauces and new refrigerated entrees, along with the CarbSmart line of low-carbohydrate pastas and sauces. The Casual Gourmet Foods brand provides heat-and-serve gourmet soups and low-fat poultry-based sausages. CIBO Naturals creates various types of pestos, soft-flavored cheese spreads, dips, toppings and refrigerated pastas. Emerald Valley Kitchen produces organic salsa, dips and hummus, while Sonoma Foods provides traditional and flavored jack and cheddar cheeses. MGF’s sales last year were over $94 million.

Growing without having to switch to Tier-One solution

MGF implemented its first ERP system over a decade ago. Since the company was much smaller at that time, managers considered all of the leading Tier-Two ERP systems. They selected Expandable ERP because it offers substantial room for growth yet is available at a relatively low cost. Over the past decade, many manufacturers who started out with a Tier-Two system have switched to Tier-One systems as they have outgrown their earlier system’s capabilities. In addition, many ERP vendors have gone out of business or merged with other suppliers. The Expandable ERP system, however, has continued to meet the needs of MGF as it has grown through both acquisition and expansion to many times its original size.

Production is initiated by a custom planning and scheduling application developed by MGF. This application draws sales history information from Expandable as well as information from other sources. It then generates sales forecasts and a production plan. The application then generates what is the equivalent of work orders on a daily basis. These production orders typically consist of ten batches per day with perhaps 1000 cases per batch. These orders are then delivered to the production team who begins making the product.

Backflushing reduces number of transactions

MGF takes advantage of the flexibility of Expandable ERP which saves time by not mandating that work orders be entered directly into the ERP software. Instead, the products are entered as finished goods as they are completed; the Expandable system then backflushes the materials used to produce the products from inventory. The backflushing operation is based on the bill of materials for each product and includes a waste factor. This method is ideal for MGF because, while the company’s production schedule changes constantly, its recipes change infrequently. Expandable can also support many other types of manufacturing such as building to work orders which might be appropriate for a company that produces a smaller number of batches. “Backflushing saves time by reducing the number of transactions that we need to enter while keeping our inventory accurate,” said Kevin Bobst, Manager of Information Systems for MGF.

Expandable’s backflushing capability allows MGF to maintain accurate inventory records and helps the purchasing staff save time and avoid materials shortages. The purchasing team can easily call up a report of those items that are close to, or at, their predefined minimum levels. Then, with a single click, they can generate purchase orders for pre-defined quantities of these items. The purchasing staff can then review these purchase orders, make changes to them if necessary, and generate and e-mail PDF documents to their suppliers.

In the meantime, the sales representatives enter customer orders into the ERP system. As with most food manufacturers, MGF offers a broad range of pricing options depending on the customer’s purchasing volume and other factors. Expandable supports some very complicated pricing arrangements, including providing a different price for each customer. Revenue recognition is further complicated by the many different terms required by MGF’s customers. For example, one large club considers that the goods remain MGF’s property until they are received. Tracking is accomplished with custom reports that help the accounting staff determine at which point to recognize revenue. The goods are then shipped to the customer with Expandable generating the shipping documentation.

Handling food industry’s lot tracking requirements

While lot tracking is required of all food manufacturers, MGF’s lot tracking requirements have become far more complicated over the past decade. This is because the company has seen rapid expansion of its product line, and has seen an increased need to quickly adjust its production schedule to meet shifts in consumer demand. When raw materials are received from suppliers they are immediately entered into the Expandable ERP system and a lot number is assigned. As batches are completed, the software not only tracks the lots of raw materials that are used but also assigns a separate lot number to each batch of finished goods.

While Expandable is capable of assigning sequential or random lot numbers, MGF manually assigns a special code that makes it easy to determine the date the batch was produced. The software then tracks to whom this batch was shipped. If a recall should ever occur, it would be easy to track down the products shipped to each customer. The lot number also helps MGF track expiration dates.

The tight integration between the different ERP modules means that manufacturing information is available for financial reporting as soon as it is entered. This integration eliminates the need to transfer information from one system to another, and removes the risk that multiple databases may conflict with each other. “The financial modules are very robust and make it easy to get details on the underlying transactions for any entry,” Bobst said.

Over the time that MGF has used Expandable, the company has grown substantially and has acquired several different companies. MGF easily integrated these companies into their ERP system by adding the acquired company’s products and customers, and then providing the acquired companies with the ability to log into the single ERP database maintained at the headquarters. All the MGF companies can enter transactions on a real-time basis. The acquired companies all use the same style of manufacturing, so they all follow the same workflow, including the use of MGF’s custom scheduling and planning tool.

Saving money on administration

MGF has an Expandable license for a maximum of 40 concurrent users, which allows them to meet the needs of a total of 110 network users. The simplicity and robustness of Expandable ERP means that Bobst can easily administer and maintain the system in about 20 hours per week. This makes it possible for him to spend the rest of his time maintaining the company’s servers, networks and phone systems. The hours thus freed up allows him to be the sole information technology staff member at MGF.

“Expandable is easy to manage because it is stable,” Bobst said. “The universality of Expandable also minimizes the need for user support. The interface is consistent throughout the entire system so that once I show a user how to use one module they can usually pick up the others on their own.”

Bobst spends the majority of his time producing custom Expandable reports to meet user requests. The power of these reports is increased by MGF’s utilization of user-defined fields in MGF’s foundation records, such as customers and products. For example, MGF has segmented customers by type such as brokers, clubs and grocery stores, which allows him to easily produce reports that enable managers to spot trends in the different segments of their business. Other reports break out sales by different region and sales representative.

Expandable ERP software has helped MGF managers keep their finger on the pulse of this growing business by providing real-time information on every aspect of the company’s sales, costs, inventories and production. “Expandable has played a significant role in Monterey Gourmet Foods’ success over the past decade.” Bobst concluded. “It has helped us avoid the high initial and on-going costs of a Tier-One ERP solution while accommodating our growth to a size at which most other companies have needed to switch to Tier-One products. Expandable’s developers have introduced many new capabilities since we licensed the software, so we have never felt that we lacked any major capabilities. Our expectation is that they will continue to improve the product and we will be able to use it for many more years of growth, while keeping our information technology costs well below those of most of our competitors.”