InformationWeek
Defining The Business Value Of Technology
September 14, 1998
Enterprise Apps: Best Investment?
Creative uses help food and beverage companies get maximum value from hot technologies
By Bronwyn Fryer
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FOOD AND BEVERAGE PROCESSING With data from Hoovers Online  |
The cereal aisle in a supermarket is a telling metaphor for life in the food- and beverage-processing industry. There, brightly-colored boxes filled with crunchier, tastier, nuttier, more vitamin-packed brands compete for a limited amount of shelf space. But in the end, most shoppers are less persuaded by the salivation quotient than by the "20 cents off" coupon. Ultimately, the box with the lower price is most likely to be tossed into the cart.Consumers' penny pinching has translated into across-the-board cost-cutting in the food- and beverage-processing business. The old jingle-singing strategies of accruing brand loyalty are increasingly irrelevant. And the fewer pennies consumers spend, the less money that producers-and the army of packagers, brokers, wholesalers, distributors, shippers, and retailers in their wake-can put toward the bottom line.
To cut costs, some food and beverage processors are concentrating on improving their business practices, increasing efficiencies, and consolidating their supply-chain activities. To this end, many are investing in enterprise resource planning software packages.
According to a recent survey published by the Grocery Manufacturers of America, a Washington trade group of U.S. food and beverage companies, ERP applications are becoming the big winners in IT budget battles: 39% of large companies and 60% of smaller companies are deploying ERP systems.
"Enterprise systems are a huge area of application development expenditures," says Cindy Browning, the GMA's director of industry relations. "Most of the big companies have undertaken enterprise initiatives."
But industry observers see problems with a lemming-like approach to ERP adoption. "Many big players are just going through ERP implementations, but from a business standpoint, it's still of questionable value," says Charlie Callahan, a VP at business consulting firm Booz, Allen & Hamilton. "At the end of the day, they may have a common view of their data, but they still haven't streamlined their distribution networks, fixed their cost positions, or reduced time to market."
The GMA report faults the industry, too, for investing more in ERP than on solving the year 2000 problem. According to the GMA survey, 20% of companies have not yet spent money addressing the conversion issue.
The survey also noted a tendency in the industry to not think strategically or creatively when using IT.
"By and large, most grocery companies are spending similar amounts of money on the same basic initiatives, and [disconcertingly] seeking the same results," the report says. "The 'me-too' essence ignores one of the most fundamental tenets of business success: apply commonly available ingredients, but produce something that is better or different."
The IT departments of the food- and beverage-processing companies on the InformationWeek 500, however, are working strategically and creatively. They're thinking past cost-cutting by leveraging ERP investmentwith new applications; using the Web to support sales and enhance their relationships with consumers; practicing intelligent year 2000 strategies; and building infrastructure that reduces costs and increases efficiency along the supply chain.
Anheuser-Busch Cos. is an example of a company that is not only reducing costs by pulling inefficiencies out of the delivery process, but is doing it in a creative manner. For example, the $11 billion brewer has set up a bar-code scanning system that works with radio-frequency terminals mounted on trucks to track the location of beer as the trucks depart for wholesaler destinations. The system also tracks the location of materials used to produce beer.
Another system, Automated Order Queuing, takes care of the entire truck loading-and-unloading process, right down to assigning delivery doors at the warehouse-"tasks previously performed by the loading supervisor," says Anheuser-Busch CIO William Hickman.
Still another initiative at Anheuser-Busch involves deploying imaging technology and touch-screen PCs to help workers order parts for plant equipment. When employees need to replace a part, they can view an image of the part, then touch it to retrieve quantity and description information from the SAP-based inventory system. The ability to see images of the required parts drastically reduces the time to locate them, Hickman says.
The company is also building Web-based electronic supplier catalogs, which list supplier names, product names, and product codes. They're designed to cut the time spent searching for parts and placing orders via the company's intranet.
Several companies in the food and beverage sector of the InformationWeek 500 are looking into deploying systems that support Enterprise Customer Response (ECR), a just-in-time business practice designed to cut costs by tightening the relationship between the manufacturer and the consumer, and eliminating the redundant middleman.
The idea is for food and business processors to give customers what they want, the way they want it, when they want it. To that end, ECR tries to leverage technology in a way that can help take the fat out of production and product replenishment, distribution, and category management.
At Kraft Foods North America in Northfield, Ill., a $17 billion subsidiary of Philip Morris Cos., ECR takes the form of a streamlined supply-chain management system augmented by a number of customized software tools. It's used by salespeople to manage customer accounts. The maker of Velveeta cheese and other processed foods has put Web-based front ends on its data warehousing and transaction systems, consisting mainly of IBM DB2 and Oracle databases running on a mix of mainframes, midrange systems, and Unix processors.
