Leaders of the Pack

What keeps IT execs awake at night? At the 2003 Consumer Goods Technology (CGT) conference, attendees found out as Andrew Gaffney, group publisher for CGT magazine, hosted a unique CIO Roundtable discussion.

The spirited Q&A released a valuable floodgate of IT intelligence, as chief information officers George Chapelle, H.J. Heinz Company; Dr. Simatra Sangupta, The Scott's Company and Don Whittington, Florida Crystals Corp. openly confronted issues surrounding Product Lifecycle Management (PLM), Radio Frequency Identification (RFID)and Trade Promotion Management (TPM). The following outlines some of the key highlights of the discussion.

What are the primary challenges facing each of your companies?

WHITTINGTON: Florida Crystals has two main brands. One is the Florida Crystals brand primarily in Florida and Domino Sugar on the CG side. It is a very vertical operation because we are the only sugar company that owns the land, farms, mills and refineries that all have to be supported by the IT Group.

Our business people talk about the system very generically and I always remind everyone that the system consists of people, process and technology and we tend to focus more on the technology side. The real wild card is the people part of any system and the people part can be the most challenging.

SANGUPTA: We are a good old mid western company so there's challenge number one; to move a manufacturing mind set company to be an agile enterprise. That is probably our biggest challenge. We had the luxury of rolling out SAP about three years ago. We are just finishing a global rollout of Manugistics for our supply chain. The next set of challenges for us is really going to come around product portfolio management, not product lifecycle management because that's been done. It's really to take a look at our product line. Another big one is going to be around using sales force productivity to leverage the investments we have already made because we do go direct to store for most of our major retailers. That is probably the next year to year and a half for The Scott's Company.

CHAPPELLE: H.J. Heinz is an eight billion dollar consumer products food company. Our primary line of business is ketchup, condiments and sauces and frozen food. The two primary areas we have identified as opportunity for the company are in supply chain management as well as trade spending. Trade spending is an area where we are extremely focused as a company and have numerous initiatives on to address it.

Can you each specifically talk about anything you are working on in the trade management area?

WHITTINGTON: SAP is at the core of our infrastructure and we are running Gelco's Trade Promotion Management. The other main component is Web Methods and we have an integration architecture that we adhere to. I am glad to report that it is doing well, both from a business standpoint and from the technology side. It is very critical to our business.

SANGUPTA: For us, Trade promotion management is broad. About sixty percent of our business happens in sixteen weeks of the year so we have to hit it right or else we run out of stock.

Everybody is allowed to spend at our company to advertise. Historically we have never tracked what the actual point of sale lift has been for all our media advertising. That's the major initiative because our company is purely based on replenishing on the point of sale signal so the big initiative we have going is figuring out exactly what a dollar of advertising and trade does for us at a point of sale perspective and that is scheduled for the remainder of this year and our year just started. It will be followed up with a trade funds execution that is more of a transaction level process of making sure the dollars have been tracked through the system.

CHAPPELLE: Heinz, as a company, is very conditioned to spending trade money for sales. Our benchmarks indicate we are on the high end of trade spending as a percent of revenue. Our model is more geared towards spending the money with customers who perform.

We have redesigned some processes that we think will clearly delineate performing versus non-performing customers. We implemented Siebel in the U.S. and MEI Universal in Europe because the trade processes in these locations behave very differently. The U.S. is much more dynamic with many types of deals, paybacks and bill backs. Europe is a little more straightforward. Our program is all about taking the money that we spend and making sure it hits the customers that are driving volume. We believe that in the next fiscal year we will make tremendous progress in that area.

Collaboration is also a primary driver when measuring retail performance. How do you utilize point of sale data and direct store fulfillment?

SANGUPTA: Traditional CG companies who run their businesses based on shipping and shipping history, doesn't work for us, due to the seasonality of our products and the fact that roughly seventy percent of our sales occur on the weekend.

We found that if we had to collaborate with the merchants who were centralized and their selling was happening in a decentralized manner, there were too many man hours that were being wasted.

We are now using Manugistics. We went live with all our major retailers to figure out what we sell monthly and weekly and how to replenish. It is working particularly well for us with the retailers who are adopting more of a centralized merchandising philosophy.

