“Digital transformation” is not just a fancy buzzword. The right technology can truly be transformative, helping food and beverage companies solve their biggest challenges of today while also preparing for the future.
In Part 1 of this series, I talked with Aptean’s Solution Consulting Director, Food & Beverage and Process Manufacturing, Jack Payne, about digital transformation and a recent report they commissioned from IDC: Global Food and Beverage Industry Trends and Strategic Insights 2022. In this article, we dive deeper into the foundation of any digital transformation project: an ERP solution.
For more insights, stream Aptean’s December 15 webinar.
ERP for the food and beverage industry
The report shows that about 26% of organizations either currently use a cloud ERP or are in the process of moving to the cloud. An additional 25% are investigating it. Can you talk a little about what’s driving this increased adoption?
Jack Payne: I’m glad you said “a little” because I could talk about this for a long time. So, why are companies moving to the cloud and what benefits are they getting from it?
The first reason is multiple locations. We have a customer who was an early cloud adopter, four or five years ago. They had a very complex ERP implementation over multiple sites, and what we heard from them was that the cloud allowed them to focus on the implementation rather than the infrastructure. They were able to implement the system faster and better because they could focus on the business needs.
For companies like this that have made the transition from an on-premise ERP to a cloud-based ERP, the business process improvement is roughly 15%. This improvement has two main reasons: one is that the company doesn’t have to spend costly IT resources on infrastructure, and the second is that with a cloud-based solution, your technology is always up-to-date so you can stay current on new capabilities. Some of the features that we’ve released since the pandemic, including costing and forecasting, came from our customers telling us that they needed those tools. If you have an on-premise system that’s five years old, you don’t have those kinds of capabilities. If you go through the cloud, you can subscribe to updates and get access to those capabilities. So, that’s the second reason.
Another thing is that companies don’t have to worry about the Big Bad Wolf. By that, I mean disasters that can take down your operations. For example, if you have a data center in the northeast and it got hit by a storm, it could take down your facilities throughout the United States or even other countries. With the cloud, you don’t have that risk. It’s always available as long as you have an internet connection. The cloud also provides protection against cyberattacks so you don’t have to use your resources for that.
Finally, when we look at the bottom line, companies that have moved to the cloud are seeing increased revenue and profitability, just like with digital transformation. Moving to the cloud isn’t necessary for digital transformation, but it enhances that journey.
In addition to on-premise vs cloud, companies also have the choice of an industry-specific ERP vs a general manufacturing ERP. What are the differences between those products, and what are the main benefits of using one specifically designed for food and beverage?
JP: There are a lot of ERP systems in the world. I was around when ERP came out, and I would say that most ERP packages today are still somewhat generic. You can go look at Brand X or XYZ Company and see a list of 20 or 30 different industries that they support with their ERP packages.
Aptean has taken a different approach. We do serve different industries, but we provide specific solutions for them. This leads to lower costs and faster implementation.
For example, our food and beverage ERP has capabilities like traceability and food safety and quality built in. They aren’t customizations or workarounds, or external spreadsheets that you have to contend with; they’re part of the system. Most food and beverage companies want to be certified by BRC, SQF, or some other certification body. Having all of this information available in a central place helps with that certification, so it’s a pretty important advantage.
Certain sectors within food and beverage also have specific requirements, like catch weight in the protein and dairy industries. You don’t get catch weight in any generic ERP solution. It would have to be a bolt-on.
The trend line we see is that companies are moving more to the cloud and to industry-specific solutions. The average life of an ERP implementation is seven to 12 years. So, if you take the middle of that range, 10 years, 10% of companies are making an ERP decision each year, and the majority of those are moving to the cloud. I’d say in the last three years, more than 90% of our customers have selected a cloud-based solution. In 10 or 12 years, we expect the large majority of companies to be using a cloud-based ERP.
We also work with customers to transition them from on-premise to cloud.
It’s no surprise to me that the research we commissioned with IDC found that companies using industry specific solutions reported greater increases in both revenue and profit (5.3% in revenue and 4.9% in profit) compared to industry peers using generic ERP solutions (2.9% in revenue and 3.7% in profit). Moreover, companies on cloud solutions (6.2% increase in revenue and 6.1% increase in profit) saw more than twice the increase in revenues and profits over the past 12 months compared to their food and beverage counterparts leveraging on-premise solutions (2.8% increase in revenue and 3.1% increase in profit).
How big of a job is that?
JP: How far behind are you? If you have an on-premise solution that hasn’t been updated in 10 years, it can be a pretty big process. Hopefully not too many companies are that far behind. But if you’re five years behind, that’s a bigger project than being just one or two releases behind. We can help customers with that.
We have one customer who I first talked to in 2018, and they said, “The cloud sounds good. Let’s revisit the idea in three years.” Then, in 2019, I’m not sure what changed, but they made the decision to upgrade to the cloud. They started the project in Q3 2019 and went live in February 2020. They told us in April 2020 that it was the best business decision they’d ever made because they would not have been able to run their company using the on-premise infrastructure once people started working remotely because of the pandemic.
To wrap up, what are your recommendations for food and beverage companies as we move into 2023?
JP: First, assess your current ERP system. Can it support your business today and also grow with you into the future? While it’s not mandatory to use a cloud-based ERP, this is something to consider as you’re assessing the scalability of your current system.
Second, where are you on your digital transformation journey? If you’re not already on the road, at least get started with your preparations. Make sure you have executive-level involvement and change management in place so you can be successful. Also, remember that digital transformation is more than just software. It also involves automation of your plant processes.
The last thing, and this is something that continues to amaze me, is traceability. I’ve been working with food and beverage companies for 25 years, and traceability was one of the key requirements 25 years ago. The FSMA traceability rules were assigned in 2011, and you’d think that after 11 years companies would have a handle on traceability. But it’s still top of mind. It’s still in the top five concerns for food and beverage leaders. So, continue with those traceability and food safety efforts. Let’s get that right.
Sound advice. Thank you, Jack!
To hear more from Jack, stream Aptean’s December 15 webinar.