A W H I T E P A P E R

Smooth-running Supply Chains Start with a Solid ERP System

ERP options for today’s non-durable consumer packaged goods

© 2008 Fullscope, Inc. All rights reserved.

The information in this document is subject to change without notice. No part of this document may be reproduced, stored or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Fullscope, Inc.

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Table of Contents

Introduction ...................................................................................................................................................3

Non-durable CPG Companies Defined .........................................................................................................4

Business Requirements and Issues ..............................................................................................................5

The Solution: A Closer Look .........................................................................................................................5

Order Management Module: The Key to the Kingdom .............................................................................6

Features .........................................................................................................................................................7

Template Sales Orders ...............................................................................................................................7

Fast Path Order Entry .................................................................................................................................7

Shopping List Screens ................................................................................................................................8

ATP and Finite Forward Availability ............................................................................................................8

Multiple Price Lists .....................................................................................................................................9

Price Audit Capability .................................................................................................................................10

Multiple Discount Options .........................................................................................................................10

Promotions Management ..........................................................................................................................11

Services on Sales Orders .............................................................................................................................11

Rebates and Accruals .................................................................................................................................11

Trade Spending .........................................................................................................................................12

Deductions Management ...........................................................................................................................14

Commissions .............................................................................................................................................15

InvoiceandCertificatesofAnalysesLayoutsbyCustomer ..........................................................................16

Pricing by Catch Weight ............................................................................................................................17

Management of Pallets ..............................................................................................................................18

RFID Integration .........................................................................................................................................18

Multi-site Shipping .....................................................................................................................................18

Product Substitutions on Sales Orders ........................................................................................................19

Product Exceptions on Sales Orders ............................................................................................................19

Shelf Life and Best-Before Dating ...............................................................................................................20

Customer Required Dates (CRD) ................................................................................................................21

Sales Order Picking Priority (Scarce Goods Allocation) ................................................................................21

Returns Management ................................................................................................................................22

Portal Enablement .....................................................................................................................................23

Lot/Sub Lot Visibility ...................................................................................................................................24

Multi-dimensional View of Inventory ..........................................................................................................25

SpecificationsManagement .......................................................................................................................26

Lot Track and Trace ...................................................................................................................................26

Summary ........................................................................................................................................................27

About Fullscope ............................................................................................................................................28

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Introduction

From an applications software perspective, the consumer packaged goods (CPG) industry faces a dilemma. Most of these companies continue to rely on enterprise resource planning (ERP) systems as a transactional backbone, yet require additional products for supply chain optimization and execution. Why? Many ERP systems are not designed to address the core tenets of process manufacturing, and most non-durable CPG companies have process-based manufacturinganddistributionactivitiesthathaveveryspecificrequirements.ThesecompaniesareforcedtotakeERPsystemsdesignedfordiscreteoperationsandretrofitthemwithadditionalproductstosupporttheirprocess-orientedoperations. This is not the case for all ERP systems. Microsoft Dynamics AX 2009 and Process Industries for Microsoft Dynamics AX 2009 address many of the core ERP and supply chain execution requirements required by non-durable CPG companies. This positioning paper will attempt to describe the problems faced by non-durable CPG companies and how Microsoft’s products help solve them.

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Non-durableCPGCompaniesDefined

UsingStandardIndustryClassifications(SICs),non-durableCPGcompaniesfallintothefollowingcategories:

•511x: PaperandPaperProducts

•512x: Drugs,DrugProprietaryandDruggistSupplies

•513x: Apparel,PieceGoodsandNotions

•514x: GroceriesandRelatedProducts

•515x: FarmProductRawMaterials

•516x: ChemicalsandAlliedProducts

•517x: PetroleumandPetroleumByproducts

•518x: Beer,WineandDistilledAlcoholicBeverages

•519x: Misc.Non-durables(farmsupplies,books,periodicals, flowers,tobacco,paints,varnishes,other)

If an ERP system has a process manufacturing component or base, like Process Industries for Microsoft Dynamics AX, it is highly likely that the ERP system will handle many of the non-durable CPG industry’s execution requirements. However, keep in mind that a business-to-business food supplier has a very different supply chain than afoodcompanythatservesthebusiness-to-consumermarket.Thefirstoneissupply-centric;thesecondoneisdemand-centric. Microsoft Dynamics AX can help both types of food companies, but different features will be important to each one.

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Business Requirements and Issues

First and foremost, non-durable CPG companies must address the needs and constantly changing requirements of the consumer. Because their products ultimately go into the hands of consumers, they are often governed by third-party regulations. Also, many of these products are food or pharmaceuticals, so they are subject to regulation by governmental agencies designed to protect the consumer.

