8 Operational and accounting challenges for the chemical industry

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Categories: Chemicals, ERP
April 18, 2018
ERP solution

The chemical industry faces unique operational complexities, including the use of products in multiple processes and the need to convert batches.

When choosing an enterprise resource planning (ERP) solution, chemical industry companies face some particular challenges related to the way work is done and tracked financially. Yet with the right partner, chemical companies can leverage the extraordinary strengths of an ERP software platform to drive efficiency and profitability.

A decade ago, ERP solutions were not as nimble and did not provide the industrial specificity needed to be fully effective. Today’s solutions, however, have the broad functionality and specifics that chemical companies need to be successful. ERP solutions are platforms that integrate the varied components of manufacturing, including operations, finance, human resources, supply chain, sales, and marketing.

With data stored and shared in a singular system, chemical company employees can better understand customer relationships, make more informed decisions in real time, and develop new collaborative opportunities internally and with suppliers.

Here is a closer look at eight operational and accounting challenges for the chemical industry, as well as information about how the right ERP solution can address those challenges effectively.

1. Compliance

Chemical companies are subjected to an alphabet soup of regulatory hurdles and compliance mandates. Depending on the materials produced within the enterprise, companies may be subject to oversight from the Environmental Protection Agency, Occupational Safety and Health Administration, Department of Transportation, and the Food and Drug Administration.

Companies that sell their products overseas are subject to other regulations from the purchasing company, the European Union, or other ruling bodies.

New domestic regulations require companies to be more specific about preparing for potential risks by identifying threats and recommending remediation. Materials may need to be logged, monitored, and tracked at each stage of interaction with the company itself.

2. Hazard Analysis

An ERP needs to be able to account for the many data points generated during the manufacturing process. Information needs to be captured from suppliers, from intermediate products, and finished goods. Characteristics including boiling point, shelf life, toxicity, flammability or corrodibility, production batch, customer, and QA/QC attributes need to be recorded and reported on, accessible on demand.

Hazard analysis means not only compliance with EPA and other regulatory standards, but also managing the company’s carbon footprint. Managing the limits on waste sent to landfills or water treatment plants along with emissions is complex. With an ERP system, manufacturers can establish formulas to calculate these processes that produce byproducts, waste, and scrap.

Once a planning run is determined, the ERP system can calculate the byproducts, scrap, and waste generated. If hard constraints are imposed, the ERP can help senior decision-makers determine whether to limit production.

An ERP system can also help the company optimize available resources by changing scheduling, for example, to leverage non-peak hours for energy consumption for resource-intensive jobs.

In doing so, the ERP solution helps chemical companies with carbon footprint issues and with remaining green in the eye of the public, shareholders, and key stakeholders or observers.

3. Capacity Optimization

One of the significant advantages of moving to an ERP solution is to leverage the ability to maximize operational usage. ERPs today are able to coordinate scheduling with available job volume, orders, inventory, expected delivery time, and configuration requirements.

Bottlenecks can all too quickly create inefficiencies within a chemical company, as can materials gaps. An ERP can monitor and analyze both, developing schedules that factor in the myriad variables at play.

Capacity can be defined by traditional run rates or volume-based constraints such as vat or tank capacity.

Your ERP should also be able to minimize one of the biggest complexities to maximum capacity, changeover costs. By reducing the number of necessary changeovers, your ERP can drive efficiency and output.

The ERP should also be able to help alert the plant’s planners when outsourcing, scheduled overtime, or shifting of work needs to occur.

Furthermore, ERPs should help chemical companies that run parallel operations to create intermediate products, ensuring that timing, sequencing, and scheduling are such that companies can get all the necessary components to the blend stage at the right time.

ERP solution

Chemical companies need to harness enterprise resource planning tools to maximize operational efficiency and remain competitive.

