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Gallo Salame, Jimmy Dean Sausage, Hillshire Farm, Ball Park Franks: all popular national brands, and all part of consumer products giant Sara Lee Corp. But up until four years ago, each was operating as a separate company. And the setup was causing big problems for Sara Lee.
In fact, Sara Lee had nine different entities producing packaged meat products for retail sale-and nine supply chains to support them. (Others included Best Kosher, Kahn's, State Fair, Bryan and the Sara Lee brand itself.) Each had its own sales force, marketing department, purchasing organization and balance sheet. It wasn't unusual for a given retailer to receive nine separate truck deliveries from Sara Lee in the course of a week.
Retailers weren't happy about it. "We were difficult to do business with," admits Larry Rogers, vice president of integrated logistics for Sara Lee Food & Beverage. The grocery industry was consolidating, he says, and wanted to deal with as few vendors as possible.
It was a bad situation for Sara Lee as well. The panoply of individual brands had led to numerous inefficiencies throughout the organization. And it diluted the clout that a supplier the size of Sara Lee might otherwise wield. That's no small concern, when you're dealing with merchandising behemoths like Wal-Mart Stores.
Clearly, it was time for a new approach. As it happened, Sara Lee was on the verge of a massive reorganization, which would find the company consolidating business units, shedding unwanted assets and redefining its identity in the competitive world of food and consumer goods. No part of the organization would remain untouched.
One of its key efforts focused squarely on the supply chain. The goal was nothing less than creation of a single organization for the movement of all retail food and beverage products to retailers.
Any program of such magnitude is prone to internal bickering and turf battles among the units involved. So it's not surprising that Sara Lee reached outside its walls for an executive who could consolidate all those supply chains.
Larry Rogers was hardly without experience in that area. He was recruited from Kraft Foods Inc., where in the 1990s he had helped to combine the company's General Foods and Oscar Mayer divisions with Kraft's food and dairy lines. As such, he was the ideal person to head up the effort at Sara Lee that would become known as Project Ignite.
Strategizing began in August 2000 and continued until the following March. That led to the broad outline of a network design, along with selection of key vendors of information systems.
"For a year, we didn't change anything," recalls Rogers. A team of approximately 100 people, half Sara Lee employees and half outside consultants, worked on the planning phase. During that time, the nine companies continued to operate independently, fully aware they were going to get "blown up."
One early move was selection of a common order-management system, from the software vendor then known as J.D. Edwards. (It is now part of Oracle Corp.) At about the same time, Sara Lee devised one set of procedures for sales and customer service. The new guidelines addressed such elements as pricing strategy, order minimums and order lead times. Most of the company's customer service organization was centralized in Cincinnati, Ohio, with additional staff in Tolleson, Ariz., and Bentonville, Ark. (the last to service Wal-Mart).
Rogers also had responsibility for the customer service organization, so he was able to instill a common direction among the various corporate functions. Nevertheless, he says, the task proved tougher than selecting systems. As is often the case in a push for standardization, each operating unit claimed to have "absolutely unique" requirements.
Rogers pressed on with a common transportation management system (TMS), from Manugistics Group Inc. The separate units had previously employed everything from yellow pads and spreadsheets to legacy software. The Manugistics purchase was accompanied by the development of a core-carrier program to service all of the brands, as well as a dedicated fleet for certain activities. Rogers also created centralized departments for freight payment and plant-deployment planning.
|Lessons Learned From Project Ignite|
|Adversity creates wisdom, and Larry Rogers, vice president of integrated logistics at Sara Lee Food & Beverage, has plenty of it. Here are the lessons he learned from shepherding the company's effort to consolidate nine separate supply chains:|
1. You must have buy-in and support from senior management.
2. You must have a clear, well-defined vision of your ultimate goals prior to implementation.
3. System configuration and implementation are just as important as the system you select.
4. Dedicated teams should be named to lead each functional transformation.
5. The biggest obstacles can come from departments beyond your control.
6. Take pains to "over-document" your assumptions, then continually validate them.
7. Be prepared for business changes, such as divestitures, acquisitions and new senior management, during the transition.
8. Transition costs will be higher than the amount budgeted.
9. Financial benefits come after completion of the project, not during its implementation.
10. If you aren't already, "become thick-skinned."
Regional Mixing Centers
The most radical step was next. It involved the creation of five regional mixing centers, through which all temperature-controlled product of the nine brands would flow on their way to retailers. No longer would each unit have the freedom to ship directly to a store. But Sara Lee would gain huge efficiencies in combining its various lines into one regular shipment for each customer. And retailers would be spared the line of trucks that used to clog their receiving docks.
Network modeling told Rogers where the mixing centers needed to be: Allentown, Pa.; Rochelle, Ill.; Tolleson, Ariz.; Fort Worth, Tex.; and Atlanta, Ga. Other key questions remained to be answered. The first was whether to own or lease the centers. Rogers said the decision was guided by capital constraints, as well as what real estate was available in each area. Sara Lee ended up purchasing land, and building or retrofitting warehouses, in Tolleson and Rochelle. The other three facilities were designed around existing structures and acquired through lease.