Majorissuesimpactingthenon-durableCPGindustryinclude:

•RapidlyChangingConsumerMarketsandTrends

•TightRegulatoryCompliance(FDA,OSHA,GAMP,SOX)

•Razor-ThinMarginsandCostControl

•UnpredictableSupplyandQualityofRawMaterials

•ShortProductLifeCycles

•DominanceofChannelMasters(Wal-Mart,Tesco)

•ProliferationofPackagingOptionsfortheConsumer

•NutritionalAnalysisandReporting

•ManagingthePriceWaterfall(Source:HarvardBusinessReview,October1992)

TheSolution:ACloserLook

Managing the demand chain is key for non-durable CPG companies. As indicated by the aforementioned issues, many problems start with the ERP system, including managing formulations, packaging, labeling, cost control, pricing, new product introductions, perfect orders (orders delivered with the right product, right time, right mix, right packaging, right quality and right shelf life at the store level), promotions, deductions and billing. The demand chain starts at the order management module of an ERP application. Starting with this module, this section addresses features and functionality in Microsoft Dynamics AX to help non-durable CPG companies address the industry challenges identifiedearlier.

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OrderManagementModule:TheKeytotheKingdom

OrdermanagementisanimportantelementinanERPsystemforseveralreasons:

• Retailersarenowchannelmastersandexpectthenon-durableCPGmanufacturerstoassumetherole of merchandiser, a role owned by the retailer prior to the 1990s.

• Merchandisers/non-CPGcompaniesareresponsibleformeasuringthekeymetricsofastore’sperformance with regards to sales, margins, inventory turns and shelf position. In addition, they are now responsible for benchmarkingtheprofitabilityofproducts,andthisstartswiththeanalysisofthePriceWaterfall.

• Non-durableCPGcompaniesarenowresponsibleforlaunchingandmanagingtheirpromotionsand measuring effectiveness.

• Non-durableCPGcompaniesmustmanagekeyperformanceindicators(KPIs)forprofitability,grossmargins, inventory turns and shrink at the store level.

• Non-durableCPGcompaniesmustmanagereturns,creditsanddeductions(bothauthorizedand unauthorized).

• Non-durableCPGcompaniesmustmanageagainsttheperfectorder.

The following features in the Microsoft Dynamics AX order management module are designed to help non-durable CPGcompanies:

• MultiplePriceListsOptions(withdateranges)

• PriceAuditCapability

• MultipleDiscountOptions

• ManagementofPromotions(freegoods, two-for-one)

• ATPandFiniteForwardSchedules(CTP)

• ServicesonSalesOrders

• RebatesandAccruals

• DeductionsManagement

• TradeSpending

• InvoiceLayoutsbyCustomer

• PricingbyActualWeight(catchweight)

• ManagementofPallets

• RFIDIntegrationCapability

• Multi-siteShipping

• ProductSubstitutionsonSalesOrders

• ProductExceptionsonSalesOrders

• ShelfLifeandBest-BeforeDatingatthe Lot Level

• Customer-RequiredDates(CRD)

• SalesOrderPickingPriority(scarcegoods allocations)

• ReturnsManagement(offspec,expired products, durable goods)

• PortalEnablementforCustomers

• EDISupport

• VendorManagementofInventory

(future capability)

• Lot/Sub-LotLevelVisibilityfromOrder

Management

• Multi-dimensionalViewofInventory

• SpecificationsManagement

• SpecialCharges

• LotTrackandTrace

• Commissions

• FastPathSalesOrders

• ShoppingListsScreens

The order management module has additional functionality other than what is highlighted above, but this subset of features has been selected for further discussion because of its applicability to the non-durable CPG space.

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Features

Template Sales Orders

Many customers place repeat orders, so it is unproductive to force a customer service rep to rekey data. It is our experience that while template orders is a generic term used by the industry every customer uses it in a different manner. Microsoft Dynamics AX captures a historical view of individual customer orders placed. By using Microsoft Dynamics AX, many customers have made relatively minor enhancements to build template order systems that best cater to their individual requirements.

Briefly,whenthecustomerservicereptypesinacustomercodeintheorderheader,theycancallupatemplateorderthatlistspreviouslyorderedproductsandleavesthequantityfieldopenforthereptotypeintheamountfortheneworder. The service rep can override the header and line detail as needed, but at least they start with 80 percent pre-populatedfields.Theorderentrylookupandfilteringoptionsalsoallowthereptoup-sellbyaskingthecustomer,“Last week you ordered 10 cases of product A. Do you need to replenish that or are you okay today”? This feature also reduces order entry errors and expedites the order process, so reps can handle more orders per day.

