Masterfoods is a global fast moving consumer goods company. The key business segments that Masterfoods Australia and New Zealand operate within include Petcare, Snackfood and Food. Within each of these business areas Masterfoods Australia has had prolonged and successful growth over the past few decades.
Along with many of our fellow suppliers the ever changing competitive landscape, market pressures, shrinking real estate, increased importance of Customer engagement and so on led to the initiation of a complete business review and instigation of a change program toward the end of 2004.
While performance in the past had been reasonably strong, in recent times results were showing some mixed signs and the diagnostic phase of the change program provided a clear message that we needed to address and significantly improve the operations and integration of our business.
Of all of the initiatives that needed to be undertaken, it seemed that they were “all” priorities and there was no clarity about how we would go about integrating the business. The first challenge had been reached, how do we get a program that will focus on planning and control areas, to the top of the priority list? How do we get Sales and Operations (S&OP) planning on the executive radar?
Following some months of debate and discussion a project was initiated to develop, implement and entrench world class processes and procedures, supported by the appropriate behaviours, tools and systems. The project became critical part of the business change agenda and was given fantastic support by the executive teams leading us on the “path to integrated business management”
While we have instigated a similar integration program across each of the three business segments of Masterfoods the remainder of this document relates primarily to the program undertaken by the Snackfood division of Masterfoods.
The initial step in this journey was to understand exactly where we fitted along the spectrum from beginners to world class, in relation to Sales and Operations Planning.
In this process we found that while we had never really formalised it we were obviously doing most of the critical elements required to run an effective supply chain. We would not have had the decades of success that we have had without the key elements in operation.
New product introductions, demand forecasting, capacity planning and factory scheduling, materials requirements planning, strong logistics solutions and route to market were in place and being run by the various functions across the business. Therein lay one of the first key learnings, we were doing most of the work of S&OP but we were not integrating it. We also realised that we may have become too tactical and focused on the immediate future only.
As a result we were experiencing mixed business results and of the results that we were capturing there was no business wide consistency. This led to the following outcomes which is common in many organisations. Poor customer relationships, average results on Customer service levels, sales forecast accuracy issues, variable factory outputs, mixed success in new product development /implementation, SKU proliferation and data accuracy issues.
In order to understand not just our weaknesses but also our strengths and opportunities we next decided that there was the need to bring in an independent external expert in the area of sales and operations planning. An expert with previous Class A S&OP experience would also provide us with some insights and benchmarks as to what the best in the world are doing in this area, traps to be mindful of, a proven path to success and in hindsight this has proven to be one of the best decisions made.
The use of independent expert in a collaborative manner has provided the following:
- sound and factual assessment of our current situation
- immediate focus areas to address weaknesses
- shared best practice from leading companies globally
- a proven path to a successful implementation
- challenge long held behaviours
- new thinking to supply chain solutions
- great education programs
- continuous improvement and guidance
After some research and educating ourselves on our options we employed the services of Phil Heenan as our business coach as his proven track record spoke for itself with involvement in over 50 Class A implementations across the Asia Pacific region.
THE PROVEN PATH
The first step on the proven path as provided by the expert was to undergo an initial business assessment. With the focus of the assessment on our planning and control areas it enabled us to understand if we were actually doing the right things to support our strategic intent. It ensured that we faced the facts, gave us areas to focus on in the short term and an action plan to address deficiencies over the longer term. One example of a short term action was to implement a formal meeting cycle to deal with new product activities, demand, supply and financial reconciliation, the classic S&OP cycle.
The business assessment provided us with a tangible outcome that would become our starting point for our journey and ensured that we had a base to compare back to as we moved forward over the next few years.
It also provided us with some comfort that the business we had developed over the years had some very significant strengths and that some areas were already operating at a world class level.
The next key step was the involvement of the executive team. In order to be successful, understanding and support from the most senior executives in the business is critical. Through this executive commitment to the cause the business will begin to gain the momentum required for a major change program. Without the commitment form the very top it is a long road to get commitment from the various levels below in the organisation hierarchy.
What sounds simple does not always turn out to be. We were faced here with some competing agendas and significant change in our executive team as the program was beginning. This phase of the program is not just education on the principles of integrated business management or S&OP but also agreement on the vision for the program and business approval of the justification for doing it.
A continuing message in this paper is that it is vital for S&OP to be high on the executive radar and priorities. The justification piece is the key tool to ensure that this is the case. Very few other projects could compare with the benefits that are derived from a successful implementation of an integrated business philosophy, particularly for the low cost outlay.
