Food & Beverage Processing: New View Of Information

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September 22, 1997

FOOD & BEVERAGE PROCESSING:
New View Of Information

The food industry no longer sees IS as an expense. Now it's a source of revenue.
By Martin J. Garvey
IW 500 slug onsumers are ruthless: When they go into grocery stores, they want low prices and short lines. Brand loyalty appears to be eroding, as consumers readily switch favorites for the sake of saving a few cents.
That can be bad news for the IS divisions at food and beverage processing companies. While more sophisticated use of IT would appear to be a way to gain a competiti ve edge, in this era of cost-cutting, IT executives in this sector are often asked to do more with less. And with profits dependent on everything from rainfall to fickle consumer tastes, IT sometimes has a difficult time earning the credit it enjoys in other sectors.
Even at a well-diversified company such as JR Simplot Co. in Boise, Idaho, where profits from its chemical and minerals business can help ease the pressure on its beef, dairy, and agricultural units, IS must tread a fine line between costs and opportunities.
"As is true with any commodity, food is kind of strange," and business conditions fluctuate, says Bill Grzanic, IS manager at Simplot. Grzanic and his staff support all Simplot's business units, but work goes on at different rates, depending on where a given unit happens to be in the business cycle.
"Beef goes up and down, feast or famine," Grzanic says. If the company makes money, the use of technology goes up. But if it's losing money, technology investment is quickly cut. Simpl ot's predicament isn't unique in the industry. So far this year, prices at the grocery store have remained stable, and retailers have been able to charge premium prices for shelf space. The result: food and drink processing companies must look carefully for new profit-and cost-cutting-opportunities.
On the downside, the food and beverage industry lost at least 100,000 jobs, or 10% to 15%, between 1995 and 1996, according to Prudential Securities Research. On the plus side, food and beverage processing companies are viewing IS and IS staffs in a different light. Until recently, IS could only respond to business requirements-the classic reactive vs. proactive dilemma. One food and drink processing industry analyst believes that may be changing.
"Information has long been the holy grail," says Bob Messenger, editor of Food Processing magazine in Chicago, "but companies haven't been able to get their hands around it, and have therefore viewed IS as an expense. But without it, companies have in many ways been impotent."
Now, market conditions are prompting companies to seek out new revenue opportunities-and IS may get its due.
Using Information Resources
Accessing and understanding information has become more important, says Messenger, because that lets companies stay on top of trends. While food and beverage companies have had information resources for years, they've often made little effort to use them.
At Simplot, IT investments in logistics and distribution are getting a lot of attention. "We just rolled out Marcam [Corp.] manufacturing and logistics applications," says Grzanic, adding that the process hasn't been without its challenges. "Cutting over from VAX to Compaq ProLiants running NT has been pretty bloody," he says, but the project is safe because the business units are demanding the change.
"We're so distributed that we don't share much information across sites," Grzanic continues. "Whatever plant makes money is the one that's going to buy hardware." He says he'd like things to be more centralized, but understands that business-unit needs for information drive buying decisions. "If I'm the business unit that's going to kick off $50,000 for a new ProLiant 5000," he adds, "I'm going to put my own IT guy on to manage it."
Renewed emphasis on information as a source of revenue is creating opportunities for IS executives. Food and drink processing companies in the InformationWeek 500 illustrate some key IS trends. In addition to Simplot, companies such as Alliant Food Service, the Frito-Lay division of PepsiCo, and H. J. Heinz & Co., view information as power, and are looking at cost management and IT-related partnerships to boost profitability.
At Alliant, a $4.5-billion food distributor in Deerfield, Ill., CIO Bob Doyle takes pride in his impact on the bottom line. "I reduced my budget by 10% between 1996 and 1997 through economies of scale and automation in the data center," says Doyle. "That goes directly to the bottom line."
As far as the notion that IS i s a cost, Doyle isn't concerned. "We're critical to the business," he says. "Without IS, a truck doesn't come in or go out, and we can't buy or sell."