Fast Path Order Entry

While template orders are designed to speed up online activity, many orders originate by fax or electronic data interchange (EDI) and must be keyed in manually. In this instance, Microsoft Dynamics AX allows the user to modify the order entry line items to facilitate a heads-down approach, using the keyboard as opposed to a mouse. As in many of the Microsoft Dynamics AX screens, a grid appears before the user, presenting multiple columns required to enter the order information. The users can then drag and drop the columns into a sequence that allows them to tab fromfieldtofieldinthemostefficientmanner.Thisapproachreducesoreliminatestheneedforamouseandallowseachusertodetermineanddesignthemostefficientworkflowbasedonthefieldsthatrequireentry.

Figure 1

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Shopping List Screens

Often customers order an item or product that is out of stock, which can lead to a back order situation. The order management module in Microsoft Dynamics AX has a series of pop-up screens than can prevent or alleviate some of these situations. In one scenario, a customer service representative can look for valid substitution. For example, if one flavorisn’tavailable,therepcansuggestanotherflavorthatisavailable.Inothersituations,acertainpackagingconfigurationmaynotbeavailable.Themulti-dimensionalinventoryfeatureinProcessIndustriesforMicrosoftDynamicsAXallowsthereptolookononescreenandseeallofpackconfigurationsthatareinstock.Ifthecustomerneedsfivegallonsofproduct,itcouldbedeliveredinfiveone-gallonpailsoronefive-gallonpail.BecauseMicrosoftDynamics AX is an online, interactive application, out-of-stock or future out-of-stock conditions are visible to the order entry team, which helps eliminate many back order situations and minimizes deductions for perfect order violations.

ATP and Finite Forward Availability

Available to promise (ATP) is a materials-only, forward-looking functionality that allows a customer service rep to see what is on hand today and what will be available in the future. Capable to promise (CTP) takes the concept a step further and adds plant capacity to the mix, and in some advanced planning tools, includes other supply chain constraints.ProcessIndustriesforMicrosoftDynamicsAXoffersabitofboth:simpleATPfunctionalityandanonlineMRP tool that allows the user to look forward at product that is built (using formulas or bills of materials [BOMs]), and commit to a delivery date based on available materials and plant capacity. The CTP lookup also allows the user to take the forward date and bring it back into the sales order line as a Customer Commit Date, minimizing transposition errors and making life easier for the customer service rep. It also looks at product recipes and uses standard lead items for product builds and raw material purchases. As well, the delivery date control function in Microsoft Dynamics AX assists a CSR in determining a correct delivery date based on transportation lead time, the selected mode of deliveryandaspecificcustomerreceivingschedule.

Figure 2

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Multiple Price Lists

MicrosoftDynamicsAXusesahierarchytodeterminethecorrectpricelist.Italwaysusesthemostspecificwhenpossible,suchas“CustomerPriceList.”Thesystemstartsthemanagementofthepricewaterfallbytryingtofindtheprice at a company level. It then looks for a customer type (wholesaler, government, chain, broker, big box, etc.) to applyatypelevelpricelist.Nextitmovestoaspecificcustomerpricelistwithinthetypetodeterminethecorrectlist.Itconsiders date ranges, so a price list has effective dates that make it valid, or invalidate it once the dates have expired. This capability allows customer service reps to set prices in the future and forget about them. The system will use the correct effective dates to induce one price list over another. It also helps somewhat with future promotions and simple discounting when discontinuing lines or phasing out old product.

Figure 3

Figure 4

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Price Audit Capability

Incorrect billing/pricing disputes account for one of the biggest percentages of deductions. For example, an invoice is typically sent 30 days after the product ships. An accounts payable clerk at the customer site may look at invoices daily, but pays them weekly or monthly, or not at all if there is a dispute. It can take 30-60 days after the product ships for a pricing discussion to even take place with the customer!

MicrosoftDynamicsAXcanlookatasalesorderlineitemandgenerateapriceaudit.Thisauditshows:

•PriceListSelected(company,customertype,customerandeffectivedate)

•DiscountsAppliedattheLineItem

•DiscountsAppliedattheOrderLevel

•AnyPromotions

•AnyRebates

•AnySpecialCharges

•AnyFreight

•AllTaxes

This audit provides the customer service rep the necessary details to explain to the customer exactly how the net price was calculated at the time of order entry. Another feature in Microsoft Dynamics AX, one that keeps track of returns from the customer, helps in this situation too. If the customer received a volume price or discount, the system will monitor returns and alert the user of the discount volume required after the return.

