An Investigation into the Supply Chain for Frozen Peas in

By

Tarek Moussa

2006

A Dissertation presented in part consideration for the degree of “MSc Operations Management” Abstract Supply chain management has become increasingly important for companies in modern-day competitive markets. Competition in modern markets does not involve individual companies but entire supply networks. The performance of multi-national companies is greatly dependent on the efficiency and reliability of their suppliers and logistics providers. Supply chain management in the food industry has become an essential task due to the unique characteristics of this sector. Rapid deterioration of fresh foods and the need to maintain controlled conditions for frozen foods has important implications for supply chain efficiency. Failure to meet the logistical requirements for supply chains in the food sector can result in severe damage to physical products and brand reputations. This investigation analyses the supply chain of the leading frozen food supplier to the Austrian market. The market for frozen foods is experiencing rapid growth due to the convenience of frozen goods in modern- day lifestyles. The analysis focuses on frozen peas and investigates the flow of goods and information from farming to the display of finished products at the retailer. The aim of this study is to identify inefficiencies and all forms of supply chain waste that may exist in processes and activities. Once sources of waste have been located and quantified, the impact on products, companies and consumers is assessed and evaluated. In order to perform the analysis, data regarding the duration and cost of supply chain activities was collected through interviews with relevant stakeholders as well as through direct observations of supply chain operations. The analysis of the gathered data indicates that the supply chain for frozen peas contains several sources of operational waste such as lengthy transportation processes, extensive storage of excess inventory at several locations and improper material handling activities leading to quality deterioration of finished goods. These sources of supply chain waste can be traced to operational inefficiencies however, the lack of collaboration and integration of supply chain activities proved to play a significant role. An insight into the relationships between supply chain members revealed a lack of information-sharing, the absence of institutional trust and an overall fragmented sequence of processes. In order to successfully implement supply chain improvements, integration of supply chain processes as well as long-term collaboration between supply chain partners is of utmost importance. Once the supply chain operates as a single entity, operational improvements can be developed and implemented to increase efficiency and eliminate waste from processes and activities. Table of Contents

Introduction…………………………………………………………………….. p. 1-2

Literature Review…………………………………………………………….. p. 3-24 Introduction………………………………………………………………………... p. 3 Austria, IGLO and the Frozen Food Sector……………………………………... p. 4-7 The Philosophy of Lean Operations…………………………………………… p. 7-10 The Evolution of the Lean Philosophy……………………………………….. p. 11-12 Criticism of Lean Operations…………………………………………………. p. 12-13 Benefits of Lean Thinking……………………………………………………. p. 13-16 Value Stream and Process Mapping………………………………………….. p. 16-17 Value Stream Mapping in the Food Sector…………………………………… p. 17-23 The Supply Chain Time and Cost Mapping Toolkit………………………….. p. 23-24 Summary…………………………………………………………………………. p. 24

Methodology…………………………………………………………………. p. 25-29 Definition of the Project Scope……………………………………………….. p. 25-26 Data Collection…………………………………………………………………… p. 26 Process Mapping…………………………………………………………………. p. 27 Cost Collection…………………………………………………………………… p. 27 Time-Based Analysis…………………………………………………………….. p. 28 Translation Cost Matrix… …………………………………………………….p. 28-29 Cost Time Analysis………………………………………………………………. p. 29 Evaluation of Findings and Recommendations for Improvement……………….. p. 29

Data Analysis………………………………………………………………… p. 30-51 Supply Chain Structure of IGLO Peas………………………………………... p. 30-36 Process Mapping……………………………………………………………… p. 37-39 Cost Collection………………………………………………………………... p. 39-40 Time-Based Analysis…………………………………………………………. p. 41-43 Cost Translation Matrix………………………………………………………. p. 44-45 Cost Time Analysis…………………………………………………………… p. 45-48 Quality Control……………………………………………………………….. p. 48-51 Demand Uncertainty……………………………………………………………… p. 51

Evaluation of Scenarios fro Improvement………………………………… p. 52-66 Outcome of the Investigation………………………………………………… p. 52-55 Recommendations for Improvement…………………………………………. p. 55-62 Evaluation of Recommendations…………………………………………….. p. 62-66

Conclusion…………………………………………………………………… p. 67-72 Summary of the Investigation and Findings………………………………….. p. 67-71 Limitations and Implications…………………………………………………. p. 71-72

Appendix I…………………………………………………………………… p. 73-74 Appendix II…………………………………………………………………... p. 75-78 Appendix III…………………………………………………………………. p. 79-85 References……………………………………………………………………. p. 86-89 Introduction In the light of modern-day market competition, supply chain management has emerged as the main area of focus for companies involved in supply networks. In recent years it has become evident that market competition between companies stretches beyond individual organisations. Factors such as cost (and therefore price), product quality, speed to market and customer service are dependent on the efficiency of supply chains and the effort made to manage them. In most cases, there is one organisation in a supply chain that has a large part of the power and control over operations. However, if deliveries of components and finished goods are not on time or do not conform to customer specifications, then the supply chain leader will be unable to compete with supply chains that are highly efficient and can keep costs to a minimum. The sequence of operations in a supply chain and within individual processes is a key factor in terms of saving time and money. Therefore, supply chain management has become an extremely important task for modern companies who seek to optimise performance and profitability. The concept of improving the efficiency of supply chains is often referred to as ‘lean operations’. The basic activities that are involved in trying to achieve a lean supply chain include the identification and elimination of waste, activities that do not add any value to the product or to the customer, from all processes. The focus of this project is on the analysis of a supply chain from Unilever’s frozen food brand IGLO, in Austria. IGLO produces a wide variety of frozen foods however the focus of this project will be on the supply chain of frozen peas. The aim of this investigation is to identify any forms of waste in the supply chain, examine the impact that this waste has on operations and suggest possible solutions to reduce or eliminate these inefficiencies. Firstly, a literature review will introduce some of the main areas that are relevant to this investigation. The Austrian market and consumer habits will be discussed as well as facts about the IGLO brand itself and the frozen food sector in general. The review will highlight the current issues that exist in the frozen food sector, which is an important insight into the problems and obstacles that may appear from the investigation into the IGLO supply chain. The literature review will also discuss current theories that are significant in this project such as the philosophy of ‘lean thinking’. It is important to explore how this theory has been applied in practice and how it has developed over time. An insight into recent academic journals will highlight the main benefits and criticisms of lean thinking and describe some of the

- 1 - main tools used to successfully implement a lean strategy. The heart of the literature will be an exploration of existing studies in the field of supply chain management and improvement. This particular section is aimed at investigating what work has been done in the past in this field of study and what conclusions have been drawn. An analysis of past work in this area is particularly important because, as the literature review will show, little work has been documented in the agricultural sector regarding supply chain analysis and improvement. The core of this project is an analysis of the IGLO supply chain for frozen peas. Firstly, a methodology will describe the step-by-step procedure of data collection and data analysis. This task will be undertaken according to an established framework. The main activities of this procedure include time and cost based mapping and analysis. The process of collecting data will occur through direct observation of operations in the supply chain, semi-structured interviews as well as the collection of materials such as videos, press releases and existing information from previous studies. The collected data will assist in the analysis and assessment of the supply chain, resulting in a measure of efficiency and an identification of waste. These results will be presented in various graphical representations such as charts and diagrams in order to illustrate the extent of operational inefficiencies that may exist. After supply chain waste has been identified and analysed, suggestions will be made that may help to solve or reduce the amount of waste in the supply chain by addressing the root causes. Any changes made to activities or processes will have an impact on the supply chain in terms of restructuring and cost. These implications will be discussed and conclusions of the entire investigation will be drawn, highlighting the main findings, issues, recommendations and their consequences. The conclusion of this project will also be an opportunity to identify gaps in the research method and possibly point out areas that may need to be modified or improved for future studies in this field.

- 2 - Literature Review Introduction The aim of this literature review is to introduce several areas that are relevant to this project. Before proceeding to the analysis of the IGLO supply chain it is important to present a broad view of all the elements involved in such a complex assignment. Firstly, an introduction to Austria, the country’s traditions and consumer habits in terms of food will be presented. It is also important to introduce the frozen foods brand IGLO, which is the largest supplier of frozen vegetables and other frozen foods in Austria. As previously mentioned, IGLO, which is one of Unilever’s brands, will be the subject under investigation in this project. Secondly, it is important to explore the frozen food sector in general in order to identify recent trends as well as common problems in this particular field. The frozen food sector has its own characteristics and therefore its own difficulties to overcome. This insight is essential as common problems in the frozen food sector may appear in the investigation of the IGLO supply chain. Very often problems in supply chains can be traced back to inefficiencies in processes, also known as supply chain waste. This review will discuss the philosophy of ‘lean thinking’ and how companies have approached the task of eliminating waste from supply chains. ‘Lean thinking’ is a concept that has undergone a significant development process over the past decades. This review will describe this development process in order to build an understanding of how this philosophy has reached its current state. In addition, it is essential to evaluate this concept by summarising some of the main benefits as well as the criticism associated with it. One of the main tasks of this project is to identify wasteful activities in the supply chain of IGLO frozen foods. Therefore, it is vital to introduce Value Stream Mapping, which is a technique that allows this kind of analysis. In addition, appendix III highlights some of the main tools that can be applied to identify different kinds of supply chain waste. Finally, this literature review will explore the existing work that has been undertaken in this field of study. Since the food sector is of particular interest for this project, the review will focus on a study of a supply chain for fresh pork products in the UK. This section is of great value as there have not been many studies undertaken in the agricultural sector and therefore, not much is known about the supply chain difficulties that exist within it.

- 3 - Austria, IGLO and the Frozen Food Sector Austria is a central European nation with a population of approximately 8.2 million (Wikipedia, EU Statistics, 2006). The average life expectancy of Austria (77) is considerably higher than its neighbouring countries such as (71), (73) and the (74) and it also rated as one of the top European countries in this statistic (Overpopulation, 2006). It is believed that this can be traced back to the healthy lifestyles that as well as many other central and western European countries live. Along with regular exercise, a healthy diet is the key factor in maintaining a healthy lifestyle. Therefore, vegetables make up a significant part of typical Austrian dishes, even though is more famous for its sweet dishes. Agricultural products play a very important role in Austria’s economy. A large part of the country is farmland and Austrians greatly value the quality of their home- grown foods. IGLO, a brand of Unilever and the Austrian equivalent of Birds Eye in the UK, is the largest supplier of frozen vegetables in Austria. 30 million of their products are sold each year, which are becoming increasingly popular through their marketing campaigns with Austrian skiing icons such as Hermann Maier. Unilever itself is the largest producer of frozen foods in Europe, producing over 100,000 tonnes of frozen peas each year, which is equal to 13% of global production of processed peas (Unilever, 2004). This study will focus on IGLO’s supply chain of frozen peas, which are grown in the famous farmlands of ‘Marchfeld’, located on the outskirts of the capital city . Marchfeld is an area with extremely rich soil and plenty of ground-water due to a river that runs right through it. This makes that particular location ideal for agricultural activity. According to the Sales Director Dr. Rainer Herrmann (2005), IGLO products are tailored to suit the exact requirements of the Austrian public in terms of taste and quality. In order to illustrate their emphasis on top quality products, IGLO contract farmers only plant one type of vegetable on the same field every seven years to maintain a balance of soil nutrients in the growing areas. In addition, farmers grow a wide variety of flowering plants in the off season, which makes the soil even more rich in valuable minerals for the vegetable seasons. Dr. Herrmann (2005) stated that IGLO has a vision of a healthier Austria and that the company’s effort to achieve this is greatly valued by Austrian consumers, who

- 4 - consider fitness and health to be top priorities (IGLO, 2005). It is therefore seen as IGLO’s responsibility to ensure that their products are of the highest possible quality. The quality of IGLO products is largely dependent on the efficiency of their supply chain due to the characteristics of their products. For example, peas are very rich in vitamin B, which is very rare but essential for cell reproduction and protection of the heart. According to Sabine Bisovsky (2005), a food scientist at IGLO, vitamin B is extremely heat-sensitive and is lost if the peas are not handled in the appropriate manner. Supply chain and logistics management play a very important role in the frozen food sector, which has experienced tremendous growth in the last decade. In ten years, from 1994 to 2004, the consumption of frozen foods increased by 34% (Wincor Nixdorf, 2006). The popularity of frozen foods has exploded in this way for several reasons. Firstly, frozen food is able to retain its quality in terms of taste and nutritional excellence over extended time periods, affording the maximum of convenience (British Frozen Food Federation, 2006). Secondly, frozen goods are often superior to fresh produce according to the British Frozen Food Federation. “Often due to a lack of nutritional education in schools and colleges, some younger people wrongly perceive commercially frozen food as being inferior to fresh. In truth, research has shown that there are three key facts about frozen food in comparison to fresh.” • Flavour retention can be greater in frozen foods than in fresh. • Nutrient preservation over time is generally greater in frozen foods than in fresh, particularly in vegetables. • Commercially frozen products are ‘quick frozen’ as low as minus 40 degrees centigrade. They further state that “a third of Britons may be unwittingly eating ostensibly fresh fish that is in fact over two weeks old since it was caught at sea. If they bought frozen fish it would unquestionably taste fresher and would also be significantly cheaper per pound” (BFFF, 2006). In terms of vegetables, the harvest marks the start of a race against time. Vegetables deteriorate very rapidly in terms of appearance and nutrients, making them less suitable for sale as time progresses. This is why the process of ‘shock freezing’ vegetables should take place as soon as possible after the harvest, as this locks all the nutrients within the vegetable until defrosted. This issue has

- 5 - implications on the efficiency of the supply chain and in particular the logistics operations. “Ostensibly fresh vegetables which may have been in the supply chain for several days are already deteriorating and simply cannot match the nutritional level of their frozen counterparts” (BFFF, 2006). Therefore, frozen food supply chains must ensure that the appropriate temperature level is maintained at each stage of the process up until the sale to the end-user at the retail level. It has often been the case that inefficient transportation and storage activities have caused serious damage to frozen foods, resulting in a number of health scares. “With tens of thousands of laboratory-confirmed cases of food poisoning in the UK in the last year alone, the food industry is facing up to the problem of restoring consumer confidence by minimising the risk of contamination from incorrect manufacturing and storage procedures” (m2mFocus, 2005). It is not only the customer’s trust that is damaged through such inefficiencies in the frozen food supply chain but also the impact this has on companies within the supply chain in terms of excess transport, re-processing and re-structuring of supply chain operations. However, such quality problems are not the only challenge that frozen food supply chain face at present. Alf Carr (2005), the Director General of the BFFF, points out the issues of data standards in communication as well as distribution inefficiencies. “Transport is still a problem because of the sheer diversity of the sector. There are so many small loads, which makes distribution grossly expensive and inefficient. In addition, many wholesalers’ depots are still clogged up with scores of trucks making deliveries of less than one pallet at a time” (Carr. BFFF, 2005). Many of the challenges that modern supply chains face today are as a result of inefficiencies and supply chain waste. In the frozen food sector in particular, such supply chain waste leads to defective produce arriving at the retail level, damaging not only the health of consumers but also their confidence in the supply chain members. The performance of a supply chain much depends on its efficiency and how well it can remove activities that are unnecessary and are not valued by the customer. Due to the nature of frozen food products regarding their delicacy, perishability and the need to maintain them in an appropriate atmosphere (-18 degrees), the task of establishing a lean supply chain is of utmost importance and a great challenge. A

- 6 - supply chain that is free from waste and non-value adding activities is often referred to as a ‘lean supply chain’. Such systems achieve high levels of efficiency in terms of few defective parts, no unnecessary transportation, no queuing of products waiting to be processes and storage facilities that hold only what is absolutely necessary. The following section introduces the concept of lean thinking and explores how this philosophy can be achieved and implemented in a supply chain.