At Heinz, in Pittsburgh, a mix of legacy systems, including an R/2 application from SAP, is being combined with new data warehousing capabilities to get a better handle on costs. That effort will ultimately not only save money, but improve customer service. "We get a better idea of what customers demand, predict what warehouse we deploy to, and we'll have less inter-facility movement," says Marc Brown, general manager of IS at Heinz. "That translates into lower inventory costs, lower carrying costs, improved services, and better in-stock position." (In-stock position refers to the all-important shelf placement at the increasingly powerful retailers.)
"Retailers used to rely on the food and drink companies for information," says Food Processing's Messenger. "But once they gained knowledge through scanning, the retailers gained total control of the shelve s." Information is not only at the heart of the relationship between food providers and retailers, Messenger notes, but affects the interactions among all industry players. "Information is working its way down the chain," he adds. "Now, food suppliers are just as knowledgeable as the food [processors]."
Fortunately for all of these companies, IS staffs are using technology to create synergy between partners. "We're getting more into decision making, category management, and customer profitability," says Heinz's Brown. Heinz uses its Inventory Reduction project to look at forecasting and sales planning, then applies that to the business plan.
"We're working the plan more and reacting less frequently," says Brown. Heinz will do the order replenishment for the retailers and distributors and, according to Brown, "lower the costs for our end user [the retailer] while increasing their profits."
At snack-maker Frito-Lay, in Plano, Texas, CIO Steve Schuckenbrock is quick to point out that IT is not as cen tral to the nature of the business as it is in industries such as banking and insurance. At the same time, he's proud of the infrastructure he has in place for the distribution of 8 billion bags of chips a year.
"We supply our 1,500 people who deliver the product with handheld devices, as we have for some time," says Schuckenbrock. "But with new applications, we're becoming more efficient with the delivery of a pre-picked order. Now, IT is integral in picking the product, loading, delivering, checking in, merchandising, and selling the chips."
IS Prevails
Frito-Lay now offers seven-day-a-week coverage to larger retailers. For Alliant, IS capabilities are always behind the all-important partnerships, but one recent example demonstrates how IS actually won a contract. CIO Doyle, while reducing the company's operational budget between 1996 and 1997, received $10 million for applications and approval for an 8% increase in IS head count. The new applications include sales tools, distribution co ntrol, and management.
Doyle says those applications helped Alliant recently win a contract with a large health-care provider to supply food products to 1,800 hospitals and other units. "We wouldn't have gotten that contract without the new systems," he says.
Even Simplot, with its distributed model, relies on some central IT functions to retain solid partnerships with companies including McDonald's and PepsiCo. But finding the time to focus on those partnerships requires Simplot to spend less time focusing on its own internal infrastructure.
To make that possible, the company uses automated maintenance and backup software from Vinca Corp. to help run its growing network of Compaq servers. "We mirror the data, and it takes no longer than 15 minutes to reboot the server," says Grzanic. "We just announce to the users when we do that."
Simplot already runs plants in Asia and recently acquired five more in Australia. Grzanic wouldn't mind the scenery, but he's already in charge of 67 servers that he built. "I fly out when there's a problem," he says.
Food and drink processing companies are also taking a close look at the Internet. The focus is on the supply chain as IS managers evaluate EDI infrastructures and consider ways in which they can be merged with Web applications. Doyle of Alliant calls his company's early efforts promising. Still, he wonders how suitable the Web will be for the food and beverage business. "Our industry usually involves hundreds of items per order, each one complex in its own way, customized for each customer," says Doyle. "We still must figure out how to be friendly via the Internet, but handle those complexities at the same time."
Whatever views the IS executives have about their roles, IS in the food and beverage industry will certainly become more critical in the coming years. The markets will fluctuate, and pricing pressures will continue to exist, but information will increase in value.
"Food processing companies had to lower prices because consumers wouldn 't pay them," says analyst Messenger. "The market caused that." But these companies aren't just selling ingredients or products anymore, he adds. "It's incumbent on everyone in this industry to be more intelligent about what's happening. Information is everyone's agenda."

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