Multiple Discount Options

Microsoft Dynamics AX supports various discount options, including line item level discounts and order level discounts. Typically these are volume-based, so a user can establish ranges of volumes where discounts apply (using either currency or percentage). The discount can be taken off the sales order or can be calculated as an accrual for a later payment. In the case of an order level discount, the user can substitute product families so a discount can be applied if a customer buys from a group of products within a family (i.e., personal care, fresh dairy, latex paints). In the case of order-level discounts, the rep must complete the entire order before the discount can be applied. Discounts can cascade or be specific,basedonuseroptions.

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Promotions Management

Promotions vary greatly for non-durable CPG companies. Some companies apply discounts or offer special prices for a period, which are handled by the prices and discount tables in Microsoft Dynamics AX. Some promotions are actually a kit that is manufactured and sold as a product. For example, a personal care kit with lotions that includes a free brush would be managed using a special pack bill of material, which is a standard option within Process Industries for Microsoft Dynamics AX.

Handlingon-the-flypromotionsisastrengthofMicrosoftDynamicsAX.Itcanapplyfreegoodsonsalesorders,referredtoassupplementaryitems.Herearesomeoptions:

•Defineitemsthatareofferedtothecustomerfreeofcharge

•Definequantities(buytwo,getonefree)

•Defineitemsthatareofferedasoptionsbythecustomerservicerep

•Defineitemsthatarefree,butoneperorderonly

•Managepromotionalitemsthataredate-sensitive

Services on Sales Orders

Microsoft Dynamics AX allows users to set up non-balance resources as items, in addition to setting up special miscellaneous charges on the sales order. Both features allow non-durable CPG companies to charge for services and provide promotional materials to customers. In some cases, setting up an end-cap display may require a service person to go on site. This service may or may not be billable. The decision on whether to set up these situations as miscellaneous charges or as service items (non-balance) in inventory depends on how the user wants to handle costs and prices. Materials can also be drop-shipped from a promotional partner or warehouse for faster service.

Rebates and Accruals

In Microsoft Dynamics AX, basic Rebates and Trade Spending functionality is found in the process distribution module of the solution.

RebatesandTradeSpendingisanotherformofdiscountnotgiventoacustomeroffaspecificorderorinvoice.Inmanynon-durable CPG companies, targets are set for customers based on volumes sold over time. These time targets are user-definedbutoftenrangefrommonthly,quarterlytoyearlyvolumes.Theycanalsovaryfromunitssoldataproductlevel to dollar volumes regardless of product mix. The amounts off each invoice are calculated at the order level and dropped into a general ledger bucket until the time period ends. At that time the totals are tallied and a rebate check is issued to the customer based on the percentage accrued over the entire time period.

A rebate is calculated as a percentage off a sales order line item or order level total. This amount is then passed over to the Microsoft Dynamics AX general ledger, where a customer level accounting is kept. The system includes features to keeptheuserapprisedofdifferentpromotionsandprogramsinplaceatthecustomerlevel.Attheendofthespecifiedtime period, Microsoft Dynamics AX will allow a user to either print a check to the customer or apply the credit to the customer’s account. This feature can be combined with Microsoft Dynamics AX partner products to achieve a complete trade spending capability.

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Trade Spending

ProcessIndustriesforMicrosoftDynamicsAXallowsuserstodefinetradespendingallowancesforspecificscustomersand items, as well as for customer groups and product groups. Once a program is in place, each sale that is subject to a tradespendingormerchandisingallowance(orTMA)willaccrueamountstowardsspecifictradeprogramsthatcanbeused towards discretionary funding of marketing or indirect sales activities. Microsoft Dynamics AX will record each detailed accrual as well as the history of disbursement of TMA funds. Each accrued amount can be subject to management approval prior to disbursement.

Figure 5

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Along with TMA functionality, the Microsoft Dynamics AX forecasting module can record estimates of trade spending volumes.

The Microsoft Dynamics AX report writing tools and business analysis module can produce reports, inquiries or OLAP cubes that show the history and cost of a trade spending program and its performance against the forecasted objectives.

Figure 6

Figure 7

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Deductions Management

Microsoft Dynamics AX includes basic functionality to handle expected and unexpected customer deduction. Process Industries for Microsoft Dynamics AX includes a rebate program functionality that gives users the ability to log expected customer deductions for rebate or discounting purposes. The expected deductions are accrued in the ledger, recording an expected liability, and these ledger items can be easily converted to credit notes in order to balance the customer’s accounts receivable once the deductions are approved.

The deductions that are accrued and/or offset by a credit note in Microsoft Dynamics AX for reporting purposes, and the Microsoft Dynamics AX report writing tools can produce deductions statements for customers.