The Philosophy of Lean Operations The concepts of lean operations and the elimination of waste from supply chain- activities are topics that have emerged more frequently in the subject areas of supply chain and operations management over recent years. In order to explore the reasons for the surge of these practices it is important to make an insight into the origins of lean operations. Lean thinking first emerged from the Japanese Automotive industry during the 1950’s and 1960’s. The Toyota Motor Company is responsible for a large part of the developments in this field, resulting in the creation of the Just-In-Time concept and the Kanban method of pull production. The aim of achieving lean operations was essential for Japanese car manufacturers due to the scarcity of resources and the intense competition from local and foreign producers. Under the leadership of Taiichi Ohno, Toyota published production manuals, unveiling the secrets of lean production. However, even though these manuals had been released to outside companies in 1970, it took almost a decade until English literature was available (Rich, 2004). Despite the rapid adoption of Toyota’s lean principles by other Japanese car manufacturers, western companies were clearly more sceptical of these concepts and showed little interest in steering towards the same direction as their Asian competitors. However this reluctance to adopt a Japanese production philosophy took a drastic shift with the publication of a historical piece of literature in the study of operations management. “The Machine that Changed the World” by Womack et al. (1990), illustrated a very powerful descriptive comparison between American mass production and Japanese lean production. The following extract describes the situation on the shop-floor of the General Motors’ plant in Framingham, Massachusetts (1986): “Next we look at the line itself. Next to each workstation were piles – in some cases weeks’ worth of inventory. Littered about were discarded boxes and other temporary wrapping material. On the line itself the work was unevenly distributed with some workers running madly to keep up and others

- 7 - finding time to smoke or even read a newspaper. At the end of the line we found what is perhaps the best evidence of old fashioned mass production: an enormous work area full of finished cars riddled with defects. All these cars need further repair before shipment, a task that can prove enormously time- consuming and often fails to fix fully the problems now buried under layers of parts and upholstery.”

In comparison, Womack et al. describe their findings at Toyota’s Takaoka Plant in Toyoda City: “The differences between Takaoka and Framingham are striking to anyone who understands the logic of lean production. For a start hardly anyone was in the aisles. The armies of indirect workers so visible at GM were missing, and practically every worker in sight was actually adding value to the car. The final assembly line revealed further differences. Less than an hour’s worth of inventory was next to each worker at Takaoka. The parts went on more smoothly and the work tasks were better balanced, so that every worker worked at about the same pace. At the end of the line, the difference between lean and mass production was even more striking. At Takaoka we observed almost no rework area at all. Almost every car was driven directly from the line to the boat or the trucks taking the cars to the buyer” (Nahmias, 2005).

Following the publication of this book, the Framingham plant was closed and a shift by western car manufacturers towards greater efficiency was clearly noticeable. “Sparked by the superior performance achieved by lean producers over the performance of traditional mass production systems designs, western manufacturers emulated the shop-floor techniques, the structural parts of lean, but often found it difficult to introduce the organisational culture and mindset” (Rich, 2004). Although this statement suggests that the concept of lean production goes beyond a set of production process principles, western manufacturers have started to explore and adopt some of the production philosophies that appeared in the Far East. Therefore it is fair to suggest that “The Machine that Changed the World” by Womack et al. was the key and the trigger to the dissemination and adoption of lean principles by manufacturers in the United States and Europe. After having identified the origins of lean operations it is important to explore what kinds of activities make up a lean operation and what this philosophy actually aims to achieve. A lean operation is one that is completely free of all forms of waste. In supply chain management, wasteful activities are those that do not add any value to the product. Taiichi Ohno defined seven common forms of waste, often found in areas along supply chains. Although several versions of this list of waste-sources exist, it is often only the terminology that differentiates them from each other, not their content.

- 8 - • Over-production (production of goods not yet ordered) • Inventory (excess stock) • Quality, defects, non-conformance • Excess Transportation • Excess Processing • Excess Movement • Non-value added time (queuing, waiting time, searching time, observing time)

Source: IJPDLM 27, ¾, 1997.

The key term when studying the different forms of waste in a supply chain is clearly value. An activity is said to add value if it fulfils all three of the following criteria: (i) The customer cares about it (ii) It physically changes the product (iii) It goes right the first time When one examines the current literature on the topic of value-adding and waste, it is clear how important this concept is to supply chain managers. “It is common to find that in a factory less than five percent of activities actually add value, 35 percent are necessary non-value-adding activities and 60 percent add no value at all (Jones, 1997). The net result of all this waste in supply chains is illustrated by the description of a supply chain for aluminium cans: “It takes 319 days to make the can, that itself takes only about three hours of processing time” (Jones, 1997). After having identified the sources of waste in the supply chain, one must restructure and reconfigure the appropriate activities within it. Taiichi Ohno has outlined some of the key elements that can lead to the achievement of a lean supply chain in something that he calls ‘The Toyota Tool Box’:

• Level the flow of orders and work by eliminating all causes of demand distortion or amplification. • Organise the work so that the product flows directly from operation to operation with no interruptions – shortening set-up or response times to make or deliver every product every day/week and ensuring that no breakdowns occur through preventive maintenance.

- 9 - • Only make or deliver what is pulled by the upstream step – no more and no less – sell one, order one. • Work throughout the system with the same rhythm as customer demand. • Standardise and minimise the necessary safety stock between operations. • Standardise the best work cycle for each task to ensure consistent performance. • Make every operation detect and stop when an error occurs so it cannot be passed on – making it possible for one employee to supervise several machines or making it possible to detect rogue orders against a historic ordering profile. • Manage progress and irregularities using simple visual control devices. • Log irregularities and prioritize in order to conduct root cause elimination to prevent recurrences and to remove waste from the flow.

Source: (IJPDLM Vol. 27 No. ¾, 1997)

Applying these tools to a process should trigger a rethink of more than just the structure and sequence of activities such as the appropriateness of large expensive machines and warehouses. During the application and implementation process of these lean principles, several hidden sources of waste should be revealed, which have previously gone undetected. The identification and elimination of waste from processes is not a project with limited duration but should be implemented as a continuous and never-ending process, which is strongly emphasized in the literature. As new products and new forms of processing and logistics are developed, new sources of waste will appear. Therefore it is important to continuously update the waste-removal procedure in order to move closer to a perfect supply chain, which is defined as “the complete removal of waste until every action and every asset adds real value for the ultimate customer” (Jones, 1997). In order to understand why lean thinking exists in the current form it is necessary to look back at how this philosophy emerged and how it developed over time. The following section provides an insight into the evolution of lean thinking and describes how this concept has penetrated cultural as well as market-sector boundaries.

- 10 - The Evolution of the Lean Philosophy The concept of lean thinking has undergone an evolutionary process that began in the1980’s and is still ongoing today. In the early 1980’s, lean practices were limited to shop-floor operations and were implemented mainly in the automotive sector. The focus of these activities revolved around the principles of Just-In-Time production and cost cutting. During the mid 1990’s, the application of lean principles were still centred in the automotive industry however, this period witnessed the development of training in Total Quality Management (TQM) and process reengineering. Car manufacturers also started to use benchmarking of best practice organisations in order to be up to date with the latest lean process tools. Towards the new millennium, great emphasis was placed on the value stream and the smooth flow of activities in production and logistics processes. The concept of the value stream is an extension of previously discussed lean principles as it incorporates the value added in activities along the entire supply chain, ranging from the obtainment of raw materials to the delivery to the final end-user. Order fulfilment was a key area of focus at this point as it deals with the flow of information from the customer right down to materials suppliers. Information processing is a common source of waste in the supply chain due to delays in data transmission and inaccurate communication between supply chain members. This is an area that is dependent on the development of Information Technology. Therefore it is not a rare occurrence that order fulfilment generates a large part of a supply chain’s waste in terms of waiting time as a result of errors or incompatibility of IT systems between supply chain partners. In addition, the idea of collaboration amongst supply chain members started to increase in popularity as organisations began to realise that performance can be significantly increased if parties in the process communicate and collaborate beyond the level of asking-price and delivery-time. It was also in the period towards and shortly after the year 2000 that lean principles managed the breakthrough to other sectors such as in services, which is illustrated in “The Lean Service Machine” by Cynthia K Swank (2003). “The power of lean operations has transformed manufacturing. Jefferson Pilot Financial proves that service companies can use the same principles to push their performance to new heights” (Swank, 2003). At this point in time, lean thinking and value systems are orientated around supply chain and process integration (Rich, 2004). The fact that entire supply chains compete with each other and not individual organisations has encouraged power-holders to

- 11 - ensure that each element of the process is configured is such a way that the supply chain as a whole is optimized. Manufacturers are working closely together with their materials suppliers to improve their productions processes and optimize delivery mechanisms. In the past, when organisations pressured their suppliers to lower the price of materials and components, the result was often an increase in defective products, little or not profitability on the suppliers behalf and generally a hostile relationship with their supply chain partners. It has come to the attention of many supply chain leaders that in order to reduce the price for components and materials it is more productive to collaborate with suppliers by helping them implement lean techniques in their processes, making them more efficient and therefore enabling a cost reduction. In addition, the concept of waste reduction and value adding has adjusted itself to place more focus on the customer and value creation for the customer. “This migration from a mere waste reduction focus to a customer value focus opens essentially a second avenue of value creation: • Value is created if internal waste is reduced, as the wasteful activities and the associated costs are reduced, increasing the overall value proposition for the customer. • Value is also increased, if additional features or services are offered, which are valued by the customer. This could entail a shorter delivery cycle or smaller delivery batches, which might not add additional cost, yet add customer value” (Rich, 2004). As with many other philosophies, the concept of lean thinking and waste elimination has faced criticism from several directions. It is important to view such philosophies from different perspectives in order to provide an objective image that covers the topic from all angles. The following section highlights the main arguments that oppose the adoption of lean operations in organisations.

Criticism of Lean Operations Although lean principles have become part of most sophisticated operations due the great importance to eliminate waste from supply chain processes, there have been several voices that have been very critical of lean thinking and the application of lean techniques. The lean philosophy has faced critique not only from outsiders and known

- 12 - opponents but also from within the lean movement, which points to various gaps in lean thinking (Rich, 2004). One of the major criticisms of lean thinking has been the failure to consider quality issues in production as well as the proper handling of demand variability. One of the trademark tools of lean processes, the kanban pull- scheduling system, was said to be inflexible and unsuitable in industries with high demand variability. As a result, a cry for more agile solutions was heard as these placed more emphasis on dealing with customer demand variability, flexible assemble-to-order systems, creating virtual supply chains and greater use of IT tools (Rich, 2004). In addition, it has been argued that lean practices have placed too much emphasis on shop-floor activities while ignoring the issue of customer value. “The car industry, the ‘mother of lean thinking’, is still largely in its shop-floor dimension and has focused largely on optimising the car assembler and first tier supplier… What is need in the cat industry is an aligned supply that provides strategic value to the customer, by building cars to customer order” (Rich, 2004). Another area that has been put into a negative light deals with human aspects involved in lean production systems. A study by Garrahan and Stewart (1992) of the Nissan UK facility, which has repeatedly achieved the highest output in terms of cars per worker, revealed that this particular lean production system was exploitive and high pressure to shop-floor workers (Rich, 2004). Similarly, Williams et al. (1992) label the concept of lean production as de-humanising and exploitive. However, it must be mentioned that these views are individual opinions by ‘left-wing authors’ who do not share similar support from many other authors and academics in the field. Despite this criticism, the philosophy of lean operations has made its mark in the manufacturing sector. The following section describes the gains of lean thinking and illustrates the success that companies have had as a result of its implementation.

Benefits of Lean Thinking Despite having identified the success of Japanese car manufacturers due to their application of lean principles, the question may be asked whether or not the above mentioned criticism of lean thinking is justified and whether this philosophy has delivered similar results in other parts of the world and especially in other areas of the supply chain other than production. The answer to this query is quickly found when reviewing recent supply chain and production literature, which is littered with success stories, one of the most famous ones being the aviation manufacturer Boeing. The

- 13 - operations of Boeing were highly inefficient, which had several consequences in terms of time, cost and customer satisfaction. Some of their main problems are listed below: • Outdated layouts • Excessive production options • Poor computer co-ordination and communication • Product delays • Complex problem solving • Price war with Airbus • Late shipment of parts • High labour costs due to excessive overtime payments • Company culture As a result, Boeing was hardly competitive and had lost a significant part of its market share to their main rivals Airbus. In response, Boeing undertook a complete change in corporate culture and decided to re-focus on lean manufacturing. A very effective tool called Value Stream Mapping (which will be introduced in more detail at a later stage) was used to identify the sources of waste in the production and assembly process by empowering employees who are most familiar with each of the activities. Boeing also simplified their computer systems, which in turn enabled paperless production. In addition, inventory levels were significantly reduced which had lowered holding costs and generated more workspace. However, the most significant and influential adjustment was the implementation of a moving-line assembly with cell based feeder lines. “Under this, a continuous moving assembly line moved planes from one assembly team to the next place slowly, keeping production at a steady pace. It also allowed employees to monitor the production status anytime which reduces the amount of work in process inventory” (ICMR, 2002). The benefits from the lean re- structuring are summarised below: • Reduction of inventory levels by $ 1 billion • Reduction in manufacturing time by 60% • Reduction in manufacturing floor-space by 50% • Time taken to fully assemble a plane was reduced by 50% • Reduction of Defects by 48%

Source: ICMR, 2002.

- 14 - Following the conversion to lean operations and after observing the benefits gained from this move, Boeing was clearly fascinated with the concept of their new approach and expressed their desire and commitment to continue down this path. “Our entire enterprise will be a lean operation characterised by the efficient use of assets, high inventory turns, excellent supplier management, short cycle times, high quality and low transaction costs” (Boeing’s ‘Vision 2016’ Statement, in 2002). As previously mentioned, lean principles have also proved to be very successful in other areas of the supply chain such as delivery, order fulfilment and warehouse management. A study conducted by the International Journal of Physical Distribution and Logistics highlights some of the benefits that Toyota’s parts distribution system in the United States has gained from their lean logistics activities. Firstly, Toyota’s delivery system was revolutionised by considerably reducing their number of component suppliers to 170 and positioning them in close proximity to their assembly plant in order to reduce transport time and cost. This enabled a JIT delivery strategy where Toyota goes on a ‘milk round’ every four hours, each time collecting only exactly what is required at the plant. The result was a higher transport utilisation and a significant reduction in excess ordering of parts as this has a considerable impact on overall costs. Their ordering system has also undergone a lean make-over with impressive results. “In the ordering area it is necessary to move to a daily ordering system from suppliers. This is done on a ‘sell one, order one’ basis rather than traditional standard reorder quantities with long lead times” (Jones, 1997). Due to the predictability of arrival times, delays at the receiving warehouse are avoided. This also leads to a better predictability of demand, which avoids the production of unnecessary safety stock. In terms of warehouse management there are several tools and techniques to make that particular activity very efficient: • Storage by part type with frequently used parts near the front • Standard binning and picking routes for each part type • Bin size reduction • The logging of irregularities and prioritization in order to conduct root cause elimination of the most frequent problems to prevent recurrences and hence improve the process.

