Reprinted courtesy of Beverage Master. Read the full issue.
The cost of producing beer is always greater than the total price of the ingredients used to make it, and those breweries with the best understanding of the indirect costs associated with their offerings are well positioned for sustained organizational success.
No brewery can truly make informed business decisions without a clear understanding of its business processes, flows and costs. Such visibility is gained by efficiently and effectively gathering operational data, processing it, managing it and leveraging it to positively impact the not only the business’s bottom line, but integral business decisions. Through an investment in the right enterprise software and resource planning (ERP system), a brewery can obtain the capability to use its operational data to gain a better understanding of its business, how to run it, and what it will take to foster continued growth and development in an ever-evolving craft brewing industry.
The ultimate goal of investing in an ERP system is to make managing a business easier. By gathering a wealth of relevant data related to production, finances and operations, a brewery will be able to analyze the information in order to make better overall short-term and long-term business decisions. And while there is a cost to investing in and implementing an ERP system -- as well as paying for ongoing support -- it is almost impossible to apply a dollar value to having company-wide data visibility.
Many breweries lack a fundamental knowledge of ERP systems and the effects they can have on their operations. Until they develop a stronger understanding of the transformative benefits a system can have on their businesses, they will cede a competitive advantage to competitors of theirs who possess that knowledge. Most brewers are avid, passionate scientists who lack experience spearheading projects related to information technology (IT). As a result, investing in and implementing the right ERP system can often be a challenging and daunting task for them.
An ERP system paints a picture and forecasts the future with the data a company has already collected. Many brewers, however, find themselves more comfortable employing other means to track sales and production, as well as to manage their financial and cost elements - most often with manual documents, spreadsheets and whiteboards. By doing so, though, they are unable to access all of the data necessary to determine just how their business’s decisions will affect their operations over time.
The vast majority of breweries are adept at managing the costs of the ingredients in their beers. Where they often struggle, though, is with managing the magnitude of indirect or overhead costs. In many cases, they have limited access to operational information because the means with which they track it does not allow for them to achieve company-wide data visibility. While they do have ready access to some amount of financial and production information, they lack a clear picture of their business. As a result, these breweries are unable to make fully informed operational decisions, therefore preventing them from achieving increased efficiency and profitability.
To achieve company-wide data visibility, a brewery cannot have limitations on what information it is capable of tracking and managing. Ensuring all relevant business data can be captured requires purchasing and utilizing an automated system to ensure the information is current, accurate, timely, available and able to be tracked to its source. Without an automated system, a brewery lacks the capability to effectively manage its inventory and business processes. A brewery has raw materials, and it has finished goods. Without an ERP system, though, it cannot take its raw material inventory and convert it into finished goods. Instead, it must employ some other -- often less effective -- means to track its inventory, production costs, variances and forecasts. Furthermore, for financial purposes, a brewer cannot attach a cost to items in certain manual systems, even if those items are contained in the system. The items simply serve as placeholders to be put on invoices, and the brewery cannot link its financial department with those of its production and inventory.
In addition, when a brewery implements a system, it is often unaware of the fact that it needs to monitor its gross profits or cost trends. This would allow a brewery to benchmark not only themselves but against the industry as well. For example, if the industry average gross cost per barrel for an amber ale is known, you can compare to yours (fully loaded – overhead/avg labor etc.) and begin to determine your effectiveness of profitability. Therefore, if a brewery is monitoring this data, it should be looking for a number of key pieces of information. The brewery often does not take the data out to look at it and figure out what it means.
An ERP system can help a brewery accurately determine the cost of making each individual beer. As a result, when in the process of setting its prices for wholesalers, a brewery has a sound understanding of its profit margins, because it considers not only the costs of the ingredients for the beer, but also the company’s overhead costs. Knowledge of the true cost of producing beer is one of the most significant competitive advantages a brewery can gain from employing an ERP system, because it allows for the adjustment of business processes based on information gained from true visibility of profit margins. Not all volume increases may be profitable increases.
The ability to accurately track production losses is another significant benefit a brewery can gain from employing an ERP system. Since the process by which a brewery makes a beer consists of several stages, there is a tremendous amount of value to be had by tracking the production process from one stage to the next. This tracking allows a brewery to determine where operational inefficiencies are and how they can best be addressed. By doing so, a brewery can make an informed decision about how to change one or more processes to improve the production yield.
One of the largest yet most costly areas within brewery operations centers around the term “utilization”. It is related both to workforce/labor as well as asset. Since additional tanks, and even brewhouse expansion, are very capital intensive, knowing utilization will assist in determining and forecasting need. If the data suggests that your utilization of tank volume is very low, and your cost of labor is above average, an ERP system would likely tell you the styles and volumes being brewed need to be adjusted. That forecasting and scheduling is time consuming and hard to do manually.
Simply stated, employing certain systems other than ERP can lead to a significant lack of operational visibility. For example, if a brewery’s production manager is the lone person within the organization tasked with inputting data, managing it and understanding it, he or she is then the only one within the business capable of leveraging it to meet both long-term and short-term company goals.
If and when a brewery deems itself in need and ready for an ERP system, it needs to have an informed understanding of just how an IT project of this sort of scope will affect the business’s production, financial departments and change management.
Often, though, a brewery fails to adequately prepare itself for the implementation process, both in time and resource allocation, and does not ensure the system is customized to the business’s activities and fully integrates into all of its processes. While the system functions appropriately, it is not optimized to best meet the brewery’s operational needs until it is customized for those processes. Since no two businesses are exactly alike, a brewery must define its processes to ensure it knows what it needs when the time comes for the system to be customized.
By properly outlining their existing business processes, a brewery can effectively customize an ERP system to support its operational needs once implemented. In many cases, a system is set up to support generic processes. However, if a disconnect exists between a brewery’s processes and its newly acquired ERP system, it is a significant problem, because it means no one is inputting the right data at the proper time. Furthermore, it suggests the data coming out of the system to be analyzed is flawed.
There are a number of steps a brewery can take to prepare itself for the implementation of an ERP system. First and foremost, it can hire a project manager to oversee the project and research what the brewery needs before undertaking the investment. Second, it can take the necessary time and effort to properly train the brewery’s employees to use the system. Third, it can go about the investment and implementation process slowly. While it can be easy to succumb to the pressure of wanting to get a system up and running as soon as possible, it is critically important to ensure it will be set up properly and customized to fit the brewery’s individual needs. Fourth, the brewery can and should involve its certified public accountant to deal with financial-related questions and issues. Last, a brewery can take two or three months, have all the key department heads get together, make sure all of their processes are aligned, and then undertake the implementation process -- knowing everyone within the business will get what they need from the ERP system.
A company is only as good as the business decisions it makes, and no informed determinations can be made unless the company possesses clear operational visibility. This is gained by efficiently and effectively gathering operational data, processing it, managing it and leveraging it. By capturing a wealth of relevant data related to its production, finances and operations, a brewery can analyze it to make better decisions in both the near and far term to positively impact its bottom line. In order to do so, however, it needs to define what it wants out of the system and ensure it takes the necessary steps to ensure the system is optimized for and aligned with its operational goals. Make the system work for you, not you working for the system! To informed fearless profitable growth! Cheers.
For more information on this topic, or to learn how Baker Tilly craft brewery specialists can help, contact our team.