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Formulation management is a major focus for chemical manufacturers, as formulation variability is the primary difficulty of maintaining consistent product quality and controlling costs.

To meet the strict product quality guidelines demanded by both customers and regulators, it’s essential that chemical manufacturers can adjust their formulas based on the variability of the raw material characteristics – pH, moisture content, color intensity, etc. Unlike in discrete manufacturing, where manufacturers enjoy high degrees of raw material uniformity, chemical product companies must constantly deal with inputs (especially natural ingredients) that constantly vary in their characteristics.

To control costs, chemical companies need to excel at formulation management. This means you need to do two things well:

  1. Adjust formulas rapidly to account for input variability while adhering to finished product specifications
  2. Track finished goods down to the lot level so you sell the right products to the right buyers at the right price

Doing these things well requires a modern ERP system designed specifically with chemical industry functionality in mind, such as we find in SAP Business One for Chemicals. To understand why, let’s review the challenges to formula adjustment and finished-goods tracking.

 

Challenges to Formula Adjustment

There are five major challenges to formula adjustment – three technical and two economic. First, raw materials are available in a variety of quantities, potencies, and qualities. You need to track those characteristics in your raw materials to keep your formulas within product specifications. Next, you need to maintain a rollback capability for each formula so you can return them to their original base formula when the time is right. Finally, you need to maintain and present formula change history to regulators in the event of product quality issues or government audits.

Since your business exists to make a profit, formula adjustments must also account for profitability. As such, you need to understand which discounts are available, seasonality of prices, market conditions, etc. for the raw materials you need; taking advantage of market dynamics allows you to reduce costs. Similarly, by keeping an eye on customer demand trends, you ensure that you buy the right amount of new raw materials as you adjust a formula, avoiding the cost of excess inventory.

 

Challenges to Tracking Finished Goods

Variability often occurs between, and even within, batches of finished goods. Your business must maintain detailed knowledge regarding the granular formula differences inherent within each production lot. This is the only way to provide specific customers with products that fit within their unique order specs.

You must be able to answer the following questions in a matter of minutes:

  • What do we have on hand in inventory?
  • Where is each individual lot?
  • What should we charge for products from each lot?

To answer these questions, you must be able to perform lot traceability, cost-per-lot calculations, and lot-level inventory analyses.

 

SAP Business One for Chemical Companies

Capturing and managing so much lot-specific data about formulas isn’t easy; at the absolute least, you need a modern ERP system designed with specific formula management functionality. SAP Business One was designed with chemical industry-specific functionality to make it easy to access and utilize the data necessary to adjust formulas and maintain lot-level knowledge of your various finished goods inventory.

SAP Business One tracks and reports data throughout the formula adjustment process, from raw material input knowledge to pricing and out to different customer types.

Formula Adjustment & Creation:

  • Create formulas that define the manufacturing, yield, quality, routing, and costing processes
  • Identify fluctuating material costs
  • Manage variability during production, allowing adjustments to the base formula specifications (e.g., ingredient proportions, equipment settings, etc.) without affecting the definition of the base specifications
  • Capture, assign and compare actual and standard costs for raw materials and finished products

Alignment with Manufacturing:

  • Align manufacturing planning criteria with volume production when raw materials are cheapest
  • Calculate aggregate order volume for specific products and yield insights to determine if they can be aligned to manufacturing runs
  • Predict yields based on the raw materials used and historical data

Profit Maximization:

  • Determine which customers can be enticed by quantity discounts
  • Link finished products to customer volume discounts, promotional rebates, and incentives (as well as raw material costs) to determine profitability

Tracking & Reporting Formula Change History:

  • Track and trace the lineage of raw materials and finished products, both by formula characteristics and lot number
  • Trace specific ingredients within a formula (sometimes necessary for volatile organic compounds, even in trace amounts)
  • Maintain full lot traceability that starts with the purchase of the raw materials, goes through production to finished goods, and includes both supplier invoices and customer invoices
  • Associate quality management and lot maintenance records with finished product lots and tracing to develop reports for quality and cost audits.

 

Conclusion

There’s a lot to love about SAP Business One if you’re a small to midsized chemical producer. What used to be left up to chance regarding formula management can now be tracked, traced, and optimized for profitability using SAP Business One. Contact Sapphire Systems for more information.





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