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29th December, 2017

Of course, it is one of the core elements of all corporate strategies to align the production volume as precisely as possible to the needs of the market. But what happens if the raw material quantity of the products is relatively stable, while the sales markets and thus the concrete demand are volatile? Hochwald also faced this question again and again.

Hochwald has implemented a process for integrated planning and control - like driving ahead with high beam

Of course, it is one of the core elements of all corporate strategies to align the production volume as precisely as possible to the needs of the market. But what happens if the raw material quantity of the products is relatively stable, while the sales markets and thus the concrete demand are volatile?

Hochwald also faced this question again and again. Cooperatively organized and internationally oriented, the company produces high-quality food from more than two billion kilograms of raw milk annually. It receives the raw material from more than 5,000 farms with which long-term supply contracts exist. However, while cooperative farms continue to produce a largely fixed volume of milk, demand for the different dairy products can vary considerably.

Detlef Latka, CEO at Hochwald, concretizes the challenges. "With traditional methods, the sales planning is difficult in view of the very changeable and heterogeneous markets, internationally even more than in this country. Overbooked production lines or underutilized production resources can also be the result, as can oversupply or undersupply of milk as a raw material. "But how does one know, in view of the autonomously organized plants and rather reactive plans, what quantity is required at which time and in which of the Hochwald factories is?

Strategic right-of-way project

The future-oriented answer was found in the project "Integrated Planning and Control" (iPS), started in 2014. Its orientation, which goes far beyond the S & OP (Sales and Operation Planning) approach used in the dairy industry: to create a constant balance between the supply of the raw product and the sales of the dairy products. "With iPS, Hochwald is systematically continuing on its path of strategy transformation from a commodity-oriented company to an even stronger market orientation. In addition, the project is an important basis for the current construction of a fully integrated supply chain along the entire value chain from the farm to the end customer, "says Karsten Schuhmacher, Head of Central Supply Chain Management, putting the project to the point.

And for that it was necessary to reconcile the three mutually influencing factors via flexibly configurable planning processes:

• the uncontrollable supply by the cooperative suppliers,
• the variable sales markets, which are additionally characterized by seasonal and action phases,
• the production capacity of all plants, considering the resources available.

"A harmonization of demand and availability should be generated," says Karl Eismann, CPO at Hochwald, the objective on a common denominator. The aim was to develop an embedded core process for uniform management of the short-term to long-term implementation scenarios, which includes all core areas of the company, including milk procurement, production and sales. "The goal was to be able to design Hochwald's planning with a far-sighted view," explains Volker Lohse, Head of Business Unit National Dairy Products. "Because the insights that we gain from this process give us a high level of planning security for ever more dynamic market conditions." Or, as Pavel Duda - Senior Consultant and iPS Project Manager at msg Plaut describes it in a picture: "A forward-looking planning like the one for the future Driving with high beam. "

In line with the ambitious orientation, the introduction of the iPS process was, according to Eismann, "strategically defined as a priority project". Its core meant a major organizational change for Hochwald, because the iPS process also meant a change from a production-oriented to a sales and distribution-oriented company.

Precise and rolling sales plans

The restructuring took place not only in the establishment of business units, but also in changed planning and control processes. This includes the introduction of the central sales planners and production planners as new functions in addition to the Milk Manager. You are responsible for the iPS process, which Lohse, through its overriding importance, calls a "backbone process". "He focuses on a single plan with only one measure that is binding on all organizational units. This provides a transparent instrument for much more targeted and cost-effective planning. In addition, rolling sales planning results in fewer short-term and cost-intensive ad hoc actions, "he says. And the factories also benefit from this because almost no short-term and unscheduled customer orders can be handled. "Production has become much more systematic and quieter," says Markus Kerpen, Operations Manager at the Kaiserslautern plant.

Operationally, iPS relies on binding pull-in forecasts based on the pull principle to compare the contractually defined milk volumes and available production capacities. Should the volume of raw materials exceed the requirements defined by the sales department, those responsible can think about new customers at an early stage and start additional marketing initiatives. Conversely, additional raw materials can be bought into the market ahead of schedule if the expected delivery of raw materials falls short of the calculated sales volume. From this, all other resources from production to personnel, storage capacities, packaging materials and logistical requirements are planned.

Specifically, this takes place weekly in a central coordination by the Milk Manager, central sales planner and central production planner for the following two weeks. In addition, there are monthly executive S & OP meetings. Here, the six- to 18-month planning period is considered and, in case of deviations, consensus-based solution scenarios are developed. The plants depict the six-month sales planning considering the planned maintenance work and other influencing factors in their production planning. "As a result, we know at an early stage whether the existing resources are sufficient, or, for example, we need to set up additional weekend shifts or take other measures," explains Kerpen.

It is no longer thought in silos

However, the introduction of the iPS process has been accompanied by consequences not only of organizational circumstances and responsibilities. But it has a significant impact on the work and culture of the company. This not only includes changed roles of the plant planners, who instead of autonomous planning are now especially responsible for the communication with the head office and the implementation of the planning specifications. Also new is the consequence of the iPS process that it is based on secured sales planning. This requires very binding statements from the sales department because every deviation affects the production.

"That's why it took the iPS alignment beyond the reorganization to change something in the mind and strengthen in-house communication because silos can no longer be thought of," says CPO Eismann, describing the challenge it poses in the context of Change Management was required. This process of change is not yet completed, as the implementation of the iPS process is being carried out successively in the eight plants. "It still needs a fine adjustment, but the acceptance of the new direction and the internal coordination work already very well," says Eismann.

His colleague Latka is also very impressed by the results of the iPS project so far. "We are already experiencing significant business effects and know ourselves on a future-proof path." He also includes msg Plaut as a consulting partner in this positive assessment of the project, who was able to score points in the selection at the time by his industry expertise and a primarily organizational rather than technical approach also convinced on the human level. "This impression has been confirmed again and again in the three years of cooperation", he sums up satisfied.

Brief profile of the technical solution

After exploring the market via suitable tools for fully integrated sales planning and the different requirements of the individual business units, it quickly became clear that Hochwald will be based on the integrated planning framework of SAP BW. This opened a wide range of analysis possibilities with the common SAP Business Objects tools. The highly automated integration options for SAP ERP distribute the planned independent requirements to the various plants of the company and trigger comprehensive material requirements planning there. All planning processes closely defined by the SAP standard and the control of production build on a consistent and well-founded database. The material and, in particular, the raw milk and capacity requirements that are important for the company are compared with the available capacity and delivery quantities in the specially developed S & OP Cockpit. These developments were carried out in close cooperation between the IT experts at Hochwald and msg Plaut. "An effective and impressively simple overview based on the complex SAP data structures, as it has not yet been given" at the push of a button "at Hochwald," says Frank Brück, the company's IT manager.