You are on page 1of 26

SAP ERP for the Food Industry

Challenges, Strategies, and Benefits The Solution

Challenges, Strategies, and Benefits The Solution

The Food Business Ecosystem

Government Regulations
(Taxes, Compliance, Trade Restrictions, Import/Export Rules)

Distribution Center Raw/Packaging Material Supplier

(Commodities, Intermediate Materials)

Hotel, Restaurant, Food Service

CP Food Company

(Can Be Outsourced; Packaging, Product Finishing)

Third-Party Logistics
(Logistics Service Providers)

Consumer Retailer
(Retailers, Mass Merchandisers)

Services Supplier
(Packaging Design, Research, Service Partners)

(Typically for Smaller Food Companies)

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Food Companies Often Have the Right Focus and the Right Strategies

Protect and enhance revenue YOUR FOCUS Improve margins Increase Shareholder Value Drive for lower costs Increase Revenue and Profit Margins Get closer to the consumer Improve time-to-market Operational Excellence Product Leadership Enhance operational efficiency Improve Customer Satisfaction


YOUR FOCUS Increase Shareholder Value Increase Revenue and Profit Margins Cost Leadership Product Leadership Improve Customer Satisfaction

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

But Mostly Not Enough Ability to Execute

Often employees cannot execute on the companys business strategy because the business platform is
Complex and broken process flows Incomplete or hidden information


Lack of visibility Lack of traceability

Business Enabler
Ability to EXECUTE

Multiple costly integration points Redundant and inconsistent data

A business enabler is required to help the organization refocus on business strategies!

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Market Forces and Business Needs

Market Forces

Retailer power (Wal-Mart effect) Consumer concerns about food safety; media attention Increased legislation and regulations around food safety by FDA and other authorities (e.g., EU Dir. 178/2002, The U.S. Bioterrorism Act of 2002) Changing consumer demands due to demographics and trends Decreasing consumer loyalty to products and brands Shorter product life cycles Global commodity price fluctuations Price pressure and margin erosion Restrictive consumer spending pattern Market consolidation (globalization, M&As) Increasing competition Emerging private labels New technologies reshaping the industry

Resulting Key Challenges

Improve Sales Efficiency Enhance Customer Retention and Loyalty Ensure Food Safety and Regulatory Compliance Optimize Supply Chain Optimize Efficiency in Procurement and Manufacturing Create Visibility to All Internal and External Processes and Operations

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Improve Sales Efficiency

Protect market share Meet retailer requirements Improve sales force

Obtain first-hand information

about the market

Optimize process settlement

Get visibility in the sales

in sales
Increase customer service

Get closer to the customer

Increase customer


SAP can help you

Plan, track, control, and

Higher sales volume Better account retention Closer customer relationship Optimal sales force operation Higher customer satisfaction

optimize sales performance

Expand service processes Strengthen collaboration with

partners and key customers

Track indirect sales and

Ensure correct handling of


SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Enhance Customer Retention and Loyalty

Increase brand loyalty Ensure market share Get closer to the customer Reach a high service level for

Enhance relationships between

manufacturer, wholesalers, customers, and consumers

Improve customer service Make account management

Compete for shelf space

more efficient
Use effective trade promotion

activities for specific demographics, channels, and retailers

SAP can help you

Strengthen collaboration with

Higher sales volume Better account retention Higher customer satisfaction

business partners
Optimize customer retention

through rebate management

Manage and control trade

promotions efficiently
Expand service processes Manage key customers

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Ensure Food Safety and Regulatory Compliance

Align with governmental

Support mid- and long-term

regulations (EU 178/2002, The U.S. Bioterrorism Act of 2002, import/export)

Enable fast, effective product

company success by ensuring regulatory compliance

Set efficient processes in

place to enable traceability

Allow targeted product recalls

Track and trace from farm to

to minimize costs


SAP can help you

Track, monitor, and trace

Reduced penalty risk Decreased risk of food-safety

batches and inventory

Streamline procurement,

compensation payments
Reduced risk of bad

production, and sales

Manage sales returns Enable targeted product

Lower operating costs


SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Optimize Supply Chain

Decrease process costs Create operational efficiencies

Reduce costs Streamline supply chain

and supply chain transparency

Ensure comprehensive

Improve supply chain control Gain more supply chain

product availability in multiple channels

Ensure accurate and timely


Avoid out-of-stocks

SAP can help you

Optimize distribution

Improved operations

Optimize end-to-end planning Improve asset utilization Fully integrate logistics

Lower capital commitment Reduced operating costs Higher customer satisfaction

management, including transportation and warehouse and inventory management

Shorten order-to-delivery

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Optimize Efficiency in Procurement and Manufacturing

