Tech Update:
Supply chain tools pay off

November 5, 2003
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The proof is in the percentages. Food companies using supply chain software can better predict demand and reduce inventories.

AS SUPPLY CHAIN INITIATIVES IN FOOD COMPANIES MATURE, hard numbers prove that supply chain software can improve food business.

In a few weeks, the FDA will begin to enforce Title III of the Public Health Security and Bioterrorism Preparedness and Response Act. The regulations go into effect on December 12, 2003 and will have a dramatic impact on the food and beverage industry.

"With FDA authority over 80 percent of the U.S. food supply and over 500 new inspectors armed with civil and criminal penalties, this law will have more impact on the food industry than all other regulations combined," says John Blanchard, senior analyst with ARC Advisory Group. While there are limited exemptions, the law applies to those who manufacture, process, pack or hold, transport, distribute, or receive regulated food product.

Rapid response, within four hours, based on backward and forward traceability throughout the food supply chain is at the heart of the regulation. According to Dwight Klappich, vice president of Meta Group, "Lot/batch traceability must extend across the extended supply chain." For most organizations, he says, there are multiple systems that touch product (for example, ERP, MES, WMS) internally but with the growth in outsourcing (third party logistics), this problem is exacerbated by the need to extend the reach of traceability beyond internal processes and systems.

One example of extended traceability, according to Klappich, comes from software supplier Red Prairie. The tool helps customers manage and track product across the extended supply chain. By leveraging the Internet and web browsers, it layers on top of transactions systems (e.g. ERP, WMS), allowing supply chain partners to manage products at the lot level.

"With Red Prairie, we can accomplish in minutes brand protection processes that used to take days," says Larry Hilgert, manager of warehouse information systems, logistics capabilities and technologies for Quaker Food and Beverages. "Red Prairie systems enable us to control inventory and protect our brands across a large and complex distribution network."

Evian-Volvic, part of the Danone Group, is using quality management software from EXE™ called EXceed™ Sentinel. According to Laurent Fremion, supply chain information systems manager for Danone Water France, "The system is capable of tracing products from the factory to the delivery point and ensures both passive traceability, the ability to locate any product any time from its lot number, and active traceability, enabling the hold and release of products anywhere in the supply chain network."

The ultimate experience

"Most of the leading food and beverage companies are striving to get closer to the demand signal to gain insights into the ultimate demand, the consumer," says Kara Romanow, senior research analyst at AMR Research. These insights can then be leveraged throughout the supply chain, impacting both customer and supplier relationships, she adds.

The ultimate source of demand is point of sale (POS) data. Many retailers have successfully captured POS data and have been traditionally charging manufacturers for it. Now, retailers are seeing that the real value is in collaboration, bringing supply chain improvements to all members of the supply chain. Today POS data can typically be available at no charge. Although some technical barriers remain, Romanow sees 2003 as the year that manufacturers obtain this information; 2004 the year where the POS data is organized into the appropriate IT tools; and 2005 as the year full advantage will be available.

Most foodservice or vending channels lack POS. However, a Dallas-based company called IRM collects foodservice and vending sales and movement data and provides that information and analysis tools to food manufacturers. Information collected by IRM serves sales, promotions management and planning systems. IRM's customers include ConAgra, King & Prince Seafood Corporation, and Kunzler Meats.

Adrian Gonzalez, director logistics, executive council, at ARC Advisory Group sees a service called UCCnet as having a big payoff in supply chain management. According to Gonzalez, UCCnet addresses data accuracy-the "Achilles heel of the supply chain." UCCnet users claim reduced losses due to invoice discrepancies and product delivery errors of 50 to 60 percent; a 30 percent improvement in the quality of purchase orders; improved speed to retail shelves for new items and price changes by 80 percent; and increased retail scanning accuracy to 99.8 percent. More than 750 companies have joined UCCnet to date and more than 60,000 products have been registered. (See Food Engineering October 2003, page 13.) Current subscribers include Campbell Soup, Coca-Cola, Hershey's, Kraft, and Nestle Purina Petcare.

Proof in percentages

To more accurately predict consumer demand, Quaker Oats Canada selected Logility Voyager Solutions and now reports excellent results. Average inventory turns increased from 15 to 35 percent. Inventory levels dropped by 60 percent. Cube utilization jumped from 38 to 90 percent, eliminating more than 30 percent of the pick-ups at Quaker's warehouse. Quaker and its customers saw a 77 percent drop in purchase order, invoice and bill-of-lading transactions.

