Food Engineering

SUPPLY CHAIN SAVVY

March 27, 2003
A well-planned and executed supply chain solution streamlines operations and all upstream/downstream links, from raw materials through distribution producing corporate-wide efficiencies.

If your company is like most in the food industry some automation or informational software is in use within the corporation. While some aspects of MRP II planning/scheduling, batch management, corporate financial or warehouse management systems may be integrated, each constitutes its own set of priorities and purpose within the overall supply chain.

But supply chain management (SCM) means different things to different companies. Its techniques and systems include ERP (enterprise resources planning) and EDI (electromagnetic interference). It ties customers to suppliers and vice versa in real-time information and planning. It allows plants to reduce inventories and cycle times and can be used as a competitive advantage.

Krafty solution

In February, Marcam Solutions (Newton, MA) announced successful implementation of its Prism software at 22 Kraft plants in the U.S., and a total of Kraft 60 sites worldwide. "By July [last month] we will increase the U.S. sites to forty-five, which is 90 percent of our U.S. facilities," says Fred Sheriff, vice president of operations systems at Kraft North America. "This is an effort to standardize our material requirements usage and other applications into a single point of view."

Over the past five years, Kraft has installed software for finance, human resouces and resource deployment. The company is now implementing the Prism system to optimize their supply chain control. "Our manufacturing process begins with a sales forecast," adds Sheriff. "This input produces a production model working backward to include where products will be sold, where they need to be shipped and the source plant for these products. This gives us a plant production schedule." This is where the information interfaces with Prism for materials and operational needs and constraints -- types and quantities of materials, where they need to be and when, Sheriff explained.

In the past, Kraft used spreadsheets and stand-alone systems with manual interfaces. One of its long-term objectives was to centralize its databases into a common order database and ultimately provide centralized purchasing. "This 'best-in-breed,' integrated system will optimize plant production and distribution," notes Sheriff. "Marcam wrote a specific ERP application for Kraft on top of Prism since Marcam did not have such an application in a centralized format."

The system has benefitted Kraft in three areas. "First, it has helped us plan and track raw material and packaging inventories," says Sheriff. "We have more than 30,000 material types and 420 vendors to keep straight."

Second, with the information on hand, Kraft can go back to its vendors and elicit their input. This way, Kraft's vendors actually help plan production schedules. "We get better delivery arrangements and better prices by involving vendors in the logistics," Sheriff says.

Lastly, Marcam's software allows Kraft's conversion plants to develop and run production models for specific products with the ability to update model assumptions on a real time basis. This gives Kraft the opportunity to adjust order quantities based on actual material usage as opposed to a theoretical basis. This information is critical for vendor-managed inventory capabilities as well as optimizing deliverables of the supply chain elements.

While the company has imposed an aggressive schedule of implementation -- approximately three sites per month -- Kraft is well on its way to the next step of a total MES (manufacturing execution system) system. The food company is currently piloting this application, with Prism, and expects implementation within the next three years.

Chocolate connection

Sweetening its bottom line is what Russell Stover Candies experiences from new supply chain software supplied by Baan (Santa Clara, CA). The confectionery giant has increased capacity and reduced inventory and lead times using Baan's integrated ERP and supply chain planning solution.

Russell Stover first thought about acquiring a new ERP software solution in 1996 when its key business driver was Year 2000 compliance. The company's mainframe-based proprietary system had been developed 15 or 20 years ago and included financials, sales order management and MRP (material requirements planning), as well as other capabilities. Two decades of steady growth and increased globalization had stretched the system's capabilities.

"As the company grew larger and more global in scope, manually performed forecasting, planning and production scheduling became more time- and labor-intensive, as well as error-prone," says Robert Maack, Russell Stover Candies' vice president of operations.

In implementing the Baan systems, the confectioner hoped to reduce inventories and vendor lead times, improve resource use and manage its supply chain more efficiently and effectively, while serving customers more responsively. It is doing just that through an integrated supply chain management solution including BaanERP, an enterprise resource planning system; and BaanSCS, an advanced planning and scheduling (APS) system.

Russell Stover Candies operates seven manufacturing facilities and two box manufacturing plants in the U.S., and ten distribution centers covering North America, Australia, New Zealand and China. With such geographically diverse operations, its supply chain has grown increasingly complex. In addition the company has 6,000 suppliers and a customer base of 62,000, plus Russell Stover Candies' retail stores.

"Today, while we retain a small number of 'door-to-door' type direct customers, the majority of our customers are large drug store chains and mass merchandisers such as K-Mart and Wal-Mart," notes Maack.

To respond to customer requirements, the company often has to pressure suppliers to supply materials faster and with less lead-time than ever before. Maack notes: "To achieve the level of agility and responsiveness we aspire to, it is essential that we have access to accurate, real-time information and greater visibility into the entire supply chain. This extends from the time an order comes in, to anticipated delivery date, to when and how materials are coming in, to manufacturing constraints, and more."

Instead of merely linking the various elements of the supply chain, Russell Stover sought to "shrink" the supply chain, bringing these elements closer together. According to Maack, this would enable the company to work more closely with both of its market segments -- the small, independent "door-to-door" customers, and the large warehouse accounts who handle their own storage, distribution and transportation.

