Sector Report No. 1 / 2006
ICT and e-Business in the
Food and Beverages Industry ICT adoption and e-business activity in 2006
European Commission
Food and Beverages
About e-Business W@tch and this report The European Commission, Enterprise & Industry Directorate General, launched the e-Business W@tch to monitor the growing maturity of electronic business across different sectors of the economy in the enlarged European Union, EEA and Accession countries. Since January 2002, the e-Business W@tch has analysed e-business developments and impacts in manufacturing, construction, financial and service sectors. All results are available on the internet and can be accessed or ordered via the Europa server or directly at the e-Business W@tch website (http://ec.europa.eu/comm/enterprise/ict/policy/watch/index.htm, www.ebusiness-watch.org). This document is a sector study by e-Business W@tch, focusing on the Food and Beverage (F&B) industry. Its objective is to describe how companies in this industry use ICT for conducting business, to assess the impact of this development for firms and for the industry as a whole, and to indicate possible implications for policy. Analysis is based on literature, interviews, case studies and a survey among decision-makers in European enterprises from the F&B industry about the ICT use of their company.
Disclaimer Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed in this report are those of the authors and do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For detailed advice on corporate planning, business processes and management, technology integration and legal or tax issues, the services of a professional should be obtained.
Acknowledgements This report was prepared by Databank on behalf of the European Commission, Enterprise & Industry Directorate General. It is part of a deliverable in the context of e-Business W@tch, which is implemented by a team consisting of empirica GmbH (co-ordinating partner), Berlecon Research, Databank, DIW Berlin, Lios Geal Consultants, RAMBØLL Management and Salzburg Research, based on a service contract with the European Commission. e-Business W@tch would like to thank Mr Ilias Vlachos of the Athens University, who is member of the Advisory Board in 2006, for supporting the work on this study.
Contact For further information about this Sector Study or the e-Business W@tch, please contact:
Databank S.p.A. Via Spartaco 19 20135 Milan, Italy
e-Business W@tch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany
Fax: (39) 02 55 002 1
Fax: (49-228) 98530-12
European Commission Enterprise & Industry DirectorateGeneral Technology for innovation, ICT industries and e-business
[email protected]
[email protected]
Fax: (32-2) 2967019
[email protected]
Rights Restrictions Any reproduction or republication of this report as a whole or in parts without prior authorisation is strictly prohibited.
Milan / Brussels, 2006
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Table of Contents
Executive Summary ................................................................................................... 5 1
2
Introduction ......................................................................................................... 9 1.1
About e-Business W@tch ................................................................................................ 9
1.2
"e-Business" – the conceptual framework................................................................... 13
Context and Background................................................................................... 19 2.1
Sector definition – scope of the study.......................................................................... 19
2.2
Industry background ...................................................................................................... 20
2.3 3
2.2.1
Size of the EU food and beverage industry ......................................................... 20
2.2.2
Trends and challenges......................................................................................... 23
Review of earlier sector studies.................................................................................... 27
Adoption of ICT and e-Business in 2006 ........................................................... 29 3.1
Use of ICT Networks ....................................................................................................... 29
3.2
ICT Skills, Outsourcing and ICT Budgets..................................................................... 33
3.3
3.4
3.5
3.6
3.7
3.2.1
Demand for ICT skills and skills development ..................................................... 33
3.2.2
Outsourcing of ICT services and ICT investments............................................... 34
Standards, Interoperability and ICT Security Issues .................................................. 37 3.3.1
Types of e-standards used................................................................................... 38
3.3.2
Use of Open Source Software ............................................................................. 40
3.3.3
Interoperability challenges ................................................................................... 41
3.3.4
ICT security measures ......................................................................................... 42
Internal and External e-Integration of Processes ........................................................ 44 3.4.1
Use of software systems for internal process integration .................................... 44
3.4.2
Deployment of e-invoicing.................................................................................... 46
3.4.3
Use of ICT for cooperative and collaborative business processes...................... 47
e-Procurement and Supply Chain Management .......................................................... 49 3.5.1
B2B online trading: companies placing orders online.......................................... 49
3.5.2
e-Integrated supply chains: SCM, financial e-processes and ICT links with suppliers ............................................................................................................... 54
e-Marketing and Sales .................................................................................................... 56 3.6.1
Companies receiving orders from customers online............................................ 56
3.6.2
e-Integration of marketing processes: CRM and ICT links with customers ......... 59
ICT and Innovation.......................................................................................................... 61 Case Study: Chocpix, UK ................................................................................................. 64 3
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3.8
3.9 4
Drivers and Inhibitors for the Uptake of e-Business................................................... 68 3.8.1
Drivers of e-business adoption ............................................................................ 68
3.8.2
Barriers to e-business adoption ........................................................................... 69
Summary.......................................................................................................................... 71
Current e-Business Trends and Implications.................................................... 74 4.1
4.2
Internal Process Automation in the F&B industry....................................................... 76 4.1.1
Introduction .......................................................................................................... 76
4.1.2
State-of-the-art Applications................................................................................. 77
4.1.3
Product Lifecycle Management: a new approach to product development ......... 82
4.1.4
Summary of main points and conclusions ........................................................... 83
Supply Chain Management and Customer Relationship Management..................... 84 4.2.1
Use of SCM .......................................................................................................... 85
Case Study: SCM Optimises Deliveries at Blédina, France ............................................. 88 Case Study: LogisticsXP distribution collaboration........................................................... 97 4.2.2
Use of CRM........................................................................................................ 103
Case Study: ICT in support of crm at Godiva Chocolatier Europe ................................. 105 4.2.3 4.3
Summary of main points and conclusions ......................................................... 111
Mobile Applications ...................................................................................................... 112 4.3.1
Introduction ........................................................................................................ 112
4.3.2
Technologies and applications........................................................................... 112
Case Study: La Bella Easo, Spain .................................................................................. 116 Case Study: Wi-Fi implementation at Pastificio Riscossa .............................................. 121 4.3.3 4.4
Summary of main points and conclusions ......................................................... 126
RFID in the F&B industry ............................................................................................. 126 4.4.1
Introduction ........................................................................................................ 126
4.4.2
RFID: areas of applications and expected benefits ........................................... 127
Case Study: Latterie Virgilio, Italy ................................................................................... 131 4.4.3 5
Summary of main points and conclusions ......................................................... 136
Conclusions ..................................................................................................... 137 5.1
5.2
Business impact ........................................................................................................... 137 5.1.1
Implications for enterprises ................................................................................ 137
5.1.2
Implications for industry structure ...................................................................... 143
Policy implications ....................................................................................................... 146
References ............................................................................................................. 151 Annex I: The e-Business Survey 2006 – Methodology Report .............................. 153 Annex II: Expanded Tables – Data by country....................................................... 163 Annex III: Glossary of Technical Terms ................................................................ 168 4
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Executive Summary
Objectives and scope of the study This is a sector study by e-Business W@tch, focusing on the food and beverage (F&B) industry. Its objective is to describe how companies in this industry use ICT for conducting business, to assess the impact of this development for firms and for the industry as a whole, and to indicate possible implications for policy. Analysis is based on literature, interviews, case studies and a survey among decision-makers in European enterprises from the F&B industry about the ICT use of their company. The F&B industry as defined for this study’s purpose covers the following sub-sectors of NACE Rev. 1.1 Division DA 15: DA 15.43; DA 15.5 (51, 52); DA 15.6 (61, 62); DA 15.8 (81, 82, 84, 85, 86, 87, 88, 89); DA 15.9 (91, 92, 94, 97, 98).1 These sub-sectors deal with the production of processed food, rather than with the first transformation of agricultural products (see Section 2.1 for a detailed sector definition).
Results of the e-Business Survey 2006 The e-Business Index 2006 places the F&B industry among the sectors with a comparatively low level of ICT and e-business adoption. This overall result, however, should be regarded cautiously, as it hides a varied picture; moreover, although a direct comparison of the survey results from 2005 and 2006 is not possible, some interesting trends have been recorded in this analysis. The F&B industry has a relatively good level of development of internal process integration and supply chain-related activities. Supply Chain Management (SCM) systems, in particular, show the highest diffusion among the 10 sectors analysed, and a remarkable increase over the past years. External pressure from distribution is increasingly driving F&B companies towards the adoption of e-business practices. The high diffusion of e-invoicing, inventory management, and linking of ICT systems with those of customers illustrate this. Medium-sized companies appear quite positive and active in their investment attitude, and are already well advanced in the adoption of solutions such as ERP (Enterprise Resource Planning), SCM and e-invoicing. While this aspect is of particular interest for future developments, it is equally important to note that the cost of software solutions still adversely affects smaller companies more than the larger ones.
1
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the ‘General Industrial Classification of Economic Activities within the European Communities’, known by the acronym NACE and originally published by Eurostat in 1970. 5
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There is new evidence that the F&B sector is reducing the gap to other sectors in basic ICT infrastructure which was evident in the e-Business W@tch Survey of 2005. Positive signals can be seen in the remote network implementation data from the e-Business Survey 2006, with figures for F&B markedly above the 10 sectors average. The low importance apparently assigned to training and ICT skills in general within the F&B sector gives cause for concern: only 50% of large companies reported practicing regular ICT training. Outsourcing of ICT processes has grown slightly, particularly in medium-sized enterprises. Standards and interoperability are a “hot” topic in the F&B sector, due to regulatory impacts (such as traceability) that require improved communication among the different players of the value chain. Presently, the most diffused standard is EDI, notably among the sector’s large companies. The use of open source software clearly increases by firm size in this sector, as its lower price is balanced by the need of internal competences to develop and adapt it to the company's requirement Survey data reveal a good diffusion of ERP in F&B industry: ERP appears to be a stepping-stone towards further evolution of e-business, and often includes procedures common to SCM and CRM software solutions. Accounting systems have an even wider diffusion, extending widely within small and micro enterprises. e-Procurement use in the F&B industry still lags behind the 10-sectors average, probably due to the centralisation of purchasing activities in the large companies that dominate this sector. Where present, e-procurement does not seem a driver for systems evolution. SCM, on the other side, shows a remarkable growth, probably due both to regulatory constraints of food safety and traceability, as well as to the competitive advantages linked to a better management of the supply chain. e-Marketing and sales are focused mainly on the distribution chain and are, therefore, usually considered as part of the SCM or ERP systems. CRM systems are used mainly by large companies in a B2B environment, while a more B2Coriented approach is typical of this sector’s micro-enterprises and SMEs. Innovation through ICT solutions is mainly perceived as a process innovation, with an interesting accent on customer services and on the creation of customer communities. Meeting customer expectations joins competitive advantage and regulatory constraints as the main drivers of ICT and e-business adoption in this industry. Company size and cost are the main barriers to e-business adoption reported in F&B. Companies that do not practice e-business said that they feel that they are "too small" for doing e-business, and/or that they cannot afford the required technologies. Other barriers (e.g. security concerns, the complexity of technology) are perceived as less relevant.
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Current e-business trends and implications e-Business W@tch looks at how ICT and e-business can support F&B firms in dealing with relevant competitive challenges in this industry, such as integration with business partners and quality assurance. This study focuses on the following topics: Internal processes automation in the F&B industry. Compliance with food safety regulations, together with increased competition and the request for cost-efficiency drive the trend toward integration of internal processes in the F&B industry. The integration of production line control, administration, sales and logistics helps companies to manage food safety risks, to increase asset efficiency, and to improve their margins, while achieving continuous product and service innovation, and better corporate accountability. The introduction of systems for internal process automation is also fostered by the possibility of better exploitation of internal assets, which, in the case of the F&B industry, are often represented by recipes or by particular production processes. Supply Chain Management (SCM) and Customer Relationship Management (CRM). Through the application of SCM, food manufacturers and grocery retailers are trying to radically reduce costs and inventory levels. SCM facilitates the development of integrated relationships, real-time information transfers and moving towards a ‘pull’ rather than ‘push’ distribution system. The focus is on increasing the flexibility amongst upstream suppliers, in response to the strategic power of the dominant supermarket chains, through the closer integration of external enterprise relations. Inter-enterprise integration, represented by SCM, is strongly related with, and dependent upon, the effective implementation of intra-enterprise integration (mainly represented by ERP). These software systems represent complementary approaches for addressing related strategic challenges. Mobile applications and RFID. Mobile applications and Wi-Fi systems2, together with RFID3 applications, are inextricably connected with supply chain management and quality assurance issues. Currently, these systems are mostly used by large enterprises. SMEs, on the other hand, use strategies such as sales force decentralisation (e.g. working from mobile/home offices) to increase their flexibility and to shorten supply chain processes. The usage of RFID is limited to only 1% of the F&B firms. This figure does not reflect the high emphasis that media and ICT suppliers are placing on RFID usage and its potential benefits. Nevertheless, the experiences analysed in the e-Business W@tch case studies illustrate that potential benefits are remarkable and that the pioneering adoption of RFID may lead to relevant competitive advantages.
2
"Wi-Fi" is short for wireless fidelity, a popular term for a high-frequency wireless local area network (W-LAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN.
3
"RFID" is short for Radio Frequency Identification. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. 7
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Business impact The use of ICT and e-business in the F&B industry has its main impact in areas related to production and logistics. As regards marketing and sales, the potential of e-business is not fully exploited for the benefit of manufacturers. Large retailers exert their power in this area and tend to maximise the advantage of their direct control over customers. In general, the powerful ICT systems and e-business solutions of large companies enable more advanced practices, which can yield greater achievements in terms of savings and efficiency. Nevertheless, there are areas – traceability being the most important among them – where SMEs are adopting ICT and e-business on a relatively large scale, and where a significant impact can already be observed.
Policy implications At a general level, policies to promote ICT adoption among F&B companies, notably the smaller ones, should aim at improving the development of infrastructure (including skills and standards) and the legal and regulatory environment, as well as at creating a favourable business environment. The analysis of findings from the survey, the case studies and desk research conducted for this report point at the following issues which could be relevant for policy-making: Improve e-skills, especially among SMEs. ICT and e-business are changing the way business is conducted in the F&B industry. There is evidence that many small companies face difficulties in coping with these changes. A lack of e-skills, i.e. a proper understanding of e-business, is one of the reasons.4 Measures in this area could aim at promoting entrepreneurial and managerial understanding of ebusiness applications. Providing more information about e-business in a way which is adequate for small firms could support their decision-making. The development of skills in change management, for example how reorganise work processes with support of e-technologies, could be encouraged. Facilitate F&B compliance with quality and safety criteria. An important application area for ICT in the F&B industry is to ensure compliance with quality and safety regulations. Therefore, firms could be supported by measures such as the provision of relevant information and training in how to use ICT in this field. Promote a favourable environment for innovation. F&B firms need to continuously innovate. e-Business policies aiming at a favourable environment for innovation could include the promotion of value chain co-operation, the sharing of good practices among F&B firms and the participation of SMEs in business networks. Standardisation. Policy measures in the area of standardisation should focus both at the sector and at the cross-sector level. They could include supportive actions to stimulate increased participation of SMEs in standardisation initiatives.
4
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 27. Available at www.ebusiness-watch.org (‘resources’) and case study La Bella Easo in Section 3.3 of this Report. 8
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1
Introduction
1.1
About e-Business W@tch
Policy background The European Commission launched e-Business W@tch in late 2001 to monitor the adoption, development and impact of electronic business practices in different sectors of the economy in the European Union. The initiative is rooted in the eEurope Action Plans of 2002 and 2005. The eEurope 2005 Action Plan defined the goal "to promote take-up of e-business with the aim of increasing the competitiveness of European enterprises and raising productivity and growth through investment in information and communication technologies, human resources (notably e-skills) and new business models".5 e-Business W@tch has been an important instrument for the European Commission to assess the developments and progress in this field. The i2010 policy6, a follow-up to eEurope, also stresses the critical role of ICT for productivity and innovation, stating that "… the adoption and skilful application of ICT is one of the largest contributors to productivity and growth throughout the economy, leading to business innovations in key sectors" (p. 6). The Communication anticipates "a new era of e-business solutions", based on integrated ICT systems and tools, which will lead to an increased business use of ICT. However, it also warns that businesses "still face a lack of interoperability, reliability and security", which could hamper the realisation of productivity gains (p. 7). In 2005, in consideration of globalisation and intense international competition, the European Commission launched a new industrial policy7 to create better framework conditions for manufacturing industries in the coming years. Some of the policy strands described have direct links to ICT and e-business developments. One of the new sectorspecific initiatives covered by the policy is the taskforce on information and communication technologies (ICT) competitiveness. The taskforce with stakeholders representatives focuses on identifying and proposing measures to remove obstacles that inhibit ICT take-up among enterprises. Another initiative is to conduct a series of competitiveness studies, to include for ICT, food, and fashion and design industries, in order to analyse trends affecting the competitiveness of these industrial sectors. These policy considerations constitute the background and raison d'être of e-Business W@tch as an observatory of related issues and a core theme for the analysis. Within this
5
"eEurope 2005: An information society for all". Communication from the Commission, COM(2002) 263 final, 28 May 2002, chapter 3.1.2
6
"i2010 – A European Information Society for growth and employment." Communication from the Commission, COM(2005) 229 final.
7
"Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing - towards a more integrated approach for Industrial Policy." Communication from the Commission, COM(2005) 474 final, 5.10.2005 9
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broader policy context, two further important facets regarding the mission of the initiative are relevant. First, e-Business W@tch studies focus on sectors (and not on countries). Second, special emphasis is placed on developments and implications for small and medium-sized enterprises (SMEs). e-Business W@tch is one of several policy instruments used by DG Enterprise and Industry in the field ICT industries and e-business. Other instruments include the e-Business Support Network (eBSN – a European network of e-business policy makers and business support organisations), the eSkills Forum (a task force established in 2003 to assess the demand and supply of ICT and e-business skills and to develop policy recommendations), the ICT Task Force, a group whose work is to draw together and integrate various activities aiming to strengthen Europe's ICT sector, and activities in the areas of ICT standardisation, as part of the general standardisation activities of the Commission.8
Focus and scope Since its launch, e-Business W@tch has published e-Business Sector Studies on more than 20 sectors of the European economy, four comprehensive synthesis reports about the state-of-play in e-business in the European Union, statistical pocketbooks and various other resources, such as newsletters and special issue reports. All publications are available at www.ebusiness-watch.org ('resources'). e-Business W@tch presents a 'wide-angle' perspective on the adoption and use of ICT in the sectors studied. The topic is not restricted to the measurement of e-commerce transactions (the volume of goods and services traded online), but also comprises an assessment of the degree to which business processes, including intra-firm processes, are electronically linked to each other and have become digitally integrated. In essence, e-Business W@tch studies cover the whole field of what could be described as collaborative commerce (see following chapter). However, it becomes practically impossible to cover in detail all areas and facets of e-business in a single sector study. Therefore, each study focuses on a few specific issues, thus allowing the reader to zoom into these topics in more detail. In addition to the analysis of e-business developments, the studies also provide some background information on the respective sectors. Readers, however, should not mistakenly consider this part of each report as the main topic of the analysis. An eBusiness W@tch sector report is not a piece of economic research on the sector itself, but a study which focuses on the use of ICT and e-business in that particular sector. The introduction to the sector is neither intended, nor could it be a substitute for more detailed industrial analysis.
8
The 2006 ICT Standardisation Work Programme complements the Commission's "Action Plan for European Standardisation" of 2005 by dealing more in detail with ICT matters. 10
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Methodology e-Business W@tch combines quantitative and qualitative research elements. The quantitative analysis of ICT and e-business adoption by firms is based to a large extent on representative surveys among decision-makers in European enterprises ("e-Business Survey"). Interviews are conducted by telephone, based on a standardised and computer supported questionnaire (CATI9 method). In total, more than 25,000 enterprises were interviewed in the surveys of 2002, 2003 and 2005. The most recent survey (conducted in April/May 2006) covered more than 14,000 enterprises from 10 sectors in all EU Member States and most EEA and Candidate Countries.10 The e-Business W@tch Surveys have won recognition by the international research community as a useful instrument for piloting new e-business metrics. The experience gained from this piloting is used, for example, by Eurostat for planning and developing their own survey of ICT use by businesses. e-Business W@tch complements the statistical picture by a more detailed presentation of concrete e-business activity in individual enterprises from the sectors covered, mainly in the form of brief case studies. About 75 case studies are conducted in 2006 adding to more than 100 case studies conducted in previous years. Evidence from the survey and case studies is backed up by desk research and interviews with industry representatives and e-business experts.
The importance of networking and debate Since its first implementation in late 2001, e-Business W@tch has increasingly developed from a market observatory into a think-tank and intermediary, stimulating debate among stakeholders at an international level about the economic and policy implications of e-business. The positive feed-back and large uptake for the various publications and statistics provided by the e-Business W@tch, for example their exploitation by various research institutions, reflects the demand for sectoral e-business analysis and discussion on related issues. e-Business W@tch uses several mechanisms for debate and networking with stakeholders. An important platform for this is the website (www.ebusiness-watch.org), where all reports and survey data are published. Furthermore, results are presented and discussed with industry at workshops, within and via the Advisory Board, and, lastly, through the participation of study team members in other events, such as conferences, workshops and working groups organised by third parties.
9
Computer Assisted Telephone Interviews, a widely used method in representative household or decision-maker surveys.
10
The EEA (European Economic Area) includes, in addition to EU Member States, Iceland, Liechtenstein and Norway. Candidate Countries, which are candidates for accession into the EU, are (as of May 2006) Bulgaria, Croatia, Romania and Turkey. 11
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The mission of e-Business W@tch is to monitor, analyse and compare the development and impact of e-business in different sectors of the European economy – not the sectors themselves. Its objective is to provide reliable results, based on commonly accepted methodologies, which are not readily available from other sources and will trigger the interest of policy-makers, researchers, and other e-business stakeholders for more in depth analyses or statistical surveys. e-Business W@tch has adopted a “wide-angle” perspective in its approach. The necessary trade-offs are transparently depicted in each of its deliverables.
The definition of sectors and the adequate level of aggregation Economic sectors constitute the main level of analysis for e-Business W@tch. The 2006 studies cover sub-sets of ten different sectors whose configuration and definition are based on the NACE Rev. 1.1 classification of business activities.11 Over the years since its initial implementation in late 2001, e-Business W@tch followed a roll-out plan in the coverage of different sectors.12 In each new period, some new sectors (not covered in previous years) were added. The rather broad aggregation of various business activities into sectors in earlier implementation periods (2002-2004) made it possible to cover a broad spectrum of the economy, but also caused challenges for the analysis of e-business developments. In cases where rather heterogeneous sub-sectors were aggregated, it was sometimes difficult to make general observations or draw conclusions for "the sector" at stake. It also turned out that industry has a clear preference for comparatively narrow sector definitions. The approach for selecting and defining sectors which was used in 2005 and 2006 reflects these concerns. Many of the sectors studied since 2005 are sub-sectors that had been part of larger aggregations in 2002-2004. A further argument for "zooming in" on former sub-sectors is that the broad picture for whole sectors is already available from earlier e-Business W@tch studies. The selection of sectors in 2006 has been made on the basis of the following considerations: The roll-out plan of 2003. Policy relevance of the sector from the Commission’s perspective. Interest articulated by the industry in previous years on studies of this type. The current dynamics of e-business in the sector and the impact of ICT and electronic business, as derived from earlier e-Business W@tch sector studies.