Who would run the centers was the second big question. This, says Rogers, was a simpler decision. Having long existed as nine smaller companies, Sara Lee Foods lacked the internal expertise and staff to open five busy mixing centers within two years. The company ended up choosing three logistics service providers: Total Logistic Control for Rochelle and Tolleson; AmeriCold Logistics for Fort Worth and Atlanta; and Millard Refrigerated Services for Allentown.
In the decision to outsource, uniformity gave way to practicality. "Starting from scratch, we didn't want all our eggs in one basket," explains Rogers. Each provider was chosen based on its strength within a particular region.
Harmony was important, though, in the choice of a single warehouse management system (WMS) that would control operations at all five mixing centers. Sara Lee selected Atlanta-based Manhattan Associates, whose WMS software was then called PkMS and is now known simply as Warehouse Management.
Manhattan came on board in 2001, with a mandate of having the first site at Allentown installed by April 2002. While each location had small "nuances" that set it apart from the others, Sara Lee wanted a system that could be completely designed up front and rolled out with ease to subsequent centers, according to Nick Adams, food industry account executive with Manhattan.
The requirements for handling perishable food products can be intense. A workable warehouse system must allow for pinpoint lot and data tracking, says Scott Gillies, Manhattan's senior solutions consultant. Sara Lee also wanted to optimize its use of both people and equipment, by assigning them tasks appropriate to the moment. There would be no warehouses in which one person performed the same numbing task over and over, all day long.
Manhattan had to deal with a mishmash of non-standardized technology and business processes across the nine business units. Processes to be standardized included inventory management and cycle counting, yard management, putaway strategies, cross-docking, order planning and productivity tracking.
New Best Practices
The Manhattan system introduced a number of best practices into the Sara Lee network. Barcoding and radio frequency identification (RFID) technology were installed to permit the real-time flow of information. Communications with Sara Lee's plants were enabled via electronic data interchange and advance ship notices. Incoming items were put away near pick locations, and tracked for the duration of their stay. Slow-moving items were cross-docked to keep them from moldering on warehouse racks.
RFID was a particular jewel in Sara Lee's crown. As one of Wal-Mart's top 100 suppliers, the company became the first provider of frozen and refrigerated foods to ship into the retailer's facilities with RFID tags on cases and pallets.
Sara Lee also purchased the Performance Management module of Manhattan's software suite, giving the company reporting and alerting functionality. In 2004, it added RFID middleware in the form of the vendor's RFID Integration Manager, which was installed at Fort Worth for purposes of shipping to Wal-Mart.
Yet another Manhattan module, Trading Partner Management, was acquired at the very beginning but had yet to be turned on as of late August 2005. It permits suppliers and their customers to communicate key shipping documents via the internet in real time. Early notice of a shipment's availability, for example, allows the buyer to plan for pickup.
Also purchased from Manhattan, but yet to be activated, is a Labor Management application. It applies engineered labor standards to work in the warehouse. Such systems are becoming increasingly popular, as companies seek to quantify their expectations of worker productivity. "It's on the list [for implementation]," says Adams.
Sara Lee's notion of what should reside in the mixing centers became something of a moving target. The original idea, says Rogers, was to start with the nine meat companies and frozen bakery products. When Sara Lee bought the fresh bread line of Earthgrains Co., the acquired unit was handed the frozen bakery business. Later, corporate reversed its decision and gave frozen bakery back to the mixing centers. As of late August, two locations had already taken on the additional business; two more were scheduled to add it in January 2006, and the fifth by the end of next year.
Further adding to the confusion was a shift in the company's organizational structure. In July 2005, the Sara Lee Food Group became the Food & Beverage operating group, one of three newly defined customer channels for food products. (The other two are Sara Lee Foodservice and Sara Lee International.) Henceforth, Sara Lee Food & Beverage would handle all packaged meat and frozen bakery business, as well as the company's Senseo coffee line, for retail sale. (Coffee and fresh bread, however, still do not move through the mixing centers, Rogers says.)
Feeding the five centers are 17 manufacturing sites throughout the U.S. Most have small warehouses on site, for which Rogers is also responsible, and which act as buffer locations. Some product might be held back at the plants depending on demand and inventory levels at the mixing centers. Each of the centers covers approximately 200,000 square feet, and together they handle roughly 2 billion pounds of product a year, according to Rogers.
TLC Steps Forward
Zeeland, Mich.-based Total Logistic Control had been talking about doing business with Sara Lee even before the mixing center concept was developed, says Bob Koerner, TLC's president and chief executive officer. Discussions picked up pace once Rogers came on board to oversee the consolidation.
