Phil Heenan Consulting > S&OP, MRPII/ERP and Lean in the Rice Industry

S&OP, MRPII/ERP and Lean in the Rice Industry

February 10th, 2009

Agribusiness in Australia can be a very challenging business environment given the harsh and varying climatic conditions that companies in Australia are required to handle.  From the high’s of a record crop size of 1.7 million tonnes, to the low’s of 300 000 tonnes and the worst drought in 100 years within a two year period.  These are some of the extremes that SunRice has had to manage in recent times, at the same time being able to achieve a record per tonne paddy return to growers.  How has SunRice been able to successfully and effectively manage the business to ensure the ongoing success of the company?
This paper will detail SunRice’s continuous journey since 1998 in the pursuit of operational excellence and Manufacturing Resource Planning (MRP II) Class A.  From the initial implementation of SAP computer software at SunRice through to preparations for their final MRP II Class A assessment, SunRice has been continuously working towards this goal.  Over this 8 year period a number of key projects have been implemented to transform SunRice from a business with no formal integrated planning processes to a company on the verge of reaching its goal.  The significant milestones that SunRice has achieved over the last 8 years and the implementation objectives and associated benefits from the successes at each stage will be discussed further in the sections below.  Let’s first start with who is SunRice?

COMPANY BACKGROUND

SunRice is the international brand and identity of Ricegrowers’ Limited, a 55-year-old company anchored in regional New South Wales and wholly owned by about 2,000 Australian rice grower and ex-rice grower members.

SunRice is a vertically integrated agribusiness which produces and markets an extensive range of rice and value-added rice food products to more than 60 countries worldwide. SunRice is a truly international business and its food brands are recognisable around the world for their high quality.

With annual sales of approximately $800 million, which includes nearly $500 million from value-added exports, SunRice is a major contributor to Australia’s export income.  SunRice is Australia’s largest exporter of processed branded-food products and the fifth largest rice food company in the world. The Australian rice industry is also internationally competitive and operates without production or export subsidies, unlike most of its major competitors.

SunRice have a proven reputation for efficiency in both marketing and production with strategically-located marketing offices and subsidiaries in Australia, Jordan, Singapore, Japan, Papua New Guinea and the Solomon Islands which enable SunRice to capitalise on marketing opportunities. SunRice creates jobs in 63 regional towns – most located in southern New South Wales – and helps sustain significant regional communities.

SunRice is an employer of about 1,100 highly skilled and qualified people with 3 rice mills and 3 value adding manufacturing plants, producing over 350 finished products.  The rice industry generates 20 percent of the employment opportunities in the Murray Riverina region and has more than $2.5 billion invested in land, plant and equipment.

SunRice farmer-shareholders grow an annual average of about 1.2 million tonnes of paddy rice in an efficient and sustainable farming system. Australian rice growers are considered to be the most efficient in the world, and have improved their water use efficiency by 60% over the last 10 years.

GROUND ZERO

During the early 1990’s a number of feasibility studies were conducted on various computer systems by the manufacturing, finance and information services departments with an objective of improving their systems.  The drivers for an improved computer system were:

  • The need to replace existing 20 year old information systems and technology platforms.  These systems were also not integrated and the cost of maintaining these systems was increasing.
  • Competitive business pressures due to potential industry deregulation.
  • System compliance for Year 2000.

In April 1996 a scoping and planning exercise was completed by SunRice and Price Waterhouse and a four stage implementation plan developed for a new computer system.  The SunRice Board approved the purchase of SAP, a best of breed Enterprise Resource Planning (ERP) system, with phased planned go live dates of May 1997, June 1997, February 1998 and May 1998.

The first release of the SAP was completed in May 1997 for various support functions within the business.  These areas included:

  • General Ledger
  • Fixed Assets
  • Human Resources / Payroll

A second release was completed in July 1997 and implemented the following modules of SAP:

  • Accounts Payable
  • Accounts Receivable
  • Purchasing
  • Inventory Management
  • Capital Projects

These first two releases of SAP involved over 50 SAP and 25 business process SunRice and consulting staff.  Once resources were freed up from the initial SAP implementation work commenced in June 1997 on the implementation of SAP into the core business processes at SunRice including the following functions:

  • Paddy Management
  • Sales and Distribution
  • Production Planning
  • Plant Maintenance
  • Product Costing
  • Sales Forecasting
  • Profitability Analysis

The Paddy Management module of SAP went live in February 1998 to accommodate the receival of the paddy rice raw material from the incoming harvest.  The remaining functionality all went live in May 1998 which was the start of the new financial year.