Decrease process costs Create operational efficiencies

Reduce costs Streamline processes Gain more visibility and

and transparency
Use efficient procurement

Improve relationship with

Optimize production Respond to last-minute


changes in the demand situation

SAP can help you

Set up integrated and flexible

Decreased costs Consistent monitoring of

processes for manufacturing and procurement

Monitor production costs Ensure integrated quality

product quality
Integrated processes

Track batches

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Create Visibility to Internal and External Processes

Create operational efficiencies

Improve end-to-end

to reduce costs and time

Create supply chain

operations efficiency
Improve asset utilization

transparency and batch traceability

through better production planning

SAP can help you

Integrate procure-to-stock

Improved operations

Streamline production and

Access to actionable

distribution processes
Ensure failsafe batch

information to manage the business

Lower operating costs Greater process transparency

management process
Optimize end-to-end planning Optimize inventory levels

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Challenges, Strategies, and Benefits The Solution

SAP ERP Packaged Solution for the Food Industry

Focuses on key business processes that create a baseline for future growth Delivers immediate benefits by solving the problem of system heterogeneity Enables significant business process automation

Analyze, Plan, and Develop



Market and Sell

Improve marketing effectiveness Increase sales effectiveness

Deliver and Service

Establish closer contact with customer Enhance control over delivery process

Business Objectives

Define business strategy and goals Understand company performance and profitability

Realize savings in aggregate purchasing Improve purchasing efficiency Ensure tracking and traceability

Improve manufacturing efficiency Ensure quality management in manufacturing process

Complete logistical and financial integration

Key Performance Indicators

Gross Profit/Total Net Sales Net Case Growth Inventory Turns

Purchased Raw Materials Volume Production Adherence Warehousing/Distribution Costs

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

SAP ERP Packaged Solution for the Food Industry

Suppliers & Partners Analyze, Plan & Develop Procure Manufacture Market & Sell Deliver & Service Customers (e.g. Retailers) & Channel Partners

Sourcing & Procurement Procure to Stock Third Party Procurement


Production Planning Production Sell & Deliver Sales Order Processing Direct Store Delivery (DSD) Indirect Sales Returns Operational End-to-End Scenarios Traceability & Food Safety Quality Management Inventory Management Cross Company Transactions

Enterprise Management & Support

Financials Financial Accounting Standard Cost & Profit Center Accounting Cash Management Controlling CO-PA for Consumer Product Cost Planning Products Asset Management

Cost Object Controlling

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Efficient purchasing is on the top task list of food companies today. The SAP ERP packaged solution supports price comparison of vendors offers, incorporating flexible pricing processes for the actual value of the raw ingredients delivered. It provides tools to gain greater spend visibility in procurement and automate operational tasks. It also helps to manage quotations, contracts, batch handling, and quality.

Industry Pain Points

Improving purchasing activities efficiency Realizing savings in purchased value Allowing visibility on vendors conditions and

Procurement of Stock Materials
Issue request for quotation Compare prices Issue purchase requisition Process purchase order Receive goods Inspect goods receipt Automatic batch number creation Update stock

Procurement Contracts
Create contract: quantity contracts, value contracts, and delivery schedule Create purchase requisition Assign vendor to contract

Third Party Procurement

Order Purchase Order Processing Vendor Invoice Verification Billing Documents Controlling

services Ensuring tracking and traceability Ensuring quality of all materials and components used in manufacturing food

Business Benefits
Automate operational tasks Improve vendors selection and prices comparison

through quotation handling Formalize agreements by introducing contract management and relating it to quotations Introduce batch management for raw materials tracking and traceability Guarantee quality check through goods receipt inspections
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

The SAP ERP packaged solution gives the flexibility to manage multi-step manufacturing processes. It incorporates in-process and post-process quality management and performs automatic batch determination based on expiration date during production order processing. The solution also includes cost-object controlling, such as preliminary costing, simultaneous costing, and period end closing.

Industry Pain Points

Reducing time-to-market in food

Production Planning
rough-cut planning long-term planning generation of planned orders

manufacturing Ensuring quality checks over the entire manufacturing process Managing expiration dates Improving manufacturing efficiency

Production order creation Bill of material management Production order processing Batch management Quality management Cost object controlling Inventory update GMP compliance

Business Benefits
Create and modify bill of materials and

receipts easily and quickly Identify quality-noncompliant lots by defining product inspection lots and related usage rules Manage expiration dates through automatic batch-number generation Calculate and monitor production costs
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Sales Order Processing

The SAP ERP packaged solution can effectively manage the entire customer order process variable pricing, delivery, invoicing, and payment. Capabilities such as electronic data interchange (EDI), handling consignment sales, and foreign trade are provided as standard. You can focus on shortening order cycle times, make on-time and in-full deliveries, and provide customers with optimal payment methods.