11
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the ‘General Industrial Classification of Economic Activities within the European Communities’, known by the acronym NACE and originally published by Eurostat in 1970.
12
See website: "selection of sectors" (www.ebusiness-watch.org/about/sector_selection.htm) 12
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The 10 sectors studied in 2006 The 10 sectors which are monitored and studied in 2006 include six manufacturing sectors, construction and three service sectors. The pulp and paper manufacturing industry is a 'new' sector, i.e. it had not been covered by the e-Business W@tch in any earlier period of implementation; the other nine sectors have been covered in previous years, mostly as parts of aggregated sectors (see Exhibit 1-1). Exhibit 1-1: Sectors studied by e-Business W@tch in 2006 No.
NACE Rev. 1.1
Sector Food and beverages
2005
2
DA 15 (selected groups) DC 19.3
Footwear
2003/04 (as part of the textile and footwear industry)
3 4
DE 21 DL 30, 32.1+2
Pulp, paper and paper products ICT manufacturing
--
5
DL 32.3
Consumer electronics
6
DM 35.11
Shipbuilding and repair
2004 (as part of electrical machinery and electronics) 2004 (as part of transport equipment manufacturing)
7
F 45.2+3 (selected classes) H 55.1/3, I 63.3, O 92.33/52 I 64.2 N 85.11
Construction
1
8 9 10
1.2
Reference to earlier (most recent) coverage
2004 (as part of electrical machinery and electronics)
2005 (in a broader aggregation, including F 45 in total) 2005
Tourism Telecommunication services Hospital activities
2004 (as part of ICT services) 2004 (as part of health and social services)
"e-Business" – the conceptual framework
Fresh momentum after the 2001 odyssey Although the 'new economy' revolution has not taken place as it seemed for a short moment in history it might, the evolutionary development of electronic business does not seem to have come to an end. On the contrary, the maturity of e-business has substantially increased across sectors and regions over the past five years. It has been a quiet revolution this time, but as a result, a new picture of the digital economy is beginning to emerge. ICT and e-business do matter in the global economy – probably even more than during the hype of the late 1990s. The overall economic situation and market conditions for business innovation and investment have been difficult for European companies during the last few years. Nevertheless, e-business shows a dynamic development in the European Union. Drivers are new technological developments (wireless access technologies, for example) and the increasing competitive pressure on companies in a global economy. Firms are in 13
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constant search for opportunities to cut costs. This has probably been the most important promise of electronic business: cutting costs by increasing the efficiency of business processes, internally and between trading partners in the value chain.
From e-Commerce to e-Business As part of this maturing process, electronic business has progressed from a rather specific to a very broad topic over the past 10 years. Initially, however, particularly in the mid 1990s, the policy and research focus was very much on e-Commerce, which can be defined as online commercial transactions. The term 'transactions' refers to exchanges between a company and its suppliers or customers. These can be other companies ("B2B" – business-to-business), consumers ("B2C" – business-to-consumers), or governments ("B2G" – business-to-government). In the broad sense, transactions include commercial as well as other exchanges, such as sending tax return forms to the tax authorities. In the context of this study on e-business, transactions are predominantly commercial business transactions (see boxes for definitions).
Glossary
Definitions by standardisation groups (ISO, ebXML) The term "business transaction" is a key concept underlying the development of e-standards for B2B exchanges. Therefore, definitions have been developed by the various standards communities as an underpinning for their practical work. Examples are: Business: "a series of processes, each having a clearly understood purpose, involving more than one party, realized through the exchange of information and directed towards some mutually agreed upon goal, extending over a period of time [ISO/IEC 14662:2004] Business transaction: "a predefined set of activities and/or processes of parties which is initiated by a party to accomplish an explicitly shared business goal and terminated upon recognition of one of the agreed conclusions by all the involved parties even though some of the recognition may be implicit" [ISO/IEC 14662:2004] e-Business transaction: "a logical unit of business conducted by two or more parties that generates a computable success or failure state [ebXML Glossary]
If transactions are conducted electronically ('e-transactions'), this constitutes eCommerce. Transactions can be broken down into different phases and related business processes, each of which can be relevant for e-Commerce. The pre-sale (or pre-purchase) phase includes the presentation of (or request for) information about the offer, and the negotiation about the price. The sale / purchase phase covers the ordering, invoicing, payment and delivery processes. Finally, the after sale / purchase phase covers all processes after the product or service has been delivered to the buyer, such as after sales customer services (e.g. repair, updates). 14
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Exhibit 1-2: Process components of transactions Pre-sale / pre-purchase phase Information about offer Price comparisons Negotiations between seller and buyer
Sale / purchase phase Placing an order Invoicing Payment Delivery
After sale / purchase phase Customer service Guarantee management Credit administration Handling returns
Practically each step in a transaction can either be pursued electronically (online) or nonelectronically (offline), and all combinations of electronic and non-electronic implementation are possible. It is therefore difficult to decide which components actually have to be conducted online in order to call a transaction (as a whole) ‘electronic’. In this context, during 2000 the OECD proposed broad and narrow definitions of electronic commerce both of which are still valid and useful:13 While the narrow definition focuses on 'internet transactions' only, the broad definition defines e-Commerce as "the sale or purchase of goods or services, whether between businesses, house-holds, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the goods or service may be conducted on- or offline" (OECD, 2001). Glossary
Definition of key terms for this study e-Transactions: Commercial exchanges between a company and its suppliers or customers which are conducted electronically. Participants can be other companies ("B2B" – business-to-business), consumers ("B2C"), or governments ("B2G"). This includes processes during the presale or pre-purchase phase, the sale or purchase phase, and the aftersale / purchase phase. e-Commerce: Electronic Commerce. The sale or purchase of goods or services, whether between businesses, house-holds, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. (OECD) e-Business: Electronic Business. Automated business processes (both intra- and inter-firm) over computer mediated networks. (OECD) e-Interactions: Electronic Interactions include the full range of e-Transactions, and in addition collaborative business processes (e.g. collaborative design) which are not directly transaction focused.
13
In 1999, the OECD Working Party on Indicators for the Information Society (WPIIS) established an Expert Group on Defining and Measuring Electronic Commerce, in order to compile definitions of electronic commerce which are policy relevant and statistically feasible. By 2000, work of the Group had resulted in definitions for electronic commerce transactions. 15
Food and beverages
The addendum regarding payment and delivery is an important part of the definition, but can be debated. The difficult question is which processes along the different transaction phases constitute e-Commerce and which do not (see Exhibit 1-2). The OECD definition excludes the pre-sale or purchase phase and focuses on a specific part of the sale / purchase phase, namely the ordering process. e-Business W@tch follows the OECD position on this issue.14 e-Commerce, defined in this way, is a key component of e-business, but not the only one. In recent years, it has been increasingly acknowledged among policy and research communities that the focus on e-commerce transactions may be too narrow to capture the full implications of e-business. A wider, business process oriented focus has been widely recognised. Reflecting this development, the OECD WPIIS15 proposed a (broader) definition of 'e-business' as "automated business processes (both intra-and inter-firm) over computer mediated networks" (OECD, 2004, p. 6). In addition, the OECD proposed that e-business processes should integrate tasks and extend beyond a stand-alone or individual application. This definition reflects an understanding of e-business that encompasses more than ecommerce transactions. The broad concept of e-business also includes the digitisation of internal business processes, as well as cooperative or collaborative processes between companies which are not necessarily transaction-focused. Collaborative edesign processes between business partners are a typical example from industrial engineering. The OECD definition implicitly indicates that the focus and main objective of electronic business is to be found in business process automation and integration, and the impacts thereof. To bridge the gap between 'e-Commerce' and 'e-Business', it was proposed in earlier years (mainly around 2000) to use the term 'c-Commerce' (collaborative commerce). Although this concept was rather abandoned when the new economy bubble burst, it has some value as it stresses the role of ICT for cooperation among enterprises. If web service and other emerging technologies (e.g. RFID, mobile applications) hold their promise, the digital integration of B2B trading processes could be taken to a new level, possibly with a considerable impact on industry structure. If so, it could be worth revisiting the former 'c-Commerce' concept.
e-Business and the company's value chain Given the broad concept of e-Business applied for this study, which concentrates on business processes and a company's interactions with its environment, some further structuring and mapping of processes is necessary. Michael Porter's framework of the company value chain and value system between companies (Porter, 1985) is still valid and useful in this context, although dating back 20 years to the pre-e-business era.
14
This is reflected in the updated wording of the respective survey questions in 2006, when for "placing / accepting online orders" was asked instead for "purchasing / selling online".
15
Working Party on Indicators for the Information Society 16
Food and beverages
A value chain logically presents the main functional areas ('value activities') of a company and differentiates between primary and support activities. However, these are "not a collection of independent activities but a system of interdependent activities", which are "related by linkages within the value chain" (p. 48). These linkages can lead to competitive advantage through optimisation and coordination. In fact, it is exactly here that ICT have a major impact, as they are a key instrument to optimise linkages and thus increase the efficiency of processes. The value system expands this concept by extending the perspective beyond the single company. The firm's value chain is linked to the value chains of (upstream) suppliers and (downstream) buyers, resulting in a larger set of processes – the value system. e-Commerce, i.e. electronic transactions, occurs within this value system. Exhibit 1-3: Value chain framework of a company by Michael Porter
Support activities Firm infrastructure Human Resources Management Technology development Procurement Inbound Logistics
Operations
Outbound Logistics
Marketing and sales
Service
Primary activities Source: Adapted from M.E. Porter (1985) – simplified presentation
Key dimensions of this framework (notably inbound and outbound logistics, operations, and the value system) are reflected in the Supply Chain Management (SCM) concept. Here, the focus is on optimising the procurement-production-delivery processes, not only between a company and its direct suppliers and customers, but also aiming at a full vertical integration of the entire supply chain (Tier 1, Tier 2, Tier n suppliers). In this concept, each basic supply chain is a chain of sourcing, production, and delivery processes with the respective process interfaces within and between companies.16 The analysis of the digital integration of supply chains in various industries has been an important theme in sectors studies previously prepared by e-Business W@tch.
16
cf. SCOR Supply-Chain Council: Supply-Chain Operations Reference-model. SCOR Version 7.0. Available at www.supply-chain.org (accessed in March 2006). 17
Food and beverages
e-Business and innovation A very important aspect for e-Business W@tch studies is the link between ICT and innovation. The European Commission places great emphasis on the critical role of innovation for European businesses in order to stay competitive in the global economy.17 On the other hand, a strong competitive pressure provides powerful incentives for companies to continuously engage in innovation and R&D. Thus, innovation, competition and competitiveness are closely intertwined. ICT have been identified and widely recognised as a major enabler of innovation, in particular for process innovation. According to the e-Business W@tch survey 2006, 75% of those companies that had introduced new business processes in 2005 reported that this innovation was directly related to or enabled by ICT. In many cases, the implementation of e-business processes in a company will constitute a process innovation in itself. In manufacturing sectors, e-business has triggered significant innovation inside the companies, notably in supply chain and delivery processes, such as automatic stock replenishing and improved logistics. In service sectors such as tourism, the innovative element is more evident in the way that external transactions are accomplished. For example, if a company starts to sell its services online, this can imply innovation in the service delivery process and in customer communication. In some sectors, particularly in ICT manufacturing, consumer electronics and telecommunications, ICT are also highly relevant for product innovation. However, as more companies strive to exploit the innovation potential of ICT, it becomes more difficult for the individual company to directly gain competitive advantage from this technology. e-Business is becoming a necessity rather than a means to differentiate from competitors.18 In addition, the introduction of innovation can cause substantial costs in the short and medium term, as it may take time before the investments pay off. This causes challenges in particular for small and medium-sized companies. It is one of the reasons why e-Business W@tch focuses on such challenges in its sector studies (see also ‘Policy Background’ in chapter 1.1).
17
See, for example, "An innovation-friendly, modern Europe". Communication from the Commission, COM(2006) 589, 12 October 2006.
18
Cf. Carr, Nicholas (2003). "IT Doesn't Matter". In: Harvard Business Review, May 2003. 18
Food and beverages
2
Context and Background
2.1
Sector definition – scope of the study This sector study on F&B by e-Business W@tch focuses on those sub-sectors which deal with the production of processed food (versus first transformation of agricultural products). The following table shows the detailed business activities covered by the analysis. Exhibit 2-1: Business activities covered by the construction industry (NACE Rev. 1.1)19 NACE Rev. 1.1 Group(s) Class(es) DA 15 15.43 15.5 15.51 15.52 15.6 15.61 15.62 15.8 15.81 15.82 15.84 15.85 15.86 15.87 15.88 15.89 15.9 15.91 15.92 15.94 15.97 15.98
19
Business activities Manufacture of food products and beverages Manufacture of margarine and similar edible fats Manufacture of dairy products Operation of dairies and cheese making Manufacture of ice cream Manufacture of grain mill products, starches and starch products Manufacture of grain mill products Manufacture of starches and starch products Manufacture of other food products Manufacture of bread; manufacture of fresh pastry goods and cakes Manufacture of rusks and biscuits; manufacture of preserved pastry goods and cakes Manufacture of cocoa; chocolate and sugar confectionery Manufacture of macaroni, noodles, couscous and similar farinaceous products Processing of tea and coffee Manufacture of condiments and seasonings Manufacture of homogenized food preparations and dietetic food Manufacture of other food products n.e.c. Manufacture of beverages Manufacture of distilled potable alcoholic beverages Production of ethyl alcohol from fermented materials Manufacture of cider and other fruit wines Manufacture of malt Production of mineral waters and soft drinks
NACE Rev. 1.1 is a 4-digit classification of business activities. It is a revision of the ‘General Industrial Classification of Economic Activities within the European Communities’, known by the acronym NACE and originally published by Eurostat in 1970. 19
Food and beverages
Scope of the analysis The selected sub-sectors broadly correspond to the so-called “non Annex I goods”. The term Annex I refers to the first Annex of the EC Treaty of Amsterdam, which is the legal basis for the Common Agriculture Policy and lists all agricultural products which are subject to a Common Market Organisation in the framework of the Common Agricultural Policy. Agricultural products are therefore called Annex I products. In contrast, what is commonly referred to as “non Annex I goods”, are the so-called Processed Agricultural Products. They are made from agricultural products, but are not subject to the Common Agriculture Policy. They encompass products such as processed dairy food, prepared food, sweet drinks, biscuits and bakery products and other preparations. In a way, processed foods can be regarded as “value-added products": raw commodities (e.g. fruit, vegetables) are transformed into processed products by using materials, labour and technology, to be finally marketed to consumers. Analysis presented in this report focuses, to a large extent, on companies from the downstream part of the agri-food value chain. However, setting a clear border between the various activities of food transformation along the value chain and between companies themselves is not possible in all cases.
Business activities The F&B industry presents some unique characteristics, the most important of which are the complex value chain and the heterogeneous nature of the different players (e.g. farmers, input suppliers, manufacturers, packagers, transporters, exporters, wholesalers, retailers and final customers). The need for coordination and synchronization of such different entities is hindered by their different business interests, cultural attitude and size. Generally speaking, production is organised in small batch processes implying a very complex organisation and coordination of different activities. The characteristics of many food products as perishable goods largely affect the way products are managed and delivered along the value chain.
2.2
Industry background
2.2.1
Size of the EU food and beverage industry In 2004, the EU-25 food and beverage industry as a whole (i.e. the entire NACE Division DA 15) had a turnover of 815 billion euros, transforming over 70% of EU’s agricultural raw materials and employing about 3.9 million people, of whom the majority works in SMEs. France, Germany, Italy, the UK and Spain are the largest EU-25 producers with more than 70% of total EU turnover. Among the EU Member States, the leading country by turnover in 2004 was France with 138 billion euros, followed by Germany with 130 billion.
20
Food and beverages
Germany was the country with the highest employment in this industry (about 520,000 workers), followed by Spain (430,000) and France (418,500). In total, turnover of F&B companies in the EU increased by 2% in 2004 (compared to 2003), while the workforce decreased by nearly 5% in the same period. Exhibit 2-2: The F&B industry in the EU-25 2001
2002
2003
2004
2004/2003
Turnover
€ billion
785
791
799
815
+2.0%
Employees
million
4.4
4.2
4.1
3.9
-4.9%
Source: Eurostat, CIAA (2005)
There are about 282,000 companies in this sector. The structure is very diversified, ranging from small enterprises, often family-owned, to major multinationals. About 95.5% of companies are micro and small enterprises. Exhibit 2-3: Structure profile of the F&B industry according to the size of companies (%) Micro comp. 1 to 9 Turnover Value added
7.3
Small companies
Medium companies
10 to 19
20 to 49
50 to 99
5.1
9.8
9.5
Large companies
100 to 249 16.8
250 to 499
500 to 999
1000+
15.4
14.0
22.1
8.8
6.2
8.9
8.3
15.0
13.8
14.5
24.6
Employees
16.4
9.6
11.1
9.3
15.1
12.1
10.8
15.9
Companies
78.9
11.0
5.6
2.1
1.5
0.6
0.2
0.1
Source: Eurostat (2001)
Industry structure SMEs account for about 62% of the workforce employed in the F&B industry and for about 49% of the sector's turnover. This indicates that the productivity is higher among larger enterprises. In fact, labour productivity in micro enterprises, measured by the value added per employee, is only about one third of the productivity in large firms. In 2001, the average productivity was about € 40,000 per employee. Despite its numerous small firms, the industry is dominated by a small number of very big players. Exhibit 2-4 lists the leading European companies that operate in F&B industry.
Turnover by sub-sector The group of “other food products” (NACE 15.8), which includes bakery, pastry, chocolate, pasta, baby food and confectionery products, is the leading sub-sector within the F&B industry. It accounts for 26% of total turnover and 42% of the workforce. The key branches of this category are “bread, fresh pastry goods and cakes” (31%) and “chocolate and sugar confectionery” (18%). Exhibit 2-5 shows the distribution of turnover and value added for some of the sub-sectors, depending on the size of companies.
21
Food and beverages
Exhibit 2-4: Ranking of F&B companies by sales, 2004-2005 Name
Nestlé Unilever Cadbury Schweppes Danone
Headquarter
European F&B sales € billion
CH NL/UK UK FR UK
F&B Employees (in 1000)
Main sectors
23.4 17.9 9.9 9.4 8.2
95.0 24.5 22.5 25.8
multi-product multi-product beverages, confectionery multi-product sugar, starches, prepared foods
Associated British Foods Scottish & Newcastle Heineken Diageo Carlsberg Südzucker Allied Domecq InBev
UK NL UK DK DE UK BE
7.3 7.1 5.7 4.8 4.8 4.7 4.7
15.2 17.5 12.0 -
alcoholic beverages beer alcoholic beverages beer sugar, prepared foods alcoholic beverages beer
Tate & Lyle Ferrero Bongrain Kerry Group Nutreco Pernod Ricard Campina Oetker-Gruppe Vanisco Ebro Puleva Wessanen Sab Miller Parmalat
UK IT FR IR NL FR NL DE DK ES NL UK IT
4.7 4.6 4.6 4.1 4.1 3.8 3.6 3.5 3.4 2.2 2.1 2.1 1.9
6.7 16.6 16.0 21.7 12.6 12.2 7.1 15.1 9.2 6.7 8.4 10.2 6.5
sweetener, starches confectionery dairy multi-product, ingredients meat alcoholic beverages dairy multi-product ingredients rice, sugar, dairy prepared foods beer dairy, snacks, beverages
Source: CIAA (2005)
Exhibit 2-5: Distribution of the EU-25 turnover value added and employment in the F&B industry, according to the size of companies ( %) Turnover Number of employees
Value Added
1 to 9
10 to 249
+250
Processed fruit and vegetables
5.0
46.9
48.1
3.5
43.4
53.1
Oils and fats
7.8
35.1
57.1
9.6
35.1
55.3
Dairy products
3.0
34.8
62.2
3.3
29.4
67.3
Flour and starch products
8.5
52.3
39.2
6.3
47.0
46.7
Animal feed
6.2
59.3
34.5
5.3
54.8
39.9
Various food products
12.2
34.4
53.4
14.5
35.8
49.7
Beverages
4.9
36.2
58.9
3.0
32.1
64.9
F&B industry20
7.3
41.2
51.5
8.8
38.4
52.8
Source: Eurostat (2001)
20
Entire NACE Rev. 1.1 Division DA 15 22
1 to 9
10 to 249
+250
Food and beverages
International trade Exports outside the EU-25 account for 5.5% of total turnover. The main destination market was USA, followed by Japan and Russia. “Beverages” and “various food products” sectors account for 55% of total exports. Exhibit 2-6: EU-25 key trade figures in the F&B industry (€ million) 2002
2003
2004
2004/2003
Export
45.0
43.5
45.1
3.7
Import
38.0
37.6
40.7
8.2
Balance
7.0
5.9
4.4
-25.4
Source: Eurostat (2005)
Although from 2003 to 2004 exports increased by 3.7%, the trade balance shows an overall negative trend over the past three years. In these years, European producers suffered from high oil prices and the rise in value of the euro against other currencies. From 2003 to 2004, EU-25 imports grew by 8.2%, with Brazil, Argentina and USA being the main trading partners. Exhibit 2-7: Origin and destination of the EU-25 F&B products (€ million) Destination Countries
€M
Origin Countries
€M
USA
10.1
Brazil
4.7
Japan
3.6
Argentina
3.8
Russia
3.5
USA
3.0
Switzerland
3.0
China
1.7
Canada
1.5
Switzerland
1.5
Norway
1.3
New Zealand
1.4
Australia
0.9
Turkey
1.4
South Korea
0.9
Norway
1.2
Algeria
0.6
Australia
1.2
Croatia
0.6
Chile
0.9
Rest of the world
19.1
Rest of the world
19.9
Total
45.1
Total
40.7
Source: Eurostat (2005)
2.2.2
Trends and challenges The F&B industry is one of the major pillars of the European economy, accounting for about 13% of total manufacturing. At the international level, the competition from low labour cost countries outside Europe is increasing, due in part to the high price of domestic agricultural raw materials. On the other side, the gradual deregulation of access to world markets, and increasing demand for processed food products in Asian countries, also create new opportunities for European companies.
23
Food and beverages
In the domestic markets, the competitive scenario of this industry is rapidly changing. Pressure of regulation is getting increasingly stringent, driven by consumers’ awareness of quality and safety issues, along with the unfortunate occurrence of food safety crises across Europe and world-wide. There is, then, the growth of private label products which menaces the share of major brands. Major manufacturers need to respond to the growth of private labels by increasing product innovation and by increasing their own brand equity. Currently, the main factors that have an important impact on the EU industrial competitiveness and drive e-business technology challenges can be summarised as follows.