4. Multi-Dimensional Inventory Visibility

At any given time, it is critical that employees can see where inventory is and where it is being used across multiple locations. The company needs a system that can monitor and track multi-dimensional inventory across multiple factors, including:

  • Lot number, including specific attributes, shelf life, and quality
  • Serial number, a subset of lot that allows for individual containers (drums, cases, or totes) to be identified individually
  • Grade, a user-defined measure that allows for variable cost or sales prices based on quality
  • Container, which tracks the bulk product in its final receptacle (drum, railcar, pallet, drum, bag)
  • Disposition, another user-defined measure that allows companies to determine whether products are usable for sale or production or are not usable
  • Batch attributes, the quality identifiers of a lot
  • Shelf life

Having an ERP that can store, search for, and define these critical elements of each inventoried product, whether a component or completed item, becomes critical in a chemical company. In addition, the system must be able to store, convert, and use multiple measures, both those that are user-defined.

5. Formula or Recipe Management

Chemical industry companies rely heavily on formulas or recipes to track usage and maintain accurate and consistent final products. Tracking multiple measurements, integrating formulas with available inventory, ordering new supplies, and scaling for the production floor are all key complexities.

Your ERP should be able to assist with formula management, cross-referencing those recipes with production schedules, inventory, and supply chain logistics. Among the features a robust ERP can provide are:

  • Multi-recipe options to account for quality variances or capacity differences among work sites or configurations
  • Cost distribution to ensure the right cost models are used
  • Scale formulas that allow for variances in available materials and allow for optimized production runs
  • Substitutions allowing for different, lower-cost ingredients that achieve the same quality results
  • Cost management to provide an accurate picture of the costs of intermediates or end products that factor in scrap, byproducts, and waste
  • Unit of measure conversions

6. Quality Control

With so much variability in the quality, grading, and suppliers of raw materials, quality control is essential for chemical companies wanting to ensure the efficacy and safety of their products and to maintain brand reputation.

Your ERP can play a key role in the management of and tracking of quality control at each step in the manufacturing process.

  • Purchase order receipts. Employees should be able to monitor incoming materials and conduct and record quality tests. These records can be used to evaluate vendor performance.
  • Standing inventory. Additional quality tests can be scheduled and tracked.
  • Routing. Quality reporting needs to be linked to operations seamlessly so off-spec items, contaminated products, or other failed quality factors are not moved downstream and into production.
  • Finished products. The finished goods need to be testable and the attributes from those quality tests added to batch records. In the case of a recall or other incident, track and trace capabilities will accelerate the discovery of sources and final locations of products.
  • Returns. Return management should be factored into other workflows, generate alerts at pre-determined milestones, and determine whether returned products are designated as scrap, rework, reblend, regrade, or restock. Your ERP can also determine patterns of returns that require additional investigation.

7. Rework

One of the most frustrating components of chemical manufacturing is the need to reblend or rework. When a batch does not meet quality control standards, there are generally four options: scrap, rework, regrade, or reblend. The ERP should help with all four possibilities from an accounting and operational perspective.

  • Rework involves adjusting the materials as necessary to meet quality standards. From a financial perspective, this requires rolling together the original material, labor, and overhead costs with those for additional materials, labor, and overhead.  
  • Reblend work can be costly when a company needs to label a product as off-spec materials. The ERP can help track the percentage of finished products that use off-spec materials or intermediate products and be sure they are priced and labeled properly.
  • Regrade of a product can be done within the ERP to ensure that the rippling effects of a decision on costing, lot tracking and tracing, inventory, customer service, and manufacturing are recorded and transmitted. The changes resulting from regrading can be tracked accordingly throughout the enterprise.

8. Customer Service

One of the most advantageous features of ERPs today is their ability to provide a holistic perspective on customers. By integrating responses to marketing messages, sales pipeline data, sales history, and previous interactions, multiple employees can share, track, monitor, and provide insight on issues that arise.

For frontline customer service professionals, access to this information can help solve problems faster. For employees involved in customer relations, access to reported issues and their resolution can help with follow-up, communication, and retention when something goes wrong.

At NexTec Group, we work closely with chemical companies to help them identify the right ERP solution for their operational needs. Our consultants spend time learning about the companies they support, understanding their business and the challenges present.

With deep knowledge of the vendors, products, and features of top ERP providers, NexTec can help guide the selection and implementation of a solution that can transform an enterprise, solve problems, improve efficiency, and boost profits. Contact us to learn more about how NexTec can help your chemical company thrive!