Similarly, Chivers, the top maker of preserves in Ireland, had been shopping for software that could handle both supply forecasting and demand planning. "The company had some very specific requirements for handling its manufactured line of sauces, jams and marmalades, as well as its import and distribution business," says David Brady, information technology manager. "The new system from Prescient could distinguish regular demand from promotional activity, as well as account for seasonal peaks and valleys," Brady says. Chivers reports 96 percent forecast accuracy with a two-year payback of 10 times the implementation cost. Inventories fell by 10 percent, clearing space in the warehouse for growth in its distributed product line. Other benefits included better visibility and decision support, and a rise in customer-service levels of one half to one percent.

Another example is Otis Spunkmeyer, makers of frozen, prebaked bakery items. Spunkmeyer ships from six production facilities to four cold storage facilities, which then ship to 57 sales centers. The baked goods processor does long and short term planning using J.D. Edwards supply chain planning software. A twelve-month plan evaluates capacity, project staffing and material requirements. Weekly plans convert forecast to plant loadings while considering plant availability, cost issues and plant level production sequences, for example light to dark product.

"The operational benefits of the new approach included targeting cost savings in production, distribution, and commodities purchasing," says Kevin Tyschper, Spunkmeyer's director of network planning. "Administrative benefits included enhanced forecast and flow rate accuracy, time savings in production planning and dramatically reduced data entry time," he adds.

Rich Products implemented a Product Lifecycle Management (PLM) solution to support an aggressive new product innovation strategy. "To meet our business and product goals, centralizing all of our product information was an imperative, and will ensure timeliness and accuracy of new product launches," says Anne Schneider of Rich's R&D quality systems department. Rich's implemented Formation Systems' Optiva, a PLM offering tailored to the food industry.

Diageo, owners of brands including Guinness, Smirnoff, Johnny Walker, and Baileys has launched initiatives to collaborate with suppliers and distributors. The objectives include near-real-time inventory visibility and collaborative planning stretching from key customers through distribution centers (DCs), plants, co-packers, and raw material suppliers. The initiatives are based upon software products from Manugistics.

At Guinness, suppliers, plants, co-packers, DCs, and shippers are linked via the web. Production planners use demand information from sales reps and from their Manugistics forecasting and fulfillment systems to generate weekly production plans, which are given to suppliers via the web. Suppliers and co-packers see stock levels, production plans, and shipping dates. Suppliers then send their shipment plans to Guinness. The system compares suppliers' plans to Guinness's needs, and alerts all involved about conflicts. The suppliers and Guinness then resolve any conflicts on line. The goal in North America is a one percent sales increase from a rise to 98 percent in stock at stores with 94 percent in stock at shelves.

The Earthgrains division of Sara Lee, with 61 bakeries and plants in the U.S. and 16 in Europe, reduced maverick spend by more than 10 percent using the Ariba eProcurement solution. Earthgrains successfully renegotiated many of its contracts using data and information from the Ariba solution, with savings ranging from 3 to 35 percent. Ariba customers include Diageo, Kraft and Unilever.

National Frozen Foods Corp. chose Coolearth's Whistle software for warehouse management. With increasing order volumes and customer pressures, the system helped to improve customer service levels in automating directed picking, loading, and shipping to cut truck loading times in half from 90 to 45 minutes. Whistle also helped eliminate order fulfillment inaccuracies, and shaved over a day from National's order-to-cash cycle. The system also enables National to grade vegetables and report production in real time, while its directed put-away optimizes cold storage-an especially important concern for seasonal products that may spend months in the freezer.

Land O'Lakes uses Nistevo for Transportation Management. According to Land O'Lakes Logistics Manager Patrick Johnson, the objective was to implement a system that would allow transportation managers and customer service reps to directly manage the daily execution and visibility of freight operations in order to improve control. As of April 2003, Land O'Lakes is managing all of its 30,000 freight loads through the Nistevo network, contributing significantly to a 16 percent reduction in freight dollars and a return on investment of 400 percent in just the first six months. The Nistevo Network also enables systematic freight consolidation among community members by identifying complimentary freight lanes and helping set up inter-company "tours" and dedicated lanes of freight. These tours offer shippers new capacity and cost efficiencies, while carriers benefit by more effectively utilizing assets.

2003 Food Engineering's Supply Chain Software Guide
(a downloadable PDF)

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