09: Simple Changes to Improve By-Product Management

A North American beverage organization generated a considerable amount of plant-based waste. However, with some additional processing, this material was sold as a by-product (typically in full truck or rail car loads). The organization had an ERP system, but it didn’t cover every function. The control of core products (and supporting activities) and those with high transaction volumes were managed in the system, while those that were low impact or of secondary importance, were not. By-product sales fell into the latter category despite producing several million dollars worth of revenue each year. Also, the organization did not have a dedicated sales group for by-products. Instead, orders could be created by several other teams, but none had complete product responsibility.

More importantly, while sales orders could be processed in the ERP, by-product inventories had to be manually adjusted (again, they were not primary products nor did they drive numerous transactions). The teams preparing loads at the shipping platforms were expected to manually record each load quantity in a log book. Later (some times days later, and sometimes not at all) the log book records were to be entered into the ERP system (by an assistant) to link with sales orders and reconcile inventory totals (generated by ERP data). Periodic inventory adjustments were done the same way because the ERP calculations were only estimates.

As with countless manual activities, process failures were common. Unfortunately, issues with by-products usually were discovered at period close as reporting discrepancies surfaced. Other issues resulted from inaccurate inventories. Actual inventory amounts frequently differed from the available amounts listed in the ERP system. This resulted in discrepancies between bills of lading (BOLs) and their corresponding sales order because the product amounts simply weren’t available. Partial orders (e.g., a less than full rail car) and customer credits reduced margins and drove significant rework, including frequent physical counts of on-hand inventory.

The solution to these problems was relatively straight forward. First, a dedicated by-products unit was created to process all by-product sales orders and manage inventories. Second, a process was implemented to require daily entry of log records into the ERP. Obviously, it was critically important to complete the data or transaction cycle in the ERP (i.e., production quantities, inventory totals, and sales order totals). Finally, the ERP system was changed to link sales amounts with inventory (though periodic adjustments remained necessary) and to extend system functionality to the loading facility, eliminating the need for manual logs.

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