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Make Regulatory Compliance Easy for Process Manufacturing with Microsoft Dynamics AX 2012

January 30th, 2013 Partha Chattopadhyay No comments

Businesses in the process manufacturing industry are generally subject to varying degrees of regulation by regional, national, and global organizations, given the nature of the products they offer. Process manufacturing handles raw materials and finished product transactions that must be in compliance with each country's statutory and regulatory requirements. Additionally, transactions for certain products can be restricted in some states within a country.

When a sales order or purchase order is created, a user should secure the necessary compliance information for the product. For example, chemical and pharmaceutical manufacturers have a product safety data sheet (PSDS) for all raw materials and finished products. When the product data sheet expires or undergoes a revision, process manufacturers are responsible for updating it immediately, with the vendor and the customer.

Process Manufacturing in Microsoft Dynamics AX 2012 provides a rich toolset for food, drug and chemical manufacturers to manage products that must adhere to restricted and regulated environments.

This article describes how you can use Compliance Management features in Microsoft Dynamics AX 2012 to follow the necessary statutory requirements.

Definitions in Product Compliance

The following terms are used in product compliance:

Regulated product: An item is a regulated product if it is regulated by a government authority of a country and requires compliance and audit reporting compulsorily on a continuous basis. For example, if an Active Pharmaceutical Ingredient (API) manufacturer wants to sell Cefuroxime Axetil Amorphous in the United States, the manufacturer must obtain an approval from the United States Food and Drug Administration (USFDA) authorities.

Restricted product: A product is a restricted product if its distribution is limited or constrained by a government authority. For example, certain pharmaceutical drug products are prohibited in certain countries and could lead to disciplinary actions against the manufacturers.

Reported product: A reported product is a product that is regulated by the local and regional authorities. The manufacturer of reported products must agree to provide usage data for the product.

Product safety data sheet: A product safety data sheet (PSDS) is a brochure that contains handling, emergency and other related information about the product – for example, the flash point, or boiling point, of a substance.

Product Compliance Configuration Key

The prerequisite of product compliance functionality is the license for Process Manufacturing & Distribution.

Once you have adequate license, you must enable the product compliance key under Process Distribution from System administration > Set up > Licensing > License Configuration.

Configuration key for product compliance

Fig 1: Configuration key for product compliance

Setting Up for Product Compliance

The prerequisite setups for product compliance include the following:

Inventory and warehouse management > Setup > Inventory and warehouse management parameters > Product compliance

Product compliance set up in the Inventory and Warehouse Management parameters form

Fig 2: Product compliance set up in the Inventory and Warehouse Management parameters form

Parameters can be set up to receive warnings during following processes:

  • Purchase order entry
  • Sales order entry
  • Sales packing slip posting
  • Sales invoice posting

Parameters can also be set up to print the product safety data sheet.

Setup for Restricted Products by Regional Lists

Restricted products by regional lists need to be set up in Inventory and warehouse Management > Setup > Product compliance >Restricted products regional lists.

Restricted Products Regional lists form

Fig 3: Restricted Products Regional lists form

NOTE: If the number of regions in which the product is allowed is greater than
the number in which it is not allowed, set up an inclusion list for the country and
an exclusion list for provinces where it is not allowed. If the product and excluded region appear together on a sales order line, Microsoft Dynamics AX will produce a warning and prevent the sale.

Adding Restricted Products Regional lists form

Fig 4: Adding Restricted Products Regional lists form

Setup for Regulated Products by Regional Lists

Regulated products by regional lists need to be set up in Inventory and warehouse Management > Setup > Product compliance > Regulated products regional lists.

Material Reporting lists form

Fig 5: Material Reporting lists form

Adding Item in Material Reporting lists form

Fig 6: Adding Item in Material Reporting lists form

NOTE: If the product is only regulated in a country or region then it does not have to be marked as reported. However, if the usage data of a product needs to be reported, then it also needs to exist on a reporting list.