TLC already had a public warehouse in Rochelle-Sara Lee had first eyed nearby Chicago for its regional center-and the building was easily adapted into a dedicated facility for the new client. As it happens, says Koerner, TLC's contract with the previous user of the warehouse was expiring. The building was subsequently sold to Sara Lee, which undertook a retrofit in partnership with TLC, then turned it over to the logistics provider for day-to-day operations. TLC also convinced Sara Lee to let it run the newly designed and built facility in Tolleson.
Koerner says the two companies have forged a successful partnership. "We really enjoy working with Sara Lee," he says. "It just clicks." The client can be demanding, given the penchant of frozen-food buyers for last-minute orders and a high degree of customer service. Sara Lee also must cope with seasonal demand patterns, for products such as hot dogs and corndogs, as well as quarter-end surges in orders. Nevertheless, says Koerner, Rochelle was recently named Sara Lee's "Facility of the Year."
TLC performs the full range of tasks for Sara Lee, from receiving orders through the Manhattan WMS to picking the goods, building pallets and handling all outbound carrier arrangements, according to routing guidelines set down by the customer. Some of the shipments move on TLC's own trucks, although the majority is handled by independent carriers, says Koerner. In the role of a trucker, TLC functions as a dedicated contract carrier, with equipment reserved for Sara Lee. The vendor also does special packaging, including the creation of "rainbow pallets" containing a variety of Sara Lee products.
Because it involves another stop in the movement of goods, the mixing center strategy actually raised Sara Lee's distribution costs. But transportation expense, a much larger component of overhead, went down substantially, Rogers says. As a result, the company ended up saving between 10 percent and 15 percent on total logistics costs.
Still, says Rogers, cost was not the primary driver behind the network reorganization. The real goal was to simplify Sara Lee's dealings with retailers, meet customer demand, and create a platform for future growth.
Waiting for Savings
The savings were in line with expectations, though they took a while to appear. "You don't achieve them until you really complete the network," Rogers says. Top management remained committed to the project, even when the system became temporarily less efficient, during the time that Sara Lee had to maintain two networks simultaneously.
Rogers must continue to manage the mixing-center network against a backdrop of constant corporate change. Sara Lee's five-year "Transformation" plan continues. Earlier this year, the company announced it would shift headquarters from Chicago to nearby Downers Grove, Ill. The bakery and packaged meat businesses will move from St. Louis and Cincinnati, respectively. Employees began moving into temporary spaces last summer, and the whole relocation project will be completed by next July.
At the same time, Sara Lee will shed some non-food business units. The $4.5bn Branded Apparel group will be spun off next spring as a publicly traded company. The Household and Body Care division is another likely candidate for divestiture. Other recent sell-offs include the Direct Selling business, which offers personal care products through independent vendors.
In recent months, Sara Lee has been experiencing sluggish financial results. Net sales for fiscal 2005 were $19.3bn, a 1-percent increase over 2004. But net income for 2005 was just $719m, a 43.5-percent drop from the $1.3bn reported in the previous year. That led to a 19-cent loss in earnings per share in the fourth quarter of fiscal 2005. Negative factors included costs associated with disposing of businesses and pursuing the Transformation program.
None of this should stop Rogers and his team from moving ahead with plans to solidify the consolidation of Sara Lee's food and beverage units. He is preparing to implement Manhattan's Trading Partner Management module, which will allow him to run the bakery business through the mixing centers, while setting the stage for further growth in the division. The network was designed to accommodate any additional acquisitions that Sara Lee chooses to make. Each mixing center has room for expansion, Rogers says.
Next up is a push to implement "lean" principles in the mixing centers. The program, which targets multiple areas of potential waste, will draw on processes already in place at the manufacturing plants.
Further ahead, Sara Lee might build another mixing center in Northern California to serve the U.S. Northwest. "Right now, our business on the West Coast won't support a sixth center," Rogers says. "As we grow or acquire businesses, it will become feasible."
Sara Lee's partners in the project would like to come along for the ride. "We're very optimistic that we can continue to expand our relationship," says TLC's Koerner. "Sara Lee has got a lot of things going. It's changing as we speak."
|Sara Lee at a Glance|
|The company: Sara Lee Food & Beverage, a subsidiary of Sara Lee Corp.|
Headquarters: Cincinnati, Ohio, moving to Downers Grove, Ill. in 2006
Chief executive: Christopher J. Fraleigh
Financial results: Net sales for fiscal 2005 (ending July 2, 2005): packaged meats, $4.3bn; bakery, $3.3bn; beverage, $3.4bn. Total corporate net sales for 2005: $19.3bn, a 1-percent increase over 2004, with net income of $719m, a 43.5-percent decrease.
Supply-chain network: 17 manufacturing sites in U.S. and five regional mixing centers producing all packaged meats and temperature-controlled product for retail sale. Product originally was shipped by nine separate businesses direct to retailers. "Project Ignite" combined them into a single entity with a common supply chain, sales force, balance sheet and business processes.
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