Meat for the Big Mac

June 5, 2009 by Tim Clark, SAP

Meat for fast-food operators like McDonald

SAP.info: Larry Pope, Smithfield’s president and CEO, has publicly said the high price of corn is more detrimental to the company than the recession. Since Smithfield Foods is also the largest producer of hogs in the U.S., this makes sense. Can you tell us more?

Zadeh: The recession has not had much of a negative impact on Smithfield Food’s business as sales are still very strong. We operate in a cyclical industry, and our results are significantly affected by fluctuations in commodity prices. The fast-rising price of oil and commodities over the past year was not something we had expected. Grain, soybean, corn – prices across the board skyrocketed last year and have really affected Smithfield as we obviously need a lot of corn and soybean to feed our animals. It is quite difficult to pass along all these cost increases through downstream channels and ultimately to consumers.

SAP.info: What role does IT play within Smithfield’s current business priorities?

Zadeh: We are in the midst of a restructuring plan that comprises about U.S.$10 billion worth of our business in the United States, whereby seven companies will integrate into three. In actuality, this is a transformation to migrate away from multiple companies toward a more focused and synergistic company. We are expecting the results of this restructuring plan to save upwards of U.S.$125 million per year. Investing in IT, especially in SAP applications, is extremely important in bringing a level of balance across all of our business units so that the same key performance indicators are created and management teams can access one version of data quickly and accurately.

SAP.info: Will Smithfield continue to invest in resources to gain a single version of truth with its data? Does the company have any plans to implement business intelligence tools?

Zadeh: After we have implemented common SAP ERP and manufacturing footprints across the three operating companies this year, our next step will be to expand our capability to have faster and higher-quality financial, operational, and customer data. As we have witnessed in our U.S. and international divisions, business intelligence plays a fundamental part in achieving that goal. As SAP further hones its strategy behind SAP BusinessObjects solutions, I have no doubt that we will embrace this software soon.

SAP.info: Integrating and eliminating Smithfield’s disparate legacy systems has been a huge undertaking. Can you explain your role within this initiative?

Zadeh: One of my primary goals has been to reduce complexity and elevate agility – speed, flexibility, and quality – by embracing and enforcing a high level of standardization across our operating companies. This means deploying a more common set of business processes to the forefront and a common IT architecture across the entire enterprise. We started this journey five years ago and so far have minimized or retired nearly 70% of our old legacy systems worldwide. We still have some disparate systems across our business globally, but we expect that over 90% of our global systems will be modern and less than six years old within the next 18 months. SAP applications will be prevalent across the board.

By retiring the legacy systems and incorporating SAP solutions, we have reduced the cost of capturing and maintaining data and, more importantly, have improved the quality of information. Cutting bottom line costs through efficiency and reducing complexity is as important as driving top-line growth through effective investment in business intelligence, product lifecycle management, trade promotion management, pricing, and advanced planning and optimization tools from SAP.

SAP.info: Smithfield contributed to the development of a key industry application called SAP Catch Weight Management that Smithfield processing plants rely on to capture product costs. How and why was this specific partnership created?

Zadeh: Many of Smithfield Foods’ products, particularly on the fresh meat side of the business, are tracked by actual weight through the supply chain. These products, which do not have a standard or net unit weight, are identified as variable weight or “catch weight” items.

The issue of catch weights permeates the entire Smithfield supply chain. Smithfield Foods must have the ability to value, inquire, commit to orders, cost, receive, produce, place orders, price, ship, and invoice by actual variable weight along with such standard unit dimensions as case and piece. The ability to handle variable weights is a fundamental requirement that must be properly and fully handled by the core transaction and supply chain planning applications.

Our team and I had spent a good deal of time with SAP management to help them better understand the supply chain challenges within our process manufacturing industry and appreciate the low profit margins we operate under. We collaborated closely with the SAP development teams, and our collective efforts contributed to the success that the SAP Catch Weight Management application enjoys today.

SAP.info: Why is SAP the vendor of choice for Smithfield Foods?

Zadeh: Though I was quite familiar with SAP from my previous work, we did extensive research. I traveled to Europe to visit other process food manufacturing companies – as well as our joint venture in Spain – that were running SAP successfully. All these shops had SAP financials and manufacturing modules running effectively and profitably throughout their supply chains. Meanwhile, we acquired Farmland Foods, which had been successfully operating SAP applications for several years. I was soon convinced that SAP would be the right choice for our enterprise worldwide, though it took me a bit longer to assure my boss, our CEO. After the first couple of successful implementations, which resulted in improved order management, inventory counts, warehouse operation, and financial reporting, he became an SAP evangelist!

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