Setup for Product Safety Data Sheet (PSDS)

The default parameters, such as the validity interval and the expiry advice interval for product safety data sheets, can be set up in the Product Safety Data sheet form.

The product safety data sheet needs to be set up in Inventory and warehouse Management > Set Up > Product compliance > Product safety data sheet

Product safety data sheet form

Fig 7: Product safety data sheet form

NOTE: The number for the expiry advice days should be less than the number
for the validity in days.

Setup Archive Directory for Document Handling

The Archive Directory for document handling needs to be set up in Organization administration > Document management > Document management parameters. Select the location in Archive directory field of General tab.

Set up Archive Directory for document handling

Fig 8: Set up Archive Directory for document handling

Associate Product Compliance to Released Products

Associating product compliance to the released products consists of regulated products, the product safety data sheet, restricted products and reporting details.

A) Regulated Products in the Released Products Form

Entering and viewing the countries that require item reporting from can be set up in Product information management > Common > Released products> Manage inventory Action Pane > Compliance > Regulated products.

Countries that require an Item Reporting form

Fig 9: Countries that require an Item Reporting form

B) Regulated Products in the Released Products Form
Entering and viewing the product safety data sheet can be set up in Product information management > Common > Released products> Manage inventory Action Pane > Compliance > Safety data sheet.

Product safety data sheet form

Fig 10: Product safety data sheet form

Product safety data sheet attached from Document Handling

Fig 11: Product safety data sheet attached from Document Handling

C) Restricted Products in the Released Products Form
Entering and viewing the list of countries that are restricted for the item from can be set up in Product information management > Common > Released products> Manage inventory Action Pane > Compliance > Restricted products.

Restricted Products form

Fig 12: Restricted Products form

D) Reporting Details from Released Products Form
Additional information that is required by local or external regulatory authorities can be set up by printing the documents or sending the documents through email. If an item name that is defined by a regulatory body is referred from an external system, then all the product related information attached to such a name can be retrieved.

Product information management > Common > Released products> Manage inventory Action pane > Compliance > Reporting details.

Reporting Details form

Fig 13: Reporting Details form

The following list describes the terms and abbreviations used in the Reporting details form:

  • EPCRA: Emergency, Planning and Community Right-To-Know Act
  • CERCLA: Comprehensive Environmental Response, Compensation, and Liability Act
  • TSCA: Toxic Substances Control Act
  • TRI: Toxics release Inventory from United States Environmental Protection Agency
  • OSHA: Occupational Health and Safety Administration
  • EHS: Extremely Hazardous Substances

The following table describes the fields located in the Reporting Details form:

Field

Description

Item number

The identifier for the selected regulated item.

EPCRA name

Enter the product name to report under the Emergency Planning and Community Right to Know Act (EPCRA).

TSCA name

Enter the product name to report under the Toxic Substances Control Act (TSCA).

CERCLA name

Compensation, and Liability Act (CERCLA).

CERCLA reportable quantity

Enter the CERCLA quantity at which reporting is required.

TRI threshold

Enter the Toxic Release Inventory (TRI) threshold at which reporting is required under EPCRA.

Release determination

Enter free-form text that describes the release of TRI.

Usage

Enter free-form text that describes the use of TRI.

OSHA product name

Enter the product name to report under the Occupational Safety and Health Administration (OSHA).

OSHA threshold quantity

Enter the OSHA threshold at which reporting is required.

EHS reportable quantity

Enter the Environmental Health and Safety (EHS) quantity at which reporting is required under EPCRA.

EHS threshold planning quantity

Enter the EHS threshold planning quantity at which an emergency plan must be prepared under EPCRA.

On-hand quantity

The on-hand quantity for the item.

Yearly quantity

The item quantity that is manufactured or processed

produced

annually. The period used to calculate the quantity is based on the Start and End date parameters set up on the Product Compliance tab in the Inventory and warehouse management parameters form.