- 15 - The reported benefits from these activities are great stock reductions from 24 to 4 weeks whilst an improvement in service rates and productivity was also achieved. Although the benefits gained from implementing a lean philosophy in supply chain operations can be identified in many more areas other than the ones discussed above, the overall effects revolve around a reduction of processing time as well as delivery time. In addition, the amount of floor-space can be reduced, the amount of staff and bulky machinery can be cut down and finally the number of defects and errors in processes are reduced. The overall impact seems to be reflected at the end of the supply chain in terms of customer satisfaction and greater profitability through a reduction in operating costs along the entire supply chain. So far, we have seen how companies have been able to reduce and eliminate waste from their supply chains. However, before one can eliminate waste from a process, the sources of waste must be found and identified first. The following sections describe some of the main tools and techniques that are used to analyse supply chain processes and identify the main causes of waste.

Value Stream and Process Mapping We have so far established that lean principles are aimed at eliminating any sources of waste from processes. However, the root causes of waste are not always visible at first and some forms of waste are labelled as hidden. The identification of waste in a process requires the application of a technique called ‘Value Stream Mapping’. There exists different terminology to describe this activity such as process mapping or value chain analysis. Although there may be slight differences amongst these, the underlining principle is the same for each: the study of processes in order to identify waste and redevelop the process in a more efficient and productive manner. Jones (1997) provides a summary of the main activities involved in process mapping:

• The study of the flow of processes • The identification of waste • A consideration of whether the process can be rearranged into a more efficient sequence • A consideration of a better flow pattern involving different flow layout or transportation routing

- 16 - • A consideration of whether everything that is being done is really necessary

Value stream mapping emerged as a development from the benchmarking concept. Hines (1999) describes the development of value stream mapping as a result of the inability of the benchmarking technique to provide solutions to inefficiencies. “Although benchmarking is very useful in raising awareness of the performance gaps, it provides little guidance on how to close those gaps. As a result, more recent work has concentrated on process benchmarking. However, early work in this area found that it was difficult to standardise between processes in different organisations and hence provide meaningful data. As a result of these problems, the last three years have seen the development of a new type of benchmarking called Value Stream Mapping” (Hines, 1999). The reason why value stream mapping is considered a type of benchmarking is because the concept of comparison between current processes and ideal future processes remains a fundamental element of this technique. Value stream mapping and analysis starts with the collection of data through direct observation of processes and analysis of relevant documentation. The analysis of this data should enable the creation of a ‘current state’ map, which describes the flow of activities within that process from start to finish. This map should help identify any problem areas where waste such as delays, unnecessary motion or excess processing, may be present. Following this should be the development of a ‘future state vision’ based on lean principles, which outlines how that particular process should operate in future. Finally, an action plan needs to be developed and implemented in order to verify the strategy and approach taken to achieve the desired future state vision. The ultimate aim of process mapping is to eliminate activities that are unnecessary, simplify others, combine others and seek sequence changes that will reduce waste (Jones, 1997).

Value Stream Mapping in the Food Sector As discussed earlier, the food and agricultural industry is one with unique characteristics and supply chain structures. Since the study undertaken in this project will focus on the supply chain of IGLO’s frozen peas, it is important to explore some of the past research that has been undertaken in this area. The study of past work in this field can help to identify certain obstacles that may appear in the investigation of the IGLO supply chain. An insight into similar studies may also offer very useful guidance in terms of strategies and methods used to approach the study.

- 17 - Taylor (2005) undertook a study of food supply chains in the UK using value chain analysis. The focus was on the production and distribution of fresh pork products to leading UK supermarkets. Taylor (2005), states that “to date, Value Stream Analysis techniques have only been applied to assembly operations”, which suggests that this field is far from fully explored. One of the reported research questions of the study is formulated as follows: “To what extent can value chain analysis methods that have been developed in the environment of industrial products, be appropriately applied in chains dealing with agricultural products?” (Taylor, 2005). The study incorporates three UK companies, a major supermarket group, a major food processing company and a farming company that has control of approximately 400 pig farms. The reported aims of the project were to:

• Understand the ‘current state’ of the whole supply chain for pork products from animal production to purchase of meat products by the customer. • Identify key wastes, problems and opportunities across the supply chain. • Develop a ‘future state vision’ of the pork supply chain based on lean principles. • To develop an ‘action plan’ to achieve the future state vision. (Taylor, 2005).

The Methodology used in the study of the fresh pork supply chain is outlined in the seven-step diagram below.

- 18 - The first stage of this model involved the task of presenting the business benefits that would be gained from mapping the supply chain for fresh pork products. The main focus at this early stage was to communicate with senior management in order to help them visualise the activities being undertaken and to answer the common stated question, “what’s in it for me?” The importance of this task is highlighted as it becomes apparent how little senior management figures know about value stream mapping and lean techniques. “Senior management were requested to read various background literature on both lean thinking and supply chain management as it was clear that neither of these topics were well understood” (Taylor, 2005). The report also raises the importance of creating a value chain analysis team consisting of one representative of each company in the supply chain. This approach proved to be very beneficial as it helped each of the supply chain members to understand each other’s operations, which is a vital aspect in terms of creating an integrated supply chain. The objective of the second stage was to help each of the supply chain members in understanding the structure of the entire supply chain, as this is not always the case, given the great complexity of supply networks. Knowing that a thorough understanding of the supply chain structure must exist in order to significantly improve the supply chain performance, the value chain analysis (VCA) team constructed a map of the network structure, identifying each stage of the process and

- 19 - how the individual stages are connected. The report states that the selection of a specific value stream is a pre-requisite for value chain analysis. A value stream is defined as: “a specific product or product family serving a specific customer or market segment” (Taylor, 2005). The results obtained from the value chain analysis of one value stream can then be extended to other value streams, which may be a more effective approach as it allows the team to maintain a better overview the investigation. In order to determine the value stream to be studied the VCA team had to decide on the scope of the investigation meaning, what distance of the supply chain should be covered between raw materials supply to delivery to end-users. The study of the pork supply chain included everything from the breeding of pigs to the sale of pork products at the check-out desks of the supermarkets. However, it is emphasised that this is only possible with an internal VCA team who has access to all required resources. In addition, the VCA team selected a particular pathway through the supply network, focussing on one breeding farm, one meat processing company which had five plants and finally one regional distribution centre and the supermarket. The particular product that was selected to be investigated as it flows through this process was the top selling fresh pork product by the supermarket, ‘pre-sliced pork loins’. The third stage of the process involves the analysis of the individual facilities along the supply chain. The VCA team followed the target product the each of the processes and collected all the relevant data through direct observation. Through process mapping, the team was able to identify value-adding and non-value adding activities. It was not only the physical processes that were investigated but also the transfer and processing of demand information such as customer orders from the supermarket and demand forecasts. The data collected was then used to create the ‘current state’ map of each individual facility under investigation. “These maps highlight imbalances in the process, they allow managers to see waste and opportunities for improvement, they tie together the physical flows and information flows and they form the basis from which to form an implementation plan” (Taylor, 2005). After this, the entire VCA team was involved in creating the ‘future state’ maps for each facility and the action plans to implement these. The collection of this data leads to the next stage, which deals with the creation of a ‘whole chain’ map, displaying the connections between the individual companies of the supply chain. This is said to be every helpful in uncovering any ‘interface waste’ that may exist in the interactions between individual supply chain members. In addition, the ‘whole chain’ map helps identify

- 20 - waste relating to demand dynamics such as demand variability and amplification effects. The activities undertaken in stage five include the analysis of issues and opportunities along the whole supply chain. The problems discovered in the investigation of the whole supply chain were divided into three categories: Physical product flow issues, information flow issues and issues related to management and control of the chain. Appendix III summarises the main findings of this investigation. The seventh and final stage involved the creation of a receptive organisational context, which required strategic as well as operational decision making from senior management in order to achieve the potential benefits from this study. Overall, the study of this UK fresh pork supply chain has shown how effective value chain analysis can be in identifying waste in processes, especially in the agricultural food sector. Conducting such investigations can bring supply chain members closer together by acknowledging each other’s problems, strengths and weaknesses. However, this study has also shown that there still is a general lack of understanding of these lean principles, especially in the agricultural sector where value chain analysis has hardly taken place. One reason that may contribute to this being the case is that value stream analysis requires great sacrifices in time, cost and management effort when covering a large proportion of the supply chain as in the UK pork example. Although the study produced a broad set of interesting and feasible recommendations for improvement, the technique of value chain analysis has faced criticism by some authors. “One of the weaknesses of the current/future state mapping techniques is the lack of a clear and workable financial model to measure the cost of current operations and the potential financial benefits of lean improvements across the whole chain. This is partly because financial accounting systems are not structured to provide costs related to value streams, nor are they easily able to untangle many of the real costs of waste (e.g.: administrative costs, true costs of stock holding, costs of inefficient scheduling) which are frequently immersed in the overheads category” (Taylor, 2005). Also, this study has pointed out that the relationships between supply chain partners, which are often on hostile terms, can inhibit the performance and successful execution of such projects. The lack of trust between supply chain partners as well as the fear of short-term changes in policy are obstacles that need to be overcome in order to carry out an effective value chain analysis.

- 21 - In addition, the VCA team has also reported problems regarding clarity in some of the data analysis. “When the pig is the product and it takes 40 weeks to grow, it is less clear what constitutes value adding and non-value adding time and how, if at all, lean concepts can impact that process” (Taylor, 2005). This problem is certainly present in many value stream projects and could appear in the study of the IGLO supply chain. In overcoming this issue it is important to refer back to the three rules that make an activity add value to the product, especially in terms of customer value. However, it is still likely that certain activities will be on the boundary of ‘value adding’ and it is important to recognise these and evaluate the situation appropriately. Although the supermarket group cancelled their relationship with some of its suppliers, it has been reported that following the VCA the group has applied this approach to many of its other supply chains. The supermarket group as well as the meat processing company have labelled the VCA project as “valuable”, which is a very positive feedback, despite not implementing any of the recommendations due to the break-up of relationships. On the whole, this study has revealed certain issues regarding supply chain waste that are unique to the food sector, such as the problem of carcass imbalance. This issue occurs when retailers make independent demands for individual cuts of meat, e.g. shoulders and legs. This frequently results in surpluses of certain parts and shortages of others (Taylor, 2006). One way of minimising this waste is by specifying the ‘ideal pig’ in terms of weight and fat content, and then working with farmers and breeding companies to breed these pigs so that they fully satisfy customer requirements and keep waste to a minimum. Such obstacles, which are commonly encountered in the food sector, may be found in the investigation of the IGLO supply chain, which is why it is important to explore how such difficulties in supply chain management have been overcome in the past. Overall, this study of a UK pork supply chain by Taylor (2005) has demonstrated the effectiveness of value stream analysis in improving supply chain operations and the importance of undertaking these projects to ensure the long-term competitiveness of organisations. “A joint policy to pursue the systematic elimination of waste and introduce ‘flow systems’ both within and between companies would lead to year on year cost reductions and permit the chain to become progressively more competitive in terms of

- 22 - cost, quality and service. In doing so the chain would become increasingly immune to price fluctuations in pork markets which currently have a major disruptive influence on supply” (Taylor, 2006).

The Supply Chain Time and Cost Mapping Toolkit The investigation of the IGLO supply chain will be guided by a structured framework known as the ‘Supply Chain Time and Cost Mapping Toolkit (SCTCM)’, which was developed by the Supply Chain Cost Effectiveness and Swift Service (SUCCESS) research team. This team consists of members from the Warwick Manufacturing Group at the University of Warwick, the Centre for Logistics and Supply Chain Management at Cranfield School of Management, the Institute for Logistics and Transport (ILT) and leading food manufacturers including Masterfoods UK Ltd., Bernard Matthews Ltd. And McCormick UK Ltd. The development of this toolkit, published in 2004, was aimed at providing visibility of cost and waste in the supply chain. An overview of this toolkit is illustrated in the diagram below (source: SUCCESS 2004).

The diagram above shows that the SCTCM toolkit analyses supply chain processes in eight stages. The sequence of stages is important as they are interlinked and in some cases dependent on each other. Process mapping and cost collection are activities that deal with the collection of time and cost information about individual processes in a supply chain. The following stages, time-based analysis, cost translation and time-cost analysis, are aimed at identifying the amount of operational waste that exists in a supply chain and quantifying the impact that this has on organisations. Finally, this framework concludes by offering the opportunity to identify and evaluate possible

- 23 - solutions that may lead to a reduction or even an elimination of waste in a supply chain.

Summary Overall, this literature has covered several relevant areas that are important for the investigation of the IGLO supply chain. We have established the importance of IGLO in the Austrian supermarkets due to the great demand for high quality vegetables. We have also identified the growing popularity of frozen foods due to their convenience in the modern lifestyles of people today. However, the frozen food sector does face significant challenges in terms of supply chain efficiency. These inefficiencies affect not only costs or the quality of the product but also consumer confidence and the reputation of the companies involved. The literature review has also shown that the adoption of lean thinking within the supply chain can lead to waste elimination and help operations to become more efficient. Even though some voices describe the lean philosophy as de-humanising and exploitive, we have seen that the implementation of this concept into supply chain operations can have an immense impact in terms of time, cost and space saving. The review also highlighted the procedure of identifying waste in supply chains as Value Stream Mapping. At this point we have established how value stream mapping is used and how the individual tools such as, demand amplification mapping and quality filter mapping, can be applied to identify the different kinds of waste. Finally, we have seen how a value chain analysis has been undertaken for pork products in the UK. The study has revealed a useful seven-stage method to analyse the supply chain, which includes a current state map, a future state map and an action plan. Through this case it has become apparent that the root causes for supply chain waste are not always found at the operational level but also at the strategic level such as push/pull production mechanisms and poor supplier relationships. There were also several inefficiencies that were revealed in terms of product flows, information flows and issues relating to the management and control of the supply chain. The findings of this study have highlighted some of the obstacles in supply chains of food products, which will prove to be very useful for the following analysis of the IGLO supply chain for frozen peas.

- 24 - Methodology The Unilever brand IGLO is the leading supplier of frozen ready-meals and vegetables to the Austrian market. However, they face intense competition from retail supermarket’s own brands, which are sold at a significantly lower price. The efficiency of the supply chain, especially in the frozen food sector, has a great impact on overall costs and therefore price. Consumers have reported dissatisfaction with some of the frozen vegetables, which have defrosted and been refrozen somewhere along the supply chain, resulting in quality concerns. Other problems reported by consumers include damaged packaging and unwanted contents in vegetable packages such as dirt, insects or even metal screws. Such problems require unnecessary transport and reprocessing or even disposal, which has a significant impact on supply chain costs. The aim of this project is therefore to analyse the supply chain of IGLO frozen foods and to identify where inefficiencies exist. It is then possible to suggest feasible solutions to tackle the sources of waste and to examine the implications that these improvements would have. The individual stages of the supply chain will be mainly analysed using the ‘Supply Chain Time and Cost Mapping Toolkit’, developed by the Supply Chain Cost Effectiveness and Swift Service (SUCCESS) research team as described in the literature review.

Definition of the Project Scope As the study of the UK pork supply chain by Taylor (2005) shows, it is important to define the scope of the project at the outset. This stage sets the boundaries for the investigation in terms of supply chain distance, the target value stream and the target product or product group. As previously mentioned, this study will focus on IGLO’s supply chain of frozen peas to the Austrian market and will focus particularly on the flow of physical goods (peas) and information. Process mapping activities will be undertaken at five separate stages of the supply chain: Inbound logistics, processing, order fulfilment, outbound logistics and retail. The first stage, inbound logistics, deals with the delivery of freshly harvested peas to the processing factory. The processing stage will include the handling of the peas such as quality controls, washing, freezing and packaging. Thirdly, order fulfilment will focus on the flow of information between the supply chain players such as forecasting information and product orders. Outbound logistics will look at the delivery process from the factory to the regional

- 25 - distribution centres as well as the handling of the goods in these storage facilities. Finally, the retail stage will examine the process that retail supermarkets undertake to place the frozen peas into their deep-freezing shelves, ready to be bought by consumers. There are several pathways that IGLO’s frozen peas take to reach end-users, which will be illustrated in the supply chain map however this study will focus on one particular pathway through the supply chain. The study will focus on the route from one of the contract farmers to the main factory, from there to the regional distribution centre of a leading retail chain and then to one particular retail outlet. The exact retail chain and outlet will be determined during the investigation as this depends on the availability and accessibility to the necessary data.

