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.
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.
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."
- 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.