Leveraging Compliance as a Business Asset and a Way to Drive Profitability

Aug. 25, 2008
While conforming to government regulations is essential, manufacturers are equally focused on demonstrating they can ensure the overall safety and security of the brand.

It seems today that everything from spinach to children's toys are recalled as often as new items hit the shelves. And with criticism surrounding many regulation agencies, its important that manufacturers know how to leverage compliance properly, not only to positively impact its image, but to drive profitability. Compliance management is a key component of doing this, however, many companies face challenges they aren't sure how to overcome. With the right attitude, business approach and technology, any company can handle this successfully.

Managing Compliance Management

Today's manufacturers must be proactive about providing proof and assurance of quality for the products they deliver to market. This includes demonstrating the capability to rapidly limit both the likelihood and scope of potential recalls, from suppliers, within their own facilities and all the way out to customers -- based on quality and quantity information managed in an operational system of record.

Unfortunately, many companies still view compliance management much as they do their insurance policies -- as a base-line requirement and necessary overhead cost as part of doing business that adds no real intrinsic value for the company. But there are companies who are using quality compliance as a business asset and a way to drive profitability through the use of enterprise resource planning (ERP) solutions. Next to protecting market share and containing the rising cost to serve, reducing risk and compliance management have emerged as key business drivers for today's manufacturers. While conforming to government regulations is essential, manufacturers are equally focused on demonstrating they can ensure the overall safety and security of the brand.

Certainly it's critical to convey an "in control" status within both plant and warehouse operations, as part of managing compliance with customers, suppliers and governing regulatory agencies around the world. But it's also vital to realize the very tangible benefits and ROI as part of automating quality-based mandates and internal best practices, for growth and continued business success.

One challenge in assuring manufacturer's compliance is adherence to regulatory and non-regulatory ordinances across every aspect of the business -- R&D, sales, procurement, warehousing, production, quality assurance, etc. This includes applying and maintaining standards for product and ingredient definitions and quality specifications. It also includes management of date-sensitive production recipes and formulas, which can be unique by customer, supplier, production plant and even by production line.

Compliance addresses the capture of information about the supplier sourcing, transport and value-add processing of all material that goes into each product, every time it's purchased, manufactured, moved and sold. This information, combined with quality test results for raw material, intermediate and finished product lots, illustrates that providing ongoing compliance requires cross-functional discipline and an automated enterprise business application to manage all the financial, physical and quality-related aspects in an integrated manner.

Putting the "Tech" in Protection

With the power of today's consumer spotlight highlighting the importance of raising consumer confidence about the safety and quality of food products we eat every day, brand protection is more important than ever. Let's look at several enterprises that leverage their ERP business system as a way to improve bottom line profitability and to meet the needs of an increasingly demanding market that competes not just price, product consistency and customer service results as proof of perfect order performance, but now also on the manufacturer's ability to help deliver brand protection.

Through the use of an ERP system, Fiorruci's Fine Foods, a manufacturer of high-quality authentic Italian meat products, was able gain immediate benefits in business processes. For example, while bar code scanning salami for a fast food sales order, the system rejected a user-selected inventory lot. The operator quickly discovered the quality of salami required for this customer was a lesser-grade product and prevented this order from being filled with a premium grade of salami saving the company a $50,000 "give-away." Furthermore, the ERP system prevented a rejected lot due to its incomplete curing time and prevented the lot from moving through production too soon, which averted a HACCP violation and alleviated potential risk to both customers and the company.

Through the use of an ERP system, Premium Brands, a producer of branded deli meats, standardized operations by having a benchmark control audit with its insurance provider to demonstrate lot traceability to store shelves in 20 minutes. This helped the company gain lower premiums by proving reduced risk to their business. Also, under VMI (vendor managed inventory), products on retailer's store shelves belong to Premium Brands. Therefore, product returns due to expired shelf life, add costs directly against the business. Through ERP systems, it is better able to manage store inventories and since implementing an ERP system has reported reduced lost revenues from expired products by 50%, improving bottom line profits 2-3%.

As a leading private label dairy product manufacturer, Berner Foods requires high-quality products, and its facilities are USDA- and AIB-approved and ISO 9001 certified, for the guaranteed safety of customers. Trust comes from high compliance management scores on customer, USDA, FDA, FPA and ISO audits. Mock recalls are a part of regular customer and plant processes, and Berner has reduced its elapsed mock recall time of nearly a day, to just over thirty minutes, with enterprise lot tracking and bar coding. In this case especially, efficient, system-driven accuracy not only delivers customer assurance but also drives company growth.

An ERP system allowed them to eliminate inventory reporting lag time, which resulted in a 5% production improvement. Furthermore, shelf life management reduced expired inventory -- a savings which alone paid for the system in the first year. It also improved customer satisfaction by eliminating stock-outs, which has resulted in 100% customer retention for 2 years straight.

Finally, Berner complies with recipe, quality record keeping and lot traceability requirements, per the 2002 Bioterrorism Act, and tackled Food Allergen mandates, using the system's strict recipe control, to prevent accidental introduction of ingredients containing allergens.

One final example, Litehouse Foods, supplies branded "top shelf" quality fresh dressings, sauces and dips, and needed to protect product quality and differentiate through high customer service levels. With national sales growth to large retail chains, lot traceability is vital, and with its ERP system Litehouse has lowered its lot trace elapsed time from 3 days to 15 minutes. They also improved product fill rates by 10% and reduced product inventories and related carrying costs by 6%.

Each of these companies illustrates how improved granularity and timely access to information about quality is critical to managing compliance, while also contributing to profitability and growth of the company. By leveraging automation to ensure brand protection, demonstrating "in control" status, supporting audit-ability and consistent best practices, today's manufacturers can bring competitive levels of service and differentiate themselves in the market place.

Beth Berndt is the director of industry solutions, consumer products for CDC Software, an enterprise software company. http://www.cdcsoftware.com/

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