Robern Menz

As Robern Menz COO Richard Sims explains “with continual business growth we felt it was sensible to implement an advanced IT solution that would link everything and bring it all together in a single application. With stock, for example, we have large volumes and movements and these are spread over raw materials, work in progress and finished product.

And so the aim was to integrate everything so that we could more effectively manage that stock irrespective of its location and state.

“In individual operational areas we naturally had some reasonable controls in place. But we found that we often lacked precise information about various key activities. So while we may have thought we were making 200 kilos of FruChocs per batch, for instance, the reality was that this volume may have been closer to 190 kilos. Without going out into the factory and literally counting everything – a totally infeasible option – there was no way of exactly verifying what we were producing. A challenge that had clear financial, warehousing and marketing implications.
And which also meant we had to place far too much reliance on our quarterly stocktakes – a painful process that, in itself, had inherent limitations.

“Additionally, in manufacturing, we have quite complex bills of material. So if we were contemplating a new line, generating a BOM, and getting all of the necessary costing data involved considerable work. It was similarly complex and time consuming when we wanted to look at varying a current product line.

A further IT objective identified was the need to have far better control of raw material purchasing. In our business first quarter sales are low, but the rest of the year is strong. However, such things as an early Easter, or a particularly cold and early winter, can skew demand and make effective sales forecasting that much harder still. The one thing that is certain is that the seasonal variances in customer demand are becoming far more pronounced.

“Against such a background, it’s again important to have everything integrated so our purchasing decisions were made using the most accurate and up-to-date information possible.

“As a simple example of this, it means that manufacturing’s forward schedules, to meet anticipated sales, need to be properly supported by Purchasing knowing exactly what its commitments are going to be. Both under and over purchasing will have major impacts on the business. And we wanted the new IT solution to help minimise this risk.

“From a financial perspective, and as with many enterprises, purchasing has a substantial impact on our finances. So our aim was to be able, at any time, to determine a precise stock valuation for each of our business areas and product groups. Because we have to order much of our product well in advance, we also needed a far more efficient way of managing what purchase orders were going to be arriving each day for several months hence.

“At the time we were looking at our new IT options, we were working with a totally manual card system for purchasing. Not only did this make us fully reliant on the single staff member who maintained those records, but it also meant we lacked substantial overall control of what we would owe, to whom and when. A scenario that seriously impacted cash flow management.

“In that classic slow first quarter, we also wanted to be able to look at purchasing in detail and to be able to quickly make highly informed decisions such a ‘cancel this’, ‘slow this’ and ‘defer this’. Again a capability that would help us more effectively manage cash.

The Solution

After examining a range of IT options, Robern Menz elected, in August 1999, to implement the Pronto Xi ERP solution proposed by Adelaide headquartered MDS. The specific Pronto Xi modules chosen including:

• Shopfloor Production
• MRP
• Plant Maintenance
• Payroll
• Fixed Assets
• General Ledger
• Accounts Receivables
• Accounts Payables
• Distribution
• Rep Commissions
• Retail / POS
• Special Pricing
• EIS

The Pronto Xi operating environment for Robern Menz is based upon Red Hat Linux and the C-ISAM database.

The Implementation Process

Pivotal to the success of Robern Menz’s new computer system was the implementation methodology inherent in MDS’s consultative approach to the roll out of IT applications.

This begins with a detailed business analysis that clearly defines what users want to achieve, the outcomes they want to derive and the work that is necessary to meet such objectives. Such work is largely business focussed – as opposed to being software focussed. And considerable attention is paid to effectively defining change management. This latter work clearly recognising that the restructuring of internal procedures is often as significant a part of achieving end goals as is the software itself.

Significant too is the high level of specific industry expertise that is brought to this essential process. Specifically in relation to Robern Menz, this ensured that project specifications took the broadest possible view of what needed to be achieved and the alternatives that were available. As much as anything else, this was about ensuring that users were able to confidently explore the full range of options, some of which were not considered in initial thinking.