Industry Pain Points

Managing variable pricing conditions by

Extended Sales Order Processing
Sales order creation Delivery creation Picking Goods issues posting Billing creation Display billing documents Availability checks and batch determination are included

different customer/product combinations Shortening order cycle times Meeting customers requests for improved services (e.g., order fulfillment, invoicing, and payments methods)

Customer Consignment Processing

Consignment Fillup Consignment Issue Consignment Pick-up

Inbound sales order via EDI Outbound billing document via EDI

Business Benefits
Define standard and ad hoc price lists easily and

quickly Improve sales execution timeline by implementing a seamless process and the timely availability of key information Improve order fulfillment through stock availability checks Provide the customer with alternative services and methods for invoicing and payments
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Direct Store Delivery (DSD)

The SAP ERP packaged solution features a powerful route-management function that you can use to load, dispatch, and track any number of deliveries efficiently. Route planning tools optimize your entire approach to deliveries, helping eliminate redundant trips and allowing you to match the appropriate vehicles and drivers to your customers for each delivery.

Industry Pain Points

Succeeding in the face of intense

Visit Control and Scheduling
Group customers in visit plans Assign visit calendar and routes Schedule deliveries Optimize shipments daily Create visit list

competition between brands Establishing direct contact with customers, such as retailers, restaurants, and pubs Improving operational efficiencies in a complex system

Picking, Packing, and Loading

Calculate workload estimates Complete goods issue process

Route Accounting
Check-in/check-out Balance materials and payments Perform settlement process incl. post goods issue receipts Credit or debit customer and driver accounts

Business Benefits
Improve customer service through better

service levels and multiple points of access Increase revenue by improving order fill rate and reducing shrinkage Reduce operating costs and increase efficiency by reducing administrative functions Lower working capital by reducing inventory carrying costs
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Indirect Sales and Returns

Obtaining customer information through a third-party wholesaler can be a challenge for many food companies. The SAP ERP packaged solution enables food companies to gain a more complete understanding of their business performance by allowing them to track their sell-through in different channels and to specific accounts.

Industry Pain Points

Obtaining usable and relevant data about

Indirect Sales Data Management
Maintain information about wholesalers customers Create template for data requirements Create requests for sales reports Receive indirect sales data (volume, quantity, and value) from wholesalers Confirm and validate received data for rebates calculation Analyze indirect sales data Perform periodic partial settlement

customers through third-party wholesalers Allocating promotional spend efficiently Securing correct rebate processing across a complex supply chain Managing sales returns cost effectively

Rebate Agreements
Define rebate agreements Track rebate obligations for both direct and indirect sales Take contractual agreements into consideration Set up reserves based on planned sales Settle indirect agreements

Returns & Complaints

processing of credit memos in case of complaints returned goods go through a quality evaluation Centralized processing of subsequent inventory and billing activities based on multiple analysis results Generation of settlement documents in background processing

Business Benefits
Understand better those customers that are

serviced by a third-party wholesaler due to improved data quality and availability Allocate promotional spend more efficiently by collecting and analyzing valuable customer information Process rebates and commissions correctly due to improved data quality and availability Increase efficiencies by using a centralized tool to manage the returns process
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Traceability and Food Safety, Quality Management

Food safety requirements are becoming more stringent across the food industry, which means that food companies must have track-and-trace capability for all products, as well as the ability to recall a defective batch. The SAP ERP solution allows companies to meet the industry requirements for food safety and traceability and to reduce operational risk significantly.

Industry Pain Points

Being fully compliant with food regulations, such as EU (Article 18 of Regulation 178/2002), U.S. (The Bioterrorism Act of 2002), HACCP (Hazard Analysis and Critical Control Points) Addressing growing food-safety concerns from consumers

Quality Management
Plan for quality Inspect for quality Record laboratory analyses Create reports on quality Improve quality Monitor procurement, production, distribution processes

Batch Management
Manage automatic batch creation, determination, status, and batchwhere-used-list Track defects Recall batches and create follow-up activities Manage batch specific return processing Manage batches based on shelf-life expiration and other usability differences

Handling Unit Management

Manage production processes with HUM Handle Serial Shipping Container Code (SSCC) numbers Integration with quality management and batch management

Business Benefits
Minimize risk of losing customer trust by professionally managing a possible recall of a defective batch Minimize risk of noncompliance with food regulations Enable effective batch-specific returns processing Monitor materials planning, sales and distribution, procurement and production
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Inventory Management
Managing inventory levels efficiently, that is, maintaining low inventory levels while avoiding out-of-stock situations, is a high priority for food companies. The SAP ERP packaged solution enables food companies to optimize both inventory levels and storage space based on inventory planning and turnover. At the same time, quality checks can be performed in combination with warehouse management and transportation management.

