Back in 1995, after covering the first Joint Industry Conference on Efficient Consumer Response (ECR), Food Engineering reported that "manufacturing was the missing link in the supply chain. Nobody addressed the impact of ECR on the manufacturing plant. Manufacturer presentations focused on MIS, EDI, distribution and marketing; noticeably absent were issues such as flexible manufacturing and the plant-floor communications links required to execute continuous replenishment and ECR."
Manufacturing continued to be ignored at subsequent ECR conferences. To speakers representing both food manufacturers and retailers, the supply chain started with a product which magically appeared at the beginning of the chain. The manufacturing plant seemed to be a "black box" little understood by the IT and marketing people from food-manufacturing companies, and -- understandably -- not even conceived of by their retailer customers.
Only recently has management recognized that the plant floor must tightly integrate with suppliers on the buy side and customers, carriers and distributors on the sell side if the plant is to manufacture to order rather than to inventory -- if it is to know what to produce, when to produce it, for whom to produce it, and where to ship it to achieve ECR -- to get the right product to the right place in the right quantity at the right time.
The advent of the Internet and the World Wide Web, however, combined with emerging industry standards make information exchange possible between supplier, plant and customer without custom integrations. Emerging standards such as XML (Extensible Markup Language); the S-95 standard (published by the Instrumentation, Systems & Automation Society (ISA) for integrating the plant floor with upper-level business systems); and the Uniform Code Council's UCCnet for electronic trading are bringing "e-commerce" within reach of food manufacturers.
Strategies undefinedAccording to an October, 2000 study by Andersen Consulting and The CIES Food Industry Forum, however, few food manufacturers or retailers are ready for e-commerce. (CIES, the Comite' International des Entreprises a' Succursales, is an international food-industry network representing 250 retailers and an equal number of their suppliers.) Sixty-four percent of responding executives said their company has no clear-cut e-commerce strategy. CEOs are the most optimistic: 61 percent rate their e-commerce opportunities as "very strong" versus only 42 percent of IT directors. Seventy-four percent of CEOs believe they are driving e-commerce within their companies, but only 55 percent of the IT directors believe it.
Manufacturers are more optimistic than retailers concerning the impact of e-commerce on their margins: 57 percent believe margins will increase, as compared to only 33 percent of retailers. Manufacturers generally have less confidence in top management, however: 27 percent say senior management is not at all committed to e-commerce versus only 5 percent of retailers.
Human elements are considered the major obstacles to developing e-commerce. Corporate culture, insufficient skills and lack of management commitment head the list. Surprisingly, insufficient funding is the lowest barrier: Only 26 percent of respondents rate funding as a major obstacle to e-commerce development.
These results confirm conclusions reached at the Food Summit conducted last September by AMR Research (Boston). "There is broad agreement that B2B will be important in the food business, but no consensus on where and how," said AMR's Roddy Martin.
Current initiatives set-up and support trading exchanges but they are more defensive than offensive, Martin continues. In the short term, companies are trying to cut procurement costs, partly to counter the consolidating clout of retailers and mass merchandisers. But cutting costs is not enough to encourage new business models, make better use of the Web, broaden process integration across the supply chain, and leverage the extensive ERP investments already made by food manufacturers, Martin adds. Manufacturing is not prominent on the e-business team, Martin observes, "probably because manufacturing is not making itself understood outside the four walls of the plant, and because IT has assumed the role of dealing with manufacturing issues."
e-procurement shakes-outThe e-commerce supply chain starts with integrating suppliers to meet the manufacturing schedule of the plant. Plants are starting to integrate with suppliers via Internet exchanges to cut costs and speed procurement of their raw material, ingredient, packaging material and MRO (maintenance, repair, operations) needs.
But, as reported earlier by Food Engineering (Sept., '00), new dot.com food exchanges are starting-up every week. Many claim to offer savings opportunities but are built on little more than a website and news releases projecting grandiose plans.
According to a Dec. 12 report by AMR Research, independent trading exchanges (ITXs) are starting to tumble. "Like their dot-com retail cousins, ITXs are starting to collapse under their own weight, as venture capitalists and industry supporters abandon support," said AMR researchers Leif Eriksen and Randy Weston. "ITXs that still survive are hanging-on by virtue of layoffs and cost-cutting."
ITXs underestimated the strength of existing supplier/customer relationships, AMR continues. Many promised to transform entire industries by simply inserting themselves in the middle of transactions. But buyers were unwilling to abandon the security of existing supplier relationships for uncertain savings. This seems especially true for large food companies, where vendor-certification programs and vendor-managed inventories are common. Sellers responded by building their own Private Trading Exchanges (PTXs) to prevent the ITXs from getting between them and their customers. Then came the Consortium Trading Exchanges (CTXs), which further weakened the ITXs. "Nearly every industry formed its own exchange, with the biggest industry heavyweights usually leading the investment," says AMR.
