Grape grower juices up its planning systems

Welch’s is in the final stages of a 30-month project to overhaul a number of its key operational systems. When it’s done, the Concord, Mass., food manufacturer will have integrated two functions that traditionally are handled by separate applications: promotions management and demand planning.

The goal is to create a single source for marketing, sales, financial and production data, said George Jackman, director of customer marketing at Welch’s. Jackman spoke recently at a retail technology event and detailed his company’s efforts to tie promotional activities more closely to supply-chain planning.

Trade promotions are events planned by a consumer goods company and its retailer customers. For example, Welch’s might negotiate to have its grape juice advertised in a retailer’s printed materials or displayed at the end of a grocer’s aisle.

These events consume a lot of money: Spending on trade promotions is the second-largest item on Welch’s profit-and-loss statement, second only to cost-of-goods sold, Jackman said. However, managing such promotions is by no means an exact science.

The consumer packaged goods industry spends $25 billion annually on trade promotion, yet it’s often the least well controlled and managed major budget item, Jackman said. He cited industry statistics that suggest more than 80% of promotions generate disappointing, unprofitable or disastrous performance.

A ripple effect of poor promotions planning can produce too few or too many products. Produce too few and Welch’s winds up having to make costly, last-minute adjustments to production schedules to meet demand. Producing too many means carrying excess inventory and increasing the likelihood of having to destroy products that get too old to sell.

Welch’s doesn’t have room to waste any resources if it’s going to stay competitive, Jackman said. Already it’s an underdog of sorts. Welch’s is an agricultural cooperative owned by 1,400 grape farmers. The $750 million company is dwarfed by competitors, such as Nestle, Kraft, Procter & Gamble and PepsiCo’s Tropicana. “We need to do what we do faster, cheaper and smarter” to compete with these players, Jackman said.

So the company set out to improve its planning and production processes. Welch’s devoted a lot of time to the early stages of its project – which included mapping then redesigning the company’s processes and selecting new software. Those initial steps took one year, Jackman said.

Finding the right software wasn’t easy. Jackman evaluated products from a dozen providers including large vendors SAP, Siebel Systems and Oracle, and specialists Data Alchemy, Gelco and Proscape Technologies.

In 2003, Welch’s chose Demantra , a vendor with expertise in demand planning and analytics, and growing experience in trade promotion management, Jackman said. Demantra’s software also had the requisite flexibility to accommodate Welch’s processes without requiring custom coding, he said.

The next steps – configuring the software, integrating it with Welch’s current systems, training users and testing the system – has taken another 18 months. Mapping Welch’s retooled processes to the Demantra software is complex, Jackman said.

At each step in a process, Welch’s had to consider the role of people involved, the information that needed to be captured and the decisions that would follow. Jackman and his team reviewed each assumption to make sure that information flows and algorithms captured the right data and sent it to the appropriate places.

Today, Welch’s is in the final stages of the project, preparing to go live with the Demantra software this summer. Its implementation breaks down into three main parts:

• A customer planning module, which automates tasks associated with designing, funding, managing and analyzing promotions.

• A deductions management module, which tracks and resolves “deductions,” or invoice discrepancies, and sends the data to volume planning systems.

• A reporting module, which generates analytic reports related to forecasts, sales, trade fund availability and daily sales.

Welch’s new system will put an end to a number of manual processes. “Before promotions were planned, managed and tracked using a slew of relatively manual processes,” Jackman said. Employees used lots of paper, e-mail, phone calls and spreadsheets to set up and track promotions.

Not only were these processes time-consuming, they were also error-prone, which contributed to mismatched product production. The old way of demand forecasting required corporate users to piece together lots of data – from disparate systems such as internal software that kept tabs on product shipments, consumption and manufacturing capacity, along with external data sources such as financial data from ACNielsen – to get a picture of product demand.

“Forecast accuracy was actually getting worse, not better” before the Demantra rollout, Jackman said.

With the Demantra software, all the data will be available in one system, including financial information, supply-chain metrics, marketing strategy information and collaborative planning. It rolls five areas into one – customer planning, trade fund management, marketing planning, analytics and demand planning, Jackman said.

Welch’s salespeople will benefit from greater automation of the company’s customer planning and trade funds management processes, while marketing personnel will be able to more accurately measure the effectiveness of the company’s promotional investments, according to Jackman.

However the single biggest benefit will be from the supply-chain perspective, Jackman said. The system will provide more detailed demand information – and more quickly. For example, every time a promotional event changes, the system will update volume forecasts, Jackman said.

The system is not yet fully integrated with Welch’s newly installed Oracle ERP system. That will happen next summer. When it’s all in place, Jackman expects big gains from the technology.

He didn’t disclose specific dollar amounts, but said Welch’s expects to reduce its inventory by 15%; trim its trade promotion budget by 1%; slash the amount of inbound raw materials that get expedited to meet rush orders by 30%; and reduce the destruction of outdated material by 30%.