It's amazing what an improvement to the bottom line a radical reassignment of duties and responsibilities can make, as Ocean Spray Cranberries Inc. found. Judging that it was providing valuable services to its customers but at too high a cost, it embarked on an end-to-end reorganization of its business process. It centralized many of its supply-chain functions, implemented ERP and advanced planning and forecasting systems, and outsourced much of its logistics operation. The result was pleasing to both the company and to its customer base.
"By changing our supply-chain strategy to incorporate advanced planning and forecasting capabilities and sophisticated logistics management, we've been able to cut our order cycle time nearly in half while reducing our finished goods inventory by 25 percent over the last 18 months," says Taras Kowlaczyn, vice president and managing director of logistics and planning for Ocean Spray.
Formed in 1930 by three cranberry growers in Massachusetts and New Jersey, Ocean Spray is an agricultural cooperative that produces a wide array of juices, juice drinks and fruit products. The cooperative has grown over the years to include more than 800 cranberry grower-owners in the U.S. and Canada. In 1976, Ocean Spray's cranberry growers were joined by an assortment of Florida grapefruit growers, who now represent 126 of the company's grower-owners. Ocean Spray is headquartered in Lakeville, Mass. The cooperative serves its customers primarily through a network of four plant/distribution centers in Bordentown, N.J.; Kenosha, Wis.; Sulphur Springs, Tex.; and Henderson, Nev.
"Our customers are concerned with shelf presence and trying to keep their out-of-stocks at an absolute minimum.
The shift in supply-chain strategy at Ocean Spray began back in 1997, says Kowlaczyn. At the time, Ocean Spray was a highly decentralized organization from a logistics perspective. "Each of our six plants basically had its own customer service, transportation and inventory management network," he explains. As a result, the cooperative's cost structure became quite high throughout the operations arena, not just the supply chain but in the manufacturing and procurement functions as well. "We were providing good service to our customers, but it was a very costly service."
In addition to the rising costs associated with decentralized operations, Ocean Spray management was concerned with the upcoming Y2K issue and the fact that the cooperative's legacy information technology systems were not Y2K-compliant. Another key factor stemmed from the increasing competition as other fruit and beverage companies tightened their collective focus on a consumer market that was benefiting from the spending dollars of health-conscious consumers.
Bending to the pressure of these forces, Ocean Spray management late in 1997 enlisted the assistance of Andersen Consulting - now Accenture - and launched a re-evaluation of the cooperative's entire value proposition. The game plan that eventually emerged called for a shift from the cooperative's legacy systems to an SAP enterprise resource planning environment; implementation of Manugistics advanced planning systems; and centralization of many of the support functions, including customer service, inventory management, demand planning and transportation management. As part of that centralization process, the cooperative went from six plant/distribution centers to four.
Ocean Spray also decided to outsource to a third-party a large segment of the transportation function in order to concentrate on its core business function. With the help of Accenture, the cooperative approached several 3PL service providers, eventually selecting Schneider Logistics of Green Bay, Wis. "We decided to outsource the entire ball of wax, from freight payment, domestic deliveries and stock transfers to Schneider," says Kowlaczyn.
The parties signed a three-year contract on April 1, 1988. "We supply the transportation management for their finished goods distribution from their distribution centers and plants and co-packers to the final customers," explains Bill Van Beek, Schneider Logistics' general manager for the Ocean Spray account. Schneider Logistics also supplies stock transfer management: movement of product between their plants and distribution centers as well as inter-Canada stock transfer services, moving product from the continental U.S. to distribution centers and third-party warehouse facilities Ocean Spray utilizes in Canada. Schneider Logistics pays all freight bills and manages the claims process associated with that freight movement.
In the initial year of the relationship, there were some cultural changes and learning curves on both sides of the relationship "as Schneider Logistics learned more about our business and we learned about theirs," says Kowlaczyn. Rarely is it easy to relinquish control of tasks that have been held locally for years. During the transition, there was considerable dialogue between the parties, he says, and Kowlaczyn credits "great management" on Schneider's part to continue the dialogue in a structured format with a consistent focus.