From an MRP II perspective there were a number of positive advancements from the SAP implementation, but there were also areas for improvement.  Listed below are some of the major positive outcomes from and MRP II perspective resulting from the SAP implementation:

  • One single SAP platform for all key business planning processes.
  • The creation of a co-ordinated supply chain planning group and creation of dedicated manufacturing site planning resources.
  • All sales forecasting was completed in the Controlling and Profitability (CO-PA) area of SAP.
  • Monthly Rough Cut Capacity Planning processes were developed using the sales forecast.
  • Detailed capacity requirements planning (crp) and materials requirement planning (mrp) was implemented.
  • Material master, bill of material, routing and all other associated master data requirements were implemented.

The SAP implementation was a major success from the point of view that it enabled SunRice to undertake a major business process redesign and cultural change to address some of the strategic business issues facing the company.  It also provided SunRice the software platform to drive further business process changes that were required but not possible during the implementation project due to time, cost and resource issues.

WINDS OF CHANGE

In November 1999 SunRice appointed a new Chief Executive Officer, which resulted in a restructure of the senior management team and also a review of the future directions of the business.  A new General Manager Operations was also appointed a short time afterwards.  Both of these appointments brought new direction to the current MRP II processes at SunRice as the CEO wanted to leverage the power of the recently implemented SAP system and the Information Service group that had implemented the system.  From an operational planning perspective some of the basic elements of an effective MRP II system were either not implemented during the initial SAP implementation due to project constraints or some of the business processes that had been implemented were struggling to be sustained due to insufficient user knowledge.  The incoming General Manager of the Operations Group provided a clear vision and leadership to move to an integrated MRP II business planning process.

To address the business integration issues and improve communications between the Sales and Marketing and Operations areas of the business, a business decision was made to implement Sales and Operations Planning at SunRice.  This decision was reached by senior management team as co-operation between the two groups was limited.

In August a two day Sales and Operations Planning education course took place.  From this course an initial design for the SunRice Sales and Operations Planning process was developed and a project team was formed, charged with the task of implementing Sales and Operations Planning at SunRice.  The business benefits identified by the project team were:

  • Ensure plans are realistic.
  • Effectively manage change.
  • Optimise finished goods inventory.
  • Implement performance measures.
  • Integrate demand and operational planning.
  • Provide quality input to corporate financial forecasting model.
  • Improve sales forecasting.
  • Improve customer service.
  • Identify and address strategic issuess

List below are some of the changes that SunRice had to address during the implementation of Sales and Operations Planning.

  • Sales forecasts are “responsible” with documented assumptions.
  • Sales forecast is “locked” within an agreed time fence.
  • Sales forecast drives the production, inventory and supply chain plans.
  • Defined monthly planning and review process (S&OP cycle) to coordinate and align all business functions.
  • Rolling 18 months sales forecasting and production / inventory planning.
  • The sales forecast must be supported by documented assumptions.
  • Commitment required by relevant managers to attend various meetings as part of set S&OP monthly cycle.
  • CEO to chair S&OP meeting.
  • All communication through the Demand Manager to the National Planning Manager.

In May 2001 Sales and Operations Planning went live at SunRice and this process has been successfully operating since this date.  Some of the reasons for the length of time this process has been operating effectively at SunRice are:

  • Continued commitment to the process by the CEO and senior management.
  • Process has been well embedded into the culture of the business.
  • Issues and simulations are tabled at the S&OP meeting for decisions.
  • Low turnover of key personnel and where there have been changes in staff the people coming into the role have remained committed to the process.

At the same time as implementing Sales and Operations Planning, the SunRice management team were also developing the company’s vision and future business strategies.  This resulted in SunRice’s vision to be the “To be the World’s favourite rice food company”.  This vision is anchored by two pillars of success – Operating Excellence and Innovation.

