Proof of the Pudding

January 21, 2004 by admin

With a 500-strong staff and 35 customer groups including global players such as Walmart and Save-A-Lot, Morgan Foods markets eighteen different product categories from canned soup to refried beans. The company’s high-level strategy hinges on delivering premium quality products and services more efficiently than their competitors. Keys areas of focus in pursuit of these goals are inventory management, financial close, and production planning and scheduling. These factors contributed to Morgan Foods’ decision to implement an enterprise software system and in 1999, the company went live with mySAP All-in-One. Under the expert guidance of SAP business partner, Computer Sciences Corporation (CSC), the solution was up and running in an impressive six month ‘time-to-solution’.

From automation to remuneration

4 years on, the study examines the extent to which the solution has contributed to Morgan Foods’ strategy of cost control, product quality, and superior customer service. The results concentrate on the ROI demonstrated in the three most major business process improvements brought to Morgan Food’s by mySAP All-in-One – production planning and scheduling, finished goods inventory, and financial close. Perhaps the most notable contributing factor to the ROI enjoyed by Morgan Foods was the automation offered by their mySAP All-in-One solution. Prior to implementation, production planning, inventory control, and financial close were highly labor-intensive processes for the company.
The production planning and scheduling phase at Morgan Foods involved employees manually reviewing stacks of orders and physically comparing them to the current raw materials inventory level. Inefficiency plagued run sequences and monitoring of product shelf life was inadequate. This lack of transparency and control led to bottlenecks, decreased throughput, and a costly raw materials inventory. The reliance on manual labor also brought an increased risk of human error and in some cases gave rise to inappropriately labeled products and product shortages.
Today, the story is very different. The entire production planning and scheduling process has been automated and works quickly, accurately, and flexibly. Morgan Foods can now optimize run sequences; monitor the shelf life and age of raw materials and in-process wait time; and make the necessary adjustments for ramp-ups – all at the push of a button. The ROI noted by Gartner in this area amounts to a saving of $80,000 due to a reduction in manual labor and staffing levels.

Real-time accuracy brings real savings

Inventory control and identification were also highly people-dependent and hands-on activities at Morgan Foods before mySAP All-in-One went live in 1999. To physically locate a particular lot, staff had to resort to reading the cards attached to each pallet and the process could take up to a couple of days to complete. Manual inventory counts were performed once a year, but results were often unreliable and inaccurate.
Physical inventories are a thing of the past since SAP came into play. Gartner findings show that annual inventory accuracy at Morgan Foods has more than doubled since the SAP system took over – with a real-time accuracy of 99.95 percent. These heightened levels of accuracy translate into considerable annual savings for Morgan Foods, adding up to a hefty $500,000 annually. And greater efficiency in the finished goods inventory has enabled the company to reallocate personnel at a cost saving of $80,000. Further ROI was observed as a result of mySAP All-in-One’s real-time monitoring functionality. Costs associated with mis-batching of products were alleviated to the tune of $250,000 with an added reduction in expenditure of $150,000, previously absorbed by unnecessary shipping charges.

Financial control and transparency

For years prior to the implementation of mySAP All-in-One, Morgan Foods were dependent on unreliable financial information that was often inaccurate and sometimes up to 30 days old. The financial close required a costly allocation of labor with disproportionate numbers of staff working across disparate systems and offline spreadsheets. Dan Slattery, Vice President of Morgan Foods and Chief Financial Officer, comments on the kind of problems the company was facing at that time. “Our previous system was so labor-intensive, and so inaccurate, it was extremely difficult to close financial documents to the nearest penny. Our COGS (Cost of Goods Sold) and poor budget accountability were not anywhere near optimum levels.”
The state of affairs since mySAP All-in-One went live is somewhat different. A number of financial documents are generated in the mySAP All-in-One system; closing activities now occur throughout the month as opposed to every 30 days; and 90 percent are complete by the month’s end. This increase in reporting accuracy and transparency has helped Morgan Foods to make strategic business decisions based on reliable figures. Dan Slattery, VP and CFO of Morgan Foods, sums up the financial benefit the company has seen since mySAP All-in-One took the helm. “SAP allowed us to develop creative A/R (Accounts Receivable) and A/P (Accounts Payable) plans that drastically improved our bottom line. In addition to the time value of money, we were also able to save money by reallocating employees that had worked on redundant tasks, and our ability to cut out waste saved us approximately $150,000 per year and improved our cash position by $90,000.”

Last but not least

Gartner concludes their study with an estimate of the overall return on investment (ROI) and Internal Rate of Return (IRR) at Morgan Foods. ROI is calculated according to Gartner’s ROI methodology at a notable 125 percent, while the IRR shows a 62 percent return. At the end of the day, the overall results of the study clearly show that mySAP All-in-One has been instrumental in enabling Morgan Foods to achieve its corporate goals of reducing costs, improving cash flow, and encouraging an environment where employees are able to think strategically.

Further information:

http://www.sap.com/solutions/smb/pdf/CSS_Morgan.pdf

Lindsay Johnson

Lindsay Johnson

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