About a year and a half into the process, Ocean Spray and Schneider Logistics mutually agreed that having a Schneider Logistics person on-site person in Lakeville would be appropriate. "That was a huge turnaround," says Kowlaczyn. "Just by the very nature of having someone here to understand our business and translate that to the rest of the Schneider Logistics team in Green Bay, and vice versa, made it easier to divvy up the tasks between the parties, as opposed to both of us kind of both trying to do certain things and not being completely sure who was doing what .... it made a world of difference to us."
Kowlaczyn adds: "We also established a specific set of metrics that both of us manage, such as terms of delivery to customers, delivery appointments, on-time shipments, how quickly we turn around the POD information, how quickly they turn around the EDI transactions confirming shipments, and various activities along those lines." There is total connectivity between Schneider Logistics and the Ocean Spray SAP system, so Schneider populates the data directly into the ERP program.
The dividends accruing to Ocean Spray and its customers are considerable, says Kowlaczyn. "We have been able to make great strides in terms of reducing our inventories, but more importantly in the last few months we have reduced our cycle time from five days to four days and quite frankly expect by the end of August to reduce to three days."
This is a big deal for Ocean Spray because the customers required it as a means of reducing their inventory carrying costs, he says. Ocean Spray has a large number of customers - representing approximately half of the cooperative's total retail business - on continuous replenishment programs, or CRP. - Some keep only three or four days' worth of inventory in their warehouses while others carry as much as a two-week supply, according to Kowlaczyn, so there is very little commonality between these customers other than the insistence on faster order cycle times. This becomes particularly critical during product promotions; not only do customers hate to be caught short in the event a promotion really takes off, but the quicker turn time on orders minimizes loading in and then returning excess product.
"We're basically managing that process for our retailers, working directly into their systems or sometimes the systems of third-parties to manage inventory levels," he explains. "Our customers are concerned with shelf presence and trying to keep their out-of-stocks at an absolute minimum. They have very specific measures in terms of how much inventory they want in their warehouse and how quickly they want to turn it. We've been fortunate through good planning and good management to meet those expectations."
The faster order cycle time is something Ocean Spray customers quite frankly have been seeking for a long time, he adds. "They have been very patient with us, but at the same time they told us they wanted it reduced, and without any sacrifice in service performance. And this is our response."
Reliable transportation management is only part of the solution in achieving quicker order cycle times. Ocean Spray's collaborative planning and forecasting processes helps the cooperative maintain the right products in the right locations.
"Right now we have the CRP and gradually are expanding into CPFR [collaborative planning, forecasting and replenishment] with our customers and plan to include our suppliers as well," says Kowlaczyn. "We have a very good forecasting process in-house that delivers exceptional results for us, but we want to tweak that even further."
The Ocean Spray forecasting process is similar to that used by a lot of companies, he says, taking a two-month view into the future, then taking a per-month, per-distribution center, per-SKU picture. Ocean Spray now works with an absolute forecast variance of approximately 23 percent on a month-to-month basis, down from the mid-40s range three years ago.
Twenty-three percent may not seem so hot at first blush, he acknowledges, but the number is the result of a per-product, per-location calculation. "We're forecasting that we are going to sell X number of 64-oz. CranRasberry units in a particular Kroger's grocery store during a specific week two months from now. And just because we sell more of the CranRasberry and less of CranGrape, the two don't net out when we compile the absolute forecast variance. Each product stands on its own merit on an absolute basis. And that's a lot to ask for."
The more accurate the forecast, the greater is Ocean Spray's ability to reduce costs in inventories and transportation and warehousing. "And by better forecasting, we have been able to take down our finished goods inventories, and consequently we've started to take down our inventories of raw materials and packaging materials," he points out. "This translates into less warehouse space required and fewer stock transfers coming from our plants to our third-party distribution centers - all without sacrificing service to the customer."
The forecasting process is not too complicated but requires dedication, says Kowlaczyn. It's a four-week process. The first week involves collaboration between a separate, independent demand - planning group housed within the logistics organization, the field sales people and sales brokers to develop what they feel is the incremental demand that is going to be occurring in the marketplace. Considerations during these discussions include factors such as what promotions are planned, what type of sales lift they might drive, and whether new stores are opening. The objective is to determine the incremental sales above the historical benchmark. Primarily the focus is a two-month horizon, with the three-to-six month horizon being a secondary consideration.