For other deductions, Microsoft Dynamics AX includes various tools that facilitate the creation of credit notes or the credit and re-bill process required to record customer deductions and correctly update sales statistics. For example, sales lines or entire orders that have incorrect pricing can be easily copied into a credit note and then copied again into new sales records that would include the correct price. Microsoft Dynamics AX development tools make it easy to create one-click recording of deductions and adjustments.

Also, some reason codes can be recorded for manual deduction entry and these can be used for sales statistics reporting. If further details need to be captured regarding the customer return, these can be logged using the Dynamics AX CRM Activities form or the non-conformance function that is part of the quality management module. The non-conformance can go through an approval process that can result in a customer credit or a refusal for the deduction.

Figure 8

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Commissions

Microsoft Dynamics AX can calculate sales and sales management commissions based on a variety of factors. Customer groupsallowuserstodefinewhichproducts/customersqualifyforsalescommissions.Salesgroupsattachindividualsalespeopletosalesmanagementforrollupofcommissions.Itemsdefinewhichproductsqualifyandthepercentagesappliedwhenthoseproductsaresold.Finallythecommissioncalculationsallowuserstobuildincompany-specificformulas.

Figure 9

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Invoice and Certificates of Analyses Layouts by Customer

MicrosoftDynamicsAXdocumentsaremodifiableandincludetheabilitytoprintqualityinformationonCertificatesofAnalyses (COA) that can then be tied to an invoice. For non-durable CPG companies, it is important when billing a customer to have access to the various COAs sent with each product. Often invoice deductions are taken due to off specificationandoff-qualityshipments,soinvoicesmustusetheCOAasareferencepoint.Inmostcases,acustomerwilldeterminewhichqualitycontrol(QC)teststheywant/don’twantontheCOA.ProcessIndustriesforMicrosoftDynamicsAXallowsmodificationoftheCOAatthecustomerlevel.

ProcessIndustriesforMicrosoftDynamicsAXallowsuserstocreateandsendinvoicesinspecificformatsthatadheretoaretailer’s/channel master’s requirements for their own purchasing and accounting department. For instance, in commodity-based industries special charges or adders are included in the sales order totals. In other cases, freight must be bundled in and not broken out on the invoice. The system lets users determine the level of detail and the order of informationtheyseeonacustomer-specificinvoice.

Figure 10

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Pricing by Catch Weight

Catchweightistheabilitytotransactinventoryinthreeunitsofmeasure(concurrently):

•BaseUnit(box,each,case,pallet)

•NominalWeight(averageweight)

•ActualWeight

The discussion of catch weight in this document applies to the demand chain (outbound logistics), which affects order management and picking only. Process Industries for Microsoft Dynamics AX supports catch weight.

Many products in non-durable CPG companies are sold by weight. These products can be traditional food items (proteins based), such as beef, pork, poultry, cheese or agricultural products. These products can also be primary metals (jewelry),chemicals,hides,etc.Asanexample,consideracustomerwhoorders1000packagesof1KGmeatproducts.ProcessIndustriesforMicrosoftDynamicsAXrecognizes1000SKUsbasedonanominalweightof1000times1KG,or1000KGsofmeat.

Oncethepickinglistgoestothewarehouse,workerswillpickascloseaspossibletothe1000KGorder.However,sincemost packages are never exactly one kilogram (one may be .99 kilos and the next might be 1.1 kilos), the order may total more or less than the 1000 kilos ordered. Consequently, the selling price of the sales order must be based on the actualweightofthepickedsalesorder,soifthetotalof1000packagesis1020KG,DynamicsAXwillbillthecustomerforthe1020kilos,nottheoriginal1000KGs.Thesystemcanbesetupwithfilterstoincludearangeofacceptabledeviationsfromtheoriginalnominalweightorders,suchasfivepercent.

Process Industries for Microsoft Dynamics AX Process lets users manage inventory at the lot and sub-lot level, therefore each package of meat can have a bar code label with the item number, lot/sub-lot ID and actual weight to be scanned duringthepickoperation.Theinvoicetothecustomerwillalsoreflecttheactualweight,aswillthefreightcalculation(ifbased on actual weight).

Figure 11

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Management of Pallets

Microsoft Dynamics AX is not an advanced WMS system that allows a customer to optimize their warehouse advanced shipping requirements. Nevertheless, it does have many of the basic features that can assist a customer in handling basic warehouse, pick/pack and pallet requirements.

MicrosoftDynamicsAXwillallowuserstoconfigurepre-definedpallets(includingaconceptcalledRainbowPallets)builtduring the picking process (as part of the staging function).