The strategic pillar of Operating Excellence formed the platform and justification for further projects and push towards MRP II Class A.

GETTING ON WITH THE JOB

As a result of the Sales and Operations Planning process implementation, and to address some of short comings of the initial SAP implementation that did not support all functions of an integrated MRP II business planning process, a business project called Project MAPS was initiated to address the following processes:

  • Review and simplify the monthly Rough Cut Capacity Planing process which was time consuming and cumbersome.
  • Implement Master Production Scheduling (MPS) at all manufacturing sites.
  • Review and simplify the capacity requirements planning process.
  • Implement integrated materials requirements planning.
  • Implement improved key performance indicator reporting.

The project commenced in November 2001 and was combined with a number of other Information Services projects to go live in May 2002.  The following business benefits were identified as part of the project:

  • Improved customer service through reduced cycle time to complete sales orders.
  • Increased productivity via attainable schedules.
  • Reduced purchasing costs through improved visibility of raw material requirements.
  • Reduced inventories due to better matching between demand and production schedules.
  • More stable production environment.
  • Reduced likelihood of obsolete inventories and write-offs.
  • Minimised out of stock due to packaging availability.

The implementation of an integrated MRP II solution represented significant business change.  A project was subsequently initiated to provide post implementation support for the changes introduced.  The next step was to assess the implementation of the MRP II solution, focusing on whether changes in “how people work” had occurred and whether the business benefits were being achieved.  As a result, in October 2002, the MRP II Benefit Realisation Project was initiated to perform this assessment and develop action plans to address any identified issues.

The objective of the MRPII Benefit Realisation Project was to assess the effectiveness of the MRPII solution and address any deficiencies or gaps.  The following results were achieved in the MRPII Benefit Review project:

  • Performed a formal post implementation assessment of the MRPII implementation across all relevant sites and processes.
  • Developed detailed action plans to address identified deficiencies and gaps.
  • Presented action plans to Operations Management and obtain sign-off.
  • Developed and implemented agreed system changes, provided user training and performed other system related activities.
  • Provided assistance and guidance with actions to be performed by the Business.
  • Monitored implementation of action plans and performed follow-up assessments.

As a result of the project a number of business procedures, meeting agenda’s, checklists, performance measures and SAP reports were documented.  These are listed below:
Monthly Production Planning Procedures

  • Determine work centre capacity
  • Create Production plan
  • Balance Production plan
  • Conduct Production Plan sign off

Weekly Production Planning Procedures

  • Complete Previous Weeks Production Orders
  • Maintain Work Centre Capacities
  • Review and Action MPS Exception Messages
  • Balance MPS
  • Perform Material Requirements Review
  • Perform Site Review of MPS
  • Conduct MPS Sign-Off

Daily Production Planning Procedures

Meeting Agendas

  • Monthly Facility Operations Review Meeting
  • Weekly MPS Review
  • Site Pre-MPS Weekly Review
  • Daily Operations Review

Checklists

  • Monthly Production Plan Capacity Checklist
  • Monthly Production Plan Validation Checklist
  • Weekly MPS Capability Checklist
  • Daily Operations Review Meeting Checklist

Performance Measures

  • Site Production Planning Scorecard
  • Central Planning Monthly Scorecard

SAP Reports

  • List of SAP reports grouped by role (e.g. Site Manager, Site Scheduler, Master Scheduler etc) providing details of purposes/intended use, how to run, when to run, dependencies.

Audit Procedure

  • Defined audit procedure for monthly, weekly and daily planning procedures and tasks.

The MRP II Benefits project was rolled out in August 2003 and also during this period SunRice production and demand planning staff commenced APICS Certification in Production and Inventory Management (CPIM).  In total 9 SunRice staff have now completed the programme.

With the completion of the MRP II Benefits project the next challenge for SunRice was to determine their current level of performance in relation to Class A performance and also identify areas for further improvement.

FINISHING TOUCHES

In October 2003 SunRice conducted an external assessment of its MRP II processes with the aim of:

  • Confirming its MRP II status i.e. Class A, B, C or D.
  • Identifying areas for improvement.
  • Developing and prioritising an action plan.