"With direct customers, supply chain management is more a matter of logistics. Basically, our job with them is ensuring that the selected carrier delivers our products in a timely fashion, particularly in the summer, since chocolate is a perishable product with a limited shelf life," he continues. "On the other hand, with our warehouse customers such as Wal-Mart, the supply chain has definitely been extended to include their customers -- the individual stores. We also work very closely with their warehouse personnel to make sure our products are being rotated properly and moved through efficiently."

Russell Stover Candies' larger customers maintain centralized warehouses that depend wholly on orders from the stores to keep the product moving through their network. Accurate forecasting on their part is a critical element. In fact, Maack anticipates that the new APS software will allow Russell Stover Candies to help customers improve their forecasting to better align supply with demand.

At its heart, Russell Stover is a corporate-driven enterprise. Maack firmly believes the integration of enterprise information with the APS technology and production information will provide increased insight into trouble spots early enough to resolve issues before they can have a serious impact. "By tightly coupling APS technology with financials, for example, we will gain a better view of overall operating costs and be able to assess the impact of various decisions on these costs," adds Maack. "We also believe sophisticated modeling and analysis tools will give us optimal flexibility to plan for the future, evaluating various scenarios and making timely decisions on capacity planning and capital investment."

Although it is too soon to measure the long-term results of Russell Stover Candies' ERP and APS systems, Maack says the company literally began seeing an impact in the raw materials area the second day after the software was installed.

Currently, the optimization capabilities of the BaanSCS planning software are being modeled to Russell Stover Candies' business. The task is time-intensive, but holds equally bright promise, in Maack's opinion. "Having advanced APS capabilities will be exciting," Maack says. "It will enable us to coordinate workloads, scheduling and production for all the plants, based on constraints, and to tie into the extended supply chain to manage our business in a more cohesive manner. At a minimum, we expect to reduce inventory by 10 percent, and we also expect reduced lead times and increased capacity through improved resource allocation, without adding staff."

Although Russell Stover Candies is not now engaged in vendor-managed inventory, Maack says the market is moving swiftly in that direction. Some of the bigger retail chains are adopting point-of-sales integration policies that call for vendors to receive payment only when the income is collected at point-of-sale. Whatever happens, the new system will enable the company to remain flexible in responding to customer requirements. In addition, Maack thinks the BaanSCS software simulation capabilities will play a key role in providing decision support for both short-term and long-term strategic initiatives.

Spicin' up the sauce

In years past, in order to try some of Harold Sadler's tasty barbecue, you needed to visit the drive-up restaurant in the small east Texas town of Henderson. Today, Sadler's Bar-B-Que processes more than 200 million pounds of beef, chicken and pork products annually and can be found in supermarkets nationwide.

Sadler's uses MAX from Kewill (North Billerica, MA) as the ERP component of its supply chain systems because of its versatility, according to Marianne Harden, information systems manager. Business needs have also changed, from raw material purchases to production and employee scheduling.

"Our business has grown so fast we already outpaced a $5 million expansion in 1998," says Harden. "We can no longer rely on historical data for forecasting. We nearly doubled our monthly output compared to last year." With MAX, the company is able to factor in growth trends with history to come up with a more accurate forecast.

Since Sadler's raw materials are commodities, MAX also helps the company spot pricing trends, and factors in storage capacity for bulk buying. "For example, if it is the time of year when briskets are inexpensive, we need to decide how much we want to bring in, what the customer demand will be and what storage constraints we face," notes Harden. "We can customize the system to our particular business requirements without having to do any additional programming."

Sadler's has a client/server system with 20 MAX users running applications such as inventory control, purchasing, sales orders and planning and production scheduling. "MAX tracks all of it and keeps all the pieces together in a seamless demand and replenishment system," says Harden.

Sadler's prepares its production schedule on a daily basis in two fields: raw meat and cooking as one group, and packaging as a second process. "For example, if a product is scheduled for shipment on Friday, packaging must be completed by Thursday," Harden says.

Shipping is also handled through MAX by creating staging orders. The system tells the warehouse how much product it needs to be staged, by when and for whom. Invoices are drawn from the staging orders as products go out the door.

The company is currently implementing MAX's routing process. "This will be used for high-volume single customer orders, which may take a week to get through the process, opposed to the normal one or two day turn around," says Harden. "Routing will allow us to track the progress of the order throughout the assembly and verify customer schedules."

This system's a lifesaver

Steve Cortese, senior manager supply chain information, with Nabisco's U.S. Foods division (makers of Planters, A-1, Lifesavers, Grey Poupon, Milk Bone and Cream of Wheat) counts on Numetrix's (Norwalk, CT) Enterprise Planning and Production Planning applications in his efforts to coordinate IT (information technology) and manufacturing operations.

"When we implemented Numetrix's applications about two years ago, it was part of a corporate reorganization," says Cortese. "Nabisco optimized its overall structure looking at three categories; people, process and technology. We boosted our processes to best-in-class, allied our people to match the new structure and searched for the best software packages that would support and optimize our objective."