Yearly quantity used

The item quantity that was used annually. The period used to calculate the quantity is based on the Start and End date parameters set up on the Product Compliance tab in the Inventory and warehouse management parameters form.

Yearly production volume

The annual production volume for the item.

Item CAS Relations in Reporting Details Form

The Item CAS relations form is to record the chemical composition of regulated items that are stored under Chemical Abstract Service (CAS) numbers. For safety reasons, it is mandatory to create and maintain CAS item relationships to identify the active ingredients of certain chemicals to ensure proper first aid, storing and handling. Several safety related legal reports require the reference of CAS numbers for each item.

CAS number for an individual item in the Item CAS relations form from Product information management > Common > Released products> Manage inventory Action Pane > Compliance > Reporting details > Item CAS relations.

Item CAS Relations form

Fig 14: Item CAS Relations form

Validate the Product Safety Data Sheet Information in Purchase and Sales Orders

While working in process manufacturing, the product safety data sheets for all regulated products must be tracked. Checking the availability and validity of the product safety data sheet information is mandatory for the purchase and sales order of each item. Warning messages might be generated on the non-availability and expiration of the product safety data sheets in the purchase and sales order.

Procedure: Validate Product Safety Data Sheet Information in Purchase Order

To validate the compliance of the product safety data sheet in the purchase order, follow these steps:

  1. On the Navigation Pane, click Procurement and sourcing, go to Common, click Purchase orders and then click All purchase orders.
  2. Click the Purchase order button to create a new purchase order
  3. Select the vendor account.
  4. On the Purchase order lines select the item from the drop-down list, which is a regulated product.
  5. Press Ctrl+S to save the record. If the product safety data sheet is expired for the regulated product, the following warning message will be displayed: "Product safety data sheet is either not on file or has expired. Request a product safety data sheet for the product from the vendor".

    Warning message in purchase order form

    Fig 15: Warning message in purchase order form

    Product safety data expired

    Fig 16: Product safety data expired

  6. Create a new product safety data sheet in the Product safety data sheet form for the item and make it active.

     

    New Active Product Safety Data

    Fig 17: New Active Product Safety Data

  7. Click the Purchase Action Pane and then select Confirm to confirm the purchase order.
  8. Go to the Receive Action Pane, and then click Product receipt.
  9. Under the Parameters field group enter the ordered quantity as the Quantity.
  10. Enter the Product receipt number and then click OK.

A warning message can be generated that will ask for a product safety data sheet from the vendors, by setting up the necessary parameter in the Inventory and warehouse management parameters form. A warning message can be generated for the expiry advice internal and the expiry of the product safety data sheet for each item.

Procurement and sourcing > Common > Purchase orders > All purchase orders > Purchase orders lines > Inventory > Product safety sheet log

Product safety sheet log

Fig 18: Product safety sheet log

Procedure: Validate Product Safety Data Sheet Information the Sales order

To validate the compliance of the product safety data sheet in the sales order,
follow these steps:

  1. On the Navigation Pane, click Sales and marketing, go to common, click Sales orders and then click All sales orders.
  2. Press the New button to create a new sales order record.
  3. Select the customer account
  4. On the Lines tab enter the Item number that is a regulated product.
  5. Press Ctrl + S to save the sales order line. NOTE: Because this is a regulated product, the following Infolog message will display “Please deliver the latest product safety data sheet to the customer.”

     

    Warning message in a sales order line for the regulated product

    Fig 19: Warning message in a sales order line for the regulated product

  6. Click the Inventory button and select the product safety data sheet. If required, create a new product safety data sheet and attach it to the document.
  7. Close the Product Safety Data Sheet (PSDS) form.
  8. Click the Pick and pack Action Pane and select Packing slip.
  9. Under the Parameters field group, enter All as the Quantity.
  10. Select the Print product safety data sheet check box to print the product safety data sheet with the packing slip. Click OK. This should print the PSDS document only the first time this item is shipped to this customer for an active document. Proper setup of print functionality and document handling is required.
  11. Click the Posting button and select Invoice.
  12. Under the Parameters field group enter the Packing slip as the Quantity.
  13. Click OK.
  14. Click Inventory and select the product safety data sheet log. The correct document shows in the log and the last sent date is updated.