Information about products, consumer preferences, promotion, sell-through, shipments, locations, inventory, and accounts-available to account managers in Web format-lets some 3,000 salespeople around the country service grocery stores with updated information as needed.
Because Kraft Foods also manages the warehouse inventory for 65 of its grocery-chain customers, the supply-management system automatically replenishes supplies when preset levels are reached. Soon, CIO James Kinney says, "we'll get to the point where we can link customer replenishment all the way back through manufacturing and production scheduling."
Kraft Foods isn't just ahead of the industry in its application of ECR. The company also has an unusual ability to recruit and retain top-flight IT personnel in a notoriously tight labor market. Kraft is keeping its turnover rate at less than 5%, compared to an industry average of nearly 20%, not only by offering competitive salaries but through incentive and education programs. For example, each year IT staffersreceive two weeks of specialized training in an area that interests them. They're also encouraged to participate in projects throughout the company.
"We really give a lot of attention to IT as a community," Kinney says. "There's lots of opportunity for people to come together and talk about what they're doing, and to learn about aspects of the business that are unfamiliar to them."
Fun On The Web
Like many food and beverage companies, Kraft is using the Web to attract customers. But rather than sell products through its Web sites, the company has developed an award-winning "fun" site, a sort of electronic community designed to help people learn about nutrition, find recipes, participate in discussions, and develop grocery lists.
"The Internet has become an integrated tool to talk to our consumers," Kinney says. It's also a tool for reaching employees. An intranet-based "Kraft Cafı" reaching all the company's plant locations lets employees serve themselves to a buffet of services-from maintaining their personnel records and changing their health plans to broadcasting information.
Companies that don't sell direct to consumers have to reach out via the Web in other ways. Tyson Foods Inc., an $8 billion food processing company in Springdale, Ark., uses the Web to tighten its relationships with the brokers who sell Tyson products to restaurants such as Wendy's or restaurant suppliers such as Sysco Corp.
Unlike many companies struggling to shoehorn their legacy applications into a pretty Web interface, Tyson is already there. In fact, says VP of IS Gary Cooper, the company hasn't used a mainframe since the early 1990s, when it made a prescient move away from mainframe-based technologies to an open, client-server architecture.
Tyson's systems comprise primarily Microsoft Windows NT servers and Oracle and Sybase databases, and are linked via a network based on Internet protocols. Going with an IP-based network, Cooper says, made it "very easy" for Tyson to move many of its EDI operations to the Web.
One recent Web application at Tyson, called Broker Workbench and delivered over the company's extranet, lets Tyson's 52 broker organizations serve themselves by checking on the status of orders, managing their expenses, or taking advantage of special promotion programs.
Broker Workbench also lets brokers design menus for restaurants: If the broker knows that a restaurant buys Ore-Ida potatoes, for example, he or she can put together a "plate" combining Heinz's Ore-Ida french fries with Tyson chicken nuggets to pitch to the owner. Brokers can even find out where a truck delivering a certain order is on the road.
Another example of a well-leveraged network is that of Cargill Inc., a $56 billion multinational corporation with more than 80,000 employees and 1,000 facilities worldwide. Cargill produces agricultural grains and preprocessed ingredients, such as corn syrup, for food processing companies. For Cargill, customer service and cost control take the form of manufacturing, logistics, and inventory planning, designed to get products to customers at the right time and price.
To accomplish this, the company has integrated software from several vendors such as QAD Inc., Numetrix, and Manugistics across multiple plants that are linked to the company's IP-based network. This network, called Cobra, comprises about 2,000 Windows-based clients and 25 Unix servers running Oracle databases. The system coordinates production among all of Cargill's plants, so that "if a customer orders several tons of corn syrup, the system helps us decide which production lines can meet the demand most quickly," says Jim Messina, Cargill's director of architecture and technology. "If we know what we have, what needs to be produced and where, we can save time and cut costs."
Cargill's intranet continues to grow, playing an expanding role in internal processes. The company's internal Web sites not only list human resources information and job postings, and provide forums for sharing best practices, but play an active role in helping the company wrestle with year 2000 issues. While the GMA report suggests most food and beverage companies are still muddling along in the "discovery" phase, Cargill has determined that 50% of its systems contain components that could fail on Jan. 1, 2000.
To attack the problem, the company asked the people who work with equipment in its small to midsize production facilities to develop an inventory of suspect equipment, then post it to a Web page.
Companies such as Cargill, Tyson, Kraft, Anheuser-Busch, and other InformationWeek 500 food and beverage companies are unusual for an industry in which IT spending, according to the GMA survey, is relatively low, and in which the focus tends to be narrow.
In the coming years, IT managers in the industry will likely need to be increasingly courageous, taking on more business issues. IT managers may even be persuading senior executives to think beyond cost-cutting to apply IT investments toward truly productive ends.
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