A conversion with John Mee of Glanbia Consumer Foods Ireland, and Don Hicks of LLamasoft.
Change can happen overnight - whether in a particular business or an entire country. Glanbia Consumer Foods Ireland found itself having to adjust to Ireland's economic crisis, which was causing an influx of low-cost competition and eroding the company's traditional market for its branded, high-quality products. It was time for a fresh look at the entire supply chain. Glanbia supply chain manager John Mee is joined by Don Hicks, president and chief executive officer of LLamasoft, to discuss how the company embraced network modeling to help it craft a new strategic direction.
Q: John, tell us about Glanbia.
A: Mee: Glanbia Consumer Goods Ireland is Ireland's largest dairy manufacturing company. We manufacture, distribute, market and sell quality, branded dairy products such as cheese, yogurt, soups, milk and cream. We're quite a complex company. We have two distinct networks - a dairy network for milk and cream, and one for the chilled food operation. We have several manufacturing sites and a range of warehousing and distribution sites within Ireland. And we have a myriad of options for completing the final route to market. Those channels are typically the high street retail multiples in the convenience and food-service sectors.
Q: Geographically, what's your reach?
A: Mee: The island of Ireland is 32 counties - the six of Northern Island and the 26 of the Republic of Ireland. We sell our product across the Republic of Ireland in the main, but we also sell into the Northern Ireland marketplace.
Q: Don, tell us about the concept of network modeling, and how it relates to the supply chain.
A: Hicks: Businesses today are making tons of really complicated decisions, and they really can't afford to get it wrong. A lot of money is on the line, as well as customer service levels, and things are really moving fast. A company like Glanbia is constantly facing what we used to think of as strategic, occasional decisions. The only way to make changes without taking great risks is to model the problem. We use optimization and simulation technology to help companies make complicated decisions, before they try to implement them in the business.
Glanbia has a remarkable case study, where they've applied optimization techniques - a mathematical modeling approach which makes recommendations about how to improve the network - and simulation, which focuses on cost to serve. In other words, how well will these decisions work out in reality, before we run them up the flagpole?
Q: John, tell us how Glanbia got into the whole idea of network modeling. What was the impetus for that?
A: Mee: We were certain that our network was functioning correctly, but we were unsure if it was functioning optimally. What we wanted to do was find a tool that gave us one holistic, overarching approach to model what we think are the constituent parts of supply chain management - which linearly would be buying, making, storing, moving and selling. The only tools we had in our business were Excel and Access. We couldn't manage the multiplicity of variables and the many facets of decisions that we would have to take. We had to search for something that was more powerful.
The driver for this was that the Republic of Ireland is in recession, after many years of fantastic prosperity. Only three years ago, we were the sixth-richest country in the world. We now have food discounters entering the market and selling cheap, and that takes away the potential for my branded product sales. We have people cross-border shopping, going into Northern Ireland, a U.K. territory, to buy their produce. So they're not buying my branded products in the Republic of Ireland. We believed that our supply-chain costs as a percentage of net sales value were relatively high. So we sought out a company with Don's skills and capabilities that would enable us right from the intake of raw material, through conversion and storage out to final distribution, to model all of those variables across two networks. We undertook some fairly significant "what-if" scenario analysis. And we pushed it to the stage now where we're able to look at the actual contribution that we're getting from specific drop points for specific SKUs. We've now got the capability to model the impact of those decisions before we commit assets and capital on the ground.
Q: Don, what were some of the unique challenges that Glanbia posed for you, as the vendor of this solution?
A: Hicks: It's not enough that they had to make these tricky decisions - they had to do it on a short time frame. These were new sets of skills. They had to jump into the sport at the professional level as a first project. To me, one of the biggest lessons that's come out of all of this is not so much in the specifics of how we approached the models. It's how we were able to work with Glanbia as a partnership and a team. Glanbia needed answers, and that's what network modeling is going to give you. LLamasoft makes technology that can be used to get at the answers, but we don't run the business. We put together a team that took our technology and services, and plugged it right in as a seamless combination. What we brought was an enabling technology, a way for them to model and improve the business, not just one project or technology. We were building a capability that they can carry forward into the future. That's really the transforming thing.
Q: John, what did you learn about your network as a result of the application of this model?
A: Mee: We learned some very interesting facts. Perhaps some of our fixed costs are more fixed than what we thought. Therefore our truly variable costs are perhaps less than what we anticipated. We realized that we don't need to be quite as complex as we are. We're a lot of companies that have experienced tremendous growth in buoyant economic periods. We've grown exponentially, and maybe we haven't had the time or the expertise to sit back and take this holistic appraisal. It was quite enlightening for us, really. What it has pointed out to us is that there's great scope and potential within the business to reorganize the topology, the landscape, the architecture of our supply chain, based upon the "what-if" analysis that Don and his team modeled for us.
Q: Don, what in your opinion are the next steps in the development of network-modeling tools?
A: Hicks: There are a couple of things. What we're seeing right now is people making strategic decisions. In John's example, he had to look at big, big changes to the network. Historically, that has meant approaching things from a high level - saying that, because this decision is strategic in nature, we're just going to aggregate everything up together. We're going to avoid getting into the details. As it turns out, when you assume away all of those details and try to implement that strategy, it might not be implementable.
So the cutting edge of the technology right now is being able to do strategic network modeling to make the big decisions. That means end-to-end supply-chain modeling in cross-functional areas, but also having a level of precision, the ability to go down to operational levels of detail. Not because you're going to run the network that way, but because you want to predict, if I roll this strategy out, what will the resulting cost profiles be? When I reassign customers to be serviced in a different way, what's my resulting shipment profile? How full are my trucks going to be?What's my cost going to be? Should I rethink this strategy? One of the things we saw several times with Glanbia was that they had lots of ideas on how to fix the business. With several of those ideas, when you started looking at whether they could be operationalized, you began running into roadblocks. It sure is a lot less expensive to figure out that stuff now than a year from now, in the middle of a rollout. So not only did they find some ways to get the money, but they also figured out which paths not to go down. This sort of hybrid approach, of utilizing strategy and analyzing it on an operational level, really is the future.
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Glanbia Consumer Foods Ireland
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