One example is Novopoint.com, a neutral CTX formed last March by Cargill, Crosspoint Venture Partners and Ariba, Inc., using the Ariba B2B Commerce platform to integrate food and beverage manufacturers with their ingredient, raw-material and packaging suppliers. According to Ariba, Novopoint is an independent firm with majority ownership "to be held by companies recognized as leaders in the food and beverage industry." Novopoint President and CEO Bob Schult was formerly president and COO of Nestle USA; Chief Technology Officer George Coulter was formerly director of technology at Pepsi-Cola.
According to Cargill Vice-Chairman Bob Lumpkins, "Novopoint will be the industry site of choice" allowing "faster price negotiation," order tracking and less paperwork. Lumpkins' prediction seems accurate: As of Nov. 30, Novopoint boasted 250 integrated locations since going live in September. Novopoint will use open Internet standards and web browsers through Ariba's B2B Procurement Solutions, currently used by Cargill. Ariba solutions are applied by other major food/beverage manufacturers including Nestle, Kraft, Unilever, Molson, Earthgrains and Diageo, mainly for MRO and/or packaging purchases.
Another CTX is Transora, a standards-based B2B marketplace established last July and backed with more than $250 million invested by 54 major consumer-products companies, of which 40 are food/beverage manufacturers including heavyweights Nestle, Kraft, Unilever, Anheuser-Busch and Coca-Cola. Transora hopes to become a "central hub" connecting both suppliers and customers to manufacturers. Pilot activities will define architecture and transaction standards to "cover all areas of the inbound supply chain" including ingredients, packaging and MRO. Transora last July named Judy Spreiser, former executive vice-president of Sara Lee Corp., as CEO.
One successful food-industry ITX is Foodtrader.com, a privately-held global B2B marketplace on-line since April '97 for buying and selling agricultural products and ingredients. Foodtrader serves more than 13,000 customers in 180 countries and in June was named among Forbes Magazine's "Best of the Web" B2B firms.
Another ITX with a track record is ecFood, on-line for ingredient purchasing since June '99 and also rated by Forbes among the "Best of the Web." ecFood's services include sourcing, procurement, auctions and demand aggregations. By aggregating demand from several buyers, ecFood can cut costs for each buyer, giving smaller food manufacturers the purchasing clout of big companies. Examples:
Last May, ecFood created an Internet sales channel for J. R. Simplot Co. to recruit customers and create auctions for Simplot products. "ecFood's expertise in food ingredients, supply-chain processes and Internet technologies -- as well as its neutrality -- provides an opportunity to expand our customer base," said William R. Friend, then vice-president at Simplot's Food Group. (Editor's note: See Friend's bylined article "Should You Use An Internet Exchange?" in the Sept. '00 edition of Food Engineering.) More recently, ecFood established Internet-purchasing services for HP Hood and Hormel Foods.
On Oct. 26, Transora announced a "collaboration" with both Foodtrader and Novopoint to determine how to integrate their services. Joint pilot programs will define architecture, standards and synergies.
In 1999, the Packaging Machinery Manufacturers Institute (PMMI) teamed-up with Cendex Corp. to start-up Packexpo.com, a B2B marketplace for buying and selling packaging machinery, materials and services.
Most trading exchanges "are in their infancy and seem unlikely to become truly viable in the short term," AMR Research concludes. Smaller, independent exchanges such as ecFood, however, "are transacting with real customers..." Still, AMR finds it "disturbing" that manufacturing's role in an e-business scenario is not yet fully understood by trading exchanges.
e-manufacturing: plant-centric integrationIn spite of today's wild dot.com valuations, the manufacturing plant is still the place where value is created. Tightly-integrated supply-chain models are emerging where connection of the plant floor to the broader supply chain is essential, and information access -- the right data to make informed business decisions -- is more critical then ever before. The Internet has accelerated this trend.
Last November, Food Engineering reported on three manufacturers -- J. R. Simplot, Basic American Foods and Owens Tennessee Pride -- that take a plant-centric approach to supply-chain integration. Kraft, too, is taking a plant-centric approach, as reported last May by FE. Kevin Prouty, research director for manufacturing strategies at AMR Research, concurs with this approach. "All the data comes out of the plant," he points out.
The plant floor is the starting point for greater information connectivity. Computerized process-control systems generate a wealth of information about productivity, process and product design, product quality and delivery. "A contemporary automation architecture is the key to unleashing this information in a cost-effective manner," says Rockwell Automation in a White Paper entitled Making Sense of e-Manufacturing: A Roadmap for Manufacturers.
AMR Research defines e-manufacturing as simply "the intersection of information technology and manufacturing." E-manufacturing means real-time ERP connectivity; asset management of people, products and processes; and seamless connectivity to the entire supply chain via the Web, adds Rockwell.