With the senior executive team signed on and committed and with such a great return on investment about to be realised the next stage was to establish the project organisation. While we did not do this as formally as many others might choose to, it is very important that the step is adhered to in a form that ensures that there is something in place to enable effective communication, decision making and management of the project throughout the journey.
When it comes to measures it is important that the right things are being measured and that the measures drive improvements to be made. That is, you need to determine what the key measures for your business are and have valid reporting around those. Measure what is important to your business. A trap here is that the measures employed often conflict and are detrimental to others.
We found that it was very difficult to find one scorecard that met all of our business requirements and it was therefore critical to ensure the key measures around S&OP were maintained separately.
The key measures that we opted for include CSL (both case and line fill), sales forecast accuracy, factory performance, data accuracy and supplier deliver performance.
Some of these measures are easier to obtain than others and that is one of the challenges we faced in pulling together our S&OP Scorecard. Data accuracy for example is not a topic of great excitement but if it is not managed correctly it can create significant rework or at worst bring the best business to a standstill. This is why ownership and responsibilities need to be clear and concise.
A business change program the size of this cannot be done by one person or one team in isolation. It is a total business effort and as such key leaders from around the business need to understand and own their individual areas.
Once we had established the vision, the commitment, the justification, the measures and the ownership of key areas it was time to begin rolling it out to the broader business with the support of the executive team.
With the use of our external business coach we developed tailored education programs for various areas of our business ranging from 1 to 3 day sessions, cross functional or silo based. These are still continuing today.
Communication is obviously vital to the success of a change program and something that we found to be quite challenging. Not the fact that we could not find information to communicate but that there was actually too much information and we did not want to over communicate to the entire business. It was more important that we pinpoint our target audience with the particular areas of relevance to them and that all communications are consistent.
‘AS IS’/‘TO BE’ PROCESSES
One of the clear steps on the proven path we were provided with was to re-establish our current ways of working and then more importantly to design and begin implementing our “to be” ways of working.
This step in the program has taken us the longest to implement. The process of fully understanding how the business will be managed using the integrated management philosophy and what needs to be changed to move towards that model has upon reflection taken too long. A caution here that there are many complications that can come into play including, resources, a compelling case for the need to change, do we have the vision? What systems will we be using?.
12 MONTH CHECK – 2ND BUSINESS ASSESSMENT
As with any change management program it is important to check “Are we making progress? In addition to tracking some of the numerical benefits we chose to have a second independent assessment once again conducted by our coach.
The results of this second assessment were very encouraging and also provided us with great clarity of the areas in which we had not made the progress we expected. This refocussing and more detailed review also resulted in the various business owners having detailed discussions with our business coach drawing from their 12 months of experience. As a whole the results speak for themselves.
RESULTS TO DATE
It is very important to get some early wins on the board. It is pleasing to report success in this area. We found that this gave the rest of the business the confidence that what we were embarking on was actually going to pay off and ensured that we continued to build and actually increase the momentum behind the program.
The crucial factor for us is that we have sustained many of the early wins and are now experiencing consistent results. After 18 months, since we set out on the path to Integrated Business Management, these are the types of improvement we have seen in our key indicators.
Customer service levels (measured on a by item basis, not just case volume) has increased by 20 percentage points.
Inventory has reduced by 30% across finished goods, raw materials and packs
Missed orders in dollar terms have reduced by 60%
Write offs have reduced by 15%
On time new product launches have increased – % sales from NPI is up by 2%
All of this has resulted in improvements to the bottom line.
In addition there are many intangible benefits that we are experiencing as well including significantly improved customer relationships, less rework through the business, clearer decision making and communication.
While significant progress has been made to date the trap we do not want to fall into is to rest on those results.
The next 24 months we see us continue to educate our key and new associates, strive to improve performance measures (reset the targets), continuously improve our processes to move with the changing competitive environment.
A key feature of the next 2 years will be the introduction of systems and tools to support and enable the process development we have made.
While we are not relying on this to be the catalyst for attaining our Class A status it will enable us to sustain Class A performance with less reliance on manual intervention and attention.
After decades of working successfully Masterfoods have realised the need to adapt to the ever changing environment and we have made a step change to integrated business philosophy and have seen the benefits in doing so.
My understanding is that many companies have got to this stage before but have from here faltered for whatever reason. We now move into the most challenging period of our journey
Continuous improvement and sustainability is now a key focus, how do we entrench this in the fabric of the company?
Our focus to date has been on processes and people and will move towards internal systems, however, at the same time we are putting a great deal of effort to extending our supply chain and to better aligning ourselves to our customers and suppliers.