RFID Integration

RFIDfunctionalityisavailableintheWMSIImoduleinMicrosoftDynamicsAX.Itprovidesthefollowingbenefitsovertraditionalbarcodes:

• LineofsightisnotrequiredtoreadtheRFIDtag(aswithscanners)andmultipletagscanbereadatonce leading to a less labor intensive process

• RFIDtagsarelesssusceptibletodamage

• Significantlymoredatacanbecapturedsuchasexpirationdatesandservicerecords

• RFIDdatacanbere-writtenandthereforereused

• AdirectlinkcanbemadetoanRFIDserverwithinMicrosoftDynamicsAXforinboundandoutbound transaction processing

• ThetaglevelinMicrosoftDynamicsAXisitem,caseorpallet

• BoththereceivingandpickingprocessessupportinMicrosoftDynamicsAXthecreationandrecording of the RFID tag numbers

Multi-site Shipping

Microsoft Dynamics AX helps non-durable CPG companies better associate customer ship-to locations with the best location for service. Customer service reps can resolve back order or out-of-stock situations by viewing inventory positions across plants, sites and warehouses. Sourcing from different locations can incur adverse transportation or miscellaneous charges, but the customer can decide whether to accept those charges. A multi-site warehouse capability allowsdifferentstockingpolicies(safetystock,ordermodifiers)bywarehouse,whichallowsnon-durableCPGcompaniesto map to seasonality curves by region and carry the appropriate inventory mix. This multi-site option also affects shelf life, best-before dates and inventory retest policies, assuring better management of perishable inventory. It supports refrigerated warehousing policies, which means the shelf life of a product in a refrigerated situation can be different than one that is not.

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Product Substitutions on Sales Orders

The Microsoft Dynamics AX order management module has several features that help avoid back order situations. One is the ability to link products together in families to suggest alternates for customers. Families may be products with multipleflavors,soifbananaflavorisnotavailable,blueberrycouldbeasubstitute.Anotherformofsubstitutioninvolvescontainers.AcontainerisapackagingconfigurationinMicrosoftDynamicsAX.Ifacustomerwants100packsofsixbonelesschickenbreasts,andtheconfigurationisnotavailable,thesystemprovidesvisibilityintotheout-of-stocksituation and lets the customer service rep see what is available and offer a substitute (i.e., four- or eight-pack configurations).

For chemical companies with non-durable CPG products, Process Industries for Microsoft Dynamics AX offers two additionaloptions.Specification(spec)matchingenablesthesameitemnumbertohavemultiplequalityspecifications.This feature lets customer service reps match the customer spec exactly or offer a variety of lots that are similar in quality. Grading uses the dimensional capabilities of Microsoft Dynamics AX to apply different grades to the same item number by lot and then sell off-spec materials at a lower cost. For example, Customer A will accept grades B, C and D, but if those grades are out of stock, the rep can offer a grade A product for the same price as grade B or at a higher price.

Product Exceptions on Sales Orders

Some products cannot be shipped to certain customers, and they are called product exceptions on sales orders. (Product exceptions occur on promotions as well, and they can be modeled in the Microsoft Dynamics AX trade and logistics module.)Thereareseveralwaystomanageproductexceptions:

•Attheitemlevel

•Attheitemandlotlevelbasedonqualityspecifications

Typically a product lifecycle management (PLM) system will address the major requirement of what products are excluded fromwhichcountriesbasedoningredients(i.e.,reddyeNo#3).WithaminormodificationattheitemlevelwithinMicrosoft Dynamics AX, a user can designate which products are exception products, thereby causing a note to appear on the order entry screen. At the item lot level in Process Industries for Microsoft Dynamics AX, spec matching allows userstomatchthequalityspecificationsofparticularlotsagainstthecustomerrequirement,preventingoff-speclotsfrombeingshippedtospecificcustomers.

Figure 12

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Shelf Life and Best-Before Dating

Managing shelf life during shipping is key to customer satisfaction in the demand chain since it often determines if the product is suitable for sale to a customer ship-to location. Retailers use best-before dates to pull products off the shelves priortotheirexpirationdates.Manycustomerswilldefineattheitemlevelhowmanydaysofshelflifetheyrequirebetween the time a product hits their docks and when it is delivered to their stores. Shelf life is a major component of thePerfectOrderKPIandthesourceofmajordeductionsfortheretailers.

