Herdez Group Report to the Mexican Stock Exchange (BMV)in the Third Quarter 2009:
“… Net income in the period was $ 12.2 million USD, 53.3% higher than obtained during the third quarter of 2008. On a cumulative basis, the Group’s net sales amounted to $474.8 million USD, 18.6% more than the first nine months last year.
In the third quarter, greater efficiency in managing costs also allowed operations utilities to reach $ 871.1 million, 34.8% more than the same period in 2008, EBITDA also increased to 31.5% reaching $ 75.9 million USD.
It is worth noting that the cumulative operating income until September 30, 2009 exceeded by $634,000 USD to profits earned during the year 2008.
Throughout this year, the Supply Chain strategy along with an efficient work capital management, resulted in an increase in cash generation to finance investments in fixed assets and reduce liabilities costs, among other uses…”
How did Herdez Group’s Supply Chain alignment impact on business results?
According to Sintec’s experience, consumer product firms which are able to align its Supply Chain operations to the needs of each commercial target segment, are the ones with a superior performance, supporting long-term business sustainability.
The Herdez Group case shows how a company was able to align the operation of the Supply Chain to the market needs. To perform this transformation, four areas were identified on which changes must be made: Segmented Service Proposal, Customer Service Processes, Sales and Operation Planning Processes and Key Performance Indicators.
CHALLENGES AND PROBLEMS
As Herdez Group grew, the Supply Chain operation complexity increased. On 2007, Cofuerte Supply Chain was formed, on which several efforts on infrastructure synergies were made:
- Closure and modernization of plantsClosure of 6 distribution centers
- Renewal and opening of primary distribution centers
- Presentation of investment requirements 2008-2011
However, during this stage the processes were not modified, and during the diagnosis phase Sintec detected the following issues:
- There are different requirements for clients and product behavior for which the same solution is applied. (Segmentation)
- Each area optimizes their own resources, which doesn’t assure a total optimization of the Supply Chain. (Alignment)
- There are different ways to run the same process. (Standardization)
HOW DID WE RESOLVE IT?
The transformation effort was conducted in 3 phases, with a total duration of 14 months:
Phase I-Diagnosis and Supply Chain Strategy Definition
During this phase, there were a series of activities carried out focused on the diagnosis of opportunities and redesign of the Supply Chain. One of the most important objectives to prepare the organization for change was the strategy consensus (more than 50 executives assumed an active role on the Strategy design):
- Interviews about understanding of processes
- Training on Supply Chain processes
- Benchmark analysis on best industry practices
- Diagnosis and redesign workshops
The result of this phase is four key areas:
- Value Proposition per Segment: Delivery and fill rate times were defined according to the needs of each commercial target segment. Furthermore, this differentiation gave clarity about how to deliver products on shortage periods.
- Customer Service Process: The Order Manager position was created, who is responsible (either on a regional manner or by customer) of thegeneration of the customer order until its delivery (including the expediting of products in case of missing inventory, ordering inventory and the
collection of evidence.) At the same time, he reports to the Customer Service Management (new area), who is responsible for all activities related
to meeting the range of customer orders according to the Service Offer per Segment. - Sales and Operations Planning Processes: a.) Collaboration processes were established between Marketing, Commercial, and Supply Chain departments, with the purpose of preparing the Supply Chain to the needs of each client during the next months. Additionally, different methods of supply planning were defined, according to the demand characteristics (volume, tendency and variability) of each product type.b). Key processes were enabled by certain organizational changes: Creation of the Demand and Supply Planning area, responsible of Total Supply Planning (inventories, distribution, production and materials). The Manufacturing area was focused on production; while the Purchasing Department focused on the development and negotiation with suppliers.
- Key Performance Indicators: A set of common goals between the areas and specific indicators were developed for the responsibilities of
each of the areas. These indicators relate to services, costs and working capital. Furthermore, these indicators enable and align the supply chain operation.
Phase II: Implementation of the Supply Chain Strategy Design
The objective of this phase was to mobilize the organization towards change and achieve results in the short term. As a result, the organization is encouraged to continue with these changes, and to overcome the previous routine in its operations.The changes were organized in a way that made it easy to identify and evaluate:
- Organizational Changes – These were conducted fully from the start, in order to generate a new momentum for change.
- Customer Full Service Process – Changes had a minimal risk and high profits, so the change at a full level was relatively simple to implement and simple to manage key performance indicators.
- Sales and Operations Process Planning test pilots – The magnitude of change was large, and given the complexity Sintec decided to make these changes partially by brands, in order to generate confidence in the completely new way to operate.
Tangible benefits: The way to organize the transformation generated the optimistic results that were planned.
- The Service Level increased from 87% to 96%
- Transport costs decreased by $793,650 USD / year
- Inventory levels decreased by 12%.
- Qualitatively, the organization generated a culture of confidence in the strategy and discussions about improvements for the new operation.
PHASE III. Total implementation and maturity of the Supply Strategy
In order to manage the full implementation of the strategy technology was required. To achieve full implementation, we supported the Sales
and Operations Planning Process with the implementation of Oracle’s information technology ©Demantra.
This technology allowed migrating from operating partially to including all brands (over 60 active members). The tool was adopted within seven weeks after starting its implementation as part of Phase III. All indicators defined for Directors and Managers were managed by Oracle’s Business Intelligence Platform. This State of the Art technology information supports the new processes implemented through the project.
Top Management conviction and full support was key to the project, in addition, senior managers were willing to take high-stakes decisions. The
comprehensive process to improve the supply chain took 14 months, focusing first on the processes and objectives, then on people, and finally
on Oracle’s IT tools.
“In 2004 we defined our growth strategy for more than 40% annually for the next 5 years; partners like Sintec have fundamentally cooperated in achieving so aggressive objectives. The implementation team assigned by Sintec and Oracle gave us the confidence and assurance that Demantra implementation would be accompanied by the best practices in Supply Chain.¨
Alberto Garza, Supply Chain Director, Herdez Group
About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.
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