Chemical producers and distributors live in a fast-paced world. The market is ever more competitive and European regulations are getting much harder to comply with. A standard off the shelf ERP system simply has too many gaps for the needs of this industry.

Being competitive means that all operations need to be streamlined: warehousing, production, front and back office working together on one platform, with access to the resources they need to do their job efficiently: from any place, on any device, at any time. Being competitive also means that the opportunity-to-cash process has to be managed with tight margin control. You want to know with confidence that for all orders that are placed, the margin you have estimated will ultimately show up in your P&L.

Being compliant means that:

• Your customers need correct Material Safety Data Sheets for the products purchased, before they actually receive the goods
• Dangerous Goods declarations are integrated in your ERP system
• REACH and CLP Information is stored within the system so it can be printed on internal and customer facing documents
• You as a company want to be able to track and trace lot number information throughout the supply chain

Reaching these compliance requirements goes hand in hand with the operational and IT goals of an organization. For companies that have selected or are considering Microsoft Dynamics NAV 2015 as the primary system for supporting statutory requirements in one or more countries, it is important to have a plan for not only deploying the standard capabilities, but how to meet your industry-specific needs.

In this article we will explore the competitiveness component. In a future article we will focus on the compliance considerations.

No surprises on P&L

We have encountered many scenarios where management expressed concerns about their bottom line P&L results not tying to the expected margins from the sales that were originally made. The actual results in these situations had bottom line margins that were far inferior to expectations.

Margin control can be hard to manage. Additional costs can be significant, and margin can be thin in high volume transactions. It is crucial to have margins under control, all the way through the quote to cash process. You want to estimate or, best case, know upfront the margin of each customer and each sale you make or would want to make. You will want to reconcile your P&L with your original margin estimates. Chemical companies have to:

• Estimate and plan for landing costs. Think about freight, unloading, and outsourced laboratory costs.
• Estimate and plan for distribution costs. You know you will be transporting products to your customer, and you want to allocate costs for that.
• Estimate and plan for other costs such as production and warehousing costs. You might buy products in bulk and re-package them, or have a production facility that adds value. All of this has expected costs that you can put on the original sales.
• Allow for changes to these estimates. As time progresses some of the estimated costs become actual costs and this can influence margins on orders.
• Reconcile the P&L with the margin from sales. When it is time to invoice your customer, it hits your P&L. Your margin will need to balance with the margin from your original sales.
• Report on the margins over time and report margins at different levels, including or excluding some of the above costs

Competitiveness is about improving efficiency and operational effectiveness. Production, warehousing, and logistical processes have all been tuned for years. Most companies have taken on large improvement projects in these areas in the past. Techniques used to identify waste and non-value added work in production and logistics can also be used to improve administrative processes. The same effectiveness and efficiency in the back office is required to keep that competitive edge. For example, consider implementing low hanging fruit from your ERP system such as fixed assets or CRM, elimination of manual report creation by introducing simple and effective automated reporting, and automating inbound and outbound document management. Outsourcing hardware is another promising alternative to explore.

Key takeaways

Margin control is a difficult process in the chemical distribution and production industry, but it is nevertheless a vital management instrument. Accurate predictions about your bottom line are far better than hoping for the best at month end.

Review your current quote-to-cash process and bring it to the same standards as the rest of the operations. Having an effective toolset is a perfect enabler for these changes.

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