A Third Generation of Innovation

Products by Arla Foods (Photo: Arla Foods)

Arla Foods has transformed itself from a regional dairy cooperative into Europe’s second largest milk producer. Headquartered in Denmark, Arla Foods is the result of a historic merger between the Danish company MD Foods and Swedish cooperative Arla in 2000. Faced with increasing competition, the two organizations merged to pursue an aggressive growth strategy to match the size and clout of international retail chains.

In the recently released book “Business Process Management – the SAP Roadmap“, Arla Foods’ director of IT strategy and architecture Claus Qvistgaard, along with process strategy director Per-Gunnar Lindberg, offer an insider’s view of the company’s three-stage IT journey and the growing importance of dynamic business process management (BPM) within their organization.

Their account reveals how processes, not structures, have become the driving force behind the company’s IT strategy – and how Arla is using its processes to achieve both greater efficiencies and differentiation from local, regional, and global competitors.

First generation: before the merger

Arla has been a pioneer in leveraging IT to manage its complex, logistics-intensive business. When the company first embarked on this journey, its IT solutions were mainly “first generation.” Each solution performed single, noncoordinated processes and was designed to carry out specific functions for individual business units. The strategy proved to be highly effective and helped Arla successfully adapt to the needs of its 100 export markets.

Second generation: the “Ett Arla” program

The sheer size of the historic merger between MD Foods and Arla, however, prompted the newly merged company to move toward a more centralized system for consolidation and simplification. In this six-year project, dubbed “Ett Arla” (Swedish for “One Arla”), the company worked closely with SAP to link each element of its supply chain worldwide.

As part of the project, Arla implemented the SAP ERP application and the SAP NetWeaver technology platform. The new IT landscape unified hundreds of different programs, servers, and platforms, including more than 800 incompatible applications and interfaces. The new system allowed Arla to define responsibilities and profit areas and to coordinate activities across the company’s divisions and business areas. And by moving to a standard set of solutions, Arla could leave isolated ones behind.

Third generation: BPM and process innovation

Today, Arla stands at the threshold of a third generation of IT in which users, enabled by BPM functionality, will be able to create agile and reliable solutions based on changing business needs. Supported by a service-oriented architecture (SOA), the underlying technology in SAP NetWeaver and all SAP solutions, Arla workers will be able to connect disparate systems to create simple, effective business applications that perform sophisticated tasks. And for the first time, upper-level executives will be able to shape business applications to implement their strategic vision – without having to understand
the underlying technology.

The result is a company uniquely positioned to use business processes to take advantage of new business opportunities while simultaneously differentiating itself to achieve key competitive advantages.

Greater synergies

Employees in the organization will be empowered to create relevant, up-to-date processes based on the constantly changing set of customer demands in any market throughout the world. By being able to break down business processes into components and services, Arla workers will be able to design and change only those parts of the processes that can differentiate the company and create greater value.

A striking example is Arla’s auto check-in process for picking, packing, shipping, and invoicing. The four major steps in this process are different, depending on the country involved. In Denmark and Sweden, for example, the picking, packing, and invoicing process elements are identical. Yet when it comes to shipping, processes look somewhat different. Sweden is a large country, whereas Denmark is small and compact. With the BPM functionality of SAP software, Arla’s business managers can quickly identify and modify the shipping element of the process while leaving the other elements unchanged.

Constant innovation

BPM and its enabling technology SOA also give Arla the unprecedented ability to compare and benchmark similar processes. If Arla managers in Finland use BPM tools to develop a superior invoicing process, for example, that process can immediately be shared across all of Arla’s business regions. Those innovations that are the most efficient, that add the greatest amount of value, and that achieve the greatest amount of differentiation can be used throughout the organization, creating an even higher level of best practices and competitive advantage.

“BPM gives our managers the ability to optimize and innovate new processes in a powerful new way,” says Qvistgaard. “A single great idea can now add greater value to the entire organization.”

Targeted investments

Just as important for Qvistgaard, however, will be the ability to focus only on those individual processes that help the company achieve differentiation. “Rather than make major investments in every process, BPM will let us concentrate on those areas where we think we can differentiate ourselves from our competitors and lead in the marketplace,” he says. “Invoicing, for example, could remain a standard process because it isn’t that much of a market differentiator. But logistics processes that govern the way we collect milk or distribute our products are tremendous market differentiators. BPM lets you invest your money where – and when – it pays off.”

Innovation without disruption

The powerful combination of SAP Business Suite applications with cutting-edge BPM functionality promises to unleash continual process innovation throughout the organization, with long-term business advantages. “If there is a more efficient process out there – a better way of doing things – we have the tools to discover it, design it, execute it,” says Qvistgaard. “BPM creates a lot of synergy and unlocks real value.”

Arla Foods
Headquartered in Denmark, Arla Foods is Europe’s second largest milk producer, the result of a merger of the Danish company MD Foods and Swedish-based Arla in 2000. At the start of 2008, a total of 8,522 Danish and Swedish members owned the cooperative. Its dairy products are exported worldwide, many of them sold under household brand names. Arla Foods has sales offices in 27 countries and production in 12, including Denmark, Sweden, the U.K., Finland, the USA , Canada, Argentina, Brazil, Poland, Germany, Saudi Arabia, and China.