For the plant manager or engineer, e-manufacturing can seamlessly integrate the plant's control systems with the rest of the enterprise to cut costs, boost productivity and improve product quality. For the manufacturing manager, e-manufacturing can apply the Internet to operations for transparency, responsiveness and to communicate best practices, boosting plant efficiencies in any number of locations worldwide. For the CFO or IT manager, e-manufacturing opens new information from the plant floor which can be used to generate new opportunities and shared worldwide via Internet.
Keith D. Nosbusch, president of Rockwell Automa tion Control Systems, outlined the forces driving e-manufacturing at an international media conference hosted by Rockwell Dec. 5 in Philadelphia.
According the Bureau of Economic Analysis, IT technology is dominating business investment. Originally spurred by Y2K concerns, capital investment for IT equipment has now surpassed investment for non-IT equipment. Currently, only 5 percent of IT investment is spent on manufacturing execution and asset management. IT investments are driving annual growth in U.S. manufacturing productivity, but further gains will require tight coupling of manufacturing plants with the supply chain.
In the traditional supply chain, the plant was only loosely coupled with suppliers to avoid supply shortages, and with customers to avoid demand fluctuations. Plants thus inventoried supplies and manufactured to inventory rather than to consumer demand. Processes were optimized for long production runs so maintenance was reactive, i.e. "don't fix it 'til it breaks."
But all that is changing. Retailer consolidation, manufacturer mergers and acquisitions, more sophisticated consumers demanding more personalized products, and the Internet itself are creating a faster-moving, more competitive marketplace to drive e-manufacturing. E-manufacturing allows rapid deployment of assets, manufacturing to order rather then to inventory, optimized yields, 'round-the-clock operations and supply-chain integration.
E-manufacturing requires four key competencies, said Nosbusch:
- Design ability to rapidly deploy and reconfigure manufacturing capacity based on consumer demand. Rapid new-product introductions can create competitive advantage.
- Operate to optimize yields and product consistency.
- Maintain all assets -- materials, processes and people -- for non-stop operations and optimum productivity.
- Synchronize the manufacturing operation into the supply chain, upstream to customers and downstream to suppliers.
In its White Paper, Rockwell lists four major requirements for an e-manufacturing strategy:
Historically, manufacturing and IT have been culturally opposed, said Kevin Prouty of AMR Research at the Rockwell media conference. But as e-business technologies mature, manufacturing and engineering leaders who have a good grasp of the IT infrastructure and culture are emerging. Instead of pushing IT into the plant, they're pulling IT into the plant because they see the benefits of using it.
Ian Steele, engineering manager at Anchor Products, Ltd. in Hamilton, New Zealand, discussed his company's integrated information architecture at the Rockwell media conference.
As reported earlier by Food Engineering (Nov., '99), Anchor integrates Allen-Bradley PLCs, SCADA, DCS, a relational database and Pavillion model predictive control and soft-sensor systems via Ethernet to optimize product variables such as moisture content in milk powders. Ninety percent of products manufactured at Anchor's 11 dairy plants are exported. Anchor currently has more than 70 predictive-control projects implemented. An integrated, information-enabled architecture means several things, said Steele, including alliances with control companies such as Rockwell; integrating the plant floor from I/O to PLC and PLC to HMI; real-time response; reliability; standards; open systems; and optimizing KPIs (key performance indicators) at plant level. "Integrated manufacturing takes us from cow to customer," said Steele. "We've been very successful in breaking-down the traditional IT culture and linking data-rich process information to the enterprise for strategic decision making."
e-commerce integrationEarly efforts to achieve ECR bogged-down because the plant wasn't considered in the supply chain, and because manufacturers and retailers could not satisfactorily integrate their Electronic Data Interchange (EDI) systems. Legacy systems required customized, costly one-to-one solutions, discouraging integration. "EDI solutions have not addressed this integration concern," says the Uniform Code Council in its October, 2000 UCCnet White Paper, which introduces a business model for global electronic trading.
UCCnet addresses industry-wide standards through XML technologies and business-process models defined by the current trading community, says UCC. Standards make it easier for partners to integrate their existing IT infrastructure with UCCnet.
Released last summer, UCCnet is the first industry-supported standards-based infrastructure devoted to the food retail market, says UCC. The objective of the base release is to synchronize data from manufacturers, distributors, brokers and retailers so B2B services can follow. Pilot programs include scan-based trading and vendor-managed inventories. In the future, UCCnet envisions exchanging pricing, direct-store delivery (DSD), private label, imaging and nutrition information, and offering auction or negotiation capabilities.
As a neutral exchange, UCCnet seems primed for success: As of October, more than 275 businesses were committed, UCC reports.
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