TheMicrosoftDynamicsAXordermanagementmodulefacilitatescorrectshelflifeshippingbyproviding:

•Visibilityfromordermanagementintoinventoryatthelotlevelformanualselectionoflots

•Automatedreservationsofoldestlotsusingfirstexpiredfirstout(FEFO)logic

•Qualitycontroltestingbasedonon-handinventory(retest)functions

•Automaticdispositionstatuschangesoncelotshaveexpired(tonon-available)

•Automaticnon-conformancetagsandretestordersforexpiredmaterials

•Planningvisibilityintofuturesexpiredlots(futurerelease)

•Visibilityofcustomers’shelfliferequirementsattheitemlevel

•Returnsmanagementofexpiredmaterialswithintegrationtoqualitycontrolandaccounting

•Deductionsmanagementinterfacebasedonexpiredmaterials(customerwritten)

Figure 13

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Customer Required Dates (CRD)

Microsoft Dynamics AX allows a customer service representative to capture the customer-required shipping date to measure order cycle performance. At a line item level, the system captures the order date, the CRD, the promise date (if outofstock)andtheactualshipdate,whichallowsanon-durableCPGcompanytosetupKPIsformanagersandprovidesvisibilityintothespeedandefficiencyoftheinternalsalesorderfulfillmentcycle.MicrosoftDynamicsAXalsocaptures change orders, so when a customer calls to change dates, products or quantities, the rep has an audit trail to back up the customer change request.

Sales Order Picking Priority (Scarce Goods Allocations)

ERP systems typically require integration to an advanced planning application to automatically allocate new product or scarcegoodstoA,BandClevelcustomers;however,MicrosoftDynamicsAXprovidesthisfunctionalityasamanualprocess.

Microsoft Dynamics AX groups sales orders based on products to be picked. Once an item is designated as a scarce good, thepeopleonthepickingfloorcanassignprioritycodestocustomersandsequencethepickingbyA,BandClevelcustomers.Theycanthenfulfilltheordersbasedonpolicies,forexample:

•Acustomersget100%ofthescarcegoodrequested

•Bcustomersget50%ofthescarcegoodsrequested

•Ccustomersget10%ofthescarcegoodsrequested

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Returns Management

Microsoft Dynamics AX includes returns materials authorization (RMA) functionality that is integrated with the system’s quality management module to track non-conformance issues. In many non-durable CPG environments such as foods, damaged or expired products are not returned but scrapped. Microsoft Dynamics AX lets users manage the deduction in a varietyofways:

•Ifaproductisphysicallyreturned,thesystemcanassignanRMAnumberandtrackthereturn.

• Qualitymanagementcantrackthenon-conformanceandsendoutappropriateemailstoaffectedstakeholders.

• Ifaproductisnotphysicallyreturned,theusercansetupamanualnon-conformanceorderandtrackit.

• Thereturncanhaveaninternalworkflowtodeterminewhethertoscraptheproductorreturnittostock.

• Thereturncanbetiedtotheoriginalsalesorderforpropercredit(andallgeneralledgeradjustments).

• InafuturereleaseofProcessIndustriesforMicrosoftDynamicsAX,thereturncanbereissuedasareworkorder if it needs enhancements.

• Returnsimpactdiscounts,rebatesandpromotionssoacustomercannotorder/returnproductjustfortheprices.

• MicrosoftDynamicsAXalsooffersapartnersolutionformorecomplexdeductionsmanagement.

Figure 14

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Portal Enablement

The portal in Microsoft Dynamics enables self service for non-durable CPG companies, virtually enabling a company’s customersandvendorsto:

•Enterandplacenewsalesorders

•Viewinventoryavailability

•Checkthestatusoftheirsalesordersandactivity(atthelineitemlevel)

•Checkontheircreditstatus

•Checkontheiraccountprofileandupdateit

•Inquireastonewproductpromotions,dealsandrebates

•Checkstatusoftheirreturns

•Conductmanyothertransactionslimitedonlybytheiraccountlogin

MicrosoftDynamicsAXletsusersdefineviewssocustomerscanonlyseetheiraccountinformation,andtheycanonlyview products they are authorized to buy. The self service portal can reduce customer service costs exponentially and allow a company’s customer service reps to go from answering mundane customer questions to accomplishing high value sales tasks like increasing sales, working on promotions to push slow moving products, working on order accuracy, etc., all helping improve the ROI of an ERP deployment.

Figure 15

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Lot/Sub Lot Visibility

In non-durable CPG companies, item numbers are not enough to identify a product. In many cases, the system must track information regarding quality, shelf life and, in some cases, actual weight. Using the Microsoft Dynamics AX order managementmodule,acustomerservicerepcanviewinventorydowntoitslowestlevelofinformation,including:

•Location:Site,warehouse,row,bin,aisle

•ItemNumber:Lotnumber,sublotorserialnumber

•LotDisposition:Available,onhold,rejected,offspec

•QualityControlTestResults:Allqualitativeandquantitativetestingcompletedatthelotlevel

•Grades(ifapplicable)

•FullTraceabilityofLotsinInventory

This visibility helps a rep ship the correct lots and map to the perfect order for process, which includes quality and shelf life components.