Data Collection In order to carry out an accurate analysis of the supply chain for frozen peas, data must be collected from several organisations involved in the process. The bulk of information will come from IGLO itself. Interviews will be conducted with managers from the supply chain department as well as members of quality control and customer service. Information related to other organisations in the supply chain is available through IGLO’ supply chain department. In addition, IGLO have produced a film illustrating the process of delivering peas from the farmer to the final customer. This film describes each process in detail and delivers important facts related to the production and distribution of their frozen foods. Also, information regarding individual process will be gathered through direct observation of operations. The main interest in this activity is the observation of process durations and sequence of events. Other sources of information include publications and press releases by IGLO’s public relations department.

The Process Mapping and Analysis Procedure As in the study of the UK pork supply chain, this project will begin by creating a structured map of the entire supply chain for frozen peas. This is very useful as it provides the reader with an overview of supply chain activities. The same goal is achieved by the map of the target value stream however this diagram highlights the functions and outputs of the individual facilities along the target value stream. After

- 26 - the overview of the supply chain and the target value stream has been established the process mapping stage can commence.

Process Mapping The aim of this stage is to create an accurate visual representation of the process under investigation that can be used for analysis and communication (SUCCESS, 2004). This activity involves the collection of data for each activity in the target value stream in order to produce a process map. The main data elements of a process map are the activities undertaken in the process and the sequence that they are in. However, in order to identify and quantify supply chain waste, it is essential to collect data such as: time taken, resources consumed, production volume and production frequency. The final output of this stage is an IDEF0 diagram, which is a process map that illustrates the sequence of activities as well as the uses of time and resources.

Cost Collection The next step involves the collection of costing data for each activity in the target value stream. Knowing the cost of activities will make it possible to quantify how much money is lost as a result of non-value adding activities in the supply chain.. Examples of costs that may be of interest include: • Cost of labour • Fixed assets (buildings, machinery, plants, vehicles) • Current assets (inventories, cash) • Expenses (third party contracts, leased assets, rent and hire charges, power rates) • Non-financial data (performance measures, production volumes, asset utilisation, resource consumption, number of people employed by activity)

(SUCCESS, 2004)

The aim of this activity is to establish a plan to reduce costs in those areas that are within control of supply chain players. Costs such as tax and insurance are in control of external bodies and cannot be changed by organisations within the supply chain. However, it must be noted that some costs will need to be estimated as exact information may not be available for a number of reasons.

- 27 - Time-Based Analysis The next stage in the investigation is the ‘time-based analysis’. This task involves the classification of activities into value-adding and non-value adding using a tool called ‘Time-Based Process Mapping’. This map illustrates the amount of non-value adding time spent in each activity under investigation. This stage is a key part of the project as it highlights the areas where waste occurs in the supply chain, allowing managers to locate the sources of waste and address them appropriately. In order to complete this task a variety of input data is needed such as the process maps developed in the previous ‘process mapping stage’ as well as interviews with process managers who may have a more accurate idea of where supply chain waste exists. The task of distinguishing between value-adding and non-value adding can be very challenging as some activities may be on the boundary between the two categories. The SCTCM Toolkit defines value as “a property of a product or service that the customer cares about and would be willing to pay for.” As mentioned in the literature review of value stream mapping, activities will be assessed according to the following criteria. Value is added to products or services only when the following three criteria are met:

• The customer cares about the change • The activity physically changes the item • The activity goes right the first time (SUCCESS, 2004)

This investigation will focus on identifying the seven common forms of waste as discussed in the literature review: overproduction, inventory, rejects/rework, motion, processing, waiting, transport. The final output of this stage is a time-based process map in the form of a stacked-bar chart, which displays the proportions of value- adding and non-value adding time in each activity as well as the total time for the whole process.

Translation Cost Matrix This activity is designed to help translate the cost information collected into a format that will enable supply chain activities to be costed. The result of this process will be a set of activities with their respective costs.

- 28 - The process involves sorting the cost data gathered in the ‘cost collection stage’ into direct and indirect costs. Resource drivers have to be identified for the indirect costs and then all of the collected costs will be distributed to individual activities. In addition, the cost drivers will be identified and the costs distributed to the product.

Cost Time Analysis The aim of the cost-time analysis is to examine the relationship between time and cost for the activities in the supply chain. The relationship between those two elements will be represented graphically to enable a comparison between the different processes in the supply chain. An example of the kind of tool used to display this information is the time-cost profile, which combines the cumulative cost with the cumulative time spent on each activity using the data collected in the previous stages. The final output is a graphical representation of this relationship, which provides a good overview of problem areas and helps to locate areas in need for improvement.

Evaluation of Findings and Recommendations for Improvement The final stage of the process will involve a summary of the main issues that the investigation has highlighted and a set of recommendations, which may help to overcome some of the problems discovered. Firstly, the findings from each stage of the supply chain will be discussed, highlighting the main problem areas and the impact that they have on the supply chain organisations. Then, depending on the amount and type of supply chain waste found in the analysis, a set of suggestions for improvement will be discussed. Such suggestions may involve the restructuring of certain processes or the implementation of certain activities that are designed to improve the efficiency of the supply chain. These recommendations will have a certain impact on players within the supply chain in terms of cost, training or restructuring for example. The implications of each suggestion will also be discussed and the project will then reach a conclusion by recapping all the activities undertaken, evaluating their effectiveness and highlighting areas that may need to be enhanced for further research in this area.

- 29 - Data Analysis This section of the report will present the collected data as described in the methodology. A description of the supply chain structure for IGLO peas will be accompanied by a map (figure 1), showing the flow of goods and information through the chain. The gathered information will then be analysed using the Supply Chain Time and Cost Mapping Toolkit in order to identify and illustrate the main sources of waste found in the individual processes. The data analysis stages include: Process mapping, cost collection, time-based analysis, translation cost matrix and a cost-time analysis.

The Supply Chain Structure of IGLO Peas Contract Farmers IGLO has around 300 contract farmers in the Marchfeld region of Austria. For the growth of peas, these farmers first prepare the fields with special machinery so that the seeds are placed between 3 and 5 centimetres into the ground. This is essential to ensure that the seeds receive enough moisture and therefore grow to the satisfaction of the customer. The seeds are planted in the months of March and April and the harvest, depending on the weather conditions, follows in July and August. As the point of harvest approaches, the farmers make regular sample inspections to determine the maturity of the vegetables. Once the peas have fully ripened, four harvesting- machines comb through the fields picking the pods and separating them from the peas. Once the harvesting machine is full, the peas are reloaded into a container, which is then transported to the delivery trucks by a tractor as shown in the image below. From the tractor, the peas are then lifted and poured into the containers of the delivery trucks.

- 30 - Once a delivery truck is full, it then departs to the factory and the peas are ready for the next step in the supply chain. Frenzel, a third party logistics provider (3PL), is responsible for the transportation from the field to the processing factory.

Processing at the Factory Frenzel also operate the processing factory and the storage facility, which used to belong entirely to Unilever (IGLO). Unilever decided to hand over responsibility for the factory to Frenzel in order to concentrate on core competencies such as marketing. Immediately upon arrival the contents of the containers is weighed and samples taken for inspection. The quality inspection process is aimed at determining the smoothness and general condition of the peas using an apparatus called ‘the Tendorometer’, as shown below.

After the quality inspection is complete and the load of peas has been approved, the goods proceed into a wash-tower where the vegetables are freed from any dirt and other unwanted substances. Once the peas are clean they are taken through a hot- water shower on a conveyor belt. Immediately after the 95 degree hot-water shower the peas are cooled off with cold water, which is a necessary step in preparation for the freezing process.

Using a vibrating sieve, the water is allowed to drip off the peas in order to prevent lumps of peas to form in the freezing process. Within minutes, the peas are then

- 31 - ‘shock-frozen’ using cold air of -35 degrees centigrade. This process is extremely important as it ensures that the nutrients are locked within the vegetable and are not lost.

Once the peas have been ‘shock-frozen’, they are filled into their final container. IGLO peas are produced in three different weight-varieties. 150g and 300g peas are packaged in carton boxes whereas the 750g option is filled into plastic bags. After the packaging is complete, the peas are stored in a central cooling warehouse, which is located within the factory premises.

At this point, the peas await customer orders and are ready to be taken out of storage and transported to the next stage in the supply chain.

Regional Distribution Centres The frozen peas are delivered to various regional distribution centres by different logistics providers. Major retailers in Austria such as Merkur and SPAR, have contracts with different 3PLs. Exel-TKL is the logistics provider that is responsible for the storage and distribution to outlets of Merkur whereas DAILY Asten provides the logistics services for SPAR. Both Exel-TKL and DAILY Asten have one major distribution centre in Vienna that stores IGLO peas and prepares them for delivery to the retail outlets. There are also several other regional distribution centres that store frozen peas for catering services such as hotels and restaurants and other food services such as large petrol stations. However it is the responsibility of IGLO to ensure the delivery of their frozen goods to the distribution centres. For this leg of the transportation process, IGLO hires a number of different contract-hauliers. When a

- 32 - truck-load of peas arrives at the distribution centres, the unloading and storage activities must be swift in order to maintain the goods in a frozen state. The peas are then stored in large cooling halls until an order is received from a regional outlet.

Supermarkets When inventory levels of peas at the retailer reach the ‘replenishment point’, an order to the regional distribution centre is sent, requesting a re-supply. As with the distribution centre, the peas must be unloaded and stored immediately upon arrival at the retailer to prevent defrosting from taking place. The retailers then label the frozen goods and fill their freezing shelves, keeping a back-up supply stored in a refrigerated room. At this point, the frozen peas are ready for purchase by consumers. Catering services do not offer IGLO peas in the packet but as part of their meals that they offer to their customers in hotels and restaurants. As the supply chain map shows, catering services and other food services are supplied by concessionaires who are in turn supplied by the distribution centre of Exel-TKL. The concessionaires are equipped with their own delivery vehicles, placing the responsibility of final delivery on them.

The Flow of Information The supply chain map shows that as the physical product flows from the farmer to the retailer, information flows in the opposite direction. IGLO’s supply chain department, along with the input of sales and marketing, is responsible for making demand forecasts for all of their products including peas. Their forecasts are purely based on sales figures from previous years. IGLO seems to be the only entity in the supply chain that forecasts demand, making all the other organisations dependent on the estimations of the Unilever brand. After finalising the forecast for a particular year, IGLO passes this information onto their logistics partner Frenzel in numerous meetings. Frenzel (formerly known as Austria Frost) who operate the processing factory, then discuss the demand forecasts with the contract farmers to determine the amount of peas to be produced. IGLO, the logistics providers and the retailers use a sophisticated IT system to exchange demand and supply information. IGLO considers it their responsibility to ensure that stock-levels at the distribution centres of Exel-TKL and DAILY Asten are at the required level. These three entities, IGLO, the 3PLs and the retailers, are connected via a user-interface called EANCOM (European Article Number

- 33 - Communications). The EANCOM system is used to provide a standard format of data such as purchase orders, delivery instructions, invoices and product information. This data is sent to each of the three supply chain members via Electronic Data Interchange (EDI). The international standards of the EANCOM system include:

• Standard identification of trade items (goods and services), logistic units, locations, assets and other specialist applications • Standard bar code formats to allow the automatic and secure capture of the standard identification • Standard supplementary codes to encode variable data, in addition to the identification, in bar coded form • Standard format for trade, transport and finance transactions communicated from computer to computer applications (Source: EAN International, 2002)

- 34 - - 35 - - 36 - Process Mapping The IDEF0 process map on the following page shows the sequence of the five activities that are under investigation. Each of the activities is broken down to a more detailed level, showing the sequence of events within each activity. The process map uses boxes to describe particular functions within an activity and arrows are used to illustrate data or objects that are related to activities. This format is illustrated in the diagram below (figure 3).

Figure 3. The process map also shows the time taken to complete each activity as measured by direct observation. In addition, the map illustrates the main inputs and outputs of farming and processing. The inbound and outbound logistics processes as well as the retail operation do not have direct inputs and outputs in terms of physical products. Finally, the map shows the main resources used in each activity such as labour and equipment as well as the control systems used to monitor and guide each activity such as management and schedules. Since this process map provides the basis for the following analysis, it is important to ensure that the data is accurate. The sequence of events seems to be accurate when compared to video documentation of the supply chain process provided by IGLO. However the video, which was recorded during the 2005 harvest, states that the process from harvesting to freezing takes 90 minutes. The observations recorded at this year’s harvest amount to 110 minutes however, it must be taken into account that the process-time may very with each load of peas.

- 37 - - 38 - The above process map shows that the entire process from harvest until the display on the retail shelves amounts to approximately 800 minutes, with farming taking 35 minutes, inbound logistics 32 minutes, processing 68 minutes, outbound logistics 560 minutes and retail 105 minutes. However, at this point it must be emphasized that these time measurements reflect the direct observations of activities at one instant. These values may vary considerably with each trial. For a detailed breakdown of time measurements for individual activities and processes see Appendix I. When analysing these figures it must be taken into account that they were derived partly from direct observation and partly from existing documents from the supply chain management department of IGLO. At this point, it is also important to mention that the storage- time at the processing factory and at the Exel-TKL regional distribution centre were not included in the time measurements. G. Hahn (2006), the supply chain manager of IGLO, stated that peas are stored on average for 15 weeks at the storage facility in the Frenzel processing factory. This however depends on the current demand for peas by retailers. In addition, peas are stored on average for 10 days at the regional distribution centre of Exel-TKL. Again, the storage-time depends on demand by retailers and can vary between one day and three weeks. These storage-times were deliberately excluded from the process map measurements as they would distort the overall result of the process however, the time spent on storage will be addressed separately in the analysis.

Cost Collection The SCTCM toolkit describes the cost collection process in three stages: Explain scope to company accountant, identify relevant financial data and collect financial data. As expected, the task of collecting cost information for the processes in the target value stream was extremely difficult. A large part of the cost information is strictly confidential or unavailable. However, with the help of the supply chain management department of IGLO, rough estimations of the main operations were established. In addition, farmers were unable to provide exact data on the cost of their processes however rough approximations were provided. The table below shows a summary of the collected cost information for each stage in the supply chain. For a detailed break-down of the activities and their costs, see appendix I.

- 39 - Activity Cost Farming € 105 / hour Inbound Logistics € 13 / load Processing € 510 / hour Packaging € 100 / tonne Inventory € 200 / tonne (15 weeks) Outbound Logistics € 500 / load Storage € 200 / tonne Retail € 14 / hour

The cost for farming was estimated by combining the cost of running the harvesting and transportation equipment as well as the salary of the workers involved in the process. The cost for transportation from the field to the processing factory can be summarised by considering the cost of operating the truck including the salary of the driver. This cost varies as the logistics provider Frenzel has different kinds of contracts with their drives. Some drivers are paid per hour whereas some are paid per driven kilometre. The cost of processing at the factory was estimated as being 60% of the price of peas per tonne by IGLO’s supply chain department. This includes labour, resources such as water and electricity and indirect costs such as management. This estimation takes into account the percentage that goes to Frenzel as profit. In addition, it was estimated that packaging costs an additional 10% of the buying price and amounts to € 100 per tonne. The cost of holding inventory was estimated to be € 200 / tonne of peas. This includes warehousing, damage, insurance, taxes and administration. The cost for outbound logistics consists of the transportation from the factory to the regional distribution centre and to the retail outlet. The cost of holding inventory was estimated to be € 200 per tonne of peas. The costs to the retailer were estimated using the sum of resource expenses such as labour and electricity as well as indirect costs such as store management and equipment maintenance. On the whole, it must be recognised that these figures are purely estimations by individuals involved in the processes. A large part of the data was unavailable due to confidentiality or simply because the direct costs of processes were not known. However, these estimations do serve the purpose of delivering a rough idea of the supply chain costs incurred in the sequence of operations under investigation.