Changing relations with distribution and price-led competition Food manufacturers are facing the increasing bargaining power of the distribution system. Major distributors have tended to concentrate and to internationalise orders and are demanding improved quality and services as measured by shorter order-to-delivery cycles. Changes in supplier-retailer relationship are also putting pressure on prices, and manufacturers, in turn, are demanding reduced prices from their suppliers. This penalises SMEs and favours industry concentration into a few sophisticated suppliers that support the requests of the modern distribution system and its more demanding industry value chain. This scenario pushes small and medium sized enterprises to increase collaboration with larger companies, to reach the market or to position their product to niche markets such as is very typical in the case of the food industry. These trends are reshaping the scenario of the food industry. Manufacturers are being forced to become more efficient in order to cut costs, and to cooperate more closely with their business partners.
Development and control over brands While large manufacturers have been developing mega-brands (products available throughout all Europe) in order to achieve dominant market positions and to exploit economies of scale in marketing and sales, large retailers have invested on developing their private labels. This has led to a paradoxical situation: presently, large retail distribution chains are often the main competitors of their large suppliers. Private labels tend to be comparable in terms of quality, and they often imitate leading products, but can be offered at lower prices. They have also gained consumers’ trust, as retailers have direct contact with customers and can invest in loyalty building. The growth of private labels has reduced the equity of major suppliers’ brands. Food manufacturers can only respond by investing in research and innovation. Another strategy, which is increasingly being used, is the rationalisation of the product portfolio, which leads to concentration on a few "cash cows", i.e. a limited number of the most profitable products. A supportive ICT application in this field is PLM (Product Lifecycle Management) which is discussed in Section 4.1.
24
Food and beverages
Evolving consumers’ needs and requirements Consumers’ tastes and requirements are evolving and are shaping food suppliers’ strategies. Concerns are rising over health issues, animal treatments, and workers’ welfare in less developed countries. New requirements are the results of changing demographics: older consumers with special needs; single people and two-income families requiring quick-to-prepare food; health-conscious consumers demanding functional food, such as nutraceutical.21
The food safety issue and the regulatory pressure Food safety is a major focus in the EU. Consumers’ awareness about food safety and quality has increased dramatically over the past years. This is the result of general changes in consumers’ attitude towards health as well as the result of a series of food crises across Europe and world-wide. ICT, and particularly the internet, play an important role in this context, as they have substantially increased information transparency. Public authorities and consumer protection organisations can easily publish information related to food safety and specific products (e.g. test results) on the internet, which greatly empowers consumers. This development is gaining momentum; countries are considering or have already implemented (see the Danish example in the box) various schemes for indicating to what extent shops and restaurants comply with recommendations and stipulations regarding quality and safety; indirectly, this has of course important implications for food producers, since the quality of the products they deliver to shops or restaurants is a precondition for meeting the requirements. As a result, consumer needs are rapidly evolving with respect to innovative products, safety and quality; this does not compromise, however, the demand for product diversity and convenience at the best prices. Impacts of safety incidents are disruptive not only at individual company level but also at industry and even at country level. These trends have driven this industry to invest in control and accountability within the supply chain, including the setting up of systems for traceability, and labelling, such as RFID tagging.
21
A nutraceutical is any substance that is a food or a part of a food and provides medical or health benefits, including the prevention and treatment of disease. 25
Food and beverages
Policy example
"Smileys" - The Danes' guide to shops and restaurants The Danes have introduced "Smileys" as a simple system to help consumers choose where to shop for food or to dine. The Smileys tell consumers how well shops and restaurants comply with the food regulations. The Danish Veterinary and Food Administration (DVFA), which is part of the Ministry of Family and Consumer Affairs, is responsible for the inspections and the resulting award of Smileys. DVFA deals with food safety and health from farm to fork.
The Smiley-scheme, which was launched in 2001, has become highly popular among consumers as well as enterprises, and has proved effective in raising food safety. The Smileys appear at the top of the official food inspection reports that must be displayed visibly near the entrance in all food shops and restaurants. The Smileys are also easily found on the internet. 81% of the consumers say they would reject a restaurant with a bad Smiley. Of the relatively few respondents who have actually encountered a bad Smiley, 56% chose to eat somewhere else. 83% of the enterprises agree that the scheme is 'a good or very good idea'. Source: DVFA (www.uk.foedevarestyrelsen.dk/Forside.htm)
Public Authorities are responding to food safety concerns by imposing tougher legislation. Since January 2005, firms are required to provide ”one back-one forward” traceability and to make information available to the authorities if required. On January 1st 2006, the so called hygiene package came into force. This legislation was adopted in 2004 to set down stricter, clearer and more harmonised rules on the hygiene of foodstuffs, specific hygiene rules for food of animal origin, and specific rules for controls on products of animal origin intended for human consumption. Under the food hygiene legislation, the onus is placed on food operators to ensure that food reaching EU consumers is safe. The operators have to apply compulsory selfchecking programmes and follow the Hazard Analysis and Critical Control Point (HACCP) principles in all sectors of the food industry. Presently, in order to comply with safety requirements, the main challenge for F&B companies is the ability to integrate their information systems with track and trace technologies like RFID.
26
Food and beverages
Exhibit 2-8: Overview of competitive trends and related challenges in the F&B industry Competitive trends Changing relations with distribution and price-led competition Development of mega brands and private labels Food safety concerns, regulatory pressure Changing demand patterns
Challenges
Relevant e-business applications
Cost effective supply chain; integration of the supply chain
CRM, SCM, ERP, mobile applications
Investments in innovation and rationalisation of the product portfolio Traceability along the value chain
PLM (Product Lifecycle Management), CRM
Innovation, supplier-retailer cooperation to exploit consumption data, demand forecasting
CRM
ERP, SCM, RFID
Source: Databank (2006)
2.3
Review of earlier sector studies The e-Business Survey 2005 results highlighted the polarisation that existed between large and small and medium enterprises, relative to their differing adoption rates of ebusiness tools. These differences accentuated and were attributed to the structural organisation of the F&B industry. However, growing competition, the retail power and legislative requirements, such as those linked to traceability of products, were highlighted as important drivers for the organisational and technological developments of firms in the sector over the following years. The report concluded that firms’ operational excellence was increasingly linked to the use of e-business, aiming at process integration and digitisation of relations with suppliers and customers. On the one hand, companies were found to be aware of the need to align corporate organisation and culture with technological change. ICT vendors were aware of the industry’s need and created suitable programmes to respond to this need. It was also concluded, however, that an important trend was to work not only on internal processes (production, logistics and finance), but increasingly towards provider and customer network integration. Relevant ICT systems in this context were found to be extranet, middleware, SCM (Supply Chain Management) and CRM (Customer Relationship Management), taking into account the emphasis on business networks in which companies find themselves, rather than in traditional chains.
ICT and e-business The e-Business Survey 2005 results confirmed the inadequacy of basic infrastructure for the majority of micro and small firms, their limited awareness for ICT issues, and a general lack of ICT skills within the industry. The inadequacy of their ICT infrastructures contributed to the weak competitive market position of SMEs. This situation could be attributed to several factors, such as requests for scaled technological investments and the relatively low level of specific training and 27
Food and beverages
education conducted within SMEs. Moreover, the successful introduction of ICT applications could involve significant organisational changes. For SMEs it would be quite hard to fill this existing gap alone because usually they had low or non existent ICT budgets. Results also revealed that companies in the sector used e-business mainly to improve their internal processes and procedures, and in particular the efficiency of internal communication. The technologies which were found to be most commonly used by small and large enterprises alike were e-mail, websites and online banking These were followed, at a considerable distance in terms of diffusion, by EDI (Electronic Data Interchange) and ERP (Enterprise Resource Planning) systems (though very few smaller businesses used these). The most advanced technologies, such as CRM, SCM systems, and Knowledge Management solutions were used to a lesser extent and then only by larger enterprises. Conversely, there was some evidence to suggest that even micro and small firms, once they had achieved minimum technological requirements, tended to be quite active in the improvement of internal processes, thus achieving gains in performance and cost savings. This could be explained by the overall sector scenario, shaped by pressure from large suppliers and distribution, legislation, and demand requirements. It was also supported by the increasing availability of software solutions which are adapted to the requirements of SMEs and thus more affordable. In summary, the e-Business Scoreboard 2005 showed that the F&B industry had a relatively good level of development of internal process integration and supply chainrelated activities.
Suggestions for further developments The e-Business W@tch sector studies on the F&B industry of 2005 pointed at some important developments and issues that deserve further analysis. These were in particular the integration of internal processes; Customer Relationship Management (CRM) Systems and Supply Chain Management (SCM) Systems, the use of mobile applications in the marketing and sales area and RFID. These issues have been taken up and analysed in more detail (than in 2005) in this report (see Chapter 4).
28
Food and beverages
3
Adoption of ICT and e-Business in 2006
Background information about the e-Business Survey 2006 – e-Business W@tch collects data on the use of ICT and e-business in European enterprises by means of representative telephone surveys. The e-Business Survey 2006 was the fourth survey after those of 2002, 2003 and 2005. It had a scope of 14,081 interviews with decision-makers in enterprises from 29 European countries.22 Most of the tables in this report feature a breakdown of the population of enterprises based on the aggregate of 10 EU countries – the "EU-10".23 In these countries the survey covered all 10 sectors (at least to some extent) and therefore comparability of the sample across sectors is given. The EU-10 represent more than 80% of the total GDP and inhabitants of the EU-25 and are thus to a large extent representative for the whole EU. The survey was carried out as an enterprise survey, i.e. focusing on the enterprise as a business organisation (legal unit) with one or more establishments. Similarly to 2005, the 2006 survey also included only companies that use computers. The configuration of the survey set-up (e.g. sampling) reflects the mandate of e-Business W@tch to focus on sectors and SMEs. As a result, comparisons should mainly be made between sectors and between size-bands of enterprises. Breakdowns by country are also possible, but should be treated cautiously, for several reasons (see Annex I). More detailed information about the survey methodology, including information about sampling and the business directories used, the number of interviews conducted in each country and sector, data on non-response rates, as well as selected results by country are available in Annex I and II and on the e-Business W@tch website.
3.1
Use of ICT Networks
Internet access Though a direct comparison with the 2005 e-Business W@tch Survey results is not possible (as different industry sub-sectors and countries were involved), there are indications that the use of ICT networks in the F&B industry has increased, reducing the gap with the average of the 10 industry sectors included in the e-Business Survey 2006
22
The survey was conducted in March-April 2006 using computer-assisted telephone interview (CATI) technology. Field-work was co-ordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in co-operation with their local branches and partner organisations. The countries covered include EU Member States, Acceding and Candidate Countries, and countries of the European Economic Area (EEA).
23
The EU-10 cover the Czech Republic, Germany, Spain, France, Italy, Hungary, the Netherlands, Poland, Finland and the UK. 29
Food and beverages
(EU-10). This improvement could partly be due to the fact that the sub-sectors addressed in the 2006 Survey are more industrially developed and manufacture products with a higher added value than the sub-sectors addressed in 2005. Following a trend, which is common to the other industry sectors analysed, in the F&B industry the use of ICT infrastructure increases in line with company size. The polarised structure of the F&B industry (with a few large, often multinational companies and many small local firms, as underlined in the chapter 2 of this report) is mirrored by the difference between employment weighted data and firm weighted, as for internet and broadband access. The difference is higher than the corresponding value calculated on the weighted average for the 10 sectors covered by the e-Business Survey 2006 (EU-10). Exhibit 3-1: Internet access and remote access to company network Companies with internet access Weighting
Food & bev. (EU-10)
% of empl.
95
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
% of firms
88
Base (100%) N (for sector, EU-10) Questionnaire reference
% of empl.
% of firms
72
85 91 100 100 95
93
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Food & beverages Footwear Pulp & paper ICT manufacturing Consumer electronics Shipbuilding & repair Construction Tourism Telecommunication Hospitals activities
Companies with broadband internet access
88 89 94 99 97 100 90 90 99 98
firms using computers 775 A1
% of empl.
n.a.
61 62 78 83 76
89 98 99 99 95 96 99 100 98 100 95 93 100 100
64
Average share of employees with internet 24 access
72 75 80 84 87 87 72 72 88 85 firms using computers 775 A3
% of firms
25
Remote access to company network % of empl.
% of firms
35
32 18 23 47
69
n.a.
43
62 75 83 84
n.a. n.a. n.a.
51 29 33 44
64 62 68 79 74 86 64 68 85 78
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
25 28 40 74 80 30 47 53 90 41
firms with internet access 715 A2
14 11 20 37 69
35
16 12 22 43 60
35 17 56 69 51 41 25 38 74 39
14 10 21 35 32 27 13 13 46 34
firms using computers 775 A5
Source: e-Business W@tch (Survey 2006)
24
Read: "The average share of employees with internet access in a company from the F&B industry is 25%." 30
Food and beverages
It is possible to record a noteworthy difference between the figures related to the company internet access (in line with the average) and the significantly low share of individual employees with internet access: a mere 25% compared with an average of 43% in other industries. The main reason of this difference is the prevalence, in the F&B industry, of employees operating in production lines, and thus not needing web access or e-mail, over clerical/office employees, concentrated mainly in the procurement and sales offices. Broadband access in the F&B industry, although on average among the 10 sectors, is slightly lower than the average in other manufacturing industries, while the remote access to company network values are quite on line with the average. The fact that the value of the “remote access to company network” indicator is higher than the indicator “employee with internet access” reflects the presence of well-developed -often proprietary- distributed ICT networks in the sales territories. The peculiar sales system of the F&B industry relies on remote access to the company network and may drive25 the implementation of mobile communication systems in the enterprise's ICT networks. Section 4.3 of this report illustrates the advantages brought by the adoption of this kind of technology.
Networks and protocols used The e-Business Survey 2006 shows that, together with the more traditionally widespread Local Area Networks (LAN), Virtual Private Network (VPN) for remote access is the most widely used network application in the F&B industry. The sales system of the F&B industry is characterised by frequent orders, coming through a network of agents and salespersons widely distributed on the territory and always on the move in order to reach the smallest point of sale, and depends on remote access to the company network, often through mobile systems. The use of these network technologies increases by company size (Exhibit 3-2): the average percentage of VPN use (72%) increases from 13% in companies with 1-9 employees to 91% in companies with more than 250 employees. By comparison, the same figure for large companies in 2005 was significantly lower (53%). LANs, a well-established and widely known technology to connect computers within a site, are extensively adopted by medium-large enterprises, but the dichotomy between large and small companies is still deeply set: though the F&B industry percentage is slightly lower than the average on all 10 sectors, the LAN adoption rate increases from 18% among small firms to a full 100% of firms with more than 250 employees. Wireless-LAN technology is already used by over 70% of large firms, but just about 16% of small and 30% of medium-sized companies. These findings show a marked improvement when compared to those for the industry in 2005, when about 48% of large firms reported the use of W-LAN.
25
as shown in an earlier e-Business W@tch Sector Study on the F&B industry, July 2005, Section 2.1 page 20. Available at www.ebusiness-watch.org ('resources') 31
Food and beverages
Exhibit 3-2: Networks and protocols used LAN Weighting
Food & bev. (EU-10)
% of empl.
% of firms
69
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
31
N (for sector, EU-10) Questionnaire reference
% of empl.
% of firms
30
18 49 89 100 65
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
Use Voiceover-IP
W-LAN
46
% of empl.
9
% of firms
15
7 16 30 73 32
35 59 84 96
16
Use VPN for remote access
19
% of empl.
% of firms
65
19 10 10 30 16
12 21 37 47
13
29 13 34 59 91
57
14 11 13 22
26 20 32 57 79
firms using computers 775
firms using computers 775
firms using computers 775
Firms enabling remote access 218
A4a
A4b
A4c
A6d
Source: e-Business W@tch (Survey 2006)
Voice-over-IP The use of telephony services over internet networks, by means of digitized voice transfer technology, has gained momentum over the past few years. Established, as well as new telecommunication and internet service providers offer new services based on this technology which offers user companies cost saving potentials. These services are commonly referred to as "Voice-over-IP" (VoIP), as they have in common that they use the Internet Protocol (IP) to transfer voice calls. However, there are many ways for VoIP to be implemented. For example, calls can be initiated and terminated via a computer or a VoIP-enabled phone. The provision and take-up of VoIP is being driven by increasing broadband penetration. Private users typically encounter VoIP services as an internet-based peer-to-peer network service (for example Skype or Google Talk). But from the perspective of corporate users, there are more usage scenarios: corporate users can generally follow two paths if they want to benefit from VoIP; they can use either hybrid solutions or pure IP-based networks.26 Interestingly VoIP seems to be, already spreading, in the F&B industry. In 2006, 19% of all companies from the sector (accounting for 15% of employment) said that they used Voice-over-IP services (see Exhibit 3-2). Diffusion increases by size band: one in five medium-sized companies and one in three large firms reported using VoIP, indicating that companies are adopting those technologies which promise visible and immediate cost26
See e-Business W@tch Sector Study on the Telecommunications Industry, 2006. Available at www.ebusiness-watch.org ('resources'). 32
Food and beverages
savings without creating organisational or other disruptions. These figures are similar to the average of the 10 sectors studied this year by e-Business W@tch (which indicates slightly higher percentage of companies using this technology). It can be expected that usage will increase fast over the next few years; eventually, as a common scenario depicts, all fixed network voice telephony might be converted to internet protocol. Then "Voice-over-IP" as the standard technology for telephony will no longer be the issue it is today.
3.2
ICT Skills, Outsourcing and ICT Budgets Improving e-business skills, especially among SMEs, has been identified as a relevant concern for policy in the sector study on the F&B industry of 2005: "Support firms in providing staff training on ICT… and raise awareness and managerial understanding of ebusiness issues” were among the suggestions for policy initiatives addressing the F&B industry.
3.2.1
Demand for ICT skills and skills development Results of the e-Business Survey 2006 show that in total, about 11% of the EU-10 firms from the sector say that they employ ICT practitioners (see Exhibit 3-3). This indicator is in line with the all 10 sectors average and it also confirms the polarisation within this industry between large firms and SMEs. While only a very limited share of SMEs employ people with special skills and tasks related to the implementation and maintenance of ICT in the company, larger firms show a much higher attitude. About 14% of all firms in the F&B industry said that they regularly send employees to ICT training programmes. This figure includes the ICT practitioners that run the systems, and also ICT users from among the workforce. The share of active companies in that respect is in line with other industries. Also in this case, the difference between small and large enterprises is relevant. The vast majority of employees working for small-sized companies are not involved in any training programme but also half of the large companies do not ensure regular ICT training of their staff. The figure of firms reporting that they had hard-to-fill vacancies for ICT jobs in 2005 is considered to be surprisingly low, given the attention that policy is paying to the presumed ICT skills gap. It is questionable whether this assessment actually mirrors a situation where the adequate skills can be easily found on the market or, instead, it shows a low degree of awareness among F&B firms. The figure, though, is in line with the all 10 sectors average. e-Learning, which means supporting training with learning material in electronic format, (e.g. material that is available on the intranet or the internet), is used by 9% of F&B firms. e-Learning applications can be used for ICT-related training, but also for other sectorspecific or even company-specific training sources (e.g. about raw materials or manufacturing methods). 33
Food and beverages
Exhibit 3-3: Demand for ICT skills and skills development
Companies employing ICT practitioners Weighting
Food & bev. (EU-10)
% of empl.
% of firms
26
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
N (for sector, EU-10) Questionnaire reference
% of empl.
% of firms
26
5 11 24 70 27
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
11
Regular ICT training of employees
14
% of empl.
% of firms
2
10 16 22 50 22
12 15 29 59 firms using computers 775 B1
14
Companies with hard-to-fill vacancies for ICT jobs in 2005
13
% of empl.
0
% of firms
16
0 1 1 1 2
9 16 28 41 firms using computers 775 B4
Companies using e-learning
1
21
2 0 2 6 firms using computers 775 B2
9 7 10 21 35 11 12 11 19 35
firms using computers 775 B5
Source: e-Business W@tch (Survey 2006)
In summary, these data confirm that differences between large and smaller enterprises apply also in their approaches to ICT skills and training, and this is not surprising. The common attitude across the sector is the overall poor concern about the importance of training (only 50% of large companies ensure regular ICT training) and about ICT skills in general.
3.2.2
Outsourcing of ICT services and ICT investments
Outsourcing Firms were asked whether, in 2005, they had outsourced any of their ICT services which had previously been conducted in-house to external service providers. In the F&B industry, this is the case for about 12% of companies. This percentage increases by firmsize (see Exhibit 3-4): about one in three large companies have outsourced additional ICT services in 2005. The overall trend appears to be that more services will be outsourced in the future. Asked whether outsourcing would increase, decrease or remain the same in 2006/07 (compared to 2005), 31% of companies from the F&B industry said that they anticipate an increase, and only very few companies replied that outsourcing would rather decrease (see Exhibit 3-5).
34
Food and beverages
By and large, the investment capability in this sector is in line with the average of all 10 sectors studied this year by e-Business W@tch. The large majority of large and mediumsized companies reported investments in ICT. Moreover, even micro firms seem quite active in this domain (see Exhibit 3-4). Exhibit 3-4: Outsourcing and spending on ICT Have Share of ICT outsourced ICT budget as % of services in total costs 2005 Weighting
Food & bev. (EU-10)
% of empl.
% of firms
24
12
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
% of firms
4
19
% of empl.
4
7 14 22 33
% of firms
65
6
5
8 21 21 31
all firms (excl. "don't know")
% of empl.
% of firms
9
37 53 76 90 65
50
5 5 6 6
firms using computers
Difficulty to draw funds for investments
44
3 4 5 4
14
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
Base (100%)
% of empl.
Have made ICT investments in 2005
19
39 60 78 86
15 25 3 6 29
Firms with external funding sources for their ICT investments 34 C5
firms using computers
N (for sector, EU-10) 775 507 Questionnaire reference B6 C1 * Data only indicative due to low number of observations (N ~ 25-50).
5 (5)* (4)* (0)* (23)*
775 C3
Source: e-Business W@tch (Survey 2006)
Exhibit 3-5: Outsourcing trend: percentage of companies that have increased / decreased their outsourcing activities in 2005
-9
-4
1
Food & beverages (EU-10)
-1
All 10 sectors (EU-10)
-3
6
11
16
21
26
31 31
26
Outsourcing has decreased
Outsourcing has increased
Base (100%): Companies that have outsourced ICT services. N (for sector, EU-10) = 104. Weighting: in % of firms. Questionnaire reference: B7 Source: e-Business W@tch (Survey 2006)
35
Food and beverages
ICT expenditure and investments The average ICT budget of a company from the F&B industry, including hardware, software, services and personnel, corresponds to about 4% of total company costs (see Exhibit 3-4). No figures are available on the absolute size of investments. In 2006, eBusiness W@tch asked companies about the major source from which they finance their ICT investments27. Companies were also asked if they had experienced any difficulties in receiving funds from this source (in case it was external financing sources, see Exhibit 3-6). In each of the 10 sectors surveyed, self-financing (out of the cash-flow generated) is the dominant source of financing ICT investments. In the F&B industry, 90% of firms say that this is their major source. Bank loans are typically used for larger ICT investments; they are used with no significant differences across the various size bands. Venture capital is not used as a source for ICT investments. A very limited number of small and medium-sized F&B companies successfully draw from public funds for their investments. Exhibit 3-6: Major source for investments in ICT Cash-flow financing Weighting
Food & bev. (EU-10)
% of empl.