Figure 16

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Multi-dimensional View of Inventory

In addition to lot/sub-lot visibility, Microsoft Dynamics AX allows the customer service rep to view inventory across packagingconfigurations.ManyERPapplicationsforceuserstoassignindividualproductstockkeepingunits(SKUs)tobulk/pack combinations, which forces the rep to open multiple screens to see the same product in different packaging. MicrosoftDynamicsAXletsusersassignaproductnumbertothebulkproductandthenassignacontainerconfiguration(packBOM).Ononescreenarepcansee:

•Allofthebulkequivalentsforthesameproduct(packedandnonpacked)

•Allofthepackagingcombinationsforthesameproductacrossallsitesandwarehouses

With this functionality, the rep can offer alternatives to a customer if the product he requests, in the packaging he requests, is not available in the primary sourcing warehouse.

Figure 17

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Specifications Management

InMicrosoftDynamicsAX,thefinaldimensionofaproductreferstoitsqualityspecifications.Mostnon-durableCPGcompaniesproducetoastandardquality,butsomecompaniesmustproduceandsellproductagainstexactqualityspecifications.

ProcessIndustriesforMicrosoftDynamicsAXcan:

•Capturethestandardtargetspecificationsofanyitem/product

•Captureandrecordtheactualtestresultsforthequalitycontroltests

•Pass/failinventorylotsbasedonresults

•Capturecustomerspecificationsattheproductlevel

•Matchinventoryonhandagainstthecustomerspecs

•Offerthecustomerservicereponlythoseinventorylotsthatmeetthecustomer’srequirements

For those non-durable CPG companies with customers that require more than standard quality or need to make product tomaptocustomerspecifications,thisfeaturehelpsshipthecorrectqualityandmaptotheperfectorder.

Lot Track and Trace

Microsoft Dynamics AX includes a complete lot track and trace capability, allowing the user to trace back from a line item shipment/lot combination, through production and to the original purchase order lines that brought in the raw materials. These raw materials are traceable upwards throughout the process to see where they were included in end items and to which customers there were shipped.

Figure 18

Figure 19

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Summary

The goal of this white paper is to highlight some of the many features available in Microsoft Dynamics AX and Process Industries for Microsoft Dynamics AX that are applicable to non-durable CPG companies. This paper focuses only on the order management module, where the demand chain process starts. Microsoft Dynamics AX is a robust ERP system that includesapplicationsforfinancialmanagement,customerrelationshipmanagement,supplychainmanagement,humanresource management, project management and analytics. Process Industries for Microsoft Dynamics AX includes modules for manufacturing and distribution.

Note:Unlessnotedas“futurefunctionality,”thispositioningpaperrepresentsfunctionalityinMicrosoftDynamicsAX2009 and Process Industries for Microsoft Dynamics AX 2009.

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About Fullscope, Inc.

The2007MicrosoftDynamicsAXPartneroftheYear,Fullscope,Inc.isaMicrosoftGoldCertifiedPartnerthatoffers deep domain expertise for companies with process, discrete and hybrid manufacturing operations. The companydevelopsandsupportsProcessIndustriesforMicrosoftDynamicsAX;offersanIndependentSoftwareVendor(ISV)solutionforMicrosoftDynamicsAXforHighTech;andisoneofthelargestMicrosoftDynamicsAXresellers in the United States and Canada.

About Process Industries for Microsoft Dynamics AX

Developed by Fullscope as part of the Microsoft industry solutions program, Process Industries for Microsoft Dynamics AX is designed to help non-durable consumer goods, food and beverage, pharmaceutical, life sciences, pulp, paper, and primary metals companies optimize their process manufacturing operations for increasedprofitabilityandcompetitiveadvantage.

ProcessIndustriesforMicrosoftDynamicsAXisdesignedtohelpmanufacturersincreasethespeedandflexibilityoftheirproductionoperations;staycompetitivebyimplementingindustrybestpractices;increaseefficiencythroughbettercommunicationinternallyandwithtradingpartners;providereal-timeinsightintoproductionprocessesandcoststomanageresourcesmoreeffectively;andrespondfastertochangingmarketconditionsornew opportunities.

For more information, contact Fullscope at info@fullscope.com or visit www.fullscope.com.

Thisdocumentisforinformationalpurposesonly.FULLSCOPEMAKESNOWARRANTIES,EXPRESS,IMPLIED,ORSTATUTORY,ASTOTHEINFORMATION IN THIS DOCUMENT. Trademarks are properties of their respective companies and are noted.

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