Under the restructuring, production planning became the jurisdiction of logistics with the goal of using better technologies for production planning and long-range capacity planning. "We use the Numetrix/3 Enterprise Planning application at the corporate level for long-range capacities and the Production Planning application at the plant level for short-range scheduling," notes Cortese. "We feed the demand to the system and the system then feeds the MRP. It optimizes costs for all items including various options we have for pre-building inventories of seasonal ingredients, which must account for variables such as storage capacities and cost of goods."

Three basic criteria led Nabisco to Numetrix, according to Cortese. "It is a very robust system, allowing good modeling capabilities of our plant operations; it integrates well with existing MRP and DRP [distribution requirement planning] software; and our company was already using some Numetrix applications, so consistency played a role in the decision."

Cortese sites Numetrix's options as a bonus. "We can compare JIT (just-in-time) versus available-capacity production planning scenarios to determine the most cost-effective approach to production. This could be based on sales forecasts and/or looking for periodic plant shutdown opportunities," Cortese says.

In the two years with Numetrix, Cortese estimates savings of more than $10 million in raw and package inventories as well as reduced finished goods inventories. "While this savings is due to a combination of people, process and technology restructuring, I know the Numetrix applications played an integral part in the overall savings," he says.

The corporate enterprise needs to be precise in defining goals and objectives, preferably before embarking on supply chain solutions, according to Cortese. They must also decide whether to go with a single vendor solution or best-in-breed for each application.

"There are pros and cons to each approach," notes Cortese. "While best-in-breed gets the best software for each specific application, you also end up with multiple vendors and multiple platforms. Challenges include integration between the platforms and you only achieve 'quasi' real-time information. Although single-source solutions assure seamless integration between applications, you do not necessarily get the optimum solution for all your needs."

Nabisco is currently using the best-in-breed approach, says Cortese, but is beginning to investigate switching to a single-vendor solution. "However, determining a ROI and putting together a business case for management on something like this is a tough job. So, food companies that are just implementing supply chain solutions or thinking about expanding to enterprise-wide systems should strongly consider the options of single [vendor] versus best-in-breed before taking the plunge."

Global Pipeline

Whether you are a food importer, manufacturer importing raw materials or exporting finished product, having a clear view into the global supply chain pipeline is vital. Liberty Richter (Saddle Brook, NJ), a specialty food importer representing more than 80 brands, supplies retail, foodservice and wholesale markets. The company faced two major problems with its operation; one was internal visibility into available inventory, both on-hand and in-transit that could be allocated to orders; and tracking actual cost of products to determine brand profitability.

"We wanted increased inventory turns and better use of capital, improved personnel productivity, and accounting and profitability reporting," says John McLennan, vice president finance. "With 2,000 customers ordering frequently and in small quantities, and handling many seasonal products, coordination between sales and procurement compounded the inventory problems."

After searching for a specific solution, Liberty chose 3rdwave import distribution software system from Blinco Systems (Toronto, ON). "It integrates our key functions of purchasing, inbound logistics and tracking, inventory control, order entry, accounting and finance," notes McLennan. "We have significantly reduced our out-of-stocks and excess inventory. Real-time visibility lets us know what products are in the supply pipeline on the floor and on the water. It identifies the contents of each lot in every warehouse and the balance against each lot. It also [identifies] date-sensitive products and expiry dates, and lot-sensitive releasing can occur from anywhere in the physical system so orders can be cross-docked."

When orders are placed, the software automatically checks for other outstanding orders so shipments and billing can be consolidated. Savings in this area alone are in the tens of thousands of dollars for Liberty Richter. "Other software packages we looked at were not able to handle multiple currencies, a must in our business. 3rdwave automatically converts currencies using entered exchange rates as well as allowing negotiated fixed rates to be stored for orders," McLennan says.

McLennan notes four areas of benefit:

  • Information Flow: Workflow is streamlined because information flow has improved. "We are able to better manage relationships with suppliers, third-party warehouses and customers. We previously used spreadsheets, which took a lot of time to put together and offered limited access and visibility," he says.
  • Shipping Costs: "Combining and consolidating customer orders results in better shipping rates."
  • P/L by Brand: "We automatically match all costs associated for a specific brand, letting us know how much each contributes to profit. That impacts how we do business with those brands."
  • Sales Projections/Commitments: "The software allows us to look three to six months ahead and know where the problems are, whether sales are ahead or behind budget and whether we have enough inventory to meet sales commitments. We can 'slice-and-dice' the information for better and more accurate planning."


What's the SCOR?

Need some guidance on supply chain management efforts? By placing supply chain activities in a Supply Chain Operations Reference model (or SCOR card), developed by the Supply Chain Council (SCC, Pittsburgh, PA), companies can determine the strengths and weaknesses in their supply chain. The system also identifies areas where specific operational improvements can be made to enhance their supply chain management efforts.

The SCC is currently working with the American National Standard Institute (ANSI) to develop a recognized standard based on the SCOR model.

For more information, including a new benchmarking study, visit the web site: supply-chain.org.