The assessment was conducted by Phil Heenan Consulting, an experienced MRP II implementer and auditor.  SunRice was assessed overall as a Class B company, “the highest first-visit mark I have given to an organisation since I started auditing in 1988”, with the following areas receiving a Class A rating:

  • Commitment to Excellence.
  • Financial Planning.
  • Customer Service Performance.
  • Routing Structure and Accuracy.
  • Inventory Record Accuracy.

Listed below are the areas that SunRice received its lowest assessment:

  • Forecasting process.
  • Sales Planning process.
  • Sales forecasting performance.
  • Master Schedule performance.
  • Manufacturing plan performance.
  • Bill of material accuracy.

There was also identified a number of areas that SunRice could target to address each of the areas of concern.

  • Sales & Operations Planning in the following areas: number and sequence of steps, detail discussed at the executive S&OP meeting, simplifying the amount of information reviewed and improvement in assumption gathering and measurement.
  • Sales forecasting, sales planning, customer planning and satisfaction, and sales forecast performance by enhancing the overall demand management process.
  • New product introductions by constructing a better process and ensuring more timely integration with the planning and control processes and the SAP tool.
  • Product rationalisation bearing in mind that 50% of the product range generates approximately 3% to annual revenue and most likely negative margins if  more accurate cost drivers could be assigned to the low volume items.
  • Customer service strategies, particularly current safety stock targets which cause inefficiencies in key supply chain areas such as despatch, planning, manufacturing and purchasing.
  • Planning, purchasing and manufacturing execution areas particularly with the value added products.
  • More formal auditing, measurement and cause and effect related to key data areas.
  • Supplier planning and control particularly in the area of supplier scheduling.

As a result of this external audit SunRice initiated a project to move to a MRP II Class A operating environment.  A project team was formed and charged with addressing the areas for improvement identified during the audit.  Significant focus was placed on the sales forecasting and sales performance areas as this was targeted as the functional area of the business that required the most amount of improvement.  Coincidentally this was only area of the business that had not had any projects completed since the initial SAP implementation in 1998, except for the Sales and Operations Planning implementation.

Objectives of the MRP II Class A project were:

  • Improvement in Sales Forecast Accuracy to Class A standards.
  • Implement Statistical Sales Forecasting in SAP.
  • Implement Weekly Sales Review process and update sales demand weekly.
  • Improvement in Supplier Delivery Performance to Class A standards.
  • Implement Vendor Evaluation and Supplier Performance measurement in SAP.
  • Implement Supplier Scheduling in SAP.
  • Improvement in BOM Accuracy to Class A standards.
  • Implement BOM audit procedure.
  • Improvement in Item Master data to Class A standards.
  • Implement Item Master audit procedure.

Achievements of the project are below:

  • Designed and developed Statistical Sales Forecasting in SAP.
  • Trained all Sales Forecasters in Statistical Sales Forecasting in SAP.
  • Implemented a monthly Statistical Sales Forecasting in SAP.
  • Implemented a new Demand Management business process to support Statistical Sales Forecasting in SAP.
  • Conducted MRPII Class A education for all relevant business managers.
  • Commenced weekly domestic sales review meetings.
  • Designed and developed a suite of SAP ABAP reports to support the new Demand Management business process.
  • Designed and developed SAP CO-PA reports to support the new Demand Management business process.
  • Archived redundant sales forecast information.
  • Conducted follow up training sessions with Business Managers.
  • Improvement in Sales Forecast Accuracy in Domestic sales by 9%.
  • Designed and developed Vendor Evaluation and Supplier Performance measurement in SAP.
  • Designed and developed Supplier Scheduling process in SAP.
  • Implemented BOM audit procedure.
  • Item Master audit procedure to be implemented.

Whilst implementing MRP II Class A, SunRice has also been working to implement Six Sigma continuous improvement tools.  Below are some of the results achieved to date:
Communication Strategy

  • Letter from CEO to all pilot project team members.
  • SunRice Six Sigma logo.
  • Roadmap poster.
  • SunRice Six Sigma article in employee magazine “In Focus”.
  • CEO Road show includes slides on SunRice Six Sigma.
  • SunRice Six Sigma video.
  • Toolbox template & guideline documents.
  • Desk top flip charts.
  • SunRice Six Sigma Website.
  • Latest news.
  • Guideline document.
  • Forms.
  • Project material.
  • Official Corporate Management Team launch in February 2003.
  • Site launch presentations in April 2003.