- 40 - Time-Based Analysis The aim of time-based analysis is to categorise the activities in the supply chain into value adding and non-value adding. This is one of the key tasks of this project as it identifies where areas of waste exist in the supply chain. As previously mentioned, activities will be classified according to the following criteria: An activity is considered value adding if the following three criteria are met:

• The customer cares about the change • The product physically changes • The activity goes right the first time

If the criteria are not met, then the activity can be considered as non-value adding (SUCCESS, 2004) The following time-based process map shows the classification for each stage of the IGLO supply chain.

Time-Based Process Map for IGLO Frozen Peas

Figure 5.

The time-based process map shows the amount of time spent on activities that do not add value to the product or for the customer. As the bottom bar shows, the time spent on non-value adding activities in the IGLO supply chain for frozen peas is more than half. In fact, only approximately 44% of operation-time can be considered to be value-adding. However, not all stages of the process contain great amounts of waste.

- 41 - The process map highlights two key areas, outbound logistics and retail, which make the most significant contributions to the inefficiency of the supply chain process. The farming stage seems to have several activities that do not add value to the product such as the transportation and loading / unloading processes. After the peas are harvested they are unloaded onto a tractor-container, which then has to travel to the delivery-truck, which only waits a few hundred meters away. After the peas are unloaded onto the truck, it has to wait for the new load of peas to arrive since the truck only leaves once it is completely full. This sequence of loading, transport, unloading and waiting consumes most of the time taken for the farming stage. However, as the time-based process map shows, farming is only a minor section of the supply chain in terms of time consumption. Similarly, inbound logistics also only represents a small fraction of the time taken in the process. The transport to the factory is a necessary task that is done with the appropriate level of efficiency. The processing activities at the factory have proved to be extremely efficient. The conveyor-belt system takes the vegetables through each stage without interruption. The sequence from washing to packaging is an entirely automated process without any queuing of products waiting to be processed. The only activities that do not seem to add any value to the product are the weighing of the goods as they enter the factory and the transportation of the finished goods into the storage facility, which is located within the factory. The section of the supply chain that accounts for most of the waste is outbound logistics. Here, the process map shows that 71% of total supply chain waste can be traced back to outbound logistics. Firstly, order-picking and loading at the processing factory requires 30 minutes per load. Since each truck does not only transport frozen peas but a wide variety of other products as well, the pallets of frozen peas stand around until the truck is full. Secondly, Exel-TKL operates a single distribution centre that is responsible for deliveries to Merkur outlets all over Vienna and other parts of Austria. The only other distribution centre that Exel-TKL operates is in Salzburg, over 300 kilometres away from the capital. The distribution centre in Vienna is located in the 22nd , which is in the north-east of the city. Merkur has 30 outlet-stores across Vienna, some being in the city centre and on the opposite side of town. This explains the great amount of time taken to reach the regional distribution centre and the outlet stores. However, the transport from the RDC to the outlet store in the 10th

- 42 - district (south-east Vienna) is not considered to be a wasteful activity as the task of delivering the product to the customer is essential. It must be considered however, that trucks that deliver goods from the RDC to the retail outlets often have to travel through congested city roads and highways to reach the other side of the city. This has a significant impact on transportation-time and therefore supply chain efficiency. In addition, the process of loading the goods onto trucks at the RDC is delayed due to the commissioning of goods. This involves the confirmation that all the right goods are on the truck in the specified quantities. It also involves the planning of the route to be taken by the driver and the permission to depart once the delivery is ready. At the time of observation the commissioning of goods took 90 minutes however, sources at the supply chain management department of IGLO have indicated that this process can take several hours. This delay accounts for a very significant part of non-value adding activities in outbound logistics. The process of unloading the truck upon arrival is also a very slow-moving procedure, which requires 50 minutes. After observing this activity, it seems clear that the reason for this delay is the lack of staff involved in the process. Along with the driver, there is only one more staff member from the retail outlet that assists in the unloading process. This causes products that need to be stored in cooling-rooms to stand around and start defrosting. Therefore, the retail section of the supply chain process also contributes significantly to the amount of wasted time. Until the products are labelled and stored, 90 minutes have passed. This can also be traced back to a lack of staff to assist with the handling of goods and materials as they arrive from the RDC. At this point it is important to emphasise the fact that the storage of frozen peas at the factory as well as the RDC has not been included in the time-based process map due to the fact that the results would have distorted the overall result. After the peas have been frozen at the factory, most of them are placed into bulk storage halls. The peas are stored for 15 weeks on average, which is also a very significant source of supply chain waste because the goods are stagnant and generate costs at the same time. Similarly, Exel-TKL store frozen peas for as long as 3 weeks, depending on demand. During this time, holding costs are increasing while the peas are not generating any revenue. For a detailed breakdown of value-adding and non-value adding activities, see appendix I.

- 43 - Cost Translation Matrix The aim of the cost translation matrix is to convert the collected cost-data into a format that will allow the supply chain activities to be costed. As described in the SCTCM toolkit, one of the main tasks in this stage is the conversion of indirect costs. These are the costs that cannot be directly traced to an activity in the supply chain, which include: Overheads, communication, equipment maintenance and many others. However, the cost-data collected for the IGLO supply chain, which was prepared by the supply chain management department of IGLO, covers the direct as well as the indirect costs for each activity. For example, the processing stage at the factory was estimated to cost € 510 per tonne of peas. This includes the cost of water, electricity, light, labour, equipment maintenance and management. Similarly, the cost attributed to the inbound logistics activities, which amounts to € 13 per trip, includes the cost of fuel, the salary of the driver and the cost of vehicle maintenance. Therefore, it is fair to assume that the provided cost information includes direct as well as indirect costs associated with each activity. The following pie-chart illustrates the cost-breakdown for the processing activity at the factory.

Cost-Breakdown of Product Processing

Raw Materials Other, 5% Packaging, 10% (Peas), 25%

Water, 6% Labour, 36% Electricity, 18%

Figure 6.

The raw cost-data is in a format that does not allow for an accurate comparison between activities as some measures are given ‘per hour’ or ‘per load’. Therefore, it is important to convert all of the cost data into a suitable format, which is in this case,

- 44 - ‘per load’. Each load of peas amounts to approximately thee tonnes. The table below shows the cost of each activity in the IGLO supply chain for frozen peas, per load. However, it must be taken into account that the amount of peas transported to the Exel-TKL distribution centre is not 3 tonnes anymore because the products are transported to other distribution centres as well. Similarly, the amount of peas that goes to the retail outlet of Merkur is also significantly less. Activity Cost per Load Farming € 31.5 Inbound Logistics € 13 Processing € 1265.5 Outbound Logistics € 1100 Retail € 14

From the cost table it has become visible that the main costs in the supply chain process can be traced to processing and outbound logistics. Farming, inbound logistics and retail costs are minimal. In order to examine the reasons for the high costs for processing and outbound logistics, it is important to analyse the breakdown of these two activities (see appendix I). An in-depth analysis of the cost figures will follow in the evaluation of the collected data.

Cost-Time Analysis The aim of the cost-time analysis is to explore the relationship between these two factors of the supply chain process. Both time and cost are essential elements to determine the efficiency of supply chain operations. The most effective method of identifying the relationship between cost and time is through graphical illustrations. The Cost/Time Profile is a graph that compares cumulative time against cumulative cost for the supply chain process. This graphical representation is designed to highlight areas of opportunity for time and cost saving. The following table displays the cumulative cost and time in percentages.

- 45 - Activity Farming Inbound Processing Outbound Retail Logistics Logistics Cumulative Cost 1.3 1.8 54 99.4 100 (%) Cumulative Time 4.4 8.4 16.9 86.9 100 (%)

Figure 7.

The cost-time profile highlights the areas of the supply chain that consume high proportions of time and cost. The graph indicates that farming and inbound logistics are not the main areas to focus on. The steep section that connects inbound logistics and processing suggests that processing activities at the factory are accountable for a major part of overall costs. In terms of time, the operations at the factory seem very efficient, which is clearly illustrated by the minor horizontal shift on the graph. The cost-time profile confirms that outbound logistics is the main area of concern. This stage of the supply chain consumes the largest amount of time and also a very significant part of the overall cost. The separation of the graph-line indicates where inventory is held in the supply chain. The processing factory and the RDC store peas for and average period of 15 weeks and 10 days respectively. In order to prevent these figures from distorting the graph, storage activities are indicated by the separation of the graph-line. Although operations at the retailer do not generate high costs compared to the previous stages, the graph does indicate that retail activities are

- 46 - lengthy in terms of time, which suggests that this is also an area that needs to be addressed. The following graph maps the cost-time profile shown above, against a similar curve that excludes non-value added time. The aim of this diagram is to illustrate the impact that a supply chain improvement would have on the efficiency of the process.

Activity Farming Inbound Processing Outbound Retail Logistics Logistics Cumulative Cost 1.3 1.8 54 99.4 100 (%) Cumulative Time 4.4 8.4 16.9 86.9 100 (%) Cumulative Value- 4.3 11.5 26.7 95.7 100 Added Time (%)

Figure 8.

The cost-time profile above maps the cumulative cost (%) against the cumulative time (%) of value adding activities only. The general shape of the line is very similar to the original graph. This shows that, although the process-time for each activity is significantly less without the non-value adding activities, the proportions of total supply chain time will remain similar. The graph shows that the gap between outbound logistics and retail has decreased significantly compared to the original graph. This suggests that the time for retail operations can be reduced by eliminating or reducing non-value added time. Outbound logistics will still be the section of the

- 47 - supply chain that will carry the most substantial amounts of time and cost. As with the original cost-time profile, inventory storage time is illustrated by the separation of the graph-line.

Quality Control The analysis illustrates the supply chain waste that exists in the form of time and cost. However, supply chain waste is also produced in other forms such as defective products that require rework or disposal. IGLO has a very strict quality control system. As soon as a load of peas is delivered to the factory, their conformance to specification is determined. The vegetables are then thoroughly washed to remove any unwanted dirt that may be present from the harvest. Following the shower, the peas are inspected using a laser-guided selection machine, which removes any unwanted objects as well as peas that do not have the correct shade of green. The unwanted substances are removed using powerful blows of air. Once the peas have been packaged, an inferred mechanism inspects the condition of the packages and only after the ‘all clear’ is given are the finished goods allowed to proceed. As with many other automated processing mechanisms, errors and defects occur. IGLO keeps track of their defect-rate by keeping a record of complaints they receive, mainly from consumers through retailers. Some of the main errors that occur include: unwanted animals that have not been removed, failure to meet weight specifications and the defrosting of frozen peas before they reach the consumer. The following table illustrates the defects recorded by IGLO since January 2003.

Defect Type Number of Complaints Defrosting 16 Processing Errors 3 Non-Conformance to Weight 2 Specification Packaging Defects 1 Insects and other animals 8 Dirt 5 Stones 2 Others 2 Total 39

The table above shows that IGLO have not suffered an overwhelming amount of complaints as a result of defects since January 2003. However, it can be assumed that

- 48 - only a fraction of consumers who have encountered at defective packet of IGLO peas actually made the effort to file a complaint. Complaints by consumers are usually made to the retailer who then passes on the information to IGLO. Processing errors occur when peas are not washed with hot water and then cooled off with cold water for example. The table above also indicates that packets of peas sometimes contain animals, dirt and stones. The types of animals that have been reported are mainly snails and caterpillars. Packaging defects are commonly related to incorrect labelling and Bar-coding. The pie chart below shows the breakdown of defects that have been recorded for frozen peas.

Breakdown of Defects for IGLO Frozen Peas

5% 5% 13% 40%

21% 3% 5% 8% Defrosting Processing Errors Non-Conformance to Weight Specification Packaging Defects Insects and other animals Dirt Stones

The pie chart clearly indicates that the defrosting of frozen peas seems to be the most influential type of defect in the supply chain, accounting for 40% of total defects. Defrosting occurs when the frozen goods are transported, stored or handled for more than 20 minutes outside freezing temperatures. When the peas have defrosted and are then refrozen, the outcome is a block of frozen peas that does not qualify for the strict quality standards of IGLO frozen foods. The impact that this supply chain error has on the physical product is illustrated below.

- 49 - When IGLO’s frozen peas are in the condition shown above, they are no longer suitable for sale to the end-user. This means that retailers have to dispose of the defective products, which results in excessive transportation, labour costs and lost sales. Although IGLO was unable to quantify the exact extent of the damage cause by this problem, it can be certainly related to gaps in the supply chain between the departure from the processing factory and the arrival on the shelves at the retailer. The supply chain management department of IGLO describes the defrosting of frozen

- 50 - goods in the supply chain as ‘strictly forbidden’, however they are aware that this problem exists and needs to be tackled in order to minimise the damage in terms of lost sales and customer satisfaction.

Demand Uncertainty Although exact figures were not available, the supply chain management team of IGLO confirmed that they do order a certain amount of safety stock to accommodate for variability in demand. Since frozen peas have an expiry period beyond two years, they are able to keep stocks in the storage facility at the processing factory. IGLO make annual demand forecasts, which do not seem to be shared with retailers, who have their own forecasting techniques using customer loyalty cards that record the items purchased by regular customers. However, since this form of forecasting is extremely inaccurate because only a fraction of customers own such a loyalty card, it can be assumed that retailers such as Merkur, keep safety stock as well. Demand forecasts and long lead times are a common cause for the keeping of safety stocks (Simchi-Levi et al, 2003). This has an impact on inventory holding costs as higher volumes are stored and transportation costs as higher volumes need to be moved. A demand amplification effect could be illustrated with the appropriate data regarding orders made by retailers and IGLO as well as demand forecasts made by the individual organisations. However, from the information gathered it can be assumed that a demand amplification effect does exist in the IGLO supply chain for frozen peas although it cannot be quantified. Demand amplification (also known as the Bullwhip effect) is a common source of waste found in supply chains due to the excess storage of goods and the excess transportation of products.

- 51 - Evaluation of Scenarios for Improvement The data analysis has highlighted the main areas of the IGLO supply chain for frozen peas, in which waste occurs. The following evaluation of the data analysis will summarise the main sources of waste that were identified in each stage of the process and what impact this has on the supply chain and on consumers. After the main areas for improvement have been identified, it is important to suggest possible solutions that could improve the supply chain process. The recommendations are designed to address the root causes of the identified waste and enable significant time and cost savings in supply chain operations.