Industry Pain Points

Maintaining low inventory levels Avoiding out-of-stock situations at

Inventory Management
Achieve full integration with accounting Receive and issue goods Manage different stock categories (available, blocked, in QA) Valuate inventory

retailer shelves Establishing visibility to inventory levels throughout the entire supply chain

Warehouse Management
Manage goods receipt, storage, goods issue Manage and inspect for quality Manage return of goods Perform picking Manage materials in batches

Transportation Management
Plan transports Monitor execution Calculate costs Manage transportation settlement

Business Benefits
Reduce working capital by keeping

inventory levels low Increase sales by reducing out-of-stock situations Improve consumer retention due to product availability

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Financials and Controlling

All food companies need to manage financial requirements and enterprise profitability. The SAP ERP packaged solution helps to get an insight into all aspects related to accounting and controlling and provides streamlined functionalities that allow visibility, increase productivity, and help food companies regain control of their business processes.

Industry Pain Points

Meeting local legal and fiscal requirements Improving administrative activities

Use general ledger accounting Use accounts payable and receivable accounting Use bank accounting Perform closing activities Monitor payment flows and safeguard liquidity with cash management Manage and process assets incl. depreciations

Use standard cost and profit center accounting Perform profitability analysis incl. reporting on contribution margins and sales figures Perform product cost planning Perform Cost Object Controlling by period or by order

efficiency Maintaining focus on most profitable customers and brands

Business Benefits
Implement an enterprise resource planning (ERP)

solution fully compliant and continuously updated with local legal and fiscal requirements Improve efficiency in accounting activities due to a seamless process integration across the business that eliminates double-checks and redundancies Enhance company profitability analysis through profit and loss calculation by customer and brand
SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

SAP ERP for the Food Industry Provides Increased Shareholder Value for Your Business
Business Objectives Business Areas
Improve customer satisfaction Revenue Growth Increase sales

Business Opportunities
Improve order fulfillment Enable correct rebate processing Improve customer understanding Optimize trade promotion spend Reduce out-of-stocks Reduce number of routes Optimize truck utilization Reduce size of fleet Improve route settlement time Reduce operating costs and increase efficiency Improve efficiencies in accounting activities Increase efficiency for sales returns Lower materials costs

SAP Scenarios
(SAP ERP for the Food Industry)

Sales Order Processing Indirect Sales

Direct Store Delivery

Distribution Shareholder Value Reduce Cost Procurement Finance Customer service

Financials and Controlling Sales Returns Sourcing and Procurement

Increase demand planning accuracy Optimize production planning

Planning and Manufacturing Manufacturing Inventory Management Food Safety

Production Reduce Working Capital Reduce Risk Inventory Comply with food regulations

Optimize and streamline the production process Optimize inventory usage Utilize full track-and-trace capability

SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products

Copyright 2005 SAP AG. All Rights Reserved


part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. Windows, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation. DB2, DB2 Universal Database, OS/2, Parallel Sysplex, MVS/ESA, AIX, S/390, AS/400, OS/390, OS/400, iSeries, pSeries, xSeries, zSeries, z/OS, AFP, Intelligent Miner, WebSphere, Netfinity, Tivoli, and Informix are trademarks or registered trademarks of IBM Corporation in the United States and/or other countries. is a registered trademark of Oracle Corporation. X/Open, OSF/1, and Motif are registered trademarks of the Open Group.


Microsoft, IBM,

Oracle UNIX, Citrix,

ICA, Program Neighborhood, MetaFrame, WinFrame, VideoFrame, and MultiWin are trademarks or registered trademarks of Citrix Systems, Inc. XML, XHTML, and W3C are trademarks or registered trademarks of W3C, World Wide Web Consortium, Massachusetts Institute of Technology. is a registered trademark of Sun Microsystems, Inc. is a registered trademark of Sun Microsystems, Inc., used under license for technology invented and implemented by

HTML, Java



is a trademark of MySQL AB, Sweden.

R/3, mySAP,, xApps, xApp, SAP NetWeaver, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies ("SAP Group") for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty.


SAP AG 2005, ERP 2004, SAP Best Practices for Consumer Products