About a year ago I wrote a blog post explaining the weaknesses of MRP concepts in the meat industry. They usually just don’t work. The reason for this is that commodity meat market behaves more like a the oil market, where the costs of actual exploration and production of oil don’t have anything to do with the price oil. The only thing that matters is supply and demand and any changes of these. In a global economy it also does not matter whether we produce domestically more or less, if the global demand is higher than the supply or anticipated supply, prices will go up – oil and meat alike.
Oil does have a key advantage over meat – it has basically no expiration date, but other than that, there are more commonalities then differences. Oil as meat has different yields (e.g. Brent vs. WTC) and different ways to take it apart and produce different cuts. Technically speaking, Propane, Regular, Premium and Kerosene are different cuts of raw oil. The oil and gas industry does conscious decisions on what cuts of oil to produce up to different product specifications for gasoline sold to California or Arizona.
Meat packers must make decisions day in and day out what type of meat cuts they want to make of the incoming supply of animals. Most meat packers can only operate profitably, if they run at 90% or more capacity. This means that a change in the number of processed animals is rarely an option and never a good one.
With this said, meat packers do not really have the option to change the supply and they cannot, at least not on the short term, change the demand on the market. Changes in demand are essentially changes in end customer consumption. These are happening, but they are slow and hard to influence. At the end of the day, the most important decision for a meat packer is what to make out of the incoming animals / carcasses. It is almost exclusively the only decision that really matters for the success of the organization.
Product availability (PA) for oil and gas is essentially reflected in the prices of the commodity markets on stock exchanges. Since oil can be stored for almost an unlimited time, meat basically cannot. The value of meat will be strongly depreciated when it turns from a fresh commodity to a frozen commodity. This is fast the case with chicken, a little slower with port and even slower with beef the case. At its core, a product availability system must cover at the minimum the entire planning horizon of freshness or shelf-life or products until they hit the mark that they need to be sold at a discount or marked down due to freezing.
Different from the traditional MRP approach, PA barely look at inventory positions. More importantly, they look at unsold inventory based on customer age requirements and different allocation methods of sales orders against current and future production. Product availability systems provide a clear view of available products that can be sold (ATS, “available-to-sell”) taking into account hard allocations, in which e.g. distressed product is committed to a certain sales order and must be shipped with that order and soft allocations that take customer specifications into account, such as different pack variations and desired age/shelf life.
Some people may think now that the best way would be to optimize the product mix they are going to produce, but this is actually the wrong way to look at the issue. It actually does not really matter for a meat packer what he produces, that is not the point. There is plenty of variability possible up to the last minute to decide how the carcasses need to be broken and how they need to be boxed up. Key is the price that the item can be sold at. So the only variable in this game is the price I move my meat cuts for, what meat cuts I am trying to move. This will be a consequence of the prices I am going to set.
Basic product availability systems are highly integrated in the order processing functions of the ERP solution. They provide instant feedback on whether a requested quantity of a certain meat cut is going to be available on a requested delivery date with the desired freshness. A basic product availability system provides instant feedback to order takers and production schedulers of failed availability checks and manages the proper interaction between scheduler, order taker and customer of course. Enhanced PA systems can even make smarter decisions and perhaps can check product availability based on available primal, since it does not matter what I am going to make a few days from now, whether I sell the loin bone-in or boneless, because all really matters is that I sell it at the right price and that my customers can rely on me getting what I committed shipping to them.