Trading inventory for information

Prepared Foods, April, 1997 by Alan J. Laduzinsky

The old adage, "time is money," is taking on a new meaning in today's food manufacturing business.

Inventories cost money to purchase, to carry on the books and to store. Damage and shrinkage add more cost. If customers' orders could be predicted on a daily basis, inventory could be reduced to the bare minimum.

How does a food company reduce inventories, shorten delivery times and improve its customer service? Both simple and complex, the answer is timely and accurate information.

The latest versions of Enterprise Resource Planning (ERP) software, plus the current move toward Efficient Customer Response (ECR) in the food industry lead to a new way of thinking about how information is used and how to conduct business (i.e. ordering of raw materials, when and where to manufacture, transportation and distribution methods, etc.).

Although varied in its components, each ERP system is based on how to look at and use information. For example, a focus on production scheduling includes activities within the plant from raw materials to finished goods. At another level, information focused on ECR practices allows companies to meet wholesale and retailer delivery requirements.

Based on object software, the technology enables users to develop better business practices. Each of the ERP companies - Marcam with PRISM and Protean enterprise-wide application software, Oracle Corp. with a consumer packaged goods package, SAP America with R/3 enterprise business software, and Systems & Computer Technology with Adage ERP packages - have found acceptance in many food and beverage manufacturing sites.

Jeff Smith, partner in charge for Efficient Customer Response, Andersen Consulting in Grand Rapids, Mich., refers to the "four walls" of a food plant, where companies can work with their automation or control supplier to develop one solution. As examples, he cites Kroger Foods and Kraft Canada which rely on Marcam, and Earthgrains which uses SAP America.

"Once companies have solved their four-walls problem, they have only started to address today's business issues," reports Smith. "New marketing strategies in retail and wholesale channels have changed the enterprise planning process. The single biggest factor is the explosion in trade promotion patterns as a marketing tool. It has changed seasonality and demand patterns, making it much more difficult to forecast sales.

"Alternative format stores (e.g., Sam's Clubs) became a factor in food sales by delivering a value proposition to consumers. They offered limited assortment, highly efficient distribution and logistics, and a clear expectation of business practices passed on to the manufacturer." As a result, 11 food trade associations have developed ECR reports that describe best business practices to meet these changing market needs.

Custom Solutions

Because ECR is relatively new, few food companies and ERP software suppliers have fully embraced all of its requirements. This is complicated by the fact that each food company has a different set of distribution and shelf-life requirements. Depending on market position and strategic goals, food companies approach information systems differently, and have an even wider range of planning needs. Consequently, the path to enterprise information is just as varied.

In some cases, a food company may turn to its control supplier. Jerry Brown, director of batch and integration marketing at Fisher-Rosemount Systems, says his company will work with customers to establish goals. By examining data flows and business needs, Fisher-Rosemount has developed templates that consist of predefined functional specifications. Each is a product aimed at solving a particular user problem.

Using Fisher-Rosemount's Enterprise Server system, a customer can join production scheduling to the production system. The module reduces integration to a simple configuration process. Fisher-Rosemount identifies four ERP modules - materials, production, production planning for process industries, and quality - that rely on process information.

Another traditional control vendor, Foxboro Co., also has accepted the challenge of integrating information. While touring a cereal plant, Peter Martin, vice president market strategies for Foxboro, was astounded by the taste of the product right off the line. He had never tasted cereal that good. Martin discovered that the taste difference was due to delayed shipping to the supermarkets. The cereal company needed faster delivery to improve product quality.

This experience has led to a series of new initiatives from Foxboro to turn the entire company enterprise into a single unified database. One initiative involves working with Groupe Schneider to deliver enhanced automation solutions, using industry-standard networks. At the same time, Foxboro will partner with Chorus Systems (Paris, France) to develop the world's first real-time Object Request Broker (ORB) to unify plant floor data with the other parts of the organization. Connecting to ERP systems is the next step.