A guide to solving compliance problems for discrete manufacturers

Non-compliance has the ability to destroy the reputation of any company, and its balance sheet, overnight.

Manufacturers are trying their best to combat challenges from low cost overseas competitors, by rising up the value chain and embracing the demand for higher quality standards.

Manufacturers are under greater pressure than at any time in history; trying to meet the ever-higher quality standards of their blue-chip customers, while fighting off competitors from low-wage offshore locations – and staying afloat in a stagnant economy.

Unsurprisingly some companies are buckling under the strain, especially as their compliance burden grows. After all, “every company is just one bad decision or just one ‘bad employee’, away from scandal”.

Let’s take a look into how discrete manufacturers can effectively manage the problem of compliance:

Business Process Modeling

Innovations in supply chain management and reporting software have enabled manufacturing companies to achieve better compliance performance through enhanced certification and specification tracking procedures. Working with your suppliers, the crucial information can be transmitted electronically, and then sorted, organized, and filed according to shipment dates and parts numbers.

Documenting these business processes should be done with a tight reference to IT systems, and needs to not only include the processes themselves, but also how system security and data audit is management, software such as Columbus Rapid Value, and Dynamic Security Management can help you to check those boxes.

Version control is also critical for ensuring that changes are managed and published correctly.

Quality management

A major concern of discrete manufacturers is that defects can take years to surface. With the need to continually release new models to stay competitive and satisfy customer demands, managing defects plays a significant role in the ability to stay competitive and profitable.

Quality management is key to a manufacturers’ ability to respond more effectively in product recall situations, ensuring consumer safety and mitigating risk and litigation exposure.

Processes must also include the appropriate control points to ensure that quality of materials, conversion processes and finished goods are as expected. Where a non-conformance is identified, root cause analysis needs to take place and corrective actions initiated and managed through to conclusion. This process can be supported by having full supply chain visibility and therefore being able to trace back to the start of the operation.

Traceability

The key purpose of traceable manufacturing is its ability to help manufacturers easily determine when a problem occurred and its associated details. It takes two forms. The first is known as product tracking, which is the capability to follow the path of a specified unit of a product through the supply chain as it moves between organizations. Products are routinely tracked for obsolescence, inventory management, and logistical purposes.

The second form, product tracing, is the capability to identify the origin of a particular unit and/or batch of product located within the supply chain by reference to records held upstream in the supply chain. Batch segregation helps in sorting out problems because when you determine which batch is bad, you only have to get rid of that single batch rather than destroying all of the products. This helps companies save on resources.

Traceability is another key component to maintaining compliance with manufacturing regulations.

How ERP can help

Admittedly such a project will take time, effort, finance and a genuine partnership with the correct software developer – as different manufacturers will require different solutions, and each niche industrial sector will have different regulatory and compliance challenges.

However, “an integrated ERP system … will give you the necessary support in adhering to the regulations, will not slow you down, but will free you to concentrate on manufacturing” says David J Caruso, a long-time specialist in manufacturing, supply chain and technology transformation strategies. Caruso has worked on ERP implementations for global brands such as Johnson & Johnson, Sun Microsystems, Rolls-Royce Motors and American Standard.

Learn more about how ERP can help to solve common discrete manufacturing problems, such as managing compliance by taking a look at our discrete manufacturing series below.

The discrete manufacturing series

Our series focuses on five common problems discrete manufacturers are currently facing, and how to solve them, including case study examples of where discrete manufacturers have implemented our solutions and seen success. The full series includes tip sheets – available for download – on:

How manufacturers can build additional revenue streams

How manufacturers can improve time-to-market

How to successfully manage mixed-mode manufacturing

How manufacturers can maximize the use of assets

How manufacturers can manage compliance effectively

Specialty Pharma: Integrating ERP with Contract Manufacturers and Third-Party Logistics Companies

It is very common for specialty pharmaceutical (pharma) companies to work with Contract Manufacturing Organizations (CMOs) and Third Party Logistics companies (3PLs). A typical scenario is for the pharmaceutical company to procure the active pharmaceutical ingredient (API) from a vendor and have it drop-shipped to the CMO, who will add other ingredients as well as perform the manufacturing service. Often, the product is then shipped to another CMO that will perform the final packaging of the product and ultimately send it along to a 3PL that performs warehousing and sales order processing services. Dynamics AX has excellent functionality for properly tracking and accounting for all of these steps, as well as a robust toolset for importing the data to process each step in the supply chain without the need for manual intervention. It is important, however, to work with the CMOs to determine their capacity for providing data for integration into the ERP system prior to beginning the ERP implementation process, as this can occasionally be a significant limiting factor in the system design.

Many pharma companies desire to trace lot numbers from raw materials through finished products in their own ERP system, as opposed to relying on the CMO for this documentation. This means that the CMO must transmit lot number data for integration into ERP as part of the transaction records. Unfortunately, providing detailed inventory transactions with lot numbers in a timely manner is not something that all CMOs can offer. For example, if the CMO offers to send over the quantities and lot numbers of API received from vendors and the quantities and lot numbers of finished goods that they have produced, but cannot send over “real time” the quantities and lot numbers of the API used in the production of each individual batch of finished product, the pharma company must resign itself to simply “back-flushing” a standard quantity of the ingredients used in production (per the Bill of Materials). This, of course, means that the ability to do in-house lot tracking is lost. However, there is still significant value to even this limited type of integration. As long as periodic stock count “true-ups” can be sent by the CMO to ensure that the back-flushed quantities are accurate and leaving correct inventory balances, the pharma company has gained the ability to maintain a perpetual inventory for both the finished goods and the API at the CMO locations. This, in turn, allows for inventory planning and control functions such as MRP to be managed using the ERP system.

While it is common for 3PLs to handle the entire sales management process (sales order processing, shipping, invoicing, accounts receivable, cash application), they sometimes simply perform warehousing duties, leaving the pharma company to advise them of orders to be shipped and to perform all billing and accounts receivables processes in-house. This latter scenario generally lends itself to a simple communication flow, whereby the ERP system transmits the sales order information (customer, ship-to address, items, quantities, etc.) to the 3PL, and the 3PL sends back confirmation of the quantities and lot numbers shipped. It is the when the 3PL handles the entire sales process that more decisions need to be made regarding integration points. To keep inventory quantities and accounting up to date in the ERP system, it is necessary to at least receive summarized updates of quantities sold and revenue, as well as summarized cash and AR updates.  Often this is deemed sufficient, as any attempts to track detailed sales and accounts receivable data is redundant with the services being provided by the 3PL. Presumably, such data is easily obtained by reports from the 3PL. However, should the pharma company desire to bring this data into ERP, most 3PLs can provide detailed sales data as well as details of cash receipts and credit memos. The one area that sometimes proves challenging is the application of credits and payments to invoices (the “marrying up” of the documents). For example, after transmitting that a particular credit was applied to a given invoice, if a change is made and the credit is re-applied elsewhere, that change would need to be transmitted as well. The challenges of having to handle these types of updates in order to “mirror” the 3PL often lead pharma companies to choose to simply rely on the 3PL for managing and reporting on all Accounts Receivable details, and to not bring that data into the ERP system. It is important to discuss with the 3PL the desired level of integration and, based on their business processes, determine what type of integration is manageable.

This article was written by Matthew Boese, Partner at Tridea Partners, a Gold Certified Microsoft Dynamics Partner.