Want to add a huge measure of complexity to your supply chain? Buy a company with international operations.
Greif Inc., based in Delaware, Ohio, is a maker of industrial packaging. Its products include corrugated containers and drums of steel, plastic and fiber. Buyers are pharmaceutical, chemical and agricultural companies, among others.
Up until 2000, Greif's business was mostly centered in the U.S. and Canada. Net sales were in excess of $800m. Then the 123-year-old company took a decisive step: it acquired the Van Leer industrial packaging division of Finland's Huhtamaki Van Leer Oyj.
Overnight, Greif doubled in size. It had 11,000 employees, 160 plants in 43 countries, and some 19,000 customers. Sales in fiscal 2005 (ending Oct. 31) were a record $2.4bn.
With the acquisition came the potential for some massive headaches. Greif spent nearly two years integrating Van Leer into its operations, which had spread to Europe, Asia, Africa, Latin America and Australia. And Wall Street wanted to know whether the newly expanded, publicly traded company was organizationally sound.
In 2003, Mike Hennel, president and chief executive officer of Westmont, Ill.-based Silvon Software, got a call from Greif chairman and CEO Michael J. Gasser. Analysts were looking beyond the financials, Gasser told him, and wanted to know how well the business was being run. Among its biggest needs was a system for monitoring worldwide spend on raw materials, supplies and services. Previously, Greif had tracked vendors, working capital and other financial data on spreadsheets, says Venkata Mungara, supervisor of manufacturing and supply chain systems.
Gasser knew Silvon from its work with Van Leer many years earlier. Now, he approached the vendor about installing a data warehouse and business intelligence system to keep track of global operations. The resulting Global Spend Database, built on the Silvon Web-browser interface known as Stratum.Viewer, would serve as a central repository for all information about the company's purchases of goods and services.
Greif faced the task of standardizing and accessing data from sites all over the world, regardless of which information systems they had in place. Unlike many industrial companies, it couldn't consolidate manufacturing at a handful of sites and rely on efficient shipping to reach global customers. The bulky nature of its product requires that production be kept close to end markets. "It's a local business that has to be managed globally," says Hennel.
Out With the Old Way
Now that operations were international, the old way of doing business was no longer tenable. Previously, Greif managers might spend two to three months consolidating purchasing data. By the time they were finished, the information was a year and a half out of date, says business process manager David Milliken. Through Stratum, the company could share financial, sales and purchasing data with all levels of management on a timely basis, at the plants and the home office.
Performance metrics were essential to making the system work. Silvon provided a management dashboard that showed key information at a glance. For the first time, the company could easily review its expenditures and identify opportunities for saving money. Purchases could be consolidated for more buying clout, instead of leaving all decisions up to plant managers at each site.
Local managers still have some say, says Hennel, but they're aware of how their raw-materials purchases compare in price and quantity with those of other sites around the world. And many of the big deals are negotiated by the company's supply chain group at the corporate level, using information generated by the Global Spend Database.
Information has become more detailed as well, for purposes of analysis. Instead of generalized, monthly reports, Greif can drill down to the item and part number of each purchase, by customer, supplier or manufacturing site. In the process, it can isolate problem areas, such as net sales to a particular customer that are below budgeted targets.
Implementation of the Global Spend Database wasn't exactly smooth. Mungara says Greif had to cope with non-standardized supplier I.D. numbers, causing individual suppliers to be listed several times under various identities. "It was a big, big challenge getting information from multiple systems into Stratum," he says.
Language was a barrier as well. Nearly all managers around the world spoke English, says Milliken, but they were varied in their fluency. It could be difficult, for example, explaining the difference between an expected purchase price and the one on the invoice. In addition, there was the issue of multiple currencies and standards of measurement.
At the same time, Greif was struggling with a rash of disparate enterprise resource planning systems. North America was already standardized on software from Baan (now part of SSA Global Technologies Inc.), but European locations were running other applications, making it difficult for Stratum to draw coherent data from each one. Greif is currently putting the entire company on a single instance of SSA's ERP, with a target date of 2009 for completion.
The Timing Is Right
Creation of the Global Spend Database turned out to be perfectly timed. Just as the tool was being rolled out, steel prices "went right through the roof," says Hennel. Manufacturers the world over were feeling the impact of breakneck industrial development in China, which was cornering the global supply of steel. Shortly after that, energy prices began to soar. The Silvon applications, coupled with formation of a global supply chain group, helped Greif to minimize the impact of those price hikes.
Greif's first step was to implement what Hennel calls "cascading KPIs" (key performance indicators) for sales and manufacturing. The goal was to align financial and operational objectives at every level of the supply chain. But the spike in raw materials prices caused Greif to embrace modules for tracking its global purchases. The Van Leer acquisition made such a tool essential, says Hennel. The company needed the ability to link pricing both to the cost of raw materials and the needs of its own customers.
The project is part of a larger effort by senior management to install what CEO Gasser calls "the Greif Business System." The goal is to insulate the company against soft market conditions and rising energy, transportation and raw-material costs, while devising new ways to improve performance. Launched in fiscal 2003, the program had already yielded $80m in annualized benefits by the end of fiscal 2004. Greif expects another $25m in benefits in the current fiscal year.
Work on the Global Spending Database and related Silvon applications continues. The company has a firm handle on its domestic spend, and can view daily sales data to track adherence to budget targets. Those capabilities are now being rolled out to locations beyond North America. Other items on the to-do list include full standardization of supplier names and the addition of indirect materials and services. Says Mungara: "This is going to be continuing for awhile."
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