Achievements

With the new system in place, Mr Sims notes that “perhaps most notably we found that while our IT was certainly now making a substantial contribution to day-to-day operations and control, it’s was now also making an equal contribution to the work of the Board.

Indeed today, the Board now relies very heavily on Pronto Xi to give it the data it needs to make its decisions and to link these directly to what’s happening on the shop floor. They are equally confident in IT’s capacity to then help implement these decisions.

“Being able to trust the information you are looking at is of immense value and that means that data needs to be fully accurate, totally up to date and precisely what management wants. With the new system all of the required information is to hand and the Board can now say, for instance, ‘the return on this line is falling’, ‘what are our options’, ‘which option is best’.

“You can, of course, never get to a position where there are no surprises in business. But now we have far fewer, we always know what they are and we are alerted to them as soon as they occur. Which is a marked contrast to the way we had to work before.

“More specifically – and in day-today – terms, the system’s contribution is being felt throughout the organisation.

“In purchasing, for example, we were able to quickly achieve what that we wanted to do. Everyone concerned now has immediate access to the data they need and so our levels of control are much, much greater. Which, in turn, has benefited manufacturing who can operate much closer to an ideal Just In Time basis while confidently meeting sales.

“At the other end of the scale we can now readily see what we are purchasing and from whom. So we know the value of our business to the supplier and are thus in a far better position to negotiate.

“Since Pronto Xi was installed we are achieving our targeted stock levels every month largely because of the added information we are now getting and the decisions this enables us to make. Our objective here is to meet dollar value targets for stock on hand, as opposed to volume goals. Objectives are set, at Board level, for each stock group – including raw materials, WIP, packaging and so on. Each group is responsible for its targets and so each use the IT to manage what they are doing.

“There are a range of reasons why stock levels are varied from time to time. These including the seasonality of the business, weather and both short and long term changes in consumer demand. In all instances having fast and simple access to accurate data is pivotal.

“We also work in a business where commodity prices can change drastically and that too has a huge business impact. With something as basic as milk powder, for instance, a widespread drought in Australia can see this product’s price from a normal $2.50 per kilo to $5.50 or more. That’s the magnitude of the problem we face.

“Obviously we cannot model all of this ahead of time even though we do work closely with our suppliers to help us set standard costings. So a key IT role, in all of this, includes a meticulous monitoring and reporting of purchase price variances. It means we know whenever something is changing, the extent of that change and what else is changing at the same time.

“When such changes are noted they are immediately entered into the system, which extrapolates their effects across all of our products. Within 10 minutes we can see the impact of every price variance for every stock line. Going back eight years, it is hard to remember that we used to try to do this using a variety of spreadsheets. Although that was more often than not a pretty impossible task.

“With good information you do not just know what is happening but you can then make appropriate decisions that are much quicker than before or which, in some instances, would not have been possible to make at all.

“A simple but important example of this has to do with the fact that we always try to keep prices stable as products are price sensitive. And so we use the system to modify test recipes through our Bill Of Materials to immediately see how our standard costs and margins are affected.

“Being able to get a totally up to date new BOM, with about one hour lapsed time, is a wonderful improvement on our historical way of doing this that would have taken a week.

“Which is not to forget what we had always done with IT – our accounts and payroll. Here we have provided a system that is now much easier and more manageable to use. And we are effectively doing everything with about half the staff we previously needed."

Outcomes

• Provides full raw material and finished good traceability thus ensuring there is an effect system for product recall in place.
• Supports creating new BOMs with standard cost data within five minutes.
• Delivers immediate advice on the occurrence of key variances.
• Positive impacts on cash flow through more effective purchasing procedures and control.
• Facilitates Board decision making.
• Helps implement Board decisions.
• Brings greater ease and manageability to General Ledger processing.
• Approximately halved staff levels associated with GL processing.