Arla Foods UK plc is the UKs leading dairy company with a turnover in excess of 1.3 billion. Arla processes over 2.2 billion litres of milk a year and enjoys a 44 per cent share of the British retail fresh milk market, making over 2200 daily deliveries direct to stores nationwide.
It also enjoys a 70 per cent share of the UKs fresh cream market, and is home to some of the UKs most popular butter, spreads and margarine brands including Lurpak and Anchor. For a company with such high profile brands, being able to accurately forecast and plan customer demand, as well as deliver on time, is critical. Key operational requirements such as these called for a state-of-the-art demand forecasting and planning software solution. This is how the companys successful relationship with software developer and supplier FuturMaster began.
Prior to going live with FuturMaster, the company had encountered a number of demand management constraints. Arlas head of planning and customer service Ian Brown (pictured) provided the background: Before the implementation of FuturMaster the forecasting element of our planning operations had been handled mainly by the supply planners themselves, based on spreadsheets, and forecasting data at sku demand level, rather than sku:customer level. The supply managers had a fairly accurate idea of how many units of a particular product were likely to be required in any one week, based on historical data, and they would update their forecast spreadsheet data on that basis. However there was little ability to make accurate forecasts based on future demand spikes in particular customers in the event of product promotions and seasonal influences such as Christmas and Easter.
With this in mind, Arla began searching the market for the most suitable demand planning software system back in 1998. One of the reasons FuturMaster was chosen revolved around its ability to plan items daily at sku:customer level. For example, we realised the system would allow us to prepare a detailed daily forecast by customer, by sku and by despatch location, explained Brown. A lot of demand forecasting and planning packages only focus on a weekly forecast, which is then turned into daily forecast based on historical rules. Implementation of FuturMaster demand planner began in January 1999 and was completed in March the same year.
When Arla merged with Express Dairies in Oct 2003 it faced the formidable task of data consolidation. Following the merger we naturally had to go through the process of data analysis and amalgamation in order to ensure we had no duplicate or conflicting information, said Brown. In order to do this effectively, we migrated all our demand planning data into FuturMaster and went through an intense period of data cleansing. Operational plans already established for the two businesses were adhered to during the busy Christmas 2003 period and early 2004. Attention was then focused on putting in place the optimum demand planning infrastructure for Christmas 2004, by which time the full operational merger has been completed. With this in mind, Arla again contacted FuturMaster and sourced its FuturMaster Optimised Planning module. This needed to be implemented within a very short timeframe in order for us to more effectively manage the 2004 Christmas period as a recently merged company, Brown explained. Fortunately, with the help of FuturMaster consultants, we were able to complete implementation and go live within only three months; from September to November 2004.
So demand management is a critical everyday process at Arla. But a reliable demand management infrastructure involves more than the manufacturers internal processes, as Brown explained: Looking at the broader picture, the effectiveness of our service to our retail customers, as well as our own internal efficiencies and profitability, is largely dependent on the reliability of our whole supply chain network. Its about collaboration, engaging with our supply chain contacts gathering sales and marketing intelligence from field sales staff, gaining availability information from suppliers, demand information from the retail customer and so on. FuturMasters Collaborative Planning Forecasting and Replenishment (CPFR) function ensures all information can be gathered and processed effectively in order to ensure optimum levels of service to the end customer. It also helps keep our inventory levels to a minimum and ensures each supply chain trading partner has the means to access real time information regarding customer demand and timelines. Additionally, FuturMaster is invaluable in helping us to assess a particular trading partners readiness to respond to our need for extra volume of particular type of produce. In the case of mature products, the normal day-to-day week-to-week demand is fairly stable. However, volatility can occur in certain circumstances; the classic ones being promotions and Christmas. So relying on data thats readily available in FuturMaster makes it a lot easier to communicate proactively and professionally with the retail customer and our supply chain partners.
Whilst Arlas use of its existing FuturMaster solution is reaping substantial demand planning benefits, the use of the system, and the way it can be adapted as requirements change, is also being exploited. For example, Arla is currently installing an additional Electronic Point Of Sale module EposMaster. Brown outlined its anticipated benefits: With EposMaster we will be able to further increase the collaborative benefits of our FuturMaster system. As we collect data from links on our retailer customers websites, we will be able to use EposMaster to quickly and easily disseminate that information rather than rely on a considerable number of people working on spreadsheets. The system will allow us to exceptionalise the data and distribute this information quickly to our field team. It will also aid us in identifying any areas where product availability is not as it should be, or where wastage is at too high a level. With EposMaster we will be in a position to tackle these constraints immediately rather than identifying potential problems and not having time to rectify them. Shutting the stable door after the horse is bolted is naturally what every business wants to avoid.
In terms of the planning side of FuturMaster, Arla manages everything by date code. The information at all of our stockholding points is managed in our SAP business operating/ERP system, which then exports relevant data to Futurmaster. explained Brown. The extracts we manage in FuturMaster are by date code the system allows us to manage that very effectively making sure we have identified any rotation issues, or issues related to stock that may become distressed, and so on. Basically, it gives us the ability to ensure our retail customers are getting stock with the date codes they require, whilst allowing us to proactively manage any coding issues.
Finished product wastage in the fresh food industry can be a significant problem. However, through the effective use of demand forecasting and planning data in FuturMaster, Arla has been able to deliver a sustained reduction to its finished product wastage by over 75 per cent vs the base over the past three years. In addition, greater supply chain visibility has resulted in increased levels of demand forecast accuracy, and thus in more efficient management of stock levels. In fact we have been able to reduce finished goods stock levels by approximately 20 per cent which, when you consider the scale of our value-added products business, is a significant and substantial reduction, said Brown.
Planning and agility
In terms of agility in efficiently responding to customer needs, this also comes into play on the production planning side, according to Brown. Everything is centrally handled in Leeds. We have our planning team sat next to the Central Order Office, so as orders drop into the system during the day the planning team can react immediately. And clearly that gives us the ability to immediately re-plan that days plant activity if necessary - adding on or taking away production. The bottom line is the importance of maintaining an efficient service to the end customer and being able to respond to customer demand quickly and effectively. This is what we achieve with sound business processes, fully integrated with FuturMaster.