     

    Product safety sheet log

    Fig 20: Product safety sheet log

  15. Close the Infolog and close the Sales order form.

Procedure: Control delivery of restricted Items in restricted regions

To validate control delivery of restricted items in restricted regions through the sales order, follow these steps:

  1. On the Navigation Pane, click Sales and marketing, go to common, click Sales orders and then click All sales orders.
  2. Press the New button to create a new sales order record.
  3. Select the customer account.
  4. On the Lines tab enter the Item number that is a restricted to the Delivery address of the Customer selected.
  5. Press Ctrl + S to save the sales order line. A warning message popped up saying, “Product ####' is restricted for sale to the delivery address on the sales line. Change the address or the product”.

    Warning message showing Item is restricted in Delivery address

    Fig 21: Warning message showing Item is restricted in Delivery address

    Set up for Restricted Products in released product form

    Fig 21: Set up for Restricted Products in released product form

Conclusion

By using Microsoft Dynamics AX 2012 to configure regulated and restricted products, process manufacturers can now easily meet product compliance regulations. Manufacturers should also note that it helps to maintain the validations required to update the product safety data sheet information, while performing purchase and sales order entries.

Most uniquely, Microsoft Dynamics AX 2012 controls delivery of restricted items in restricted regions automatically, saving companies on time and resources, and also preventing delivery issues from occurring.

If you have questions about how Microsoft Dynamics AX 2012 can help your process manufacturing practice, please email us at dynamics@ignify.com.

Partha Chattopadhyay is a Manager in the Microsoft Dynamics AX practice at Ignify. Ignify is a leading provider of Microsoft Dynamics ERP solutions to mid-market and Enterprise businesses. Ignify has been ranked as Microsoft Partner of the Year Winner in 2012, 2011 and 2010, and in the Microsoft Dynamics Inner Circle, Microsoft Dynamics Presidents Club in 2009. Ignify has offices and team members in Southern California, Northern California, Arizona, Tennessee, Illinois, Washington, Canada, Singapore, Malaysia, India, Philippines, and Jakarta.

Landed Cost in Microsoft Dynamics GP

April 21st, 2010 Raja.SLN No comments

What is meant by Landed Cost?? In general any cost incurred in addition to value paid to vendor to procure the item is a landed cost. Examples are shipping and handling, customs and excise.

The What of Landed Cost

Landed cost is not that big an issue while dealing with vendors who charge a consolidated value to leave the goods at your door. Life would be too easy if it were that simple, wouldn’t it? We ask vendors to charge our account with carrier while shipping because we have better negotiated rates with the freight carrier. Vendor does not have control over import duties such as customs, excise. So we need to find handling agencies that take care of paper work and get the goods out of the yard. Or we pay to government and handle it ourselves.

The Why of Landed Cost

Guess what, all these are additional costs paid on top of the bill paid to vendor for the item. We need to add all these up to get the true cost of inventory. So you get to know the real margin. Some businesses simply expense out the cost because they don’t have the facility in their system and it is too much overhead for them to track it manually. Well, Dynamics GP customers can use the  Landed Cost module to track landed cost at ease.

Dynamics GP provides true ability to handle third party landed costs

So if your Vendor charged your UPS account for the freight, log an approximate value of freight in landed cost are of the purchase receipt. When you receive the freight bill from UPS

  • Match the UPS invoice to the landed cost recorded on shipment from Vendor. The variance between the approximate value and this actual value can be applied to inventory or recorded to a Purchase Price Variance account.
  • So GP provides ability to record the third party vendor landed cost invoice, match it landed cost, updated variance to inventory or to a variance account.

