Head in the clouds



By Lou Reade

- Last updated on GMT

Related tags: Supply chain, Supply chain management

Head in the clouds


Despite the clamour to reduce food miles, the food industry relies on transporting products and ingredients whether it is milk, poultry or hops between locations, in order to add value to them.

A wide variety of software, loosely categorised as enterprise resource planning (ERP) systems, can be used to improve production, scheduling and elements of the supply chain making sense of its complexities in order to drive profit.

"These systems help food companies to become more profitable by managing variability, volatility and compliance," says Andrew Kinder, director of marketing in Europe, Middle East and Africa at ERP vendor Infor. "And it doesn't depend on company turnover: it's about the level of complexity in the business."

Historically, he says, ERP systems were designed for 'discrete manufacturing' processes such as the car industry. But these were not geared up to handle the wide variability at work in the food industry.

"In many ways, nature is a very poor supplier," he says. "It's never on time, product quality is variable and you can't reject it. As a food company, you have to work with what you're given."

Even something as deceptively simple as a can of beans has raw materials that vary in hardness and sweetness, which must be accounted for during processing. This is why the standard 'bill of materials' had to be replaced by a 'recipe' in ERP systems for process manufacturing industries such as food.

A recipe is more complex than a bill of materials, he says, combining material ingredients with other factors such as cooking time, process conditions and costs.

"Food companies have been poorly served by traditional systems," he says. "Many are probably still using spreadsheets."

Some will also be working with 'discrete' ERP systems that have been adapted for use in process production, he says.

Supply chain optimiser

On top of this, a separate program called a supply chain optimiser can help to squeeze maximum profitability out of a plant. Kinder cites single-product companies those that process one main raw material, such as milk or chickens as ones that can benefit from this.

In milk, for example, meeting the order demands for bottled milk, cream, ready meals and many other products must be balanced with the need to maximise profit.

"In this type of industry, you need to understand what options you have and what effect these will have on your relative margins," he says. The optimiser looks at all the millions of permutations which Kinder calls 'what if' scenarios and finds which ones deliver the maximum return.

"It can be done without software, but you won't have time to check all the options so you're unlikely to end up with the best one," he says.

Farm Dairy, a Dutch farm based in Lelystag, has used Infor's advanced scheduling software to optimise its planning process which it expects to deliver annual cost savings of around E100,000. It produces 180M litres of dairy products a year.

Before implementing the software, it relied on Excel spreadsheets to schedule operations on the different product lines for milk with various fat contents, yogurts and puddings. Data was often entered twice, making the system time-consuming and prone to mistakes.

According to Wim Meiling, logistics manager at Farm Dairy, the software helped the company to plan around bottlenecks. The planning process was also no longer dependent on individual knowledge or experience. The company expects to reduce stocks by at least one third and save up to E1,000 a year.

ERP and related systems are often seen as being for giant companies only. But Kinder stresses that the software cuts through complexity by allowing choices regardless of turnover. "If you have choices that you can act on which influence your margins then an optimiser is a good tool," he says.

Up in the clouds

Despite the advantages, many companies still have a fear and rightly so about the cost of a dedicated system. In the age of the internet, there are ways of installing planning, scheduling and supply chain systems that do not involve tailored software that is hosted on-site and kept running by a team of specialists.

It involves running applications over the internet in a process known as 'cloud computing'. One element of this is the concept of 'software as a service' (SaaS), in which a computer program is hosted on a remote server and accessed online. This approach is becoming more popular, and some analysts believe it is on the verge of mainstream acceptance. While the food industry lags behind other adopters such as automotive a number of food companies have begun to embrace these types of system.

'Cloud computing' vendor GXS recently ran a survey of 800 companies, of which around one-tenth were in the food and beverage business. GXS found that managing complexity was a key issue for these companies. Part of this complexity is due to the power of the supermarkets, meaning that they dictate how business is carried out.

"The problem is, the supermarkets all have slightly different systems," says Steve Keifer, vice president of industry and product marketing at GXS. "As a supplier, you have to cope with this. But it adds complexity and cost to the supply chain." Many suppliers struggle to deal with all the different systems, rules and details of their many customers which is not helped by the fact that they may all change a few times each year.

"By putting it in the cloud, you make the software vendor responsible for any changes that are made, which shields you from those sorts of complexities," he says.

Keifer cites an example as basic as filling in a standard form. It may have 25 fields, but different customers will populate it in different ways. In this case, SaaS software can act as a 'translator', automatically converting a completed form into the correct format for each supplier. "This allows ERP systems to talk to one another," he says.

He says that a full-blown ERP system is unlikely to be replaced by a cloud-based version. But many elements associated with ERP, such as human resources, customer relationship management and supply chain management are ideally handled in this way.

"There are some unique complexities in the food industry: the volume of transactions, the frequency of orders, and the fact that you can't keep things in inventory for long," he says.

Going one step beyond this is to outsource responsibility to the vendor. Rather than simply supplying a software package, the vendor manages all or part of the data. It might handle data for a specific geography, or for the largest clients, he says.

"Manufacturers come to us complaining that the supply chain is just too complex, and ask if we will take it over and manage it for them," says Keifer. "They want us to deliver them with files that can be ingested directly by their own systems."Partly because of the power of UK supermarkets, UK food manufacturers are ahead of their European counterparts in adopting these types of system. Keifer reckons that around 10% of companies have embraced this approach with the potential that it could eventually reach 50%.

"Many companies we talk to are interested in the possibility of cloud computing, but are still assessing exactly where it fits and what the benefits are," he says.

Highland Fling

It’s not just large suppliers that can benefit from cloud computing.

Maclean's Highland Bakery is a good example. The company, which employs 130 people at its factory in Forres near Inverness, won an order to supply a local Tesco store with its morning bakery products. It was also responsible for checking the stock situation which md Lewis Maclean monitored by driving to the store from time to time and checking the shelves. This created an order for the next day.

"This worked really well until we got into six stores," says Maclean. "Trying to do it for six stores was near-impossible."

So, with huge scepticism, he began using a GXS system called intelligent web forms. This is aimed at small and 'occasional' suppliers, that need a quick, simple way of dealing electronically with retailers.

The form can be adapted for use with different retailers. It is used to send out an automatic order, and can then with minimal input be turned into an invoice. No re-keying is needed. This also moves the supplier to electronic invoicing, meaning there is more chance it will be paid on time.

"Having Tesco's orders online, every day, has helped us to drive our business forwards," he says. "It's helped us plan production much better and it also helps us with our freshness which I feel is one of the key ingredients of dealing with a local baker."

KEY CONTACTS

Infor UK 01252 55 6000

GXS 01932 776047

Related topics: Supply Chain, IT

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