Outcome of the Investigation In the process of identifying areas of opportunity for improvement it is important to give certain activities priority. The focus of improvement should be placed on areas that account for a significant part of supply chain waste and cost. Also, it is important to focus on processes that are essential to the operations of a supply chain and have the greatest impact on the system. Although there were several activities in the farming stage of the process that were classified as non-value adding such as the numerous loading and reloading of peas onto tractors and trucks, the time spent on these activities was only a very small fraction of total process time. The entire farming process accounts for approximately 4.4% of total time. Therefore, farming is not considered to be an area of high priority since it is not a major contributor to supply chain waste. Similarly, inbound logistics also does not produce a significant amount of waste in terms of time and cost. This part of the supply chain requires approximately 4% of total time and therefore does not belong to the key areas that need to be addressed. Processing on the other hand requires significantly more time than the previous stages and is also the leading section of the supply chain in terms of cost. The time-based process map shows that although the operations at the factory require more time than the preceding stages, most of the activities add value to the product and to the consumer. In fact, more than 66% of processing-time at the factory was considered productive and value-adding time. This can be attributed to the automated conveyor- belt production system, which handles and processes the peas in a continuous sequence without interruptions or delays. However, inventory held at the factory is a

- 52 - major source of waste in the processing stage. Supply chain management at IGLO confirmed that stocks of peas are stored for 15 weeks on average before they are transported to the regional distribution centres. The cost of storing peas at the factory was estimated to be € 200 per tonne. This amounts to approximately 24.8% of overall supply chain costs. This is an issue that needs to be addressed in order to improve process-efficiency. Other costs related to processing such as labour, electricity, water and packaging also provide a major contribution to overall costs with approximately 27.5%. However, these costs cannot be reduced significantly as they are largely fixed rates and depend on the amount of resources consumed by the factory. It has also been identified that the processing factory itself operates highly efficiently indeed. From the data analysis, it seems fair to say that outbound logistics is the major problem area of this supply chain. The time-based process map indicates that over 57% of outbound logistics activities do not add any value to the product or to the consumer in terms of service. Firstly, the regional distribution centre (RDC) at the Exel-TKL facility, holds stocks for 10 days before they are delivered to outlet retailers. The time for storing frozen peas can amount to 3 weeks, depending on demand. It costs approximately € 200 to store a tonne of frozen peas in the refrigerated warehouse. This amounts to 24.8% of total supply chain costs. In addition, it takes 120 minutes to load a truck at the RDC, heading for a retail outlet. This is process alone makes up 15% of total supply chain time and can be traced to lengthy managerial procedures such as the commissioning of goods prior to departure. Although the transport from the RDC to the retail outlet was classified as value- adding, the fact that Exel-TKL only has a single distribution centre makes the delivery to retailers across town very lengthy. The traffic network of Vienna can be considered very advanced and convenient for large transportation vehicles however, the RDC is not centrally located, which makes the planning of a delivery route very complex and inefficient. Once the goods have arrived at the retail outlet, it takes approximately 50 minutes until the peas have been unloaded from the vehicle. This is because the trucks also deliver a wide variety of other products at the same time and because there seems to be a lack of personnel on the ground to assist with this process. When passing through the aisles of the Merkur supermarket, it seems to be very difficult to find a member of staff to assist with an enquiry. The employees struggle to keep up with customer service because they are occupied with filling shelves or disposing empty boxes. The impression that one gets when observing the operations of the supermarket

- 53 - is that there is a clear lack of staff to assist customers and to undertake material- handling tasks. This also has an impact on the time it takes for a delivery truck to be unloaded and therefore the amount of time that frozen IGLO peas stand around. Frozen peas stand around for approximately 90 minutes before they are stored correctly. The outcome of a home-made experiment proved that a box of IGLO peas, containing 150g, starts to defrost after 15 minutes of standing around at room temperature. The entire content is completely defrosted after 30 minutes. After inspecting 10 random 150g boxes of IGLO peas at the retailer, it has become apparent that the contents of each of the boxes has been defrosted to a certain extent during the supply chain process and then re-frozen. The peas were all frozen into one solid block, which is an indication, according to IGLO sources, that defrosting has taken place. After the peas have been ‘shock-frozen’ at the processing factory, they should remain in their individual state and not connect with each other, until they reach the consumer.

Supply Chain Waste at Strategic Level The sources of waste that have become apparent in this investigation have all been linked to inefficiencies at the operational level. However, after several interviews with managers involved in the supply chain process of IGLO peas, the root of the problem seems to stretch beyond the operational level. One gets the impression that the supply chain does not function as a single entity but more like a collection of individual organisations. Very little effort seems to be made by any member of the supply chain to improve logistical processes and reduce overall costs. For example, the relationship between IGLO and Frenzel, who operate the processing factory, can be described as a purely transactional one. The main focus of their relationship seems to be the price of peas and the price of storage. It seems to be in IGLO’s interest to drive the purchasing-price for peas down in order to become more competitive against supermarket’s ‘own brand’ peas and many other low-cost brands. This is having a negative impact on Frenzel, who are experiencing regular cuts in their profit margins, making them unable to invest in process improvements. In fact, Frenzel, formerly known as Austria Frost, appears to be far from being able to work on improving supply chain processes. As a news article in the Austrian state media network ORF published in 2005, Frenzel has accumulated € 26 million in debt. The existence of the company is at stake, as well as more than 600 jobs related to the production and supply of vegetables in the Marchfeld region.

- 54 - The relationship between IGLO and Frenzel is one that is not characterised by trust since Frenzel also processes peas for direct competitors of IGLO. Unilever has a history of broken relationships with supply chain partners due to collaborations with direct competitors. Trust is a key element to ensure a successful partnership or collaboration between two organisations. A common cause for the failure of strategic alliances and collaborative relationships is due to a lack of understanding of trust issues. Similarly, the relationship between IGLO and the other main players in the supply chain such as EXel-TKL and the supermarket retailer Merkur can also be described as purely transactional. In Austria, Exel is the leading provider of logistics services for manufacturers and retailers of frozen foods (Exel 2006). Therefore, Exel- TKL has several other customers to focus on, among them the main competitors of IGLO. Transactional relationships between supply chain members raise concerns that may affect the efficiency of operations and processes. Firstly, suppliers tend to provide the minimum service required, as stated by contract. There seems to be no incentive to pursue a philosophy of continuous improvement beyond organisational boundaries. As a result, quality of products and services will only be as good as required. Parties in this kind of relationship have little desire to make the extra effort for the benefit of the overall system. Due to the lack of communication and the absence of information- sharing there is great potential for communication difficulties and misunderstandings between the organisations involved. Such characteristics tend to result in delivery problems, dissatisfied customers and other operational inefficiencies, which can be classified as supply chain waste. Strong relationships within a supply chain are or immense importance. A really efficient value chain cannot be created without the full cooperation of all partners (Taylor, 2006).

Recommendations for Improvement In order to address the elements of waste in the supply chain identified in this investigation, it is important to recognise that the source of waste lies at both operational and strategic level. The analysis undertaken using the SCTCM toolkit highlighted the main source of waste in the IGLO supply chain at the operational level. However, after gaining an overview of the entire supply chain and observing the relationships that the individual members had with each other, it has become

- 55 - seemingly clear that the lack of collaboration and teamwork also plays a major role in the existence of supply chain waste. As previously mentioned, the goal of creating an efficient value chain can only be achieved through a close working relationship between the individual organisations. “In today’s market place it is increasingly recognised that supply chains compete rather than individual companies. The strategic focus of an integrated lean supply chain is for the whole chain to out-perform the competition and thereby increase market share and profits for all members of the chain. Companies work together to try to reduce overall costs rather than by trying to increase their own profits by squeezing their supply chain partners” (Taylor, 2006). However, the supply chain for IGLO’s frozen peas seems more fragmented then integrated. Therefore, the first suggestion for improvement must be the integration of supply chain activities and the development of strong long-term relationships between suppliers, buyers, logistics providers and retailers. Once the supply chain is functioning as a single entity, then the supply chain partners can focus on improving operational aspects of the process together.

Supply Chain Integration Taylor (2006) defines integrated supply chain management as “a set of approaches utilised to efficiently integrate suppliers, manufacturers, warehouses and retailers in order to minimise system wide costs while satisfying service level requirements” (Adapted from Simchi-Levi et al., 2000). One of the main pre-requisites of an integrated supply chain is long-term commitment. “Establishment of a dedicated value stream with commitment of supply chain partners to work together over an indefinite period is a necessary pre-requisite to significant supply chain improvement as it establishes a basis from which other lean improvement strategies could be adopted” (Taylor, 2006). In order to create and maintain a successful partnership in the long-run, trust is a vital element. In order to tackle supply chain problems as a single entity, IGLO and its partners must work on developing and strengthening their institutional trust for one another. There are several ways in which trust can be developed and managed. Firstly, the sharing of information such as open-book accounting and mutual problem-solving can bring organisations closer together. “Sharing information (about sales, sales forecasts and stocks) and joint planning and development of logistics processes continue to play a key role in the integration process. This implies that there is the need to move from an arm’s length type of

- 56 - relationship to more of a partnership approach, in which trust and information sharing are vital” (Gimenez, 2006). Gimenez (2006) also emphasizes that managers have the responsibility to take action to promote this sharing of information and joint planning. A useful method of promoting the sharing of information and therefore trust-building is the establishment of a cross-functional work-team. This team should be led by a senior level representative from each of the companies along the chain (Taylor, 2006). The functions of this team should be aimed at the improvement of key supply chain processes. This would give IGLO, Frenzel and Exel-TKL a better opportunity to improve their storage and transport mechanisms. Similarly, Exel-TKL would be able to establish a more efficient method of delivery and material handling with Merkur at the retail end of the supply chain. However, the operations of the cross-functional team must not be impeded by the reluctance of companies to implement organisational and operational changes. “The team must be give the time, responsibility and critically, the authority to make changes that will inevitably challenge many existing organisational and operational norms” (Taylor, 2006). It is also important that the team undergoes regular training in order to continually improve the coordination of activities between the team members. The team should also raise awareness of the importance of supply chain integration. “There is the need to train people on the benefits that integration can bring. Change management and people training play a key role in the integration process, as they are crucial to minimise the barriers to implementing supply chain management” (Gimenez, 2006). Another important feature of supply chain integration is the development of a joint understanding of end-user requirements so that all players in the chain can work towards providing customer value (Taylor, 2006). Exel-TKL and the retailer Merkur, must be aware of the quality issues that arise when the peas start to defrost during the delivery and storage processes. The impact that this has on product quality and therefore customer satisfaction does not only affect IGLO but also all the other companies involved in the supply chain. It is therefore in the interest of every organisation in the supply chain to ensure that the product arrives at the consumer in best possible condition. It is often the case that individual companies have key performance indicators that assess the progress and effectiveness of operations. However, in order to pursue the development of an integrated supply chain, IGLO could develop key performance

- 57 - indicators that measure the performance of the entire supply chain. For example, instead of limiting quality checks to incoming deliveries of peas to the factory, random inspections could be undertaken at the retailer before the products are displayed on the shelves. This way, IGLO can be assured that the products that reach the end-users are of a respectable standard. Performance indicators can also be implemented in other areas of the supply chain such as overall storage time, overall lead time and general customer satisfaction. This would result in increased determination to reach mutual performance levels by each player in the supply chain. As previously mentioned, the relationships between the members of the supply chain can be described as transactional mainly because the focus seems to be entirely on the negotiation of prices along the chain. Taylor (2006) describes this as a “trading strategy” in which organisations continually try to attain the best short-term position for their company in response to prevailing market prices often at the expense of other member of the chain. It is therefore essential to focus on long-term profitability rather than short-term success. IGLO and its partners need to establish long-term relationships where all companies involved have a reasonable share of profits. Taylor (2006) argues that profitability is best achieved through lowering overall costs, improved quality and better service, which subsequently leads to an increase in market share. These goals can only be achieve through long-term commitment and collaboration of all supply chain partners. Another important factor in the pursuit of an integrated supply chain is the commitment of senior management. Managers at top-level of organisations need to promote the collaboration between companies and emphasize the importance of strong relations with other partners. Senior managers can also contribute to the strengthening of supply chain partnerships by establishing clear commercial agreements and commitments. These include agreements as to price/cost policies and mechanisms to deal with market price changes during the course of the contract (Taylor, 2006). In order to develop trust between partners it is also important to agree on the sharing of benefits that result from supply chain improvements. This is particularly important as weaker players frequently fear that gains that are achieved as a result of lean improvements, will sooner or later be taken by the more powerful players (Taylor, 2006). Overall, the integration of supply chain activities has great potential benefits in terms of efficiency improvements that the elimination of waste. The supply chain of IGLO’s

- 58 - frozen peas was identified as fragmented with mainly transactional relationships. Therefore, more intense collaboration and trust-building could significantly improve supply chain processes and tackle the source of waste identified in the investigation. Collaboration between supply chain partners and the integration of supply chain activities are the building-blocks for mutual improvements at the operational level. The following section describes how IGLO and its partners could overcome the sources of waste identified in this investigation.

Operational Recommendations for Improvement Delivery Lead Time The analysis of the investigation found that the time taken to transport goods from the RDC to the retail outlet is excessive. This was traced to the fact that Exel-TKL centralises inventory in one distribution centre, which means that frozen peas have to travel long distances to reach their final destination. IGLO has several options to tackle this problem. Firstly, a direct shipping mechanism could be introduced where frozen peas are not stored in regional distribution centres but transported directly to the retailer. This would avoid the holding of inventory at the RDC and reduce the loading and unloading activities, which have also proved to be a significant form of waste. In addition, deliveries would contain IGLO products only, which means that frozen peas do not have to wait around for other products to be handled. Also, IGLO would only need trucks with a smaller capacity since they only transport their own goods and they can arrange more frequent deliveries. Another way of overcoming the excessive distance travelled by delivery-trucks is by moving closer to the retailer through the acquirement of more warehouses. This would require Exel-TKL to move away from their centralised inventory strategy and either build or rent more storage facilities close to other retailers. This could significantly improve their responsiveness to changes in demand and therefore customer satisfaction.

Cross-Docking The study of the supply chain for IGLO’s frozen peas revealed that stocks of finished goods are held at the processing factory and at the RDC for and average period of 15 weeks and 10 days respectively. This was also found to be a major source of waste in

- 59 - the supply chain as costs are generated without revenue. Since peas are an agricultural product that is grown seasonally and must be harvested all at once, the holding of inventory in the supply chain is hardly avoidable. However, it is not necessary to store the frozen goods at several locations for long periods of time in the supply chain. Therefore, it is one possibility to store frozen peas in bulk at the processing factory only. In order to avoid the storing of finished goods at the RDC, Exel-TKL could implement a cross-docking system, which allows goods to be sorted and despatched without going into storage. “Cross-docking is a logistics technique that eliminates the storage and order-picking functions of a warehouse while still allowing it to serve its receiving and shipping functions. The idea is to transfer shipments directly from incoming to outgoing trailers without storage in between” (Gue, 2001). The following diagram illustrates the basic mechanism of a cross-docking warehouse.

The above diagram shows that as pallets arrive at the cross-dock they are sent to a station where they are sorted into the correct order and immediately transferred to the shipping dock where the outbound trucks are ready to load the goods. Cross-docking, when properly executed, enables firms to eliminate inventory costs and transportation costs, often at the same time (Gue, 2001). Shipments typically spend less than 24 hours in a cross-dock, sometimes less than an hour (Gue, 2001). However, in order for cross-docking to be effective, there must be extensive communication and

- 60 - coordination between IGLO, Exel-TKL and Merkur. There must be good knowledge of demand and also all parties should be aware of the volume to be transported, the time of shipment and the final destination of each shipment. This information is important to ensure that workers at the cross-dock are prepared for an incoming delivery and that the outbound vehicles are ready to load and depart. There are several examples that illustrate how cross-docking is used to reduce logistics costs and time. Costco is a wholesale operator that puts cross-docking at the centre of its strategy (Gue, 2001). Through cross-docking, Costco is able to save labour costs because pallets do not have to be broken down as they are displayed as whole pallets in the retail outlet. Examples of other organisations that use cross-docking include: Home Depot, Wal-Mart and FedEx Freight (Gue, 2001).