Oh, what did you say, the UPS invoice has several lines each pointing to shipments for multiple items or multiple shipments for the same item. Don’t worry, Dynamics GP provides ability to record a third party vendor invoice and match each line to different shipments.

Other real time applications of landed cost are adding the freight cost when moving items between warehouses.

Have you ever had to move goods from one warehouse to another? What happened to the cost incurred in moving stuff from one warehouse to other? Use the landed cost feature the ‘In Transit Transfer’ window. This is a very useful feature, especially when you want to obtain the true cost for an item in the warehouse.

Nice to haves:

It would be nice to get a feature similar to landed cost in SOP module. So we can record an approximate freight charge. When we get a real invoice from a carrier, we can either charge the excess or return the balance by way of a credit memo or debit memo.

This post is written by Raja S L N. Raja is a Manager in the Microsoft Dynamics GP Practice at Ignify. Ignify is a Global Microsoft Dynamics Inner Circle Partner specializing in Microsoft Dynamics ERP for RetailDistribution, Manufacturing and Chemicals verticals. For help on Microsoft Dynamics ERP email us at dynamics@ignify.com

Fast ROI for manufacturing companies and distributors from your ERP

February 17th, 2010 Sandeep Walia No comments

I was recently interviewed by a reporter from Search Manufacturing ERP on how manufacturers can get quick ROI in today's market. I've worked with quite a few manufacturing companies both in my past life at Deloitte and at Ignify. ERP, in general, is not a fast ROI project I believe there are certainly some things that a manufacturer can do to get Quick ROI.

First of all, the manufacturing paradigm in North America has changed. With a few exceptions, Manufacturers in North America are no longer doing heavy manufacturing. Most of the manufacturing work is now done with subcontract vendors in China, SE Asia etc. So the manufacturing challenge is less about managing the shop floor but more about managing the supply chain and optimizing inventory either in the warehouse, with the vendor, on the water. This is, in fact, really important because the new paradigm means that lead times have shifted and become longer with a 60- 90 day lead time to get product not uncommon. That requires better forecasting, demand planning, purchase planning and better tracking of critical inventory items.

Not surprisingly, manufacturers have not yet made that paradigm shift completely. When I do a site visit at a manufacturing site I find the focus still very much production planning and shop floor control even though now the manufacturer is just doing warehousing and light manufacturing at best. There is very little focus on the planning, forecasting, warehouse management and supply chain management aspects which burden the cost significantly. As an example of a cost burden, I surveyed a manufacturer that builds heavy engineering product often finding themselves with gating parts – i.e. parts that are not available and hold up the completion of the item. The net effect was about 6 weeks added to the production cycle. Doesn't seem expensive? Check out the math below.

Average sales price of item: $2 million (this is a complex end product)

Cost of capital to manufacturer: 10%

Cost of 6 weeks of capital: $23,000 (2 million * 6 weeks/ 52 weeks * 10%)

Cost of delay on 100 shipments: $2,300,000

$2.3 million dollars in cost of gating parts! Now this is a $200 million manufacturer that has a net profit of $2.5 million (which by the way is a pretty good number for most manufacturers). The net impact of eliminating the gating with better inventory optimization would be to double the manufacturer's net profit. Before you say – this is not me because you don't do $2 million type products – change the numbers a bit. It could be 10,000 shipments of $20,000 type product going out or 100,000 shipments of $2,000 type product etc and you'd still have the same cost of capital of $2+ million dollars. Even if you can only shave off a couple weeks and not 6 weeks and if your volume is lower remember that you are still talking at least hundreds of thousands of dollars if not millions in savings by optimizing your inventory and supply chain with better planning. No small change by any standards.

