In what I think was probably my favorite session of the day, Anna Ross from New Zealand’s Fonterra Cooperative Group Ltd. provided an excellent overview of her company’s operations and the many supply chain issues, challenges, and risks that Fonterra faces every day when competing in global markets.

True to the title of her presentation, Anna began with a quite extraordinary list of facts about her employer. Her first slide, and the subsequent statistics, made it quite clear that Fonterra is by no means a jack-of-all-trades kind of company. They are quite emphatically master of one trade: Dairy. Not only is Fonterra New Zealand’s largest company, they alone account for 20% of the country’s exports and 7% of New Zealand’s global GDP. They are responsible for over 1/3rd of all global dairy trade and are the world’s largest exporter.

Among the company’s suppliers are more than 4 million cows from 85 different New Zealand farms. Fonterra supplies over 5,000 customers and millions of consumers worldwide. Probably their most well-known brand is Anchor butter (which my mum’s been spreading on her toast since as long as I can remember, so it must be good stuff!)

I, for one, could not have imagined the insanely complex logistical issues that Fonterra must tackle every day to ensure that my mum can find her favorite brand of butter on the shelf at her local supermarket. Fortunately, Fonterra is an avid user of Logic Tools’ LogicNetPlus which has enabled them to capture and manage the complexity and risk inherent in their global operations.

To start with, it takes about 5-6 weeks for Fonterra to ship its products to their main target markets. Add to that the fact that many of Fonterra’s products have a limited shelf life, and that month-by-month production volumes can vary considerably depending on the season. The company has 24 plants, 130 warehouses, and roughly 535 million different combinations of parameters affecting their supply chain network.

Fortunately, LogicNetPlus is able to handle this kind of complexity on a day-to-day basis without even flinching. It provides Fonterra with a holistic view of their supply chain, and also serves as a tool for long range strategic supply chain planning decisions. For example, Fonterra uses LogicNetPlus to plan new warehouse development projects (where should it be located? How big should it be? What mix of products should we store there?)

LogicNetPlus also helps Fonterra with optimal product mix decisions in their production plants, and helps them reduce the cost of third party storage and distribution centers. And if that weren’t enough, Fonterra has also integrated their supplier’s own supply chains into their model, further increasing the potential for global cost savings.

Food miles is a key concept for Fonterra. Food miles can be used as a measure of carbon effectiveness by measuring how long it takes for the product to arrive at the customer. One of Fonterra’s main markets is England, where around 41% of consumers are apparently purchasing products based on how carbon efficient they are, so Fonterra is keen to appear as green and lean as possible.

Geopolitical risks can also affect Fonterra’s supply or demand which can cause huge storage bottlenecks if delivery is disrupted to certain key markets.

Fonterra also faces climate-related risks. Several years of drought in New Zealand have pushed up prices and competitive pressures to the point where other companies are prepared to “poach” some of Fonterra’s farmers, therefore affecting their milk supply.

When thinking of risk, many people think of major catastrophes such as a warehouse catching fire, ships sinking, and so on. However, Anna explained that a lot of the risk they must deal with on a daily basis, is actually internal - and in particular IT-related risk.

Fonterra uses an e-documentation system to process exports (they export 95% of what they produce). Since they are looking to upgrade this system, they used LogicNetPlus to simulate different scenarios and determine whether their network could cope if for some reason the migration failed and they were without access to their e-documentation system. It turns out that their local storage and distribution network probably couldn’t cope, so they were able to take the necessary steps to mitigate the risk and keep costs to an absolute minimum if things did go wrong.

Food miles is just one component of the entire supply chain, though. Just because Anchor butter has to be shipped frozen all the way from New Zealand doesn’t necessarily mean that it is less carbon efficient than locally-produced brands. Many UK farmers, for example, house their cows indoors and therefore require heating and lighting. In New Zealand, cows roam free in fields - which, unsurprisingly, generates far less CO2.

Fonterra is piloting an RFID tracking system for their shipments and gets data direct from their shipping partners so that they can track precisely where their deliveries are at any moment in time.

New Zealand has a reputation as a green and pleasant land and the PR and image value of green logistics is a vital factor that explains Fonterra’s obsession with green logistics issues.