"At this point, we're looking at a six-month window, but our key focus is on the first two months with more of a business planning approach for the total six-month process," says Kowlaczyn. Once that information is gathered, the planning group uses historical baselines to project the impact of the promos and openings. It also looks at the baseline for historical sales and develops a forecast that is passed through corporate sales management and marketing to make sure nothing evident, such as public relations activities or late-breaking news on the health front, has slipped through the cracks.
In the second week, the planning group meets with each of the businesses and makes sure they are in alignment with the developing forecast.
"By the end of week two, we've aligned on a forecast that the marketing and sales teams feel was reached through collaboration and that they are comfortable with," says Kowlaczyn. However, he points out that the planning group doesn't require a unanimous decision to go with a number: "It's a collaborative process, but at the end of the day, the demand planners have final veto power. And we do end up with one number-that's a policy that is driven by management down through the ranks-and that number goes right into the financial systems, and we'll develop our financial plans off of it." Though Ocean Spray produces nearly 500 independent products, or SKUs, this planning process focuses on DFUs, demand forecasting units, which adds such variables as location and display packaging to the SKUs. The Ocean Spray planning process involves nearly 30,000 DFUs.
In the third part of the collaborative process, the forecast is fed into the Manugistics planning systems, which cranks out a supply plan that is distributed to manufacturing, logistics and procurement so they can order materials and plan their manufacturing sequencing.
The fourth week involves a formal sales and operating plan process with the sales people, top management from all the business teams and the CEO. "At this step, we tell them 'here's where we are today, here's where we're going to be tomorrow, here's where we will stand in six months, and here's the cost associated with each one of these moves, as well as the service required," says Kowlaczyn. "It's an intense process, but we've gotten pretty good at it."
In addition to bringing customers and suppliers into the CPFR loop, Ocean Spray also looks to Schneider Logistics for further efficiencies as the organization moves forward. The two parties earlier this spring signed an additional three-year contract that deepens the logistics company's role in helping Ocean Spray drive costs out of the system.
"We're expecting more from ourselves and our partners, and I don't use the term 'partners' lightly," says Kowlaczyn. "We've formed a very clear relationship with Schneider Logistics, and they understand very clearly what our goals are. And those goals are very simple: We demand exceptional service for our customers, we want to provide that service in a cost-effective manner, and we want not only to keep pace with what the industry is doing but to actually be on the front edge of industry trends. If there are new technologies or services or opportunities, we want to be there and be part of it and be able to offer it to our customers. And they haven't wavered since day one."
The new contract takes the relationship to another level, both for Schneider Logistics and for Ocean Spray, he adds. "The first contract was strictly a transportation contract. With this second contract, we are going to rely on Schneider Logistics and their technology and expertise to continue to improve our service to our customers." Though reluctant to share too many specifics, Kowlaczyn points to Schneider Logistics' burgeoning web-based technology as a major source of continuous service improvement.
"We've talked at length with their management about the kind of service we want to provide to our customers, and then together we mapped out how we were going to get there, using their technology, their expertise, and their web-enabled systems."
"Order cycle time continues to be a very big issue for Ocean Spray," says Van Beek. "As a third-partly logistics company, we can hammer down and get to a core carrier base, do rebids and things like that to lower transportation costs. But the real value begins to add up not just when you operate in an independent silo, like whether we did a re-bid procedure successfully, but rather when you can integrate efficiency through the entire operation.
"In their business, one of the things they heard constantly from their customer was, 'I need to be able to shorten the time between order entry and arrival of the freight at the dock. We can't make the truck drive any faster, so what else can we do to make this process more efficient?' Cooperatively, we've made some changes in how we are managing freight and how we use our tools and have taken almost a day out of our overall time, and they have done some things on their side in terms of inventory management and order processing to make sure that they get the order fill rates that they seek. And we've been able to do this together without a drop in service performance to the customer."
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