The reality for manufacturers is that the management now has to be on the supply chain and inventory optimization and not just production planning and shop floor control. So how can you do this? Fortunately most of the newer generation ERPs provide functionality to do this out of the box. I'm going to take the example of Microsoft Dynamics AX – a next generation ERP from Microsoft – as a solution to this and show some quick and easy things to enable functionality that can help you get there.

One of the more important things to do in getting to a stable replenishment mode is to use automated replenishment to the extent possible: Dynamics AX has the ability to automatically spit out planned purchase orders by looking at a variety of things

  • Safety Stock levels
  • Forecast
  • Sales Orders
  • Purchase Order
  • Inventory that is Available to Promise
  • Vendor Lead times

For a human being, to take into account all of these parameters and provide a planned purchase forecast manually is just impossible – even if you just have under 200 Finished good SKUs. If anyone tells you otherwise they are kidding you or pulling wool over your eyes. No individual buyer or group of buyers is going to be able to do a multi-parametric calculation that involves six parameters and create a planned timeline for all your SKUs for each vendor without doing some rough (and dirty) ballparks. You need a fairly sophisticated automated process to do this right. And why shouldn't you – you will cut labor costs, you will reduce your inventory stocks outs as well as lower your cost of carrying inventory. And you should leverage the ERP to do that.

How do you do a forecast – for that you can use a demand forecasting system if you have a complex web of customers with changing patterns or you can get quite basic and track it in excel as a starting point and improve from there on. Dynamics AX provides you the ability to load forecasts by customers, customer group or at a total level.

Dynamics AX Sales Forecast by Item by Customer or Customer Group

The above figure for example shows the forecast in Dynamics AX by different customer groups. For example, the first line shows the forecast of 5000 units for all major customers and 6,000 units for a particular item for Retail customers. Dynamics AX splits them out based on an Item allocation key based on month (or any other time period relevant to you). By defining such item allocation keys you can take into account seasonality or business cycles.

Loading a forecast is however, optional. You can run planning just based on current open transactions including sales orders, purchase orders and inventory. The figure below shows planned purchase orders and planned production orders created using the MRP functionality for multiple release dates for multiple items with the quantity to be ordered and the desired delivery date. The delivery date ties to your need of the product and the order date factors in the vendor lead time.

Planned Purchase Orders with Dynamics AX Master Planning

The end result is a stable automated planned cycle that happens every day, week or month depending on the frequency of inventory churn and volume of orders in your business.

Now should you do this for every single SKU in your item master or just for some SKUs. My answer is your top % of SKUs by some measure. This measure could be sales quantity, Sales $, and most typically for manufacturers inventory carrying cost (which is determined by inventory value). Typically you would classify your items as ABCs and plan for the As and Bs and just ensure the Cs are always there and typically overstocked since they have a low inventory carrying cost. The ideal way to do it is again to have the ERP actually calculate the ABC classification for you. For example, in the example shown below I asked Dynamics AX to rank the top 25% of items by revenue as an A, Next 30% as a B and the rest as Cs. I may choose to do now do weekly planning on my As, monthly on my Bs and do no planning and use an auto-fill mechanism on my Cs.

ABC Classification of Items done automatically in Dynamics AX

This is simplifying it a bit but the point is that I don't need to go through a lot of grunt work to get this done. The system will do 90% of my work of loading forecasts, generating purchased orders and even deciding which items get planned for with the appropriate configuration. The end-result you've saved yourself a boat load of work and enough dollars to make this a high and fast ROI project.

Want more – email us at dynamics@ignify.com to get on our email list for valuable tips or to ask us any questions in general.

Sandeep Walia is the President & CEO of Ignify. Ignify is a technology provider of ERP, CRM, and eCommerce software solutions to businesses and public sector organizations. Ignify is a Microsoft Dynamics Inner Circle Partner and ranked in the top 18 Microsoft Dynamics partners. Ignify has been included as the fastest growing business in North America for 3 years in a row by Deloitte, Inc Magazine and Entrepreneur Magazine.