SABMilller, the $24bn global brewing giant, is revamping
its supply chain management system to reduce stock-outs caused by
an increasingly complex and hard to predict market.
The firm is developing and testing the new system in South
Africa with an eye on rolling it out to group companies worldwide,
says SABMiller programme manager Rudi van Schoor.
The trigger for the revamp came when the company's customers ran
out of stocks of popular SABMiller brands during peak periods in
two consecutive years, 2007 and 2008. The shortfall on some brands
was as high as 22%. "That had a direct impact on the bottom line,"
Van Schoor says.
Given SABMiller's ambition to be the world's most efficient
producer, such a gap was never going to be tolerated. But instead
of addressing the symptom, it called in management consultancy
McKinsey to look at the entire supply chain system to see where it
could be improved and future stock-outs avoided.
The study revealed a complex situation, one that wasn't
susceptible to a "quick fix", Van Schoor says.
Demand factors
The ethnically and demographically diverse South African market
is one of the world's most complex and fast-changing. Van Schoor
cites economic growth, more disposable income in new hands,
changing and upgrading tastes, new product development and new
routes to market among the factors that influence demand for
SABMiller's products.
Add to that big events such as the British Lions tour and the
2010 World Cup, and climate change, and the picture becomes more
complex.
"Our brands are the same as any other brand, especially those at
the luxury end," says Van Schoor. "If the customer comes into the
shop and can't find our product, he or she has the disposable
income and self-confidence to substitute our brand for our
competitors'. That's dangerous."
Van Scoor says the group has a average stock availability target
of 98%. "But for some premium brands the target is 100%," he says.
That means it will live with excess stocks of some products, just
to ensure that a thirsty customer can get his or her favourite
drink, every time.
Maximise profitability
But SABMiller also wants to maxmise its profitability. To do all
this it must integrate information from a lot of sources. These
include sales forecasts for about 2,600 sku locations or depots for
the brewing division and 3,100 for the soft drinks division, as
well as planned promotions data from the marketing and promotions
division, as well as cost and production data, among others.
These data must then be converted into raw material purchases,
manufacturing scheduling, distribution and stockholding plans for
12 factories (seven breweries and five soft drink plants) and three
tiers of distributors, broken down into between 70 and 80
stock-keeping units (skus) for the brewing division and around 270
for soft drinks.
And all this must be optimised for profit.
"There is inherent volatilty of demand in the soft drinks
business because of seasonal change, but less in the beer market,"
Van Schoor says.
Even so, improving the accuracy of demand forecasts and
schedules and integrating them to boost profitability was too
complex for SABMillers's demand forecast and supply system. The
in-house system, developed over years, had most of the usual
problems associated with legacy systems: it was inflexible,
complex, hard to communicate with, and hard to integrate with newer
systems, Van Schoor says.
Integration with SAP system
After a global search, SABMiller settled on Infor's advanced
supply chain management system, in particular Infor's demand
forecasting system. This takes information from modules of
SABMiller's SAP enterprise resource management system, integrates
them with sales forecasts from the field, and feeds back to the
manufacturing resource planning system and finacial systems to
generate production schedules, raw materials orders and volume and
financial forecasts.
This will let SABMiller make any of its products in the most
cost-effective location, given the local demand, manufacturing,
transport and inventory costs.
It will also increase its flexibility in responding to changes
in demand. Products will no longer be made only in a single plant
to optimise production runs, but, based on more holistic data, in
the plants that optimise overall profitability.
This flexibility also gives the company greater cover to handle
factory downtime and to meet rapid changes in demand.
But some parts of the legacy system will still be around. "We
are keeping it to manage the return and reuse of empty bottles,"
Van Schoor says.
But even that data will go into the Infor system so that it can
create production schedules down to tank, line and minute
accuracy.
This attention to detail is part of the SABMiller ethos.
Measurement and numbers are integral to the company culture. Van
Schoor says the Infor system will be tested in three ways: on its
"theoretical" answers, against actual results, and against causal
factors that may have influenced demand and supply.
Van Schoor says the $1.2m the firm spent on Infor licences was
about 60% of the total project cost. But this could be a drop in
the ocean if the company adopts it worldwide. And interest from
group firms is high.
"We have used expertise from all around the group," Van Schoor
says. "One of the best people on the project came from our European
division, and we have lots of others keen to know how we do."
About SABMiller
- SABMiller owns more than 200 brands on six continents,
including international premium brands Grolsch, Miller Genuine
Draft, Peroni Nastro Azzurro and Pilsner Urquell. It owns leading
local brands such as Aguila (Colombia), Castle (Africa), Miller
Lite (USA), Snow (China) and Tyskie (Poland).
- It is also one of the largest bottlers of Coca-Cola products in
the world.
- It operates 139 breweries and 35 bottling plants that produce
some 230 million hectolitres of beer a year with some 60,000
staff.
- It is listed on the London and Johannesburg stock exchanges and
its current market value is around £17.2bn.