CHAPPELLE: Most of our collaboration is vendor managed inventory based and that is a pretty small subset of our customers. When it comes to shipments versus consumption, we rely on consumption data for the two sources. One is A.C. Nielson and the other is Wal-mart's retail link application given that they don't share their consumption data outside of that system. We arrived at shipments and consumption and do the math to calculate trade inventory on a regular basis. Outside of vendor management inventory, there is not a lot of collaboration we do other than some very discreet things with some discreet customers.

Another recurrent theme in the CPG industry is data integration and data synchronization. Any challenges or accomplishments in this area?

CHAPPELLE: We are already synchronizing in the neighborhood of 330 SKUs with Wal-mart through USSnet. They do not dictate how you get your data to UCCnet. We happen to belong to a consortium called Transora that we use to publish our data. Transora publishes it to a number of exchanges; Udex and ECC in Canada. I think the hardest part of that was not UCCnet or Transora, it was collecting the product information in our own company. Historically, we have not been a centralized specification management or product data attribute company. We are now. It took us a long time to get there but the most difficult part of that whole process was internal.

SANGUPTA: Being a supplier to Wal-mart, I guess we've subscribed to UCCnet. We haven't published because that is the final step. Just like George, we have used UCCnet and we're in the process of ramping that up. It's finally given us a data structure to standardize our business around things like hazardous materials where there is no data standard. I am still very hesitant on where UCCnet is going on pricing and I think that is a debate that will go on for a while.

WHITTINGTON: We developed the integration standard using Web Methods, whether going to UCCnet or EDI. We are trying to compress that into one system versus trying to keep up with all of the different ways that you could possibly do integration as well as EDI.

Where does each of you stand with initial RFID testing and what hurdles do you see moving forward?

CHAPPELLE: We are one of the "Wal-mart 100" and have been working with them on RFID for about nine months. There is a lot of planning and understanding that goes behind how it can be implemented, but I think there are a couple of different strategies to implement RFID.

One is satisfying the Wal-mart need and I think we can all accomplish that a number of different ways at reasonable cost and relatively simple processes. To get a return on RFID in your company means you really need to proliferate it through your manufacturing and distribution network, integrate it into existing systems and put an infrastructure in place. It's difficult to imagine this scenario at the moment.

From my point of view, Wal-mart is doing an excellent job on driving the industry and standards groups to be ready in January 2005. We will be shipping RFID enabled product by then. We have been looking at strictly passive tags and the cost seems to be about 35 cents so perhaps there is a difference in the tag type or size.

Wal-mart is our largest customer in the world so at 35 cents per case, with 12 bottles of ketchup to a case, you can imagine tha tjust the tag cost alone is significant and that goes staright into cost of goods sold. The problem is the investment, when we begin to ship a tagged product in 2005, it doesn't line up with the return on it until many years out. It is a timing issue and it is one that is significant when you think readers, writers, scanners and equipping manufacturing and distribution centers with the ability to read tags.

SANGUPTA: We were Wal-mart's Supplier of the Year this year and when you get that award, you also get chosen in the Wal-mart 100. The challenge for us is really trying to understand what the benefit is for The Scott's Company. I can see what the benefit is for the retail company and I can absolutely appreciate the challenges, but while we are a small company with huge market share, there is limit to the infrastructure we can add to our internal cost structure. RFID, whether we like it or not, is going to add to our cost of goods sold and at some point in time the overall well being of the extended economy has to be looked at because I am not sure every manufacturer is going to be able to conform and add to the cost structure and still remain profitable.

If you look at UCCnet or RFID, there is a natural convergence that will happen. There is already further consolidation of the retail and manufacturing supply chains. The same applies to the technology space. I firmly believe there will be a shake out in the hardware space. While I think we are okay on the application side, I am not confident that we are okay in the CG space on the hardware side.

WHITTINGTON: We definitely have a different perspective because we are not a top 100 supplier even though Wal-mart is a very important customer for us. We are still in the RFID discovery phase but I think it will derive the right behavior in creating a more efficient and more effective supply chain in general.

It is where we were twenty years ago with EDI and asking what's in it for the supplier. It did drive some efficiency for us then. I don't know what RFID will morph into, but I do think it is going to definitely drive some of our supply chain efficiencies.

Today, so many people have cell phones and blackberries and other devices to move massive amounts of information. the hard part is disseminating the important from the urgent. Whether it's a Wal-mart initiative or a technology in place, I think our challenge is managing that complexity and at the same time, trying to simplify it.

Our customers are a more complex supply chain but want us to manage their inventory. I think technology has outstripped our ability to manage it and I think we all have to pick the right technologies at the right time in order to be successful