Radio Frequency Identification The time taken to commission the goods before they are loaded onto outbound trucks at the distribution centre was another source of waste as the products were stationary for 90 minutes without the addition of value. Logistics technology such as Radio Frequency Identification (RFID) can be used to ensure that the correct items are loaded onto the right truck. This requires the attachment of RFID tags onto pallets, which can identify relevant information wirelessly. RFID would also support the operations of the cross-dock as it enables the location of shipments. RFID technology would significantly speed up the process of commissioning the contents of a truck as multiple tags can be read and updated simultaneously, which is not possible with the current bar-coding system (Wyld, 2006). Also, RFID tags can identify a specific item whereas bar-codes can only identify the type of item (Wyld, 2006). RFID technology can also eliminate the factor of human error as the tracking of shipments is done automatically rather than manually. This way, logistics managers at Exel-TKL can check the contents of each vehicle, perform an electronic comparison with the delivery list and give way for the truck to depart, using much less time and effort. Another problem that was identified in the investigation was that it took too long for the frozen goods to be unloaded and stored at the retailer. Observation of this activity suggested that there is a lack of staff to assist workers with this task. The result was that frozen products were stationary outside freezing temperatures for more than 90 minutes. The first suggestion to tackle this problem would be to hire more staff in order to speed up the storage and labelling process. In order to minimise costs,

- 61 - retailers could hire part-time employees to specifically assist with material handling activities. RFID technology would also be useful in this situation because retailers would have precise information on the arrival of particular shipments. An alternative solution could be to implement a more efficient docking system where trucks can unload their goods and immediately move them into the cold-storage room via a conveyor belt. This would limit the time that frozen goods remain outside freezing temperature. The labelling of packets can then be undertaken inside the cold- store.

Demand Amplification Finally, the demand amplification effect, although not quantifiable through this investigation, was also identified as a source of supply chain waste due to excessive storage and transportation costs. There are several methods that can be used to minimise the need for safety stocks. Firstly, the reduction of lead times is an important aspect that can be achieved through the previously mentioned solutions such as cross-docking and RFID technology. However, IGLO could order peas according to their annual forecasts. If stocks threaten to run out due to unexpectedly high demand levels, then IGLO could source the remaining stock from abroad. This would allow IGLO to be flexible in terms of adjusting to demand variations. This solution would reduce the need to keep large amounts of safety stock and would therefore save transport and storage costs.

Evaluation of Recommendations The previous section explored some of the possible solutions that could be implemented to tackle the supply chain waste identified in the investigation. However, these recommendations have implications for the organisations in the supply chain. This section will evaluate the recommended improvements and examine what impact these may have on members of the supply chain.

Implications of Supply Chain Integration Supply chain integration and collaboration amongst organisations was identified as they key factor for supply chain improvement. However, close collaboration in the form of information sharing and cross-functional teamwork will require significant

- 62 - investments of time and money. Trust is the key element to successful supply chain relationships however the building of trust is a long-term process and will require a lot of time spent on interactions between the individual companies. Also, resources must be invested into communication systems that are compatible with every organisation in the supply chain in order to enable and promote the sharing of information and general communication. In addition, managers of each player in the supply chain have to undergo training in order to become more familiar with the development and management of institutional relationships. Managers must be able to develop key performance indicators as well as clear agreements and commitments together with other supply chain managers. On the whole, investment into the integration of the supply chain and the promotion of stronger collaboration between supply chain partners is absolutely necessary and can only improve operations on the ground. Studies conducted by Taylor (2006) and Gimenez (2006) highlight the importance of supply chain integration, especially for logistics operations. Therefore, it is an essential step that IGLO and its supply chain partners have to take in order to develop the grounds for operational improvements.

Implications of Outbound Delivery Strategies One of the fundamental problems that causes delays in the delivery of goods to the retailer is the centralised inventory policy of Exel-TKL. If ILGO were to implement a direct shipping mechanism where they would deliver their products directly to the retailer, they would be able to reduce lead times, avoid holding costs at the RDC and operate smaller trucks with more frequent deliveries. The reduction in lead times would also mean that IGLO could reduce the amount of safety stock in order to accommodate for demand variability. However, IGLO would need to reach an agreement with Exel-TKL to arrange transport from the processing factory to the retailer. This would require Exel-TKL to do some restructuring since they would not be going through the distribution centre. If an agreement with Exel-TKL cannot be reached, then IGLO can take the outbound logistics operations into their own hands and create their own fleet of delivery vehicles. Although this implies that IGLO’s distribution activities are independent and significant benefits can be gained in terms of reduced lead time and Just-In-Time deliveries, IGLO would not be focussing on their core competences such as marketing. Therefore, it would be more advisable to find a solution together with their logistics provider Exel-TKL. Such a solution may

- 63 - be the acquirement of additional warehouses in order to move closer to the retailers. However, moving away from a centralised inventory strategy has certain implications. Firstly, inbound logistics will become more expensive due to the fact that goods have to be delivered to more warehouses. However, on the contrary, outbound logistics operations will become less expensive due to the close proximity to the target market. Safety stock will increase because each warehouse has to keep a certain level of reserves whereas a centralised inventory strategy enables safety stock to be held in one location. In addition, operating more warehouses will cause overhead costs to increase as well. However, the fact that service levels will increase and lead times decrease makes the idea of moving closer to the target market seem more beneficial. The aim of this shift is to reduce lead times and therefore reduce the amount of time spent on transportation, loading and unloading, which lead to quality issues of frozen goods.

Implications of Cross-Docking In response to excess inventory stored at several locations along the supply chain, a cross-docking mechanism was suggested that would allow the goods to be sorted and shipped without going into storage. However, cross-docking requires an effective method of knowledge dissemination amongst supply chain partners. Managers at the cross-dock have to know where a delivery is heading before it comes into the warehouse. Also, staff must be aware of time and volume of incoming deliveries in order to prepare the handling of the goods and the outbound transportation. Cross- docking also has its disadvantages with regard to demand uncertainty. “If demand is uncertain, cross-docking is difficult because matching supply and demand is difficult. In addition, demand for the product must be sufficient to warrant frequent shipments. If demand is too low, frequent shipments lead to excessive inbound transportation costs, and the warehouse would be better off holding stock rather than cross-docking” (Gue, 2001). Due to the fact that cross-docking requires a good knowledge of shipment-information, the collaboration and integration of supply chain activities plays an important role. “From a management perspective, cross- docking is a complex enterprise, involving extensive coordination between the distributor and its suppliers and customers” (Gue, 2001). Therefore, IGLO and its partners must ensure that there is sufficient communication amongst them, in order to implement an effective cross-docking system. Another factor that IGLO needs to

- 64 - consider is that the cross-docking warehouses need to be cooled in order to prevent the defrosting of goods as they are being handled in the warehouse. This may prove to be a significant obstacle because regular warehouses have cooling-halls where goods are stationary. Since goods in a cross-docking warehouse move around, it may prove to be difficult to provide suitable conditions throughout the entire warehouse. However, on the whole, a cross-docking strategy seems a reasonable solution that would prevent the storage of finished goods at RDCs and therefore reduce overall inventory holding costs in the supply chain. If IGLO and its partners manage to strengthen their relationships and integrate their activities, then a cross-docking mechanism can be implemented, which would improve supply chain responsiveness, reduce lead times and therefore influence customer satisfaction in a positive way.

Implications of Radio Frequency Identification In order to reduce the time taken to commission the goods before they are allowed to depart and head for the retailer, the introduction of Radio Frequency Identification technology was suggested, which would complete the tasks more efficiently due to the superior technology. The implementation of RFID is an important step, not only to make loading and transporting activities more efficient but also to stay updated with the latest logistics technology. Wyld (2006) describes RFID as a technology that will change business and society as much as cell phones and the Internet have. RFID technology has not fully developed yet, which is why it is important for IGLO to adopt this system early in order to maintain their competitive advantage and technological superiority.

Implications of Improving Retail Operations The quality problems that result from a lengthy storage process at the retailer could be tackled by hiring more staff or through the implementation of a more efficient docking station. Although the hiring of more staff to assist in the unloading, labelling and storage process would result in an increase of labour costs, it seems to be the more reasonable solution. Building better docking stations that would lead deliveries straight into a cooling room would require extensive construction work at every retail outlet, which may generate incredibly high costs. Therefore, the more appropriate solution would be to hire part-time workers to assist in the material-handling process when deliveries of frozen products arrive at the retail outlet. This would speed up the

- 65 - storage process and prevent the frozen products from being damaged by standing around in non-freezing temperatures.

Implications of Strategies to Reduce Safety Stock The final problem identified in the investigation is the holding of safety stock, which leads to excessive storage and transportation costs. As suggested, IGLO could order the exact amount that they predict to sell. If demand exceeds the forecast then IGLO could source the remaining peas from abroad. However, the sourcing from abroad bares several risks that IGLO must take into account. Firstly, sourcing products from abroad results in longer lead times and higher transportation costs. In addition, IGLO would have more suppliers to deal with, which increases the complexity of operations. Most important of all, IGLO would have to develop a new marketing strategy since they currently present their peas as quality produce from the famous Marchfeld region of Austria. This solution may reduce the amount of safety stock held however, before implementing this strategy IGLO must thoroughly evaluate the costs and benefits of such move. If IGLO decides not to source the shortage of peas from abroad and therefore keep sufficient safety stocks, then IGLO can focus on reducing these safety stocks by shortening lead times and reducing variability and uncertainty in demand.

- 66 - Conclusion Summary of the Investigation and Findings On the whole, the aim of this project was to explore techniques which enable the identification of waste in supply chains. These techniques were then applied to the supply chain of Unilever’s brand IGLO, who are the leading supplier of frozen foods to the Austrian market. In preparation for the investigation, the literature review explored some of the main issues that have emerged in the frozen food sector over recent years. One of the most significant problems is related to logistics operations and involves the defrosting and refreezing of foods in the supply chain process. When this occurs, the quality of products deteriorates in many cases, beyond the point of suitability for consumption. This has resulted in health issues and frozen food companies have suffered significant damage to their reputation. Therefore, the efficiency of logistics processes in the supply of frozen foods is of immense importance. It is therefore fair to state that the existence of a frozen food company greatly depends on the ability to maintain a closed-loop frozen food supply chain. The literature review has also highlighted the rapid growth of the frozen food sector. Due to modern-day lifestyles where people rarely find the time to stand in the kitchen and cook for hours, frozen foods have offered a convenient solution without the sacrifice of vital nutrients and vitamins found in fresh foods. On the contrary, organisations such as the British Frozen Food Federation have emphasized that vegetables that are ‘shock-frozen’ often contain more nutrients than fresh foods that have been in the supply chain for several days. With regard to supply chain improvements, the literature review introduced the topic of lean operations and identified the origins of the lean philosophy. This philosophy, which has grown considerably in popularity over recent decades, revolves around the identification and elimination of common supply chain inefficiencies such as defects excess motion, transportation, production, processing, inventory and non-value adding time. The ‘Toyota Toolbox’ highlights some of the fundamental principles that help prevent these sources of supply chain waste from occurring. The principles of lean thinking have undergone a development process that started in the 1980’s and is still ongoing today. At first, western companies were sceptical of lean thinking however the philosophy started spreading across the world and is now recognised and accepted by companies world wide. Although ‘lean thinking’ has become regular practice in

- 67 - many modern organisations, the concept has faced a certain degree of criticism from academics and other bodies involved in this field, labelling it as de-humanising and exploitive. However, there have been numerous success stories in which companies have applied lean principles and made enormous savings in time and cost. One of the most famous examples is the case of Boeing’s manufacturing operations. Through the adoption of a lean culture and lean manufacturing processes, Boeing was able to reduce inventory, manufacturing time, assembly time and floor space by substantial amounts. In order to identify waste in a supply chain, several tools and techniques were explored. The main method identified to detect inefficiencies in supply chain operations is Value Stream Mapping. This tool studies the flow and sequence of activities in a process and highlights areas with potential for improvement. The literature review provided an insight into the application of VSM tools in supply chains in the food sector. The focus was on the study of the UK supply chain for fresh pork products. The study shows that the food sector has not experienced many investigations of this sort. Value Stream Mapping has been applied mainly in the automotive sector and other manufacturing industries. Therefore, the report on the UK pork sector was an insight of great importance in preparation for the investigation of the supply chain for IGLO frozen foods. The report by Taylor (2005) revealed that the sources of supply chain waste are not always at the operational level but at the strategic level as well. This finding broadened the perspective of waste identification in the IGLO supply chain. In addition, the study of the UK pork supply chain highlighted some of the problems that are unique to the food sector regarding supply chain operations. For example, the production of agricultural goods cannot be controlled by a switch on a machine and therefore adjustments cannot be made during production. Also, agricultural products often need to be harvested (or slaughtered in the case of pork) all at once when the timing is right. This puts inventory strategies in a completely different situation compared to manufacturing operations. The core of this project is the investigation into the supply chain for IGLO frozen foods. The Investigation focussed on the production and flow of peas along the supply chain from the farmer to the retailer. The time-based process mapping activity revealed that supply chain waste exists in several areas but not in all. The farming process, which includes harvesting and some transportation of raw peas, proved to be relatively efficient with only minor amounts of non-value added time. Similarly,

- 68 - inbound logistics operations also proved to be fast and effective. However, the investigation revealed that large amounts of finished goods were stored at the processing factory for an average period of 15 weeks. Although processing activities themselves are highly efficient due to a sophisticated conveyor belt system, holding inventory of such high volume and for such a long period of time generates very high costs without any revenue in return. The investigation also identified the outbound logistics operation to be the main problem area of the supply chain. The logistics provider Exel-TKL also stores large volumes of frozen peas at their distribution centre for an average period of 10 days. Holding inventory high volumes of inventory at two locations does not add any value to the product or the customer and on the contrary, it only generates costs. Also, it became apparent that the loading and unloading of delivery trucks at the distribution centre is highly inefficient due to the fact that the frozen goods stand around for approximately 120 minutes while managers commission the deliveries in order to allow the transportation process to proceed. This is particularly damaging to the products as they start to defrost very quickly. The investigation also raised the question of the centralised inventory policy that Exel- TKL operates with. Some retailers such as Merkur are located on the other side of Vienna and transportation routes across town are lengthy and often congested. Direct observations of the delivery process at the retailer have indicated that the capabilities of retail-staff are stretched to the point where products stand around in the open for approximately 50 minutes. Again, this is very damaging to frozen food products and can result in a loss of sales and damage to the reputation of the brand name. Upon inspection at the retailer, suspicions of damaged goods through defrosting and refreezing were confirmed. Out of a sample of 10 packets, the entire sample failed to produce a packet of peas that was not frozen into a solid block. This quality issue can be directly related to inefficiencies in the logistics operations of the supply chain. IGLO keeps a record of complaints received by consumers through the retailer. The data analysis shows that the problem of defrosted and refrozen goods as a result of logistics inefficiencies accounts for 40% of all complaints and is therefore the greatest single problem for IGLO’s supply chain managers. In addition, the supply chain management department of IGLO confirmed that a significant amount of safety stock is order to accommodate for demand variability. Due to the fact that no direct data is available to illustrate this, the extent of this excess production cannot be quantified. However, the ordering of safety stock can be classified as supply chain waste and

- 69 - therefore needs to be included in the pursuit of improvements to the IGLO supply chain. From the evaluation of findings it has become increasingly clear that supply chain waste cannot only be attributed to operational inefficiencies. The lack of supply chain integration between IGLO and its partners provides a major contribution to the problems experienced in processes and operations. The literature has emphasized the importance of supply chain integration and portrayed it as an essential element to successful supply chain management. “Establishment of a dedicated value stream with commitment of supply chain partners to work together over an indefinite period is a necessary pre-requisite to significant supply chain improvement as it establishes a basis from which other lean improvement strategies could be adopted” (Taylor, 2006). From observing the supply chain process it became clear that the individual members of the supply chain operate as individuals rather than as a single entity. The relationships between the organisations can be described as transactional as the main focus of communication seems to be on the price of goods and services. In order to improve supply chain processes and relationships, it is important that the individual organisations integrate their processes through the establishment of cross- functional work-teams and through the sharing of information. On the operational side, supply chain operations can be improved through the implementation of cross- docking warehouses that receive, sort and despatch goods without putting them into storage for lengthy periods. However, certain considerations must be taken into account such as the fact that the cross-docks must be cooled to accommodate frozen foods and that cross-docks are only effective if managers have good knowledge of deliveries and their destinations. In addition, it was suggested that warehouses should be moved closer to the retailer in order to reduce lead times and increase responsiveness to changes in demand. The implementation of RFID technology may also be an important step to eliminate lengthy commissioning procedures and in order to become familiar with the newest emerging logistics technology. In addition, IGLO could benefit from working together with their main retailers to organise a faster storage process by hiring part-time staff to help regular employees. Also, IGLO could consider sourcing peas from abroad if actual demand exceeds annual forecasts. This would allow IGLO to order exactly the amount that is needed and would not require the purchase of safety stock, which has a negative impact on holding and

- 70 - transportation costs. However, IGLO should evaluate if such a strategy is beneficial overall considering the costs involved with sourcing products from abroad.