% of firms
77
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
% of empl.
90
74
7
% of empl.
5
% of firms
0
7 4 8 4
82
5
82 81 70 67
449 C4
Venture capital
% of firms
91 89 71 85
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%) N (for sector, EU-10) Questionnaire reference
Bank loans
7
Public funds and other % of empl.
0
% of firms
2
1 0 0 0 1
8 6 8 2
1
9
1 1 1 1
firms that have made investments in ICT 449 449 C4 C4
0 0 1 3 1 7 2 2 2 8
449 C4
Source: e-Business W@tch (Survey 2006)
About a quarter of all firms from the F&B industry said that they plan to further increase their ICT budgets in 2006/07. 8% said that they will cut down on their budgets (see Exhibit 3-7) compared to the current budget. Thus, a majority say that they will maintain the current level of spending. Interestingly, medium-sized companies seem to be the most active in planning further ICT investments.
27
Ideally, a question about the breakdown of investments into the different financing sources would be asked; however, only few interviewees would be in a position to spontaneously answer this question on the telephone; furthermore, such a question would be extremely timeconsuming. Thus, the only feasible solution was to ask for the major source. 36
Food and beverages
Overall, present and planned investment in ICT positions the F&B industry in line with the average of all sectors. Within this general trend, the effort of medium-sized firms seems to be particularly interesting. As for planned investments, this group is apparently the most promising. It can be argued that pressure from business partners and the increasing request for traceability and quality control are driving these companies towards ICT investments. Exhibit 3-7: ICT budget trend: percentage of companies that plan to increase / decrease their ICT budgets in 2006/07
-15
-10
-5
Total Food (EU-10)
10
15
20
30
11
-6
Medium (50-249 empl.)
25 23
-5
Small (10-49 empl.)
All 10 sectors (EU-10)
5
-8
Micro (1-9 empl.)
Large (250+ empl.)
0
20
-9
28
-12
25
-8
25
Will decrease ICT budget
Will increase ICT budget
Base (100%): Companies using computers (excl. "don't know"). N (for sector, EU-10) = 745 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: C2 Source: e-Business W@tch (Survey 2006)
3.3
Standards, Interoperability and ICT Security Issues A "standard", used as a technical term, is "a technical specification approved by a recognised standardisation body for repeated or continuous application, with which compliance is not compulsory".28 There are national, European and international technical standards. In addition to such formal standards there are also industry specifications which result from collaboration, in consortia or smaller partnerships, subject to differing levels of openness and participation. Whatever the source, agreement on shared technical standards is an instrument to achieve interoperability between different systems. Without interoperability, advanced forms of e-business (such as the digital integration of systems in B2B exchanges) are practically impossible.
28
Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998: the Directive lays down a procedure for the provision of information in the field of technical standards. Official Journal of the European Communities 21/7/1998. 37
Food and beverages
3.3.1
Types of e-standards used Electronic Data Interchange (EDI) is the computer-to-computer exchange of structured information, using agreed message standards, from one computer application to another by electronic means and with a minimum of human intervention. In common usage, EDI is understood to mean specific interchange methods agreed upon by national or international standards bodies for the transfer of business transaction data, with one typical application being the automated purchase of goods and services. EDI is still the most widely used data format for e-business transactions. EDI-based standards are mostly used by larger companies (67% of firms in the F&B industry, as shown in Exhibit 3-8), exerting a leading role towards their business partners. Micro and small firms tend to choose proprietary standards, as agreed with commercial partners. The preponderance of large companies probably accounts for the relatively high percentage of EDI-based standards adoption in the F&B industry, if compared with all 10 sectors. Exhibit 3-9 shows that the EDI systems adopted in the F&B industry are mostly internet-based. Exhibit 3-8: Use of e-standards EDI-based standards Weighting
Food & bev. (EU-10)
% of empl.
% of firms
31
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
N (for sector, EU-10) Questionnaire reference
% of empl.
6
9
3
8
% of empl.
4
% of firms
20
5 2 10 11 11
2 4 10 29 firms using computers 775 G1a
Proprietary standards
% of firms
5 11 30 67
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
XML-based standards
5
19
% of firms
4
12
firms using computers 775 G1c
3 1 3 2 12
4
10 13 24 31
Source: e-Business W@tch (Survey 2006)
38
% of empl.
10 11 20 37
6 5 10 27 firms using computers 775 G1b
11
Other standards
firms using computers 775 G1d
2
Food and beverages
Exhibit 3-9: Types of EDI used
0 Food & beverages (EU-10)
20
40
9
60
80
63
All 10 sectors (EU-10) 3
28
71 Standard EDI
100
26 Internet EDI
Both
Base (100%): Companies using EDI. N (for sector, EU-10) = 132. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Questionnaire reference: G3 Source: e-Business W@tch (Survey 2006)
In order to understand the potential of XML, it is worth bearing in mind that XML is only a standard to describe the contents of a page or file. It does not guarantee consistent, comparable, shared semantic understanding. XML is a way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere. XML can be used to share information in a consistent way. XML is an open standard, web enabled, protocol, network and platform independent; language independence fosters immense interoperability amongst heterogeneous systems. Not surprisingly, therefore, it has raised large interest and has gained software makers' interest as the language of choice for internet-based data exchange. However, being a meta-language, i.e. a language used to create other specialized languages, XML provides a common foundation but it requires an effort for the definition of specific terms to be used at industry and cross-industry level. The adoption of XML is generally related to web-based applications, such as eprocurement, and is generally present when e-business on the web (e-commerce) is addressed. This explains the relatively high diffusion of XML in medium and large companies, with wide distribution networks and large customer bases. The great flexibility of XML-based software and its independency from platforms, which makes it relatively immune to changes in technology, is a good fit to some characteristics of the F&B industry, such as the high variety of products and the necessity of adaptation to different distribution networks. This factor could justify the relatively higher percentage of F&B industries that declared their intention to shift from EDI to XML based standards: 7%, compared to a mere 3% in the average of all 10 sectors (Exhibit 3-10).
39
Food and beverages
Exhibit 3-10: Companies planning to migrate from EDI to XML based standards
0 Food & beverages (EU-10)
20
40
7
60
80
100
93
All 10 sectors (EU-10) 3
97 Plan to migrate w ithin 12 months
No migration plans
Base (100%): Companies using EDI. N (for sector, EU-10) = 127. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Questionnaire reference: G4 Source: e-Business W@tch (Survey 2006)
3.3.2
Use of Open Source Software
The open source model Open source software (OSS) refers to computer software under an open source license. An open-source license is a copyright license for software that makes the source code available and allows for modification and redistribution without having to pay the original author. In the past years, the public awareness of OSS has grown steadily, with the operating system Linux (an alternative to proprietary operating systems such as Windows) being the best-known project. Besides Linux, other OSS such as the database mySQL or the Internet browser Firefox (a spin-off of the Mozilla browser) have achieved significant market shares. Policy makers are interested in monitoring OSS developments and the uptake among companies for several reasons. There is some debate and different views on whether the use of OSS based operating systems could possibly reduce ICT costs for SMEs, at least in the long run. Another aspect is whether OSS systems may help to "unlock" companies from specific ICT service providers in the future. Against this general interest on the issue in policy and industry, companies were asked whether they used OSS, either in operating systems, databases or browsers.
Deployment of Open Source Software Results for the F&B industry show that use of OSS clearly increases by firm size, with considerable gaps between the small firms (with up to 49 employees) and the mediumsized ones, and again between the medium and large ones. This is fully in line with findings of the e-Business Survey 2005. In particular, operating systems (including Linux) based on OSS appear to be widely used by larger companies from the F&B industry. In fact, about half of the sector’s large firms, reported that they have OSS operating systems in place. 40
Food and beverages
The findings from the survey confirm the general perception that OSS requires skilled ICT professionals and is therefore limited to large companies – or companies that favour IT solutions. The lower price of open-source software is balanced by the need of internal competences to develop and adapt it to the company's requirement. Exhibit 3-11: Companies using Open Source (OS) Software
60 50 40 30 51 50 20 10
36 19 18 20 4
6
6
12 10 14
14
19
24
21 18 22
0 Total Food (EU-10)
Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.)
OS Operating Systems
OS Databases
All 10 sectors (EU10)
OS Brow sers
Base (100%): Companies using computers. N (for sector, EU-10) = 775. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: G8 Source: e-Business W@tch (Survey 2006)
3.3.3
Interoperability challenges Interoperability refers to the "ability of two or more systems to exchange data, and to mutually use the information that has been exchanged."29 e-Business W@tch asked companies whether they regard interoperability as critical for conducting e-business with companies from their own sector, from other sectors, and for producing their products or services. Results are fairly consistent with those obtained from the same question in 2005. e-Business W@tch also asked companies whether they experience any difficulties stemming from a lack of interoperability. According to the replies, interoperability in the F&B industry appears to be an important issue for critical activities such as invoicing and payments, which were identified more frequently in this sector than on average across all sectors studied this year by the e-Business W@tch. An even more interesting application of interoperability is in traceability software, which requires a strong interoperability 29
Definition by IEEE and ISO, cf. e-Business W@tch Special Study on e-Business Interoperability and Standards, September 2005, p. 14. Available at www.ebusiness-watch.org ('resources'). 41
Food and beverages
among the various players in the supply chain. Regulatory aspects are also an area where the percentage of F&B industries which is significantly higher than the average reported problems (Exhibit 3-12). The relatively low percentage of F&B industries that reported problems due to lack of interoperability in the procurement area is probably due to the relatively low interest for eprocurement in the F&B sector. Exhibit 3-12: Problems due to a lack of interoperability: firms experiencing difficulties in …
50 40 30 20 10
25
24
23
30
25
30
25 15
15
20
23
24
25 16
0 Procurement
Logistics
Invoicing
Payments
Food & beverages (EU-10)
Cataloguing
Technical aspects
Regulatory aspects
All 10 sectors (EU-10)
Base (100%): Firms that say that interoperability is critical for their e-business. N (for sector, EU-10) = 289. Weighting: in % of firms. Questionnaire reference: G6 Source: e-Business W@tch (Survey 2006)
3.3.4
ICT security measures Last year, e-Business W@tch analysed security controls and other measures applied by European enterprises to counter security threats. The results, which were presented in a special report,30 indicated that basic components such as firewalls and secure servers – for those enterprises requiring these – already exhibited high levels of penetration. As a follow-up to this previous study on ICT security, questions on selected security measures, which were of particular interest to policy, were included in the e-Business Survey 2006.
Secure Server Technology "Secure server technology" means that data exchange between computers is based on certain technical standards or protocols, for example "Secure Sockets Layer" (SSL31). The SSL is a commonly-used protocol for managing the security of a message transmission on the Internet. SSL has recently been succeeded by Transport Layer
30
31
See e-Business W@tch Special Study on ICT Security, e-Invoicing and e-Payment Activities in European Enterprises, September 2005. Available at www.ebusiness-watch.org ('resources'). http://searchsecurity.techtarget.com 42
Food and beverages
Security (TLS32). TLS is a protocol that ensures privacy between communicating applications and their users on the Internet. When a server and client communicate, TLS ensures that no third party may eavesdrop or tamper with any message. Secure server technology is normally closely linked with e-commerce activity. In the F&B industry, the relatively restricted use of e-business and e-commerce limits the necessity for ICT security systems mainly to the medium and large companies that intensively use e-business: the figures regarding this issue (Exhibit 3-13) appear to be in line with or slightly lower than the 10-sectors average. In fact, deployment figures correspond in all size-bands very closely to the percentage of firms that say that they receive online orders from customers/distributors. Exhibit 3-13: Use ICT security measures used by enterprises Digital Signature or Public Key Infrastructure
Secure Server Technology Weighting
% of empl.
Food & bev. (EU-10)
34
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
18
% of empl.
% of firms
26
10 29 36 62
All 10 sectors (EU-10)
36
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%) N (for sector, EU-10) Questionnaire reference
% of firms
20
% of empl.
72
8 21 30 45 21
16 23 36 64 firms using computers 775 G9a
15
Firewall
15
51 43 66 76 95
78
13 17 25 39 firms using computers 775 G9b
% of firms
62 56 73 84 94
firms using computers 775 G9c
Source: e-Business W@tch (Survey 2006)
Digital signature and Firewall An e-signature is electronic information attached to or associated with a contract or another message used as the legal equivalent to a written signature. Electronic signature is often used to mean either a signature imputed to a text via electronic means, or cryptographic means to add non-repudiation and message integrity features to a document. Digital signature usually refers specifically to a cryptographic signature, either on a document, or on a lower-level data structure. The rationale for measuring the adoption of digital signatures is that it is an important step for the integration of business processes between different enterprises, specifically for the legal recognition of documents sent electronically, as is the case of invoices.33
32
ibidem
33
To this end, in 1999, the European Union issued the Electronic Signature Directive. 43
Food and beverages
The higher percentage of employees using digital signature or public key infrastructure systems in the F&B industry, than on average across the 10 sectors studied this year should be mainly attributed to the presence of large multinational companies in the F&B sector. Firewalls as a basic security measure are widely used by small, medium and large companies in the F&B industry, while micro firms still lay under the average: In fact, only 43% of micro companies use firewalls, while 85% are connected to the Internet. Thus about half of the micro companies, but also about a third of the sector’s SMEs, seems to be exposed to possible intrusion.
3.4
Internal and External e-Integration of Processes The use of ICT and e-business to support and optimise intra-firm processes has become increasingly important, particularly in manufacturing. By digitising formerly paperbased processes, information and documents related to incoming or outgoing orders can be seamlessly processed along the company's value chain; orders can be linked with production and inventory management, and the underlying software systems can better support control and management by enabling full transparency of all business processes. Furthermore, collaborative processes within and between companies are supported, such as information sharing among employees (for example by use of an intranet), planning and demand forecast, organising and archiving documents, and human resources management. In general, ICT applications for these purposes are predominantly used initially by large companies and eventually by medium-sized firms.
3.4.1
Use of software systems for internal process integration In the F&B industry, internal process integration is a key step in order to improve integration along the value chain. Apart from the micro enterprises, the F&B industry appears to be significantly above average in the adoption of internal process integration solutions such as intranets, accounting software and Enterprise Resource Planning (ERP) systems. The peculiarities of the F&B sales system, widely distributed over the sales territory, accounts for the wide adoption of intranet networks in medium and large companies (Exhibit 3-14), often supported by LANs, W-LANs and VPNs, as previously noted in Section 3.1. The low number of employees makes this kind of system less necessary in micro and small enterprises, thus explaining why the figures for these size classes are below the 10 sectors’ average. As far as ERP systems are concerned, the F&B industry is well above the average. ERP systems, in fact, cover some business activities that are critical in the F&B industry, from production planning, batch control and traceability to commercial and back-office functions (pricing, promotions, finance, contract management etc). They may include stocks and inventory/warehouse management software, possibly implementing RFID44
Food and beverages
enabled tracking and tracing systems and wireless technologies, and help companies managing challenges presented by multiple selling channels, rapidly changing customer needs, product diversity and innovation and global product availability. As ERP systems link business processes electronically across different business functions, they are helping to improve efficiency in operating those processes. They can, thus, be crucial in the F&B sector, where margins are relatively low when compared to other manufacturing sectors. In addition, ERP systems can play an important role in supporting the connectivity between enterprises required by regulatory aspects such as food hygiene and traceability. Therefore, the share of F&B companies adopting ERP systems (17% of small companies up to 66% of large ones, as shown in Exhibit 3-14), should not be regarded as surprising in comparison to a 10-sector average of 11%. Accounting software that can include einvoicing options (see Section 3.4.2) is well adopted even in micro F&B enterprises, where often it substitutes to some extent the functionality which ERP software has in larger firms, although on a much simpler level and with a lower potential for automating order related document flows. Exhibit 3-14: Use of ICT systems for internal process integration Accounting software
Intranet Weighting
Food & bev. (EU-10)
% of empl.
% of firms
40
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
N (for sector, EU-10) Questionnaire reference
75
11 19 46 72 42
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
16
% of empl.
23
58
Document Management system
% of empl.
% of empl.
% of firms
32
54 71 90 93 70
19 28 43 76 firms using computers 775 D1a
% of firms
ERP system
57
17
4 17 33 66 19
50 70 85 88 Firms not using an ERP system 603 D1e
10
% of firms
11
6 13 13 37 19
7 16 25 45 firms using computers 775 D1d
11
13 11 13 19 42
firms using computers 775 D1c
Source: e-Business W@tch (Survey 2006)
According to the e-Business Survey 2006 results, the adoption of accounting software (other than just spreadsheet calculation programmes, such as MS Excel) goes from the 54% of micro firms to 93% of large companies (out of those that do not use an ERP system) – one of the larger adoption percentages in the survey.
45
Food and beverages
Special software systems for document management are rarely used in the F&B industry, as in most of the other sectors in 2006. These software systems are typically used to archive and manage documents of any type in digital format; this is highly relevant for example in the insurance industry (management of insurance policies), but not so much in this industry. An exception should be made for large companies that have to manage a larger number of documents related to recipes and ingredients.
3.4.2
Deployment of e-invoicing Electronic invoicing (e-invoicing) is a business-to-business transaction in which invoices are issued and paid electronically, replacing traditional paper-based invoicing processes. Most e-invoicing solutions involve four key components: delivering an invoice from the supplier to the payer using a Web browser interface that allows the payer to review online; handling billing disputes online; electronic payment through both the payer's and supplier's financial institution; and integration with applications such as accounts payable, accounts receivable and an enterprise's ERP system. In the e-Business Survey 2006, special attention was paid to the issue of e-invoicing. It is widely recognised that the use of e-invoicing promises relatively easy-to-achieve cost savings for both parties involved (invoicing entity and receiving entity), because processing invoices in a standardised, electronic format can be accomplished much faster compared to the often cumbersome handling of printed invoices. The cost saving potential obviously depends on the number of invoices that have to be processed; companies and sectors differ widely in this respect. Exhibit 3-15: Adoption of e-invoicing 60 50 40 30
54 45
20 10
36 20
25 25 14 8 11
12 11 15
17
22 24
18 19 22
0 Total Food (EU-10)
Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.)
Send e-invoices to public sector
Send e-invoices to private sector
All 10 sectors (EU10) Receive e-invoices
Base (100%): Companies with internet access. N (for sector, EU-10) = 722. Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: D5 Source: e-Business W@tch (Survey 2006) 46
Food and beverages
Increasingly, e-invoicing is being discovered as an effective way to reduce operating costs and improve treasury management. The shift from costly EDI-based systems to internet-based e-invoicing is helping the diffusion of this e-business practice. The presence of large distribution networks (organised distribution) as business customers in the F&B supply chain explains why the adoption of e-invoicing in this industry is above the all 10 sectors’ average (Exhibit 3-15). In fact more than half of the sector’s large companies (the main suppliers of organised distribution) reported receiving e-invoices. When looking at those companies that actually use e-invoicing, however, the average share of e-invoices (measured as % of a company's total invoices sent or received) is slightly lower than the average figure for the total of the 10 sectors studied this year by the e-Business W@tch. On average, users report that about 10% of invoices are sent (11%) or received (9%) as an e-invoice (see Exhibit 3-16). It is also interesting to note that even if the amount of e-invoices sent is lower than on average (11% compared to 19%), the difference of turnover corresponding to e-invoices is smaller (14% compared to 17%). This shows that e-invoices is used for the fewer clients which account for a higher share of turnover – presumably, the large organised distribution firms. Exhibit 3-16: Share of e-invoices as % of total invoices
0 Food & beverages (EU-10)
All 10 sectors (EU-10)
5
10
15
20
25
11
30 % of invoices sent electronically
9
% of invoices received electronically
14
% of turnover corresponding to e-invoices
19 15 17
Base (100%): Companies sending/receiving e-invoices (without "don't know"). Read: "On average, firms that use e-invoicing say they send 11% of their invoices electronically." N (for sector, EU-10) = 153/111/133. Questionnaire reference: D6, D7, D8 Source: e-Business W@tch (Survey 2006)
3.4.3
Use of ICT for cooperative and collaborative business processes The current deployment of tools for online cooperation and collaboration34 in F&B companies is in line with the average of the 10 sectors average. Document sharing is mainly adopted by large companies (up to 62% of firms), but the relevant figures are on or above average also for small and medium F&B enterprises.
34
"Cooperation" means splitting a common, centrally managed task into sub-tasks which are performed by different partners of the cooperation. "Collaboration" means that several partners work together on the same task at the same time. 47
Food and beverages
As for most manufacturing sectors, the survey results show that adoption of collaborative design processes and collaborative forecasting on demand is well above the average for medium and large companies. Apparently by necessity, size, drives the adoption of such systems in order to achieve better efficiency and a reduced time-to-market. For similar reasons, and due to the peculiarities of the F&B sector (the only one dealing with perishable items in the 10 sectors considered in the e-Business Survey 2006), online management of capacity and inventory is on or above the average also for small and micro companies. Exhibit 3-17: Online cooperation and collaboration within the value system Share documents in collaborative work space Weighting
Food & bev. (EU-10)
% of empl.
28
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%) N (for sector, EU-10) Questionnaire reference
27
% of firms
Manage capacity / inventory online % of empl.
10
24
% of firms
11
Collaborative design processes
Collaborative forecasting of demand
% of empl.
% of empl.
15
% of firms
6
23
% of firms
10
8
11
4
6
14 26 62
9 21 61
7 12 27
14 22 49
14
22
10
15
7
20
11
10 19 31 47
8 14 21 41
5 8 13 25
10 13 19 41
firms with internet access 722 D5a
firms with internet access 722 D5e
firms with internet access 722 D5d
firms with internet access 722 D5c
Source: e-Business W@tch (Survey 2006)
In summary, data about internal and external integration highlight a good diffusion of ERP in F&B industry: ERP appears to be an important step towards further evolution of ebusiness, and often includes procedures common to SCM and CRM software solutions. Accounting systems have an even wider diffusion, extended to small and micro enterprises. Moreover, the pressure of organised distribution keeps the adoption of e-invoicing in the F&B sector above the 10-sectors average: e-invoices are used for the fewer clients that account for the highest share of turnover.
