When EU removed their milk quota system in 2015, Arla’s supply chain came under significant pressure. Working closely with Arla, Implement designed the ONE Planning & Allocation programme to give the organisation a global overview of demand and supply. Learn how processes, people and IT came together in a uniform system.
After more than 30 years of existence, the EU milk quota system was scrapped in early 2015, resulting in a substantial increase in the amount of milk produced by European farmers. This again has had several consequences, the most obvious being a significant drop in the milk prices, putting many European milk farmers under pressure.
As one of the world’s largest dairy companies, Arla Foods has been directly influenced by this development. Not least because the company, as a co-operative owned by the milk producing farmers, is obliged to take in all the milk they produce.
Add to this the limited durability of milk combined with an extremely fluctuating market and increased pressure from still larger and more global customers, and you have a challenging situation. But also a situation with significant benefits associated with creating a global overview of demand and supply in order to balance the further processing of milk in the best possible way. For a company like Arla, having experienced a tremendous growth up through the 00’s and early 10’s, this task is easier said than done. New markets, new suppliers and production facilities all across the world had stretched the old country and market-based operating model to its limits.
The growth, primarily through mergers with other dairies, had given Arla the milk and the markets they had set out for, but also a scattered IT landscape and multiple ways of doing things across the global company.
ONE Arla through a global overview of demand and capacity
Thomas Carstensen, Senior Vice President Milk and Trading says:
“In Arla’s 2017 strategy plan, our top management provided us with a very clear mandate, which was to develop and implement world-class trading and milk allocation within a period of four years”. That was in late 2013, and today, not even three years later, Thomas Carstensen and his team can conclude that the results so far are promising to an extent where Arla’s CEO, Peder Tuborgh, refers to the new Sales & Operations Planning (S&OP) process as “the pulse of Arla”.
From a supply-driven to a demand-driven process
When Arla introduced S&OP, it was important to change the entire mindset of the organisation from one where the markets, roughly said, fended for themselves, and the core markets’ supply chains were focused on supplying the market that “owned” them. To handle the increased milk inflow, which was expected after the milk quota abolishment, and to serve the customers who were growing more global, the top management foresaw a need for the markets and supply chains to work together as one in a more uniform and structured way.
Hence, they ordered a global monthly tactical decision process named Arla Sales & Operations Planning and an underlying standard SAP APO IT landscape that could decommission the many legacy systems to be developed and rolled out. The program ONE Planning & Allocation was set in motion.
Jakob Lignell, Director, Global S&OP and head of the programme ONE Planning & Allocation says:
"With a background in sales, my primary role has been to negotiate the change process, getting to one harmonised S&OP business process and organising the programme. Doing it in a way that supported the various functions and also finding compromises on standardised SAP APO templates. It has truly been a team effort with Arla staff wanting to succeed as one, and external consultants understanding the need to show value early on."
In order to make the transition, it was necessary to introduce a process that could produce a reliable demand forecast on the one hand and a viable plan for meeting that demand on the other on a global scale. The process defined by Arla starts with Sales delivering quality and commitment for the volume forecasting at the demand review meetings (DRM) headed by head of sales in all markets. The new global demand planning template plays a key role in getting valid global transparency on demand.
The DRM is followed by gap-closing activities at the business planning meetings in the markets’ leadership teams and in the two overlaying commercial zones that have been created in the new “Good growth 2020” strategy. An organisational change that also gave Arla a supply chain divided into two main functional areas. Providing a clear line of sight from the 2017 strategy programme mandate and, hence, supporting the end goal of one S&OP process, one standard IT landscape and one set of numbers.
All plants then look at the demands at local plant review meetings (PRM) and give input to the two supply review meetings (SRM). This is done in a standard format guided by the new SAP APO master production planning template. The three most important global overviews across all sites provided by the master production plan.