Limitations and Implications The scope of this study was subjected to certain limitations. Firstly, the investigation was limited to the supply chain of frozen peas. Being the leading supplier of frozen foods to the Austrian market, IGLO produces a wide variety of products other than vegetables such as meat, fish, ready-meals and sweet dishes. These products may have different supply chain characteristics and may therefore experience other forms of operational waste. Similarly, this investigation was limited to one particular target value stream, meaning that observations were focussed on a single farmer, one logistics provider and one retail outlet. IGLO works with several different logistics providers who deliver to numerous retailers and catering services. This study focussed on the movement of goods from Exel-TKL to one particular retail outlet of Merkur. It is important to emphasize that IGLO has other logistics providers such as Daily Asten who are responsible for the delivery of frozen foods to retailers such as SPAR. Therefore, certain sources of waste may exist in other supply channels that have not been identified by this investigation. Also, it is important to emphasize that the data collected with regard to the duration of activities reflects the observations made at one particular instant. Time values may vary considerably each time an activity is undertaken. In addition, a large part of the data collected in the investigation are estimations and approximations generated by the supply chain department of IGLO. Certain data regarding time and cost figures were unavailable in accuracy due to reasons of confidentiality or because they simply were unknown. It would therefore be beneficial if further research into supply chain efficiency was undertaken by an internal team consisting of members that are directly involved with organisations in the network. This would enable access to essential sensitive information and would therefore produce a more accurate and quantifiable result. In addition, further research should include all channels of distribution to further validate findings and recommendations.

On the whole, the practical implications of this investigation suggest that supply chain integration and collaboration between organisations are vital elements and create the building blocks for further supply chain improvements. A move away from a

- 71 - fragmented supply chain towards a system that operates as a single entity puts organisations in a better position to implement operational improvements. Benefits gained from supply chain improvements should be shared appropriately and performance measures should focus on the output of the supply chain as a whole.

- 72 - Appendix I

Process-Time Measurements Farming Harvesting: 15 min Unloading onto tractor: 5 min Travel time to truck: 3 min Lifting/reloading onto truck: 2 min Waiting until truck is completely full: 10 min

Inbound Logistics Transport to factory: 25 min Unloading: 7 min

Processing Quality-check/approval: 8 min Weighing: 5 min Washing: 8 min Hot water/cold water shower: 15 min Shock-freezing: 7 min Packaging: 15 min Transport into storage: 10 min Storage: 15 weeks (on average)

Outbound Logistics: Order-picking/truck-loading: 30 min Transport to RDC: 90 min Unloading: 30 min Storage at RDC: 10 days (this varies between 1 day and 3 weeks depending on demand) Loading onto truck: 30 min (it takes an additional 1-2 hours to commission the goods) Transportation to outlet store: 240 min (depending on the tour plan, 30 min-1 day) Unloading at store: 50 min

Retail Labelling/Storage: 90 min Display on shelves: 15 min

- 73 - Cost Estimation Break-down Farming Operating the harvesting machine: € 58 / hour (includes hourly wage of operator) Operating the tractor: € 47 / hour (includes hourly wage of operator)

Inbound Logistics Cost of delivery to factory: € 13 / Load (includes wage of driver and fuel)

Processing Operating the conveyor-belt processing system: € 510 / hour (includes water (€ 51), electricity (€ 153) and labour (€ 306)) Cost of packaging: € 100 / tonne of peas Cost of holding inventory: € 200 / tonne (peas are stored for 15 weeks on average)

Outbound Logistics Transport to regional distribution centre Exel-TKL: € 200 / load Cost of holding inventory: € 200 / tonne Transport to retail outlet: € 300 / load

Retail Cost of material handling: € 8 / hour Cost of Storage: € 6 / hour

- 74 - Appendix II Interview Questions Name: Guenter Hahn Position: Supply Chain Manager Company: IGLO, Unilever Industry: Frozen Foods Date: 17.08.2006

General Questions about the Supply Chain • Who are the suppliers of seeds for peas? Is there more than one supplier? How do the seeds get to the farmer? • Who has the responsibility of delivering frozen peas from the factory in Gr. Enzersdorf to the regional distribution centres of the major retailers such as Merkur and Spar? • Do retailers such as Merkur and Spar have their own distribution centres or are these operated by the logistics provider? • Who undertakes the delivery to other food services such as catering and gas stations? • How closely does IGLO work with other members of the supply chain?

Inbound Logistics • What is the cost of running one harvesting truck including the payment to the farmer operating the vehicle? • What is the cost of running a truck per hour, including the driver’s wage? • Who is responsible for the transportation of peas from the field to the processing factory? • To what extent are inbound logistics operations monitored by IGLO? • What are the common problems that occur in inbound logistics operations? • Are deliveries always on time or do delays occur regularly? • How many loads arrive at the factory per day on average? • Are workers at the factory ready for incoming loads or do they need time to prepare?

- 75 - • How intense is the collaboration between IGLO and the company responsible for inbound logistics? • How are deliveries coordinated with capacity constraints at the factory?

Processing • What is the cost of the whole process including water, electricity, staff wages etc. • What is the cost of packaging? • How large is the storage facility in which the peas are stored? • How long are peas stored on average at the factory? • What is the total cost of holding inventory at the factory, including electricity, taxes, insurance, damage, administration? • What are the common difficulties experienced in the processing factory regarding the processing of peas. • How does the quality of incoming peas vary? • How often are incoming deliveries rejected due to non conformance to quality requirements? • How can the relationship between IGLO and Frenzel be described? • Does IGLO monitor the processing procedure from time to time? • Which of the two companies takes the initiative in price negotiations?

Order Fulfilment • Who does forecasting of demand in the supply chain? • Is demand information shared between all the members of the supply chain? • What techniques are used to produce forecasts? • Is production triggered by forecasts or as a result of customer demand? (push or pull production system?) • What IT systems are used to communicate orders and demand information? • What data format is used? Is this format compatible with all systems in the supply chain? • What are the common problems that occur as a result of data interchange? • What is the procedure for dealing with miscommunications? • How long does it take to recover from miscommunications?

- 76 - • How long does it take to respond to an order? (order picking, ready for delivery) • Are deliveries always accurate in terms of quantity and punctuality? • Are there communication problems amongst IGLO and their supply chain partners? If yes, what are these problems and what impact do they have?

Outbound Logistics • Who is responsible for the delivery of peas from the factory to the distribution centre? • How many different distribution centres are delivery targets? • How close are distribution centres to retail outlets? • Does the loading process always go as planned or do complications arise that require extra work? • How often do deliveries leave the processing factory? • What is the cost of transportation to the distribution centre? • What are the common complications that occur in the unloading process at the distribution centre? • How long are peas stored at the regional distribution centre before they are delivered to the retail stores? • What is the total cost of holding inventory at the distribution centre? • Does the loading process for deliveries heading to retail outlets always go as planned or do complications arise that require extra work? • What is the cost of delivering a load of frozen peas to a retail outlet?

Retail • How long does the unloading and storage of the frozen peas take? • Do the peas stand around for a significant period of time before they are stored in the freezer? • What is the total cost of storing peas in the cold-store? • How many employees are involved in material handling of incoming deliveries?

- 77 - Name: Harald Toth and Karin Lorenzer Position: Quality Assurances and Customer Service Company: IGLO, Unilever Industry: Frozen Foods Date: 24.08.2006

Quality Control • How is the quality of raw goods monitored and controlled? • What are the common quality issues that arise prior to processing? • How is the quality of finished goods monitored and controlled along the supply chain? • What are the common quality issues that arise in logistics processes? • How close do IGLO and its supply chain partners interact in terms of quality control? • What are the main problem areas in the supply chain with regard to quality issues? • Does IGLO receive feedback from consumers regarding the quality of frozen peas? • How reliable is the quality control mechanism at the processing factory? • What happens to raw peas that do not qualify for processing and consumption? • What happens to finished goods that are damaged or otherwise unsuitable for purchase by consumers? • What impact does the disposal or re-processing of damaged goods have in terms of time and cost?

- 78 - Appendix III

Value Stream Mapping Tools The literature in this field shows that a seven-element ‘toolbox’ of techniques and methods has been developed, each of which is specialised to identify each of the seven common forms of waste. Besides process-activity mapping, the ‘Supply-chain response matrix’ is one of these tools which focuses on to identification of lead-time constraints in a particular process. The results of applying this technique are illustrated in a graph showing the cumulative inventory in days and the cumulative lead-time, as shown below.

Supply Chain Response Matrix

Source: IJPDLM Vol. 27 No. ¾, 1997

The ‘Production variety funnel’ is also a graphical representation, which describes the process and production characteristics according to the shape of the graph. “This tool views internal operations in companies as consisting of activities that conform to an I, V, A or T shape (Jones, 1997). Each letter describes a specific process and supply

- 79 - chain structure. “Such a delineation using the production variety funnel allows the mapper to understand how the firm or the value stream operates and the accompanying complexity that has to be managed… This approach can be very useful in helping to decide where to target inventory reduction and making changes to the processing of products. It is also useful in gaining an overview of the company or supply chain being studied (Jones, 1997).

Production Variety Funnel

Source: IJPDLM Vol. 27 No. ¾, 1997

The ‘Quality filter mapping’ tool is designed to locate any quality concerns that may exist in the value stream. In this approach, quality issues are divided into three categories: Product defects, service defects and internal scrap. Product defects are faulty goods that are not intercepted by inspectors and reach the end-user. Service defects are not directly related to the product but affect the quality perceived by the customer in other ways such as late delivery of incorrect documentation. Internal scrap deals with defective products that have been identified by inspectors and removed from the supply chain. The actual graphical representation of this tool shows the defect rate (in parts per million) in each of the three categories. When applied throughout the entire supply chain, the Quality filter mapping tool can be of significant importance as it can help to identify where along the supply chain quality

- 80 - problems begin to arise. This can be difficult to determine in large supply chains with numerous suppliers on each tier.

Quality Filter Mapping Graph

Source: IJPDLM Vol. 27 No. ¾, 1997

‘Demand amplification mapping’ is designed to illustrate what is know as the Forrester or ‘Bullwhip’ effect. This issue of supply chain dynamics deals with the increasing fluctuation of orders along the supply chain as a result of delays, poor communication and decision making. The variation in demand is increased at each stage where demand information is transmitted, resulting in over-production and therefore waste. The graph that is used to illustrate this effect plots actual consumer sales as well as orders placed to the supplier to fulfil this demand. Judging by the lack of synchronisation between the two lines, the extent of the demand amplification can be determined.

- 81 - Demand Amplification Mapping Chart

Source: IJPDLM Vol. 27 No. ¾, 1997

‘Decision point analysis’ aim to locate the point where actual demand pull gives way to forecast-driven push. In other words, it is the point at which products stop being made to actual demand and start being made against forecasts alone (Jones, 1997). The knowledge of where in the supply chain this point is located is useful for the following two reasons:

• At the immediate level, it becomes possible to asses the processes that operate both downstream and upstream from this point. The purpose of this is to ensure that they are aligned with the relevant pull or push philosophy. • At a more fundamental and longer-term level, it is possible to design various ‘what if’ scenarios to view the operation of the value stream if the decision point is moved. This may allow for a better design of the value stream (Jones, 1997).

- 82 - Decision Point Analysis

The ‘Physical structure’ mapping tool is designed to aid in understanding what a particular value stream looks like at an overview or industry level. Such knowledge can be utilised to determine the structure of the particular industry, how operations are undertaken and possible areas that offer room for further development. Diagrams in this particular tool illustrate the structure of an industry with its suppliers and distribution tiers, as the example below shows.

Physical Structure Mapping

- 83 - Analysis of Issues and Opportunities along the Supply Chain for Fresh Pork Products – (Taylor, 2005)

Issues related to physical product flows • There was no link between pig breeding and customer demand; pig production was a ‘push’ system which continually created problems of under and over supply at the processing plants. • The chain between the processor and the store contained more stock (10 days) than was necessary given the short information and processing lead times. • There was significant duplication of stock at either side of corporate boundaries. • Significant product waste occurred due to product non-conformance along the chain; for example, over 30% of pigs were out of specification in terms of required weight or fat levels.

Issues related to information flows • A multiplicity of forecasts existed. Not only did each form along the chain make independent forecasts, but also different departments within the firms produced separate forecasts. There was little correlation between any of these forecasts. • Demand information passed from one company to another was often provided in a poor format, creating non-value added rework for recipients. • Demand amplification was apparent together with a lack of synchronisation of demand. • Numerous examples existed of information produced in one department being passed to partners upstream or downstream, but not used by the recipients.

Issues related to management and control of the chain • No one person or group had responsibility for management of the whole supply chain. Instead control was fragmented across functional silos. • There were no overall value chain ‘key performance indicators’ and hence nothing to drive improvement in chain performance.

- 84 - • Independent decision making by farmers, processor and supermarket did not foster an environment for joint continuous improvement. • There was a clear lack of trust, at times verging on hostility, between upstream players and the supermarket and to a lesser extent between farmers and the processor.

From the problems identified in the investigation the VCA team was able to construct a set of solutions and recommendations in the form of a ‘future state’ vision. Due to the fact that the supply chain for pork loins was so far away from being waste-free, operational solutions on their own would not be sufficient in making significant improvements in the process. Therefore, the report also identifies several recommendations on a strategic level that should steer the supply chain towards their desired ‘lean vision’. Some of these recommendations include:

Operational Recommendations • Get one forecast for the whole chain. • Develop a coordinated demand management policy for the entire chain. • Collaborative planning and replenishment. • Create a supplier association for farms.

Strategic Recommendations • The development of a clear specification of ‘value to the end-user’ in terms of pork products. • A strategy to manage the whole value stream as an integrated process. • Improvement of value chain efficiency through development of a flow system and associated lean improvement techniques with a view to reduce costs, improve service and quality. • Linking of supply to demand by the establishment of a ‘pull system’.

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- 89 -