48
Food and beverages
3.5
e-Procurement and Supply Chain Management Supply chain integration is one of the most important and all-encompassing aspects of new production methods; procurement makes up a substantial part of this. This section begins by focusing on quantitative aspects of e-procurement, which is one of the key elements of the supply chain (see section 3.5.1). The following section (3.5.2) is about Supply Chain Management (SCM) systems and the ICT links with suppliers. SCM35 covers the relationship between a company and its business partners. It manages and controls the flows of products / materials, information and finances, as they move in a process that includes suppliers, manufacturers, wholesalers, retailers and eventually consumers. Its main aim is coordination among different organisations: manufacturers work jointly with their customers and suppliers, to integrate activities along the supply chain to effectively supply product to customers. The optimal integration of the flows of goods and information is the essence of SCM. Furthermore, access to the best supplies, more efficient distribution and higher levels of customer service are sources of differentiation and competitive advantage. Recurring problems in supply chains are related to stock-outs due to longer-than-forecast lead times or to excess stock due to over optimistic forecasts. The peculiarity of the F&B industry is the perishable nature of the merchandise. This imposes specific handling times and conditions, as well as the need to monitor the origin of the product and the substances that go into it along the supply chain: the positive role that ICT can play in effectively tracking the information flows becomes quite evident in this case. The F&B industry is generally characterised by a fairly stable demand and is relatively predictable: with the exception of seasonal products, if food demand forecasts are precise enough, the supply chain can be organised to achieve maximum efficiency levels. Moreover, profit margins in this sector are often low; therefore this kind of optimisation is almost a necessity.
3.5.1
B2B online trading: companies placing orders online
Online orders and the average share of e-procurement Close to 40% of all firms active in the F&B industry in the EU-10 place orders to suppliers online. This figure is lower than the corresponding average for the 10 sectors studied this year by e-Business W@tch. However, the employment-weighted data show that this industry is in line with the average, thus reflecting the polarisation between small and large companies in this sector.
35
See also Section 4.2 of this Report. 49
Food and beverages
Exhibit 3-18: Companies ordering supply goods online
Weighting
Food & bev. (EU-10)
Place orders online
Place up to 25% of orders online
Place more than 25% of orders online
Use specific ICT solutions for e-sourcing
% of empl.
% of empl.
% of empl.
% of empl.
% of firms
54
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
N (for sector, EU-10) Questionnaire reference
86
32 54 58 70 57
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
39
% of firms
48
14
94 90 77 95 74
44 54 60 68 firms using computers 775 E1
91
% of firms
75
14
6 10 23 5 26
73 80 76 75 firms placing orders online 385 E3
9
% of firms
25
2 7 16 41 16
27 20 24 25 firms placing orders online 385 E3
5
9 7 10 16 29
firms using computers 775 E7
Source: e-Business W@tch (Survey 2006)
Indeed, for large and medium F&B firms, the percentage of companies which reported online purchasing reaches 70% and 58% respectively, whereas if the sector’s micro enterprises are considered (with 9 employees or less), this percentage is 32%. Although a direct comparison with the 2005 survey data is not possible36, a dynamic trend even among the industry’s smaller companies can be recorded. More than 90% of micro and small companies that place orders online said that these orders account for up to 25% of their total procurement (see Exhibit 3-18). In other sectors, such as ICT manufacturing, consumer electronics, shipbuilding and tourism, the relative share of e-procurement is somewhat higher. In the F&B industry, only about 5% of firms (representing about 14% of this sector’s employment) reported the use of software solutions or internet-based services for eprocurement (see Exhibit 3-18). This shows that there is a considerable gap between the percentage of companies placing at least some orders online and those that use special software for so doing. It can be assumed that companies without such software place orders mainly through websites or extranets of suppliers, which do not require any special e-procurement system. The digital back-office integration of procurement related processes (all the way from ordering to the receipt of goods / services) is probably not in advanced state in these cases. In other cases, especially among larger firms, it may
36
Note that the underlying question in the e-Business Survey 2006 was changed compared to previous years. In 2006, companies where asked whether they "use the internet or other computer-mediated networks to place orders for goods or services online". In previous surveys, the question was whether they "use the internet or other computer-mediated networks to purchase goods or services online". Thus, a direct comparison of figures is not recommended. 50
Food and beverages
happen that large companies use integrated applications (ERP, SCM) rather than specific solutions for e-procurement only. Exhibit 3-19: Sourcing and procurement processes supported by specific ICT solutions
100 80 60 40
78
20 0
67
63
Finding suppliers in the market
58
52
Inviting suppliers to quote prices
Food & beverages (EU-10)
75
Ordering goods/services
5
7
Running online auctions
All 10 sectors (EU-10)
Base (100%): Companies using specific ICT solutions for e-procurement. N (for sector, EU-10) = 71. Weighting: in % of firms. Questionnaire reference: E8 Source: e-Business W@tch (Survey 2006)
Those companies which have procurement systems in place tend to use them for several functions, mainly for finding suppliers in the market (78%), invite suppliers to quote prices (67%) and for placing orders (52%). These findings, however, should be cautiously read due to the small number of observations.
Location of suppliers Most F&B companies report that they order online mainly from suppliers in their own country and to a lower extent, in their own region. Even among large companies, only 20% say that their procurement activities are truly international, i.e. they buy goods or services online mainly from international suppliers. The national/regional focus of procurement activities demonstrates that e-business development has not eliminated barriers to international purchasing, such as transport costs and delivery times. Differences in taxation, accounting and the strict regulation about food are also constraints to the geographical enlargement of procurement activities. Moreover, in the F&B sector, multinational groups may leave a high degree of local autonomy to their national branches both for cost reasons and because it is still important to fulfil local requirements in terms of range of products and taste. Conversely, the low percentage of companies buying electronically at local level may be attributed to the difficulty in finding suitable suppliers (packing firms, particularly the medium and large ones, are not often located in raw material production zones (while smaller companies keep closer links with their local partners). In some cases, raw materials may be purchased from other regions for cost reasons and/or because the local production is not sufficient.
51
Food and beverages
Exhibit 3-20: Main location of suppliers in e-procurement
0 Total Food & beverages (EU-10) Micro (1-9 empl.)
20 20
Medium (50-249 empl.) Large (250+ empl.)
All 10 sectors (EU-10)
60
80
100
69
16
Small (10-49 empl.)
40
12
73 34
11 54
17
12
74
21
8
60
24
20
64
Mainly regional
Mainly national
12 Mainly international
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 374 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E5 Source: e-Business W@tch (Survey 2006)
Main type of supply goods ordered online Interviewees were asked to indicate which type of supply goods is ordered online. The proposed categories include: maintenance, repair and operation goods (MRO), raw materials, intermediary goods and services. Among micro and small companies, raw materials were identified as the most important type of goods ordered online. The needs for MRO goods in small companies are proportionally lower than among larger ones. For medium and large companies, instead, MRO goods prevail. This difference can be explained by the fact that, among larger firms, the purchasing of the most important raw materials (for instance, milk for dairy firms) and basic ingredients is often carried out at central level, through framework contracts that do not require the day-by-day placing of orders.
52
Food and beverages
Exhibit 3-21: Main type of supply goods ordered online 0
20
Total Food & beverages (EU-10)
28
Micro (1-9 empl.)
7
37
Large (250+ empl.)
36
22
21 Raw materials
4
6
14
21
17
25 20
100 29
10
42
Medium (50-249 empl.)
MRO goods
27
80
15
20
All 10 sectors (EU-10)
60
33
14
Small (10-49 empl.)
40
4
10
4
8
23 26 33
8
37
Intermediary products
Services
Mixed / all
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 381 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E4 Source: e-Business W@tch (Survey 2006)
As in previous years, e-Business W@tch asked companies which purchase online whether this has had an impact on the selection of suppliers, i.e. whether the number of suppliers has rather increased, decreased or remained the same due to their eprocurement strategy. A majority of companies from the F&B industry, as in most sectors, reported that e-procurement did not have an effect on the number of suppliers (about 80%). 15% said that the number has increased, probably because e-sourcing has helped to find new suppliers in the market. Only about 5% of firms said that they have consolidated their supplier base by means of e-procurement. Exhibit 3-22: Impact of e-sourcing and e-procurement on the number of suppliers 0 Food & beverages (EU-10) All 10 sectors (EU-10)
20
40
15
60
80
81 26
5 68
Increased
100
Stayed the same
5 Decreased
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 364 Weighting: in % of firms. Questionnaire reference: E9 Source: e-Business W@tch (Survey 2006)
The apparently low impact of e-procurement on the number of suppliers is in line with the typically low volume of orders that are placed online. About 90% of those firms that place orders for supplies online said that these orders constitute "up to 25% of their total 53
Food and beverages
orders" (see Exhibit 3-18). Moreover, suppliers of raw materials are numerous and fragmented in the F&B industry; thus, a concentration of suppliers is quite unlikely in this sector.
3.5.2
e-Integrated supply chains: SCM, financial e-processes and ICT links with suppliers According to the survey results the implementation of SCM solutions in the F&B sector is on average higher than in the other sectors studied this year by the e-Business W@tch. With the exception of ICT manufacturing, no other sector shows such a high degree of integration between firms along the supply chain. This trend has been driven by competitive pressures and industrial regulations. As illustrated in Section 4.2, the increasing integration at supply chain level has been fostered by the relatively high degree of integration of internal processes, expressed by the indicator of ERP diffusion, that this industry has showed in the past years (see also the results of the 2005 eBusiness Survey). The attitude towards supply chain integration is remarkable across all size bands and widely increases among large firms. Exhibit 3-23: Supply chain integration: use of SCM and ICT links with suppliers
40 30 50 20 10
33 21
14
11
1
11
19 5
15
16
12
0 Total Food & Micro (1-9 Small (10-49 Medium (50- Large (250+ beverages empl.) empl.) 249 empl.) empl.) (EU-10) Use SCM
All 10 sectors (EU10)
ICT system linked w ith suppliers
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: D1f, F13a Source: e-Business W@tch (Survey 2006)
e-Business W@tch also asked companies whether their ICT system was linked to that of suppliers. Interestingly, fewer firms report ICT links with suppliers compared to the share of firms with an SCM system (see Exhibit 3-23). This is apparently in contradiction to the idea of SCM where some form of linking a company’s ICT with that of its suppliers can be regarded as a prerequisite. The most plausible explanation might be that SCM systems include modules that allow the exchange of data without requiring a link between different Information Systems.
54
Food and beverages
Integration of financial processes in international trade A new question in the 2006 survey was whether the financial processes in trading with international suppliers were mainly paper based, internally automated or externally automated. It is acknowledged that this question remains a bit vague, as the difference between "internally integrated" and "externally integrated" is rather tentative, and because a telephone interview process does not allow to go into a lengthy discussion of these issues. Even so, it gives an idea of the back-office integration of financial processes in international business. Results for the F&B industry show that paper-based processes still dominate financial flows among SMEs. Among those SMEs that actually conduct international trade, the vast majority say that processes are "best described as paper-based" (see Exhibit 3-24). However, among large enterprises, internally automated processes are more widely diffused. Exhibit 3-24: Integration of financial processes in international e-trade
0
20
Total Food & beverages (EU-10)
40
42
Micro (1-9 empl.)
Large (250+ empl.)
All 10 sectors (EU-10) Paper based
21 55
Small (10-49 empl.) Medium (50-249 empl.)
60 4 6 5
44 37
11
4
18
34
32
22
Internally automated
80
100
32 34 41
8
37
45
0
7
40
Externally automated
20
No international trade
Base (100%): Companies placing orders online (without "don't know"). N (for sector, EU-10) = 362 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: E6 Source: e-Business W@tch (Survey 2006)
In summary, the use of e-procurement by companies in the F&B industry still lags behind in comparison to the EU-10 average of the 10 sectors studied this year by the eBusiness W@tch. This should be probably attributed to the centralisation of purchasing activities in the large companies that dominate the sector. Moreover, e-procurement does not seem a driver for innovation and does not affect the number of selected suppliers. The most remarkable result of the 2006 Survey for the F&B industry is the growth of SCM across all size bands. Such a trend may be attributed both to regulatory constraints of food safety and traceability and to the competitive advantages sought from better managing the supply chain.
55
Food and beverages
3.6
e-Marketing and Sales ICT, and in particular the internet, can be used in various ways to support marketing activities, including the communication with customers, offering products for sale, and developing new marketing strategies. Manufacturers of processed agricultural products (with the exception of a few, premium-brand companies operating on international markets) typically do not directly sell to end consumers, but to intermediaries (wholesalers, retailers, chains). This aspect must be taken into consideration when evaluating the survey data, as most transactions involved are of the B2B (business-tobusiness) type. Moreover, the short- or long-term perishability of products traded and the wide variety of items to be considered in F&B e-sales are a significant challenge: in order to achieve an efficient order system, retailers should be able to link different data repositories from different F&B manufacturers. This requires a great deal of initial, internal systems work for item management and synchronization, forecasting, replenishment, category management and promotion management. This brings to the limelight the importance of adopting common standards, which, as shown in Section 3.3.1, are still broadly lacking in this industry. This shortfall results from the fact that many companies have already spent significant time and money implementing proprietary data exchange and process automation systems and are unlikely to abandon these investments in the short-term.
3.6.1
Companies receiving orders from customers online
Online orders from customers Taking into account the previous considerations, the percentage of firms from the F&B industry in the EU-10 which said that they enable customers to order products online (19%) seems to be quite high (as in Exhibit 3-25). The percentage grows with the size of firm and reaches 40% for medium and large companies. However, the share of customer orders received online (as a percentage of the total order volume) is quite low. Almost 90% of those firms said that online orders account for less than 25% of their total orders, only 13% reported this share as more than 25%. As in 2005, e-Business W@tch asked companies whether they "support marketing and sales processes by specific ICT solutions." The rationale for this question is to further test to what extent their e-commerce activities are digitally integrated processes, or whether they use more "simple" forms of e-commerce, such as receiving orders by e-mail without any system integration of the related information and document flow. In the F&B industry, only about 4% of firms (representing about 14% of sector employment) reported the use of software solutions or internet-based services for their marketing and sales activities (see Exhibit 3-25). As indicated by the employmentweighted figure, however, the use of such solutions should be concentrated among the bigger companies in the sector. This is confirmed by the fact that this percentage grows to 51% when considering large companies. It should be noted, however, that it is not
56
Food and beverages
specified whether these ICT solutions include the e-sales systems used by the company's sales agents, or refer directly to B2B customers. Exhibit 3-25: Companies receiving orders from customers online
Weighting
Food & bev. (EU-10)
Accept orders from customers online
Receive up 25% of orders online
Receive more than 25% of orders online
Use specific ICT solutions for e-selling
% of empl.
% of empl.
% of empl.
% of empl.
% of firms
31
19
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
% of firms
82
87
13 26 40 41 35
% of firms
18
95 89 90 83
25
73
13
% of firms
14
5 11 10 17
75
27
4 1 9 14 51
25
18
9
Micro (1-9 empl.) Small (10-49 empl.)
23 26
79 76
21 24
6 12
Medium (50-249 empl.) Large (250+ empl.)
29 26
75 74
25 26
16 27
Base (100%) N (for sector, EU-10) Questionnaire reference
firms using computers 775 F4
firms accepting orders online 212 F6
firms accepting orders online 212 F6
firms using computers 775 F10
Source: e-Business W@tch (Survey 2006)
Those companies with specific sales systems in place tend to use them mainly for publishing offers to customers (61%) and for receiving orders from customers (57%). Answering calls for tenders is less common (about 39%), and e-sales auctions are minimal (Exhibit 3-26). Exhibit 3-26: Marketing and sales processes supported by specific ICT solutions 100 80 60 40 20 0
61
78 39
60
Publish offers to Answ er calls for customers tenders
Food & beverages (EU-10)
5
19
Launch sales auctions
57
66 34
Receive orders Enable from customers customers to pay online
All 10 sectors (EU-10)
Base (100%): Companies using specific ICT solutions for marketing / sales. N (for sector, EU-10) = 81. Weighting: in % of firms. Questionnaire reference: F11 Source: e-Business W@tch (Survey 2006)
57
37
Food and beverages
The only activity in which the F&B industries appear to be slightly above the 10 sectors average is receiving online payments from customers (37% vs. 34% average) – a finding that supports the data on e-invoicing described in Section 3.4.2. Theoretically, e-marketing and sales should have lessened the disadvantage that small businesses have faced for years when competing with larger businesses. Nevertheless, the results of the e-Business Survey 2006 show that the F&B sector is still below the average in this type of e-activity and, although companies may recognise the potential of ICT for marketing and sales, the migration towards web-based sales activities has not yet really taken place.
Location and type of customers placing online orders The "territoriality" feature, typical of the F&B sector, emerges also in the findings of the eBusiness Survey 2006. The figures for F&B slightly differ from the sector average: 38% of firms said that their customers that order online are mainly regional, and 48% said they were mainly national. Only 14% said that they have a predominantly international ecustomer base (Exhibit 3-27), which is significantly lower than the average in the 10 sectors considered in the survey. This peculiarity is strictly connected to the regional/national characteristics of food and – to a lower extent – beverages: different countries have different eating traditions, and even multinational companies develop specific brands and products for local markets, in order to suit the local tastes. Exhibit 3-27: Main location of customers that order online
0
20
Food & beverages (EU-10) All 10 sectors (EU-10)
40
60
38
80
100
48
30
47
Mainly regional
Mainly national
14 23
Mainly international
Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 210. Weighting: in % of firms. Questionnaire reference: F7 Source: e-Business W@tch (Survey 2006)
Data illustrated in Exhibit 3-28 support the previous assumption about the prevalence of B2B transactions in the F&B sector. As expected, much of the e-commerce activity in the F&B industry is either focused on B2B or is mixed. About half of those companies that accept online orders said that these are mainly from other companies (distributors, retailers, wholesalers). However, about a third said that orders are mainly from consumers, which indicates that these manufacturers have a different business model in terms of sales channels, i.e. they sell their products directly to customers rather than going through wholesale and retail intermediaries. The breakdown of these data by size band (not shown in Exhibit) highlights that micro and small companies (most likely premium brand ones) are the most active in the B2C online sales activities: 32% of micro
58
Food and beverages
firms and 27% of small firms, compared to 18% of large firms, reported that their online selling activity is mainly addressed directly to consumers. Exhibit 3-28: Main type of customers that order online (B2B / B2C / B2G) 0
20
Total Food (EU-10) All 10 sectors (EU-10)
40
60
49 18
Mainly companies (B2B)
80 33
39 Mainly consumers (B2C)
6
1
100 17
37
Mainly public sector (B2G)
Mixed
Base (100%): Companies accepting orders online (without "don't know"). N (for sector, EU-10) = 209. Weighting: in % of firms. Questionnaire reference: F8 Source: e-Business W@tch (Survey 2006)
3.6.2
e-Integration of marketing processes: CRM and ICT links with customers An ICT application that can help companies to improve the distribution of their products is Customer Relationship Management (CRM). CRM is a term that refers to a broad range of methodologies and software applications that help an enterprise manage customer relationships in an organised way. CRM systems help a company to systematically increase its knowledge about customers and profitability, and to build and adapt marketing strategies on the basis of this intelligence Normally, this will be based on some kind of database with systematic information about customers and the business record the company has with them. Ideally, this information will support management, salespeople, service providers, and possibly the customers themselves in their tasks; for example by matching customer needs with product plans and offerings, and by reminding customers of service entitlements and requirements. CRM applications are not as widely diffused in the F&B industry as in other sectors, with the exception of the large companies (see Exhibit 3-29). The low use of CRM in F&B production industry may be attributed to the fact that the "typical customer" in the F&B industry is not the final user, but a further step of the value chain – the distributor/wholesaler/retailer. Therefore, the "CRM" features are often integrated in ERP systems and supply chain management software. CRM systems are mostly used by the medium-sized and large F&B industry firms, as well as by food wholesalers and retailers. These players need a system which is able to capture information and provide the relevant product related, market and competitor information, or they require to define business rules agreed on between the company and the customer, such as contracts, pricing agreements, pricing strategies, specific delivery rules and category management, and to develop customer related information concerning trends in consumption. Smaller companies, which sell directly to their customers, do not adopt CRM on a large scale for cost and organisation reasons, in many cases the limited –in number- customer 59
Food and beverages
base does not justify the implementation of a complex system. An excel spreadsheet recording all the relevant information about customers may be sufficiently for their marketing strategy. CRM software suites are quite expensive and require a lot of organisational preparatory work to be effectively introduced in a company; these, as said above, could be reasons that hinder adoption among smaller firms. In other industries CRM is more widely diffused, at least among the larger companies. Examples for comparison are ICT manufacturing (31%), consumer electronics (25%), and the pulp and paper industry (22%). In some service sectors, CRM is a key application for many of the larger companies, for example in telecommunications (48%) and in the tourism industry (23%). Exhibit 3-29: Use of CRM and integration of ICT systems with customers 40 30 20 10
39 14
17 3
0 Total Food (EU-10)
3
4
10
16
32
17
Micro (1-9 Small (10-49 Medium (50- Large (250+ empl.) empl.) 249 empl.) empl.)
Use CRM
18 10 All 10 sectors (EU10)
ICT system linked w ith customers
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: F2, F13b Source: e-Business W@tch (Survey 2006)
e-Business W@tch also asked companies whether their ICT system is linked to that of customers. In the F&B sector, the high number of B2B transactions raises the percentage of companies reporting that they have integrated their ICT systems with those of their customers to well above the 10 sectors’ average (17% vs. 10%, respectively - see Exhibit 3-29). This finding brings again to the fore the importance of standardisation in this sector, as these links are often part of an integrated e-commerce scheme between companies, e.g. via dedicated EDI connections. This applies mostly to small companies: while only 4% of these use CRM systems, 10% of their ICT systems are integrated with customers. Overall, e-marketing and sales are focused mainly on the distribution chain and, therefore, usually considered as part of the SCM or ERP systems. CRM systems are used mainly by large companies in a B2B environment, while a more B2C-oriented approach is typical of micro-enterprises and SMEs.
60
Food and beverages
3.7
ICT and Innovation The 2005 sector report on F&B by e-Business W@tch37 analysed the issue of innovation in the European F&B industry; this report provided examples of how the introduction of ICT solutions might facilitate product and packaging innovation. It also highlighted the importance of ICT in process innovation and in the setting of innovative business models.38 With rising competition, innovation is a requirement for companies to stay competitive both on the domestic and the international market and to better answer evolving and increasingly diversified consumer needs. Innovation helps the F&B industry reinforce its position in the currently saturated European markets which are characterised by stagnant sell-out, and in relation to growing competition on the export markets. Product innovation appears to be a key tool in allowing companies to attract new consumers both at European level and also at global level. The capability of constantly innovate may bring the benefit of increased customers’ loyalty over time. Product innovation, however, requires investment in R&D and F&B companies may find it difficult to sustain innovation as they have to face economic and financial challenges. ICT applications may support F&B companies’ innovation, by simplifying data research and by facilitating the communication both internally and with their customers. In fact, in order to innovate, companies need to deeply understand their competitive context, their consumers’ requirements and their internal abilities. ICT may also help process innovation in terms of either implementing radically new processes or by using existing technologies in an innovative way, as illustrated in the case study presented in this section (Chocpix). In this context, the e-Business Survey 2006 asked companies whether they had launched any new or substantially improved products or services during the 12 months prior to the interview, and if they had introduced new or significantly improved internal processes in the same period of time. Companies which indicated that they have introduced innovations were then asked about the role of ICT for their innovation activity.39 About a third of enterprises in the F&B industry said that they had launched new (or improved) products in 2005. About a quarter of these product innovations had been directly related to or enabled by ICT (see Exhibit 3-30). Thus, the incidence of product innovation is higher than on average in the 10 sectors studied this year by e-Business W@tch, but the role of ICT is relatively less pronounced. This is quite self-evident, as ICT is of course more important for products in ICT-related sectors or sectors with intensive use of ICT in production (e.g. the paper industry). The low usage of ICT for product innovation is particularly evident for medium and large enterprises, which rely on ICT for innovation activity only in the minority of cases (7%).
37
See e-Business W@tch Sector Study on the F&B Industry, July 2005, Section 2.4 page 39. Available at www.ebusiness-watch.org ('resources')
38
See case study “Aartisderne” available at http://www.ebusiness-watch.org/resources/food/food_casestudies.htm
39
See also the e-Business W@tch special report on “the role of new companies in e-business innovation and diffusion” (Nov. 2006), available at www.ebusiness-watch.org ('resources')." 61
Food and beverages
What is hard to explain, instead, is the comparatively higher percentage of micro and small enterprises, as one out of four –of those that have launched new products in 2005states to have relied on ICT for product innovation. Exhibit 3-30: ICT and Innovation activity
Weighting
Food & bev. (EU-10)
Companies with new product innovation in 2005
Share of ICTenabled product innovations
Companies with process innovation in 2005
Share of ICTenabled process innovations
% of empl.
% of empl.
% of empl.
% of empl.
% of firms
50
33
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) All 10 sectors (EU-10)
N (for sector, EU-10) Questionnaire reference
15
26
28 36 50 80 32
24
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.) Base (100%)
% of firms
42
23 25 16 7 50
32
41 42 45 49 firms with product innovation 320 I2
24
% of firms
62
17 32 42 67
45
22 25 33 48 firms using computers 775 I1
% of firms
20
75
16 25 38 53 firms using computers 775 I3
firms with process innovation 226 I4
Exhibit 3-31: The role of ICT for product and process innovation
50
All 10 sectors (EU-10) 50
Not ICT linked
40
24
20
13
10 0
ICT linked
30
30 20
Not ICT linked
40
ICT linked
13
7
11
13
10 8
11
0
Firms w ith Firms w ith process product/service innovation in past 12 innovation in past 12 months months
Firms w ith process Firms w ith innovation in past 12 product/service months innovation in past 12 months
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: in % of firms. Questionnaire reference: I1 – I4 Source: e-Business W@tch (Survey 2006)
62
63 69 57 71 81
Source: e-Business W@tch (Survey 2006)
Food & bev. (EU-10)
47 29 57 60 83
Food and beverages
In contrast, the importance of ICT is very pronounced for process innovation, also in the F&B industry. In total, about a quarter of F&B companies (representing 42% of this sector’s employment) reported having introduced new processes in 2005. Except for micro-enterprises, most of those companies confirmed that these innovations were critically linked to ICT. Data across size bands and the comparison between employment-based data and firmweighted data clearly indicate that large companies account for the highest share of ICTenabled process innovation. Manufacturing and logistics processes in F&B are getting more and more sophisticated. These processes require a strong ICT component for monitoring, controlling and integrating the various activities carried out. The need for traceability along the whole supply chain accounts for the highly relevant role of ICT (this holds true even among small firms). Investments of smaller companies, on the other hand, seem to be still more focussed on traditional production processes. The following case study on Chocpix (UK) is an example of ICT-enabled innovation in the production of chocolate. Chocpix is using an ICT-based technology (CAD/CAM40, which is not particularly common in the F&B industry, but it is widespread in other manufacturing sectors) in an innovative way. The company radically innovated a traditional production process, adopting a customeroriented approach: they ask customers what they want and deliver according to their expectations. Chocpix have established a business model in which they are retaining the mould creation and packaging expertise in-house, and under strong patent protection. Connectivity is used with partners and clients to exchange images which are used to personalise product and packaging; this allows Chocpix to meet the client expectations. Their product and business model, based on licensing, enables them to completely knit into existing chocolate manufacturing and distribution chains.
40
CAD/CAM (Computer-Aided Design/Computer-Aided Manufacturing) is software used to design products. It is typically used in manufacturing industries, such as electronics. 63
Food and beverages
C ASE S TUDY : C HOCPIX , UK Abstract Chocpix is a design and production company that makes clever use of existing technology to produce novelty chocolate confectionery moulds and rapid prototype packaging. The novelty feature is a hidden detailed picture - revealed by simply holding the translucent chocolate up to any bright light. The company operates without warehouses and storage. They plan to expand internationally by licensing producers and outsourcing manufacturing to local chocolate manufacturing companies. This case study describes the Chocpix approach, skills and expertise required to successfully move from the original concept stages to an international high-performing business. Case study fact sheet Full name of the company:
Chocpix
Location:
Co. Durham, UK
Main business activity:
Manufacturing and distribution of novelty chocolate
Year of foundation:
2003
Number of employees:
3; planned circa 15
Turnover in last financial year:
Less than 100,000£ (148,000 euros); planned 5m £ (7.4m euros) within 5 years
Primary customers:
Companies, Clubs/Associations
Most significant geographic market:
UK; planned global
Focus of case study:
Innovation, constraints of complexity of technology for SMEs
Key words
CAD/CAM; business process innovation
Background and objectives Porcelain becomes translucent when it is kiln-fired at very high temperatures. An impression cast into porcelain, using only slight variations in the thickness, will produce a remarkably detailed image under the right lighting conditions. This imaging technique, first invented in France in 1872, is termed a Lithophane (Greek for "vision in stone"). The lithophane can be formed in plastics, confectionary products (such as chewing gum, candy, and chocolate), wax, soap and liquids. The image is created by light shining through the different thicknesses of the translucent porcelain; the thicker areas appear darker, and the thinner areas appear brighter. This study describes the Chocpix approach, skills and expertise required to successfully move through to a high-performing business – from the realization that the concept of moulding translucent material in varying thickness could be applied to produce novelty chocolate. Chocpix has carved out a new niche market and is not in competition with the large chocolate companies seasonal products (e.g. Nestle, Cadburys, Mars Dove) nor with other smaller players who mainly depend on engraving techniques for their advantage. ICT has been an essential enabler of this business.
64
Food and beverages
e-Business activities Chocpix is a design and production company that uses the latest proven CAD/CAM technology and injection moulding equipment to produce novelty chocolate confectionery moulds and rapid prototype packaging. The novelty feature is a hidden detailed picture revealed by simply holding the chocolate up to any bright light. The company creates the moulds and packaging for the final product, while they rely on outsourced local chocolate manufacturing companies to enable them to operate without warehouses and storage as they effectively gear up for massive order quantities. The method of forming the novelty chocolate consists of first capturing the desired image into computer memory, dividing the image into a number of elements and determining an intensity value for each. By storing these values in memory it is possible to normalise or vary them for different materials, enlarge or reduce the image, or edit the image and then create a mould, for example by injection moulding equipment. This allows the production of large volumes of product at a relatively low cost. The mould can be made from different materials (e.g. metal, rubber or polythene). Several moulds can be formed in a solid block to allow a large number of products to be moulded simultaneously. Alternatively, the stored relative intensities can be used to form a die, punch or stamp.
Impact The main value proposition is that Chocpix is able at this stage to genuinely ask the prospective customer “what do you want” and then deliver exactly to specifications in a surprisingly short time and in low volume quantities and still make a profit. This ability to delight the customer is the ultimate product and service “holy-grail” capability. There are no significant constraints. All is in place to understand the customer brief, provide complete replica prototypes and packaging for point of sale within 24 hours. The customer can then immediately see what (s)he will get in reality. This does not typically happen too often in any personalised manufacturing sector! The potential market is huge and already well defined: over £3 billion (4.4bn euros) annually is spent worldwide in the gift and seasonal confectionery sector alone. Based on the public reception and the judgement of peers in the confectionery business, the product has “winner” written all over it. At its very first major public launch, it won outright the award for best British innovation among 1,500 trade stands at the world’s leading chocolate exhibition (ISM, Cologne 2004). As Frank Lia, Chocpix’s Managing Director, succinctly states “I’ve launched 50 or 60 products for other companies and have always said that if I found a new product that genuinely met all of the criteria that I have tried to apply over 23 years of working with new products, ‘I would put my money where my mouth is’ – so here I am!”
65
Food and beverages
Lessons learned Start-up stage The first nine months was dedicated, by force of circumstances into small-business start-up mode. The primary concentration was on securing patent protection. The founders were not chocolate people so all this took time – longer than anticipated. The main patent is dealing with chocolate products and a second patent applies to a plastic version of the product. In addition, the production of the first prototypes was expensive and drew down heavily on the investment funds. Happily, the costs of prototyping have since dropped to less than one tenth of that original cost and prototypes can also be completed together with sample packaging in a fraction of the time.
Funding Obtaining sufficient investment to get to production mode while covering the substantial initial set-up costs is not an easy matter for any high-technology small enterprise startup41. The high costs in the start-up phase were met by founder investments and some very welcome and timely funding grants from organisations chartered to support innovative businesses in the North East of England. In addition the product was promoted and investment funding sought via the BBC Dragon’s Den. This latter foray proved to be a disappointing experience overall, primarily it is felt because the “sound-bite” nature and public game show format of the programme actively militated against reasoned discussion. The recent investment by Evolve Finance (http://www.nel.co.uk/evolve/) is a very positive development, much in line with the overwhelming positive reception of the products by the public.
Licensing Licensing Chocpix is a simple matter. Companies wanting to develop their own ranges work with Chocpix on designing the mould. Producers can take the mould and use it in their own processing facilities, or those owned by a third party supplier. The mould is simply added to the production line like any other for chocolate, so there is no additional technology needed. The cost of the licence is covered by a percentage of sales, so the up-front costs are very small. Chocpix will help companies with their design, but they can use the technology however they want. The business case for licensing is clear according to Frank Lia: “The more chocolate our licensees sell, the more commission Chocpix makes. It is in everyone’s interest to stimulate as much growth as possible!” Chocpix has already been approached by interested firms from over 20 countries including Australia. Given the distances and travel involved, the opportunity costs per new subcontracting partner average between £510,000 (7,400-15,000 euros). It includes a market visit, evaluation of their capabilities, product testing, contracts and compliance with all relevant national regulations. The latest financing round investment from Evolve will help to make this expansion possible.
41
See e-Business W@tch Special Study (2006): The Role of New Companies in e-Business Innovation and Diffusion. Available at www.ebusiness-watch.org ('resources'). 66
Food and beverages
Local manufacturing Chocolate, even when sold under the same brand name, is generally manufactured and flavoured to suit local tastes In addition, some retailers have particular preferences for the source of their chocolate products. For example in the UK, large retailers like Tesco, Lakeland, and BHS will only deal with companies that comply with their quality standards. Thus local expertise is needed. By subcontracting the chocolate manufacturing and packaging processes, Chocpix further avoids costs of warehousing, transport, storage and, where relevant, the fluctuating impact of tariffs for milk/cocoa beans - for example, US chocolate made in Canada can avoid the US import duties on raw materials. Another important consideration is that subcontracting manufacturing enables Chocpix and other licensed providers to easily gear up for massive orders by simultaneously contracting with several manufacturers.
Conclusions and Projected Growth The technology used is proven, robust and very scalable. The production machinery can be big or small depending on the volumes and cost between £30-50,000 (44-74,000 euros). The small unit is so unobtrusive and silent that it could be placed in the sitting room or lounge of a private home. It does not need to be sited in a factory. The next stage of commercial and technical expertise to be put in place has commenced. Plans and expectations are that the company will expand to 15 staff and projected growth is for a turnover of £5m (7.4m euros) within 4 years. The new staff profiles will mainly be national sales development executives in UK and abroad, specialist CAD/CAM designers highly skilled in the aesthetics of design relating to the product and packaging, and trainers to support and train operators in the licensed and subcontracted companies in the use of the production machinery.
References Research for this case study was conducted by Henry J F Ryan, Lios Geal Consultants, on behalf of e-Business W@tch. Sources and references used: Interviews with Frank Lia, Managing Director, Chocpix, conducted in March 2006 Desk research, including Chocpix website, brochures, and press cuttings Lithophane-like article and method of manufacture. Patent application by inventor John Francis Dufort, see www.freshpatents.com.
Overall, in the F&B industry, the importance of product innovation is high but not directly enabled by ICT (see Exhibit 3-31). In contrast, the importance of ICT is very pronounced for process innovation, increasingly in line with a company’s size and especially, in the production and logistics areas (see Exhibit 3-30). In fact, the need for traceability along the whole supply chain accounts for the relevant role of ICT in process innovation even among the sector’s small firms. The Chocpix case study is an example of ICT-enabled innovation of a traditional production process. This innovation supports a new business model based on the customisation of the product according to customers’ requirements.
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Food and beverages
3.8
Drivers and Inhibitors for the Uptake of e-Business
3.8.1
Drivers of e-business adoption Those companies that confirmed that e-business constitutes "a significant part" or "some part" of the way they operate were then asked to indicate important reasons for starting their e-business activity. Four main reasons were suggested, in order to see whether it was more a reaction to pressure from outside (from customers or suppliers), or whether because companies saw an opportunity to gain competitive advantage. Replies show that all reasons are perceived as relevant, with customers' expectations and the opportunity to gain competitive advantage being seen as the most important ones (see Exhibit 3-32). Pressure is coming also from customers. The role of the distribution chain in shaping the competitive scenario is confirmed by this picture. Exhibit 3-32: Drivers of e-business adoption: companies saying that … was an important reason for starting e-business Com petitors do it
0 Fo o d (EU-10)
Custom er expectations 0
20 40 60 80 100 Fo o d (EU-10)
47
1-9 empl. 10-49 empl.
43
10-49 empl.
50-249 empl.
46
50-249 empl.
250+ empl.
63
250+ empl.
A ll 10 secto rs (EU-10)
59
A ll 10 secto rs (EU-10)
Supplier expectations
Fo o d (EU-10) 1-9 empl.
42 52 65 87 70
Gaining com petitive advantage
20 40 60 80 100
0
41 33
59
1-9 empl.
60
43
10-49 empl.
50-249 empl.
43
50-249 empl.
250+ empl.
45
250+ empl.
41
20 40 60 80 100
Fo o d (EU-10)
10-49 empl.
A ll 10 secto rs (EU-10)
64
1-9 empl.
37
0
20 40 60 80 100
45 68 44
A ll 10 secto rs (EU-10)
67
Base (100%): Companies saying that e-business is a part of their operations. N (for sector, EU-10) = 415. Weighting: in % of firms. Questionnaire reference: H2 Source: e-Business W@tch (Survey 2006)
68
Food and beverages
3.8.2
Barriers to e-business adoption Companies saying that e-business does not play a role in their operations were asked to indicate important reasons why they do not practise e-business. Accordingly to their replies, the main reason F&B firms do not adopt e-business is that they feel their size is too small to take benefits. This explanation was given by 83% of micro companies in this sector but also by a significant share of small and medium ones. This perception is also mirrored, although on a lower scale, by the perception that technology is too complicated, which however, is more accentuated between smaller firms. Exhibit 3-33: Barriers to e-business adoption as perceived by companies Com pany too sm all 0
Technology too expensive 0
20 40 60 80 100
Fo o d (EU-10)
56
1-9 empl.
83
10-49 empl.
Technology too com plicated
34
250+ empl.
A ll 10 secto rs (EU-10)
Security concerns
Fo o d (EU-10)
50-249 empl.
36
10-49 empl.
32
24
0
36 31
5
Legal issues
20 40 60 80 100
1-9 empl.
50-249 empl.
35
A ll 10 secto rs (EU-10)
30
0
22
10-49 empl.
250+ empl.
4
20 40 60 80 100 28
1-9 empl.
20
50-249 empl.
38
Fo o d (EU-10)
38
10-49 empl.
62
0
31
1-9 empl.
26
System s not com patible
20 40 60 80 100
Fo o d (EU-10)
52
A ll 10 secto rs (EU-10)
55
0
45
250+ empl.
18
A ll 10 secto rs (EU-10)
42
1-9 empl.
50-249 empl.
36
250+ empl.
Fo o d (EU-10)
10-49 empl.
48
50-249 empl.
20 40 60 80 100
39
Fo o d (EU-10)
23
1-9 empl.
21
10-49 empl.
22
50-249 empl.
19 15
250+ empl.
26
250+ empl.
A ll 10 secto rs (EU-10)
31
A ll 10 secto rs (EU-10)
69
20 40 60 80 100
22
Food and beverages
Lack of reliable IT providers 0
Base (100%): Companies saying that e-business does not play a role in their operations. N (for sector, EU-10) = 351 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H3
20 40 60 80 100
P&P (EU-10)
25
1-9 empl.
23
10-49 empl.
26
50-249 empl.
26
250+ empl.
11
10 sectors (EU-10)
23
Source: e-Business W@tch (Survey 2006)
Cost of technology was also reported as a major constraint to the adoption of ebusiness by F&B companies. Interestingly, cost is perceived as being very important across all the size bands, particularly among large enterprises. While suppliers are trying to address F&B firms with sector specific and packaged solutions (see reference on ERP in Section 4.1) it appears that users are not yet convinced about their suitability and affordability. A percentage of firms ranging form 20% to 30% perceive security and legal issues as a barrier mainly to e-business adoption. Overall, results for the F&B sector do not differ significantly from the respective all sectors’ averages with a small emphasis placed by this sector’s firms on the cost of technology, the compatibility of ICT systems and on security.
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3.9
Summary
Main findings for the F&B sector Overall, there are indications that the F&B sector is reducing the basic infrastructure gap that was evident from the e-Business Survey. Positive signals can be seen in the remote network implementation data that show percentages markedly above the 10-sectors average. Training and ICT skills raise little concern among F&B firms: only 50% of large companies practice regular ICT training. Outsourcing of ICT processes has slightly increased, particularly among the sector’s medium-sized enterprises. Standards and interoperability are a “hot” topic in the F&B sector, due to regulatory impacts (such as traceability) that require improved communication among the different partners of the value chain. The most diffused standard is presently EDI, especially among large companies. The use of open source software clearly increases by firm size, as its lower price is balanced by the need of internal competences to develop and adapt it to the company's requirement. Survey findings show good diffusion of ERP in F&B industry: ERP appears to be a stepping stone towards further evolution of e-business, and often includes procedures common to SCM and CRM software solutions. Accounting systems have an even wider diffusion, extending to small and micro enterprises. The use of e-procurement in F&B industry still lags behind the 10 sectors, EU-10 average, probably due to the centralization of purchasing activities in the large companies that dominate the sector. Where present, e-procurement does not seem to be a driver for ICT systems evolution. The 2006 data indicate remarkable growth in the use of SCM systems. This could be attributed to regulatory constraints of food safety and traceability requirements, as well as to the competitive advantages linked to a better management of the supply chain. e-Marketing and sales are focused mainly on the distribution chain, and therefore usually considered as part of the SCM or ERP systems. CRM systems are used mainly by large companies in a B2B environment, while a more B2C-oriented approach is typical of micro-enterprises and SMEs. Innovation through ICT solutions development is mainly perceived as process innovation, with an interesting accent on customer services and on the creation of customer communities. Meeting customer expectations joins competitive advantages and regulatory constraints among the main drivers of ICT. Size and cost are the main barriers: Companies that do not practice e-business see two main barriers that prevent them from doing so: they report that their company is "too small" for doing e-business, and that they cannot afford the required technologies. Other barriers (e.g. security concerns, the complexity of technology) are perceived as less relevant. 71
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The e-Business Index 2006 shows that the F&B industry has a lower diffusion of ICT and e-business in comparison with other manufacturing and service sectors studied this year by the e-Business W@tch. This overall result, however, should be regarded cautiously as it hides a varied picture and, although a direct comparison is not possible between the 2005 and the 2006 data, some interesting trends have been recorded in this analysis. The synthesis of the results from the e-Business Survey confirms that the F&B industry has a relatively good level of development of internal process integration and supply chain-related activities. SCM, in particular, shows the highest diffusion among the 10 analysed sectors. This could be attributed to the peculiarity of the F&B industry which is the perishable nature of the merchandise. This imposes sector-specific tight handling times and conditions, as well as the need to monitor the origin of the product and the substances that go into it along the supply chain: the positive role that ICT can play in effectively tracking the information flows becomes quite evident in this case. It also appears that the pressure from distribution is increasingly driving F&B companies towards the adoption of e-business practices; this is illustrated by the growing diffusion of e-invoicing, inventory management and links of ICT systems with those of customers. A quite interesting trend regards medium-sized companies, which appear quite active in their investment attitude and already advanced in the adoption of solutions such as ERP, SCM and e-invoicing. However, the cost of software and the complexity of the proposed solutions still affect companies’ attitude, especially of SMEs, towards ICT adoption in this sector.
e-Business Index and Scoreboard 2006
42
The Scoreboard is a tool to present in summary form the characteristics of the various sectors and their differing trends within e-business. Results are consistent with the needs of the firms and the characteristics of this sector. The graph indicates the importance of the main e-business activities in the F&B industry.
42
See Methodology Annex for information about the structure and computation of the scoreboard. 72
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e-Business Scoreboard 2006 Component indicators
A.1 D.4
A.2 A.3
D.3 D.2
A.4
B.1
D.1
C.4
B.2 B.3
C.3 C.2
B.4 C.1
Max
Average
Food
A. A.1 A.2 A.3 A.4
ICT Networks Internet connectivity (index) LAN W-LAN Remote access to company network
B. B.1 B.2 B.3 B.4
e-Integrated Business Processes Intranet ERP systems Online tracking of production time e-Invoicing
C. C.1 C.2 C.3 C.4
e-Sourcing and Procurement Firms placing orders online Use of ICT systems for sourcing ICT system linked with suppliers Online inventory management
D. D.1 D.2 D.3 D.4
e-Marketing and Sales CRM use Firms accepting orders online Use of ICT systems for marketing/sales ICT system linked with customers
e-Business Index 2006 (based on 16 component indicators of the Scoreboard) based on data in % of firms (emphasises activity in smaller companies) 0
20
40
60
80
Telecom
94
Shipbuilding
83
ICT manuf.
81
Electronics
72
Pulp & paper
61
Tourism
56
Construction
Footw ear
100 100
Hospitals (*)
Food
based on employment-weighted data (places a higher weight on activity in larger firms) 0
38
40
60
80
Telecom
92
Hospitals (*)
80
Pulp & paper
75
Electronics
72
Tourism
70
Shipbuilding
69
Food Construction Footwear
100 100
ICT manuf.
46 40
20
64 45 42
(*) The index for the hospital sector is not fully comparable to the other industries, as there are only few micro and small organisations in this sector. Thus, the apparently more intensive use of ICT is largely an artefact of the specific structure of this sector. When comparing only the large enterprises and organisations, hospitals would not be within the top rank. Source: e-Business W@tch (Survey 2006)
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4
Current e-Business Trends and Implications
Topics in focus This chapter aims at providing insights into current ICT use and e-business activities, which are specific to the F&B industries. It does not claim to provide a comprehensive overview, as that would exceed the limits of this report. In fact, it would be difficult to realize, as ICT and e-business are relevant for nearly all core business areas of the F&B industry. Therefore, the issues analysed, as well as the case studies presented, should rather be understood as representative examples of current practice and the related opportunities and challenges. The following issues have been selected as particularly relevant for the F&B sector, in agreement with DG Enterprise and Industry and in coordination with industry federations: Internal process automation: Section 4.1 discusses the trend toward integration and automation of internal processes in the F&B industry. This trend is particularly relevant to large, international food companies, but on a lower scale it also applies to smaller businesses. Constraints imposed by food legislation and necessity to lower the time-to-market of new products are among the main drivers to the adoption of ERP solutions that integrate production, administration, sales and logistic processes. Industry size is paramount for the adoption of leading-edge technologies, such as Product Lifecycle Management, used only by large companies. Drivers, challenges and critical issue related to internal process automation are discussed. SCM and CRM: Section 4.2 discusses SCM and CRM systems to support integration along the value chain. In the F&B industry, the focus of SCM systems is on cost-reduction, optimisation of logistics operations and on the sector-specific issues of food supply safety and traceability, through the closer integration of external enterprise relations. The usage of SCM in this industry is still limited; firms implementing SCM need to address relevant organisation and technological challenges. Distribution is a major force driving F&B companies towards integration of the supply chain. Mobile applications: usage and latest developments are discussed in Section 4.3 Mobile applications and Wi-Fi systems, together with RFID applications, are strictly intertwined with supply chain management and quality assurance issues, and hence mostly adopted by large enterprises – though some applications, such as sales force decentralisation and mobile/home offices, are relevant also to SMEs. The widespread diffusion of PDAs, mobile phones, laptops and other portable devices, in combination with developments in Wi-Fi technology, can help SMEs to gather, store, analyze and share data, with a timely access to accurate accounting, inventory, sales and CRM information. Wireless devices such as printers and scanners/receivers are frequently adopted along the production and distribution of food and beverages.
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RFID-based solutions: RFID (Radio Frequency Identification) technology has a substantial and growing importance in the food industry. RFID can support the flow of information along the chain, from the receipt of raw materials, right up to distribution of the finished product. This provides real time visibility of information regarding the product and processing, including traceability and location of goods. In the delivery phase, RFID may be used to verify the sender’s data and to trace the raw materials; during the transformation phase for food safety; and during the distribution phase for tracing the entire supply chain. Tags can be fitted with sensors that are able to memorise climatic factors (temperature, pressure, humidity) of the environment they are in. Through the most innovative applications of RFID technology, it is possible to monitor the preservations status of a substance, and receive warnings when temperatures go outside accepted ranges. Food producers are using RFID under pressure from large-scale retailers. Significant impacts are expected for sales processes, due to a reduction in waste and returns, as well as better promotion and inventory management. Exhibit 4-1: Case studies and business examples presented in this report Section 3.7 4.1 4.1 4.1 4.2 4.2 4.2 4.2
4.2
4.3 4.3 4.3 4.3 4.4
Company / project Case study Chocpix Business example Fiorucci Business example Mathiesons Business example Heinz Case study Blédina Business example Metro Case study Logistics Exchange Programme Business example Ebro Puleva Case study Godiva Business example Krispy Kreme Case study La Bella Easo Case study Pastificio Riscossa Business example Purina-Nestlè Case study Latterie Virgilio
Country
Topic(s)
UK
Case study about business process innovation
Italy
ERP aimed at improving inventory management
UK
Integrated project of traceability Pilot project of PLM (Product Lifecycle Management)
USA
Implementation of an SCM system integrated with the company’s existing ERP and legacy systems
France
Example of retail driven SCM
Germany Ireland
A collaboration programme between retail suppliers within the logistics part of the supply chain primarily for food industry.
Spain
Analytical CRM Implementation of a CRM strategy in which the physical channels (shop counter, phone/fax) are complemented by ICT applications
Belgium
USA
Route automation systems and order management
Spain
A system for point of sale control and management
Italy
Wi-Fi applications in the picking process
Switzerland/USA Podcasting and mobile marketing Implementation of RFID tagging at “wheel” level on Parmigiano-Reggiano
Italy
Source: e-Business W@tch (2006) 75
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The case studies and business examples as summarised in Exhibit 4-1 – together with the results from the Survey and analysis of secondary literature – build the basis for the conclusions and the policy implications presented in chapter 5 of this report.
4.1
Internal Process Automation in the F&B industry
4.1.1
Introduction The F&B industry faces strong pressure from various forces. New regulations on food safety and traceability, coupled with cost efficiency needs and evolving customers’ requirements are driving food suppliers’ investment priorities. The new EU legislation, effective from 1 January 2005 (Article 18 of EU Regulation 178/2002)43 places strict responsibilities on food business operators, for traceability and hygiene issues and imposes upon these companies primary legal responsibility for ensuring food safety. The implementation of the EU's unified hygiene regulations include provisions increasing the amount of information required to trace foods and ingredients through the supply chain. In the US, the Food and Drug Administration (FDA) recently published its mandate enacting 2002 Bioterrorism Act regulations.44 This stipulates that all food and beverage manufacturers must be able to track food products through the entire food and animal supply chain (including packaging), and maintain and archive supply chain records for up to two years. The law came into effect for larger processors in December 2005, while smaller companies - depending on their size - must comply by either June 2006 or December 2006. As software for tracking, tracing and analyzing manufacturing processes becomes integrated in process management systems, providing thereby auditable records to help food companies meet regulatory requirements, these ICT traceability tools and their use become a major asset. The food regulations join other driving factors, such as competitiveness on global markets, pressure on prices, time-to-market and the need to manage multiple distribution channels. Clients’ (both retail chains and final consumer) requirements for safe and healthy food are also strong factors which must be taken into account. In response to these challenges, food manufacturers need to increase efficiency, and reduce costs while at the same time ensuring compliance with food regulation and with other business partners’ requests. In such a context, they are increasingly looking to ICT as a means to enable the automation of existing processes and support innovative changes (either on existing processes or by substituting them with more efficient ones). This section provides an overview of how relevant internal processes are currently supported by ICT and e-business applications. It also provides an example of an
43
Available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_031/l_03120020201en00010024.pdf
44
Available at http://www.fda.gov/oc/bioterrorism/bioact.html 76
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innovative application for internal process automation in the F&B industry: Product Lifecycle Management (PLM). The results form the 2006 Survey, presented in Chapter 3 indicate that the F&B industry is well equipped with software systems for internal process integration, in particular ERP systems.
4.1.2
State-of-the-art Applications
Internal processes and e-business integration Investments in process automation traditionally concentrated on production and logistics and on their integration with the accounting systems. In a large number of firms, especially SMEs, these processes are still only partially automated or they are “islands” of automation i.e. not fully integrated. In recent years, companies have increasingly focused their attention on more innovative and comprehensive solutions, capable of supporting the new competitive challenges. Presently, the F&B industry has a relatively good level of development of internal process integration and supply chain-related activities. Enterprise Resource Planning (ERP) is the main solution currently adopted for integration of internal business processes in the F&B industry. ERP systems are software systems that help to integrate and cover all major business activities within a company, including product planning, purchasing, inventory management, order tracking, human resources, project management, and finance. The following business example illustrates the advantages achieved through the implementation of an ERP system for traceability and inventory management.
Business example:
Italian delicatessen producer improves its US factory Fiorucci Foods began as a small grocery market in Norcia, Italy, selling quality meats and foods to the town’s residents. Today, Fiorucci is a worldwide brand for Italian specialty meats, seasonings and other fine foods. The third-generation, family-owned company has offices in Italy, the UK, France, Germany and the US, with distribution channels throughout the world. The US-based manufacturing and distribution plant produces a large range of Italian specialities, along with balsamic vinegar. Growing rapidly, Fiorucci Foods faced challenges with inventory awareness across the company. Due to the 11-month meat-curing process for its prosciutto product, for instance, Fiorucci requires strict controls and accurate reporting of inventory to ensure precise timing is met throughout the curing and production processes. With its previous system, manual tracking prohibited Fiorucci from accurately tracing all inventory, specifically byproducts, through the end of production. Additionally, by-products and trimmings of the company’s signature prosciutto products were not tagged and tracked for use in other products, such as salami. As a result, the 77
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company lacked an enterprise-wide product tracking and costing analysis and it was unable to account for losses in raw materials. Its parent company in Italy, Fiorucci must adhere to quality control guidelines to meet authenticity requirements of the company’s traditional products. In addition to company requirements, Fiorucci must comply with all federal regulations as well as customer-specific mandates, including shelf-life requirements. The company needed a better method of tracking and tracing product throughout the manufacturing process to ensure the highest quality standards for its customers. By implementing an ERP with advanced data collection capabilities (Ross’ iRenaissance), Fiorucci has improved inventory awareness throughout the organisation. The company weighs tags and tracks all materials accurately, eliminating the cost of wasted raw materials: by-products are tagged and tracked for use in other core products, increasing overall operational efficiencies and significantly improving the bottom line. Additionally, with enterprise-wide visibility, Fiorucci can now correctly track its product though the 11-month curing process, eliminating all errors related to manual processes. With improved inventory management, Fiorucci has significantly decreased annual adjustments on inventory. The most recent physical inventory resulted in an adjustment of less than 1%. Previous inventories had resulted in adjustments between 5 and 10%. The company has also used the improved inventory management to reduce its cost for conducting inventory checks by 80 % Removal of all but one paper document provides the company with more accurate processing of orders and the elimination of manual errors. Since orders cannot be processed without a check of inventory in the system, Fiorucci has increased order accuracy as well as the ability to verify a match between product attributes and customer specifications in real time. These improvements have greatly improved customer service levels and satisfaction. Lot-tracing capabilities enable Fiorucci to produce high-quality products with brand-protection assurance. Where it previously took up to 3 hours for successful traceability audits, Fiorucci can now complete them in less than 45 minutes. Source: www.rossinc.com/ (March 2006)
The most advanced generation of ERP and extended ERP applications may also include links across different business functions, allowing the complete integration of purchasing, production, sales, cost management, and accounting. Examples of this kind of integration were presented in the 2005 Sector Studies on the F&B industry. An example was about Granarolo45, an Italian dairy company which integrated its ERP system with sales force automation. Another example was about Utz Quality Foods (USA)46. It illustrated the
45
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 20. Available at www.ebusiness-watch.org (‘resources’)
46
See e-Business W@tch Sector Study on the F&B, Industry, September 2005, page 24. Available at www.ebusiness-watch.org (‘resources’) 78
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usefulness of going beyond traditional production, logistics, finance and human resources models, to integrate Customer Relationship Management, Supply Chain Management and Management Accounting systems. Previous generation applications blur the line between a company’s internal and external processes. ERP systems can actually play an important role for supporting connectivity between enterprises. For manufacturing companies, ERP systems are an important "hub" for much of their e-business activities with other companies.
Business example:
Recipe and order management, oven-fresh In the business of baking since 1872, Mathiesons have grown from their base in Falkirk to be one of the largest privately owned bakers in Scotland (UK). The company is a 4th generation family business which has grown to currently employ about 600 people. The craft bakery in the centre of Falkirk supplies over 150 freshly made products daily to over 40 bakers’ shops, coffee shops, mall cafés and restaurants. Mathiesons substantial investment in new computer network has resulted in a fully integrated software package with on line monitoring, designed and built to their specification. This system ensures full traceability for all ingredients and products passing in and out of the bakery. By automating the bakery with real-time technology, Mathiesons can accurately trace ingredients, improve quality control and obtain up to date management information regarding sales analysis, forecasting and costing. The system includes a centralised recipe management facility that links online to display and weighing units in the bakery to control the production of mixes and finished products. The system also includes a ‘trial recipe’ subsystem, allowing the recipes for new products to be refined through a series of generations. Sales orders are processed for external customers, as well as Mathiesons own shops and restaurants. The system therefore handles a mix of ad-hoc and standing orders, and automates the re-ordering process for Mathiesons restaurants by receiving daily sales information electronically from remote EPOS units. Mathiesons office staff benefit from internal and external e-mail as well as controlled and centralised Internet access. Remote access to the system is also configured to allow members of the management team to connect to the system from their homes. Source: Index Computer Systems Ltd case study, www.indexsystems.co.uk (March 2006); Mathiesons website, www.mathiesons.co.uk (March 2006)
The development of sector-specific functionalities, addressing specialised business requirements is a major factor in the automation and integration of internal processes in the F&B industry. Sector specific challenges include, for instance, the capability to respond quickly and easily to scale formulas and recipes based on inventory levels and changes in materials and facility availability. To a significant extent, this is still a "push" industry: when raw materials are ready, then the production and supply lines must be 79
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ready as well. Moreover, working with perishable products the information must be accurate, timely, and complete. These particular functionalities may need to be developed, synchronised or otherwise customised in concert with suppliers and customers. The following business example describes a bakery system that allows full traceability, improves quality control and manages sales and orders data. The system also includes a centralised recipe management facility.
Internal process automation: drivers and barriers to adoption The e-Business Survey 2006 results show that the penetration of ERP systems in the F&B sector is higher than the weighted average of the 10 sectors surveyed. The technological gatekeepers in ICT and e-business use are the large multinationals, often driving the integration of ERP and supply chain management systems in their suppliers’ systems. While large food companies are quite advanced even in comparison with frontrunner sectors, however, many micro and small firms lag far behind in terms of their basic ICT equipment and usage. For large industries the competition on global market remains the main driver, whereas SMEs are most affected by the constraints imposed by food legislation and by the rules set by the distribution chains. Dominant retail players like Wal-Mart (in the USA) or Metro (in Germany) are driving toward better results from their supply chains, requesting, for example, RFID tagging of shipments47 and SCM integration48. Cost and cultural obstacles still often severely limit SMEs’ approach to adopting ebusiness and internal process automation solutions. The advantages brought by the adoption of internal process automation systems do not always justify, particularly for SMEs, the costs incurred in overcoming the technological and cultural barriers. The main barriers to the adoption of e-business in this industry are still the size of the company, the cost of e-business technology and the complexity of technology49. Usually, small-sized or family companies do not invest much in R&D (with the exceptions of the manufacturers of high value-added products, such as trendy products, premium goods – e.g. fine chocolates – and companies with a strong foreign sales percentage). However, the growing complexity of food production equipment, which in turn requires ever more sophisticated and integrated control systems, lowers the cultural barrier to internal process automation even in small enterprises. The availability of affordable and suitable solutions, addressing sector-specific and SMEs-specific requirements may support the diffusion of solutions for internal process integration.
47
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Business example on “RFID for Supplier Added Value at Beaver Street Fisheries” page 28. Available at www.ebusiness-watch.org (‘resources’)
48
See Metro Business Example in Section 4.2 of this report
49
See Section 3.8.2 of this report. 80
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A more suitable offer? Suppliers of ERP and of other software systems for internal process automation, include: major technology suppliers, software developers and vendors, system integrators, implementers, ICT consulting and service companies. Apart from big international players, such as SAP50, Atos Origin51, Oracle Siebel52, Ross Systems53, IBM54, Accenture55, and others, many smaller suppliers are active. These small suppliers are usually highly specialised and operate in particular market and geographical niches or sub-sectors. As most of them are active at a regional or local level, a fully fledged market research exercise to identify such providers of standard software, customised solutions and services would be well beyond the scope of this report. Depending on the particular type of solution proposed (e.g. packaged versus customised) and the extent of consultancy services necessary for successful implementation, the total actual investment for such solutions -even for packaged ones- can vary considerably. The introduction of standardised solutions requires additional investments for integration with and adaptation of legacy systems in the area of production, accounting and stock control. It is, therefore not meaningful to assert an average figure. From the commercial advertising communications of ERP suppliers, however, it appears that they have started addressing the issue of a transparent and fixed price structure for the range of solutions proposed. It can also be observed that suppliers are increasingly trying to address the F&B market for ERP with the proposal for easy and quick to implement packaged solutions (for instance SAP with mySAP, Oracle with JD Edwards EnterpriseOne). To better serve their F&B clients, ERP vendors are adopting vertical marketing segmentation tactics, and positioning themselves as leaders within specific target markets. In this industry there are intra-sector differences between, for instance, solutions developed for food industry and the ones developed for the beverages industry. This is due mainly to the broader variety of outputs in the beverages industry as far as distribution is concerned. For example, the beverages industry caters directly to the HoReCa (Hotel, Restaurants, Café/Catering) channel, while the food industry usually does not. This segmentation approach demands a deep knowledge of sector and customer-specific requirements. As stated by Lenley Hensarling, Oracle Vice President: “To develop vertically focused modules […] we looked outside our development organization to some of our existing customers.”56
50
www.sap.com
51
www.atosorigin.com
52
www.oracle.com
53
www.rossinc.com
54
www.ibm.com
55
www.accenture.com
56
shttp://www.ciber.com/news/article.cfm?id=20060424 81
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The 2006 Survey shows that the efforts from the supply side, combined with the increasing needs of the industry users have pushed the adoption of e-business for internal process automation in the sector, as demonstrated by the diffusion of ERP (see Section 3.4).
4.1.3
Product Lifecycle Management (PLM): a new approach to product development In the F&B industry, the development of new products is critical to remain competitive. The 2005 Sector Report57 extensively analysed drivers for innovation, and the associated benefits and e-business implications. Innovation, however, is expensive and is often at risk of failure. In response to this challenge, large F&B industries have started to adopt Product Lifecycle Management (PLM). The PLM approach helps in new product development by focusing more efforts on products with a greater potential for success, and thereby reducing the number of failed development projects. Benefits from PLM solutions include improved innovation management, more efficient intra- and inter-company collaboration, faster time to market, cost reductions, and higher product quality. Coupled with RFID technologies, PLM can support product traceability, and if required, recall procedures. Examples of internal process automation and improvement tools based on e-business include: collaboration and/or knowledge management software which is mostly used by large multi-national companies and cooperatives; and, remote control systems in cooperation with external service suppliers, such as facility management and maintenance firms. The following business example describes a pilot PLM project.
Business example
PLM at Heinz H. J. Heinz Co., the US food giant offers a good example of PLM (Product Lifecycle Management) introduction in the F&B industry. Heinz is a leader in ketchup, condiments and sauces, selling nearly US$ 3.3 billion worldwide in 140 counties Heinz faced the challenge in tracking product specifications, formulas and suppliers across a diverse, global business. The company standardized how they developed and tracked product specifications. They reduced the number of ingredients purchased, increased global communication about product and supplier information, and improved the processes they use to develop and introduce new products to the market. In 2003, Heinz launched VIPER (Vendor Improvement and Product Enhancement and Research), a global computerised platform designed to enable the company to dramatically simplify its myriad product specifications and operations by enhancing communication, coordination, and visibility. The software and business services partner was the US company Prodika.
57
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Section 2.4. Available at www.ebusiness-watch.org (‘resources’) 82
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The initiative has resulted in a single source of product information that can be accessed across Heinz. This asset, called a PLM Platform or PLM Infrastructure, has proven to be very valuable. By placing all product-related information in VIPER, Heinz has developed a strategic capability to leverage product information internally and in their supply chain. The value became apparent when Heinz addressed the demands from their retail customers to synchronise product catalogue data. Heinz can now identify in seconds the connection between a product, its ingredients and the suppliers across the business chain. This information is being used to bring products to market faster, because affiliates can now access product information from other parts of Heinz For example, an affiliate that wants to bring a new product to market may be able to find a similar product in development or already on the market, which can be used as a starting point. At a minimum, the affiliate can probably reuse existing raw material specifications and identify suppliers that are already in use by Heinz. A further example of improved time to market concerns product labels. Traditionally, labelling requirements were not addressed until the product specifications were completed, because there was no visibility to the precise ingredients and nutritional information until that time. By sharing product specifications with Regulatory Affairs earlier in the process, Heinz has reduced the total product label production process from 45 days down to only 7. Heinz has also leveraged their VIPER platform to gain efficiency advantages and reduce costs, both in the form of increased productivity and decreased product cost. Their platform includes: Global Specifications Management (GSM), capturing the entire product provenance from trade items to ingredient and packaging in all supported languages, cultures and currencies; and Supply Chain Relationship Management (SCRM), with vendor master, approved vendor list and vendor score carding. Source: Prodika website, www.prodika.com (March 2006); H. J. Heinz Co. website, www.heinz.com (March 2006)
4.1.4
Summary of main points and conclusions Compliance with food safety regulation, together with increased competition and costefficiency needs are driving the trend toward integration of internal processes in the F&B industry. This trend is particularly relevant to large, international food companies, but in a lower scale it also applies to smaller businesses. ERP is the main solution currently adopted for integration of internal business processes in the F&B industry. The advantages that can be achieved by implementing solutions that integrate internal processes include increased efficiency and time-to-market, reduced costs, better inventory control, verifiable compliance with food regulation and more rapid response to business requests from other business partners along the supply chain. These solutions may also respond to sector specific challenges such as, for instance, the capability to
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respond quickly to the availability and changes in materials and facility to easily scale formulas and recipes based on inventory levels. However, the economic and cultural effort required by the implementation of such technologies may be beyond the possibilities of SMEs. The results of the 2006 survey show that F&B firms have increasingly adopted solutions supporting the automation of internal processes but cost and complexity of technology are still major hurdles.
Compliance to food safety regulation, competition and cost-efficiency are the main drivers to the adoption of ERP solutions that integrate production, administration, sales and logistic processes. The introduction of systems for internal process automation is also fostered by the necessity to meet sector specific requirements or better exploit internal assets, which, in the case of F&B industry, are often represented by recipes, as in the Mathiesons business example. From the qualitative analysis, there is evidence that enterprise size is paramount for the adoption of leading-edge technologies, such as Product Lifecycle Management, used only by large companies. Other more common solutions, such as ERP, although may require high degree of customisation to integrate with legacy systems are nevertheless diffusing in this industry.
4.2
Supply Chain Management (SCM) and Customer Relationship Management (CRM) Supply Chain Management (SCM) systems concern the relationship between a company and its suppliers and customers. SCM provides an overview of the flows of products/materials, information and finances, as they move in a process that includes suppliers, manufacturers, wholesalers, retailer and eventually consumers. Its main aim is coordination among different organisations: manufacturers work jointly with their customers and suppliers, to integrate activities along the supply chain to effectively supply product to customers. Supply chain coordination in the F&B industry is strictly dependent on ICT and e-business systems. ICT allow system integration through standardised inter-organisational interfaces, generating an efficient and automatic information flow and spanning the boundaries of supply chain members, increasing their integration. Higher degrees of integration occur when supply chain members automatically coordinate production with inputs from suppliers of raw materials and orders from the distribution.
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4.2.1
Use of SCM
SCM raises F&B firms’ interest In today's business environment, SCM has become a popular paradigm. Through the application of SCM, food manufacturers and grocery retailers aim to reduce costs and inventory through the development of integrated relationships, real-time information transfers and move towards a ‘pull’ rather than ‘push’ distribution system. The dominant trend involves a focus on increased flexibility amongst upstream suppliers in response to the strategic power of the dominant supermarket chains. Current managerial interest in SCM highlights how companies are indeed refocusing upon a broader process of rationalization that cuts across workplaces, enterprises and entire industries. Like earlier innovations in management practice, such as just-in-time, total quality management and business process reengineering, SCM systems promote a constant focus on the need to reduce inventory levels and eliminate waste in operational processes, maximize quality at source, and develop closer, long-term supplier relationships. However, what distinguishes SCM from these earlier individual concepts is that unlike the traditional focus on improvements in internal enterprise efficiency, SCM seeks to improve competitive performance through the closer integration of external enterprise relations.
SCM at work Available SCM solutions cover demand planning, inventory planning and control, warehousing management and procurement. They may also include field sales forecasting and, occasionally, Customer Relationship Management (CRM). Supply Chain Planning applications enable companies to develop accurate forecasts by creating a collaborative environment for multiple individuals, groups and partners. These systems help enterprises by developing schedules that maximize the utilization of plants, equipment and inventory, to reduce cycle times and improve profits. Supply Chain Planning applications also support make-to-order (MTO), make-to-stock (MTS) or just-intime (JIT) inventory needs with extensive analysis and simulation capabilities, giving to the company the visibility needed to support collaborative programs such as vendor managed inventory (VMI) and continuous replenishment programs (CRP). Inventory control and warehouse management applications provide the capabilities needed to manage and view materials and products across multi-company, multi-division, and multi-site environments. All inventory-related transactions, including lot details and movement history, are recorded in order to track, analyze, and optimize operations. Inventory Control also allows the management of materials, intermediate goods and finished goods on the basis of defined characteristics (such as shelf-life, best-before dates, moisture content). Warehouse management solutions respond to warehouse distribution challenges and help process manufacturers to move beyond their standard enterprise inventory control functions e.g. more easily satisfy customer requirements for specific compliance initiatives, increased inventory and order volumes, and multiple distribution channels. 85
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Further on along the fulfilling process, logistics management applications help in the planning and costing of freight for inbound deliveries from suppliers, outbound shipments to customers and transfer orders to other warehouses or distribution centres, including routing & rating, load planning, costing and invoicing. Procurement cost can be reduced through several functionalities included in SCM: procurement activities are streamlined to increase efficiency and resources utilization. Contract and order management modules may also be used to create, maintain and evaluate contracts and orders. Flexible pricing conditions, in conjunction with contract & order management, are used to handle the price variation of raw material effectively. Prices and purchasing activities can be monitored and traced efficiently throughout the fluctuating market conditions.
Challenges The successful implementation of SCM and the full exploitation of potential benefits, however, raise organisational as well as technological challenges. Providing an uninterrupted flow of goods requires accurate demand forecasting, visibility across the supply chain and integrated transportation networks. The flow of information requires coordination of working practices, interoperability (i.e. the "ability of two or more systems to exchange data, and to mutually use the information that has been exchanged"58) and mutual trust among the various players. This is compounded by the fact that the food industry today is still highly fragmented, broker intensive, has seasonal patterns of production and many goods are highly perishable. Most organisations have a disparate network of trading partners (i.e. service providers, suppliers, contract manufacturers, distributors, and retailers). As described above, SCM software is intended to manage numerous and different activities and tasks, many of which have their own specific software. Some vendors have assembled these different chunks of software together under a single solution, but the development of a complete package that is right for every company is a big challenge. While products from large vendors like SAP®’s Advanced Planner and Optimizer (APO) can perform most if not all of these tasks, many companies may decide to adopt best of breed products instead, even if some lack of integration is an inevitable consequence. A major technological dependency is that SCM applications rely upon the diverse information that is represented and stored in ERP software or in other applications used for internal processes. Theoretically, SCM applications could be fed with data from legacy systems which for many small companies may mean accessing Excel spreadsheets spread across the company. However, such piecemeal approaches would inevitably impact negatively on the quality of the outputs. SCM applications benefit from having a single major source for information, ideally ERP. It can be concluded, therefore, that the successful implementation of supply chain integration is unlikely to be achieved unless internal process integration has been previously and effectively achieved. Eventually, it is
58
Definition by IEEE and ISO, cf. e-Business W@tch Special Study on e-Business Interoperability and Standards, September 2005, p. 14. Available at www.ebusiness-watch.org ('resources'). 86
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also of utmost importance that companies achieve a sufficient level of consensus about what standards to use for interoperability. Data on SCM usage in the F&B sector in Europe are analysed in Section 3.5 of this report. The most remarkable results of the 2006 Survey as for the F&B industry is the growth of SCM across all size bands. From a market trend and timely perspective, the evolution of SCM had followed that of ERP and heavily relies upon it. Throughout the global F&B industry, SCM is likely to remain a key point of focus for the leading players in the future. The two areas, intra-enterprise integration (mainly represented by ERP) and interenterprise integration (mainly represented by SCM) are strongly intertwined and have very similar features. In a way, they are complementary approaches for addressing the same strategic challenges. It is worth noticing that most suppliers address these two areas with interlinked modules. SCM however provides the opportunity to expand the advantages of optimization and integration to the entire supply chain through the creation of a collaborative, networked environment. The following case study about Blédina illustrates the implementation of an SCM system integrated with the company’s existing ERP and legacy systems.
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C ASE S TUDY : SCM O PTIMISES D ELIVERIES
AT
B LÉDINA , F RANCE
Blédina, one of the leading French producers of baby foods, saw its customer service levels decline after a reorganisation of the distribution network of its owner company, Danone. After a thorough business process reengineering project, Blédina enhanced and redesigned its processes within the supply chain, introducing a supply chain management (SCM) software system based on an SAP® R/3® ERP system59. Through the implementation of the business process reengineering project and SCM, Blédina is making considerable headway towards achieving its strategic goal of maintaining a 99% customer service level. Case study fact sheet Full name of the company:
Blédina (Group Danone) HQ: Villefranche sur Saône (F)
Location (HQ / main branches):
Plants in Steenvoorde (F), Brive (F), Villefranche sur Saône (F) Distribution centers in Brive (F), Bondoufle (F)
Number of employees:
1,459
Sector (main business activity):
Baby foods (milk and powdered milk, cereals, ready meals, fresh food)
Year of foundation:
1906
Turnover in last financial year:
549 million € (2004)
Primary customers:
Hypermarkets, supermarkets, pharmacies, hospitals
Most significant market area:
France and 60 other countries
Focus of case study:
SCM
Key words:
SCM, ERP, integration
Background and objectives Blédina, a wholly owned Groupe Danone company headquartered in Villefranche-surSâone, is France’s leading producer of baby foods. With over 1,000 product lines in liquid and powdered milks, diversified foods, and desserts, Blédina has captured a market share of 45% in France, Europe’s largest consumer of baby foods. in 1997 Danone executives determined that the grocery companies, with the exception of Blédina, were not a strategic activity and began divesting them in 1997 and 1998. With the Danone divestitures (when Danone divested its grocery companies, it disbanded the common distribution network) and the changes in the distribution networks of Blédina’s major customers, Blédina had to reconfigure its own distribution network that wasn't meeting any longer the standards of its clients. Blédina reacted to declining customer service levels by initiating a business process reengineering project. The company set a goal of achieving and maintaining customer delivery performance above 99% by enhancing and redesigning processes within the supply chain. This included the introduction of a new forecasting process that takes into
59
R/3 is an integrated software solution for client/server and distributed open systems 88
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account inputs from the sales and marketing organisation, including customer and market behaviour by season; a supply planning process that provides long- and medium-term visibility into raw material requirements; and production planning processes that provide enough flexibility to react to sudden changes in customer demands. The giant grocery chains and distribution groups (which may include food and non-food retailing stores, as well as restaurants) dominate the French channels of distribution, controlling 60% of the market. Given the low profit margins in food retailing, many of them have centralised and integrated functions such as buying, physical distribution, and payment. Some groups have further leveraged their power by creating joint purchasing arrangements with each other. At the other end of the spectrum, hypermarkets and supermarkets within a group have been given the option to buy from suppliers not on central purchasing list. With ever-greater concentrations of buying power, food retailers are asking for more and more when it comes to quality, price, traceability, logistics and services. The company had to select supply chain management software that not only met its process requirements, but also could be integrated with the disparate best-of-breed solutions that were in place for sales, finance, and production management. Moreover, Danone had instituted a master plan to adopt common business systems globally, using its ERP system (SAP® R/3®) as the foundation.
e-Business activities In 1998, Blédina created two multi-product distribution centres at Brive-la-Gaillarde and Bondouffle, supplied by its three plants. Deliveries to supermarkets and hypermarkets, which account for some 80% of Blédina’s client base, were made from the closest distribution centre to the client’s warehouse. They were also responsible for managing logistics for direct shipments from plants to customer distribution centres. But the right processes and systems were not in place to produce a high service level at the beginning. By early 1999, the service level slid to 92%, meaning 8% of the deliveries would be late or wrong. This was creating a problem for retailers, where profit margins are slim and stockouts mean loss of revenue. Moreover, when supplier service levels fall below 98%, retailers levy severe penalties, ranging from 16% to 32% of the value of the product, depending on how late the delivery is. In the spring of 1999, Blédina senior executives quickly launched an all-encompassing business process reengineering project to establish and maintain the client service level at 99% or better, while controlling supply chain costs by leveraging supply chain processes. The management steering committee, led by the supply chain director, created a task force of 26 people from throughout the company and gave it 15 days in which to analyze the existing supply chain processes and propose a new and more effective configuration. At this point, Blédina was using different best-of-breed software solutions for finance, sales, and production. These company applications had been integrated, but there were gaps in the processes, often sub-optimally filled by manual procedures. In addition, these problems impacted several other operational areas (which ultimately also contributed to the distribution problems), such as: 89
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Procurement: because Blédina was not able to accurately plan purchasing of milk and other foods on the basis of seasonal price variations, it was not able to ensure the lowest price. Production: lacking real-time data on changing needs, Blédina could not schedule staff optimally. Marketing and sales: lacking swift, accurate information on results of promotions and new product launches, the company could not produce timely forecasts, nor could they plan future promotions with certainty. After careful analysis of the supply chain processes and the reorganisation required, the team focused on: Answer customer requests satisfactorily Decrease out-of-stock occurrences and the resulting impact on profits Provide purchasers with medium and long-term visibility into raw material requirements Streamline industrial activities by considering capacity constraints on bottleneck production recourses and lower inventories. The supply chain effort, which began in 1999, culminated in a full rollout of the system between July 2001 and mid-2002. The system has been operational since then. In February 2000, the team began its search for a suitable SCM system. Among their major requirements was the system’s capability to integrate with the company’s existing ERP and legacy systems and to cover all planning aspects of Blédina’s supply chain, end to end. In May, Blédina selected SAP APO, a component of mySAP SCM. “In our search for a supply chain management tool to deploy our new logistics processes, we looked both at the market as a whole and at the other solutions already used within the Groupe Danone,” said Patrick Mornieux, manager of information systems at Blédina. “Since Danone had just selected mySAP Business Suite for its entire management system, with the intention of extending the system to its subsidiaries, the parent company suggested we take a closer look at this system to see if it would meet our needs. Since the newest release at that time corresponded well with our requirements, we decided to opt for SAP". The new system’s implementation began at Blédichef in July 2000. Blédichef is the division responsible for producing ready-made meals for babies and was selected as pilot project referred to internally as Blédichain for the SCM implementation. The first phase of the implementation involved the deployment of capabilities that would enable the company to plan sales demand, plan and validate the release of finished products and their deployment to distribution warehouses, and plan and schedule short- and mediumterm production at a detailed site-by-site level. The next 10 months, were divided into 2 months of general design work, 6 months of detailed design, and 2 months of testing. After the system was deployed in June 2001, Blédichef realized more major improvements. Finished goods and work-in-progress inventory for this product family were practically halved, while delivery service levels between 98% and 99.5% were maintained. This was achieved due to improved forecast accuracy, which resulted in 90
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better use of production resources and better deployment of the finished goods to customer distribution centres. The success of this phase marked the beginning of the second phase – the rollout of the system to other product groups. Over a period of almost a year, this system was rolled out to the various product sectors one by one. Today, the system is a fully integrated part of Blédina’s IT solution landscape, enabling smooth execution of business processes.
Impact The main outcomes and impacts of the project were: A long-term forecast of demand and supply requirements. The new SCM system has enabled Blédina to forecast demand and plan 24 months in advance. This has been a great improvement compared with the previous situation, which was essentially pen and paper-based, in the case of production planning and were much less precise and nowhere near as reliable. Blédina can now take into account specific characteristics, such as seasonal variations in sales of soups and fruit juices. Demand planning can also be used to create weekly projections for specific retail outlets and client categories such as supermarkets, healthcare establishments, exports, and subcontractors. Feasible production & resource planning and monitoring resource loads and utilisation. On the supply planning side, Blédina uses the supply network planning capabilities of the new system to calculate of the net requirement of finished goods. This calculation is based on defined target days of supply per product family or per product with a possible variation in time. Blédina is now able to create multiple versions of the finished goods distribution plan and analyze them using the component’s simulation capabilities to select the optimal solution. Before implementing supply network planning capabilities, Blédina had a general inventory policy of having the same average inventory level at all of its sites. Now it is able to designate minimum inventory levels tailored to each of its distribution bases. Deployment of finished products to distribution centres. On the logistics front, Blédina uses the deployment capability of the new system to monitor the target stock level (in pallets, tons) versus available stocks at distribution centres. This ensures that safety stock levels are maintained accordingly, thus minimizing the risk of shortages and delivering correct quantities of stock to the distribution centres. The deployment of supply network planning capabilities also allows to monitor the distribution centres' fill rates against their target performance. Real-time tracking of sales at retail outlets and adjustment of production and inventory accordingly. “We use this tool to track individual activities within the supply chain, enabling us to react quickly when there is a situation that needs attention”, said Mr. Mornieux. “We are able to create alternative plans for meeting our target days of supply and these plans are then reported to executives for consultations and decision making. Moreover, at any time, Blédina management is able to view the global load on the plants to assess their performance as well as usage.” 91
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Through the implementation of the business process reengineering project, Blédina is making considerable headway towards achieving its strategic goal of maintaining a 99% customer service level. The most important key performance indicator of success is undoubtedly customer satisfaction. Mornieux emphasized that "The strong performance of our new processes and our reliance on the system have meant that we have totally regained their confidence, to the extent that some of our clients, including Carrefour and Auchan, have deployed collaborative solutions with interfaces linking them to our sales management systems.” As already pointed out, by December 2001, Bledichef had achieved and maintained a service performance level between 98% and 99.5%. At the same time, work-in-progress and finished goods inventories were almost halved during this period. Other internal goals that were met after the implementation of the new SCM system are: Forecast accuracy has been above its target line by an average of 5% year on year. By 2003, overall forecast accuracy had improved by 6% when compared to 2001. Production capacity utilization has improved by an average of 19% – between 2001 and 2003, Impacts on business relationships with suppliers and/or customers Impacts on production processes Work-in-progress and finished goods inventory between 2001 and 2003 were reduced by 25%, while inventory days of supply were reduced by 20%. Blédina plans to extend the use of the new system’s optimization capabilities to include economical parameters and functions in their supply chain planning process. “SAP APO will enable our plant at Steenvoorde to plan its milk procurement on the basis of seasonal price variations to make sure it gets the lowest price. The fact that we know our long-term needs makes this all easier,” said Bledina's Plant Director, Mr. Denis Périllier. Collaboration through sharing the demand and supply information with business suppliers and customers is expected to make the supply chain processes of Blédina more efficient. Last but not least, through the implementation of the new system, Blédina, like its parent Groupe Danone, will adopt standard business systems.
Lessons learned Enhancing and reengineering business processes within the supply chain was key to the success of this project. More importantly, people had a very significant role in the assessment of the situation and in the implementation of the system: a close collaboration was established among all the people involved in the supply chain, including sales and marketing, purchasing, production planning, manufacturing, distribution, administration and finance, and information systems. The enterprise-wide project mobilized 12 of the company’s employees and up to 10 specialised consultants, although ultimately 30 employees were involved. The SCM system now matches the quality of the complex traceability system of Blédina: the company not only dictates the quality and care of the livestock and the milk used in its products, but, for each milk cistern delivered, the company can identify the farmer and the 92
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cows that produce the milk, the date of delivery, the completion of bacteriological controls, the tank into which the cistern’s milk is poured, the product and container in which it is used and sold, the distribution centre it went through, and the final reseller. Using a common tool for all logistics chain players offers complete visibility of the supply chain, from sales planning (where Blédina had no tool before) and production planning (where basic tools were previously used) all the way to inventory management. The transparency of the data and the ease of updating them enabled Blédina to react more efficiently to changing situations. The most important corrective actions were to increase the stock level and to manage out-of-stocks in terms of priority, with a cycle rule to satisfy the customers one by one. The ultimate sign of success was customer reaction: Blédina has totally regained it’s Clients’ confidence, to the extent that some of them have deployed collaborative solutions with interfaces linking them to Blédina's sales management systems.
References This case study was conducted by Databank on behalf of the e-Business W@tch. References: Interview with M. Philippe Cherigie, SAP France, September 2006 Quotations from Mr Périllier and Mr Mornieux are extracted from Bledina case study available at http://www.sap.com Company website: www.bledina.fr (August 2006)
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Drivers and expected benefits The focus of SCM systems in manufacturing sectors is on cost-reduction and optimisation of logistics operations. In the F&B industry, however, SCM systems have to address the sector-specific issues of food supply safety and traceability. Logistics considerations are particularly crucial in the F&B processing industry, since the short shelf life of most food products is a key factor in moving raw materials to processing plants and in transporting finished goods to market. Demand for faster, more frequent delivery of smaller stock units, coupled with the need for special packaging to fulfil promotional requirements increases the need for supply chain improvements. The impact of regulation on the adoption of ICT traceability tools had been described in Section 4.1.1. These impacts, which are relevant at company level, are magnified by the complexity of the supply chain, depending on the number of players and tasks involved the products and ingredients used, and the shelf life cycle of products. Distribution is another major force driving F&B companies towards integration of the supply chain. Over the last decade, food retailers, most notably the large supermarket chains, have become increasingly dominant and this has resulted in a shift in the traditional power relations. Retailers have become increasingly powerful, often driving the supply chain and imposing new procedures and the alignment to their standards. The aim is to align the whole network to the needs of the final consumer: creating a system that is flexible, responsive to changes in consumer demands and capable of providing more value added and services. While there is a general consensus about the potential of SCM systems in allowing industries to reduce uncertainty and risk, save time, reduce costs, increase effectiveness and add value through innovation, cost and complexity of technology continue to be a barrier to the adoption of ICT and e-business60. The challenge is how to achieve integration and exert the necessary control in such a way as to gain competitive advantage and keep cost competitiveness. The following business example illustrates retail driven SCM implementation between Metro and its suppliers.
60
See Section 3.8 of this report 94
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Business example:
Supply chain efficiency at Metro Group Logistics (Germany) Metro Group Logistics (MGL) had changed Metro’s supply chain from being supplier-driven to retail-driven. The complexity of Metro’s supply chain in Germany is illustrated by its 50 million shipments per year: the previous context of supplier-driven logistics had created a fragmented system marked by a high number of deliveries, 80% of which carried only one pallet. MGL was established in Germany in 1995, involving five service providers to manage the flow between the various suppliers and stores. The system did not require any new investment: it was based on alignment and high flexibility between the partners. MGL negotiates costs with the service providers, but there is no change for the manufacturers. Benefits included more efficient deliveries (with 30 pallets on average instead of one), very high levels of on-time delivery (98%), and reduced transport, an important advantage in view of rising energy costs. MGL was rolled out in Germany over three years and in 2004 handled 8.3 million shipments. Metro has introduced the system to a number of other European countries since 1999. The aim is to create connections between domestic and international networks by using regional and “gateway” hubs. In terms of lessons learned, Frank Körber (Chief Operations Officer Europe of MGL) underlined the importance of strong commitment from all the function areas concerned, i.e. stores, buying and supply chain. Defining the process rules and responsibilities in ordering and receiving goods is also critical, but the most important issue is separating the responsibilities of logistics and buying. In terms of processes, MGL handles neither ordering nor picking: the stores place orders with the suppliers, who then prepare orders by store ready for cross docking by MGL. Concerning the reaction of Metro’s commercial departments, Körber noted that it took some time to convince buyers (the roll out took three years in Germany), but now the buyers understand that logistics is a different business. Regarding international expansion, it is not easy to convince suppliers in some countries, Körber added, because they use informal practices and do not calculate supply chain costs. Source: report by Frank Körber, COO Europe, Metro Group Logistics, Germany, at the CIES Supply Chain Conference – Barcelona, October 2005
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The following case study is about a pilot programme aimed at reducing distribution and supply chain costs while increasing value for the participants. There are many reasons of interest in this case study. First, it is a collaborative initiative, involving all relevant stakeholders in the area (see its “Background and Objectives”). It is also an example of – partly- publicly funding intervention. Second, it is a reference example of cooperation and cross-fertilisation between different sectors. The participants have access to a full distribution diagnostic, the opportunity to collaborate with other project partners, and professional brokered assistance to help ensure that opportunities are fully explored and consolidated. Third, it highlights the importance of information-sharing data gathering and analysis, as well as of establishing mechanisms that can assure the protection of sensitive data whenever collaboration among different business is necessary.
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C ASE S TUDY : L OGISTICS XP
DISTRIBUTION COLLABORATION
Abstract LOGISTICSXP, the Logistics Exchange Programme, is the brand name for a pilot collaborative initiative, supported by InterTradeIreland, primarily between retail suppliers within the logistics part of the food and drinks industry supply chain. Information on existing loads, warehousing and distribution flows together with ambient, time and other requirements are pooled anonymously and matched via the Translogistica PreFlex eRFC™ system. The result is a set of potential logistics sharing opportunities, and range of “what-if” scenarios. The central independent project management and facilitation of evaluating and translating these common supply chain opportunities into reality via a broad collaboration group is highlighted as an essential component of long term success. A new three year pilot scheme directed at SMEs and other industry sectors is described. Case study fact sheet Full name of the company:
Barbara Anderson Consulting
Location (HQ / main branches):
Waringstown, Northern Ireland
Sector (main business activity):
Supply chain consulting
Year of foundation:
2000
No. of employees:
6