Staff Training
Training Program

  • 210 trained personnel by July 2006.
  • 50 in 2003.
  • 120 in 2004.
  • 20 in 2005.
  • 20 in 2006.

Current Skills

  • 30 Champions.
  • 50 Black Belts.
  • 130 Green Belts.

Project Results

  • 2003 4 Pilot Project approximately $1M savings.
  • 2004 22 Projects approximately $1.6M saving.
  • 2005 13 Projects approximately $2.7M savings.
  • 2006 22 Projects approximately $3M savings.

FUTURE PLANS

After some bedding down the new processes resulting from the MRP II Class A project, SunRice conducted a second Class A desktop assessment audit in April 2005 to assess the outcomes of the project.  The following areas demonstrated significant improvement since the first audit:

  • The Sales Forecasting process.
  • The Sales Planning process.
  • Sales Planning Performance.
  • Production Planning and Control.
  • Master Schedule Performance.
  • Manufacturing Schedule Performance.

However, the drought that has been experienced in country New South Wales has had an impact on the MRP II Class A implementation at SunRice, both good and bad.  The good aspect is that the knowledge and skills that SunRice staff had gained since 2000 was put to the test in May 2005 when the harvest was dramatically lower than planned.  This meant that SunRice was required to source rice from overseas to support its markets and as a result a project was set up to design and implement a fully integrated MRP II planning process.  This project successfully went live in November 2005.  The bad aspect was that key resources working on the MRP II Class A implementation were diverted to addressing this business critical issue.  With the return to a near normal harvest in 2006 staff have now commenced working to gain Class A accreditation.

Work has commenced to further refine and improve some key areas in Class A  that SunRice believe requires addressing before a full audit is completed later in 2006.  The areas that the team are working on are implementing an improved sales forecasting tool, improved Sales and Operations Planning processes due to the implementation of SAP’s Business Warehouse module and finally improved master data audit performance.

The journey does not end there, after this SunRice is planning to commence work on the feasibility of implementing a fully integrated supply chain optimisation tool.

RESULTS

SunRice has achieved some good results with its MRP II Class A implementation over the last 4 years.  Listed below are some of the highlights:

  • Increased Domestic Sales Forecast Accuracy from 65% to 76%.
  • Increased Master Production Schedule Performance from 39% to 89%, whilst reducing the tolerance by 5%.
  • Increased Master Production Schedule Performance to Plan from 65% to 93%.
  • Increased Domestic Case fill from 95.9% to 98.8%.
  • Increased Export Customer Service from 94.0% to 98.7%.
  • Increased percentage of materials with greater than 2 weeks for stock coverage from 76% to 88%.
  • Reduced packaging and ingredient stock on hand from $9M to $6M.

LESSONS LEARNED

In summary, there has not been a magical solution to implementing MRP II Class A at SunRice but some key lessons learned and advice that can be shared with other companies.  These items include:
People

  • A high level of management leadership and support is required.
  • Small and continual steps towards the goal.
  • Good support from an effective and knowledgeable Information Service department.
  • Support the business changes with education and training, especially the APICS CPIM certification for key staff.
  • Ensure key staff is involved early in the project.

Systems

  • Build on core business systems as this will enhance existing knowledge and skills.
  • Ensure that the system can handle the amount of transactional data required.
  • Ensure the tools are user friendly enough to improve the process.
  • New tools don’t always improve performance.

Processes

  • Business process must be well defined and documented.
  • Commence system design after business processes are clearly understood.
  • Implement new business processes well before other major business activities commence e.g. the yearly budgeting cycle.

In conclusion there has been significant business and cultural change over the last 4 years at SunRice and this has been driven by continued support from senior management and the willingness of the business and its employees to continually work to improve the business.  Remember, persistence does pay off in the long run.

REFERENCES

SunRice (2005) Annual Report 2005 Delivering the SunRice Vision

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