Fonterra’s global supply chain model, which manages over 535 million parameters, takes about 10 hours to run. For the sake of efficiency, Fonterra breaks down this global model into several smaller models. For example, they distinguish between ambient and temperature-controlled stock, and also by region. Their ambient stock model, for example, takes about 2 hours to run. Their China model takes 1 hour, and their US model takes about 40 minutes.

Some companies use LogicNetPlus as a one-time process optimization tool, but Fonterra uses it on an ongoing month-by-month basis. They have found it invaluable in managing their day-to-day business, as well as planning both their short and long term strategies for growth.

Thanks Anna for introducing me to the thrills and spills of global supply chain management!

In this session, Filippo Focacci, product marketing manager for ILOG’s Supply Chain Management (SCM) product line, presented ILOG Plant PowerOps (PPO) and how it was used to radically improve production planning and scheduling in Danone’s dairy manufacturing plants around the world.

PPO is ILOG’s new integrated planning and scheduling solution for the manufacturing process industry, specifically optimized for fast moving consumer goods (FMCG), pharmaceutical, and chemical processing applications.

The models generated by PPO provide management of tank operations, cleaning policies, shelf life and maturation times. They also provide decision support to help planners map the scheduling process and conduct what-if analyses to asses performance. PPO can also be integrated directly into existing IT infrastructure (ERP, etc.) and with the Logic Tools range of supply chain management solutions.

A dairy manufacturing plant requires an extremely complex manufacturing process that includes tank management, flow control and scheduled cleaning activities. The Danone project was designed to address three major business challenges:

• Meeting demand
• Manufacturing efficiency
• Quality

The solution provided integrated planning and scheduling for both intermediary and finished products and modeled all the plant’s key manufacturing and plant floor constraints. Integrated planning and scheduling means that planning decisions made at the same time as decisions about operational capacity. This is the only way to determine trade off between planning decisions and operating efficiency, that is to say between supply chain and manufacturing goals.

ILOG worked with Danone to create custom KPIs to enable them to track performance of the system and simulate various scenarios.

These KPIs allowed Danone to compare optimized plans generated by PPO with previous manual processes created by their experienced planning team. These comparisons revealed areas of the manufacturing process that could be considerbaly optimized. For example, manual planners would build in too margin in certain processes to mitigate risk, but this margin would often be far greater than was strictly necessary for operational efficiency.

PPO’s production smoothing tools help companies like Danone move towards lean manufacturing processes by reducing variability in the manufacturing process.

Danone identified the following key benefits of the PPO solution:

• Information Systems: Full SAP integration, modeling of both finished and semi-finished products with a repeatable core model that could be used as a template for other plants.
• User: Very high user acceptance, easy to learn and use.
• Organization: Manufacturing and supply chain use the same tool and planning is now a daily activity rather than the previous week-long process.
• Process: Improved operational efficiency, optimized service levels and inventory corridor. Ability to deliver executable plans for finished products and white mass as well as cleaning and changeovers.

The first Danone plant to adopt the PPO solution was in Mexico. Danone has since implemented similar solutions in Russia, Argentina, and now Brazil. These are all markets with 20-30% market growth potential per year, bringing Danone very high return on their investment. The largest gains to made with PPO are in markets that have high growth and capacity constraints, where improvements in plant throughput are essential to meeting growing customer demand.

Major synergies are possible between PPO and Logic Tools or other supply chain management applications, such as SAP or Oracle. So while the Danone story certainly represents a breakthrough in production planning and scheduling, so much more is possible.

There is growing interest in understanding the impact of various supply chain decisions on a firm’s carbon emission footprint. This awareness is moving rapidly up the corporate, consumer and legislative agenda. I was pleased to see, therefore, that “green logistics” also features highly on the agenda for DIALOG 08.

On Monday February 25th (2:30 pm - 3:15 pm), Martin Brotschul from Accenture will explain the financial case for sustainability and green logistics and use case studies to assess best practices in green logistics and supply chain management.

Ahead of DIALOG 08, David Simchi-Levi, professor at MIT and co-founder of Logic Tools, the supply chain vendor that ILOG acquired in 2007, will present a webinar on Wednesday February 20th called Green & Lean: Reducing Carbon Emission in the Supply Chain in which he will review strategies that allow firms to stay “lean” while becoming more “green.”

David will also be at DIALOG 08 and with a bit of luck I’ll get him to spill the beans about some forthcoming additions to the Logic Tools network design and planning solution designed to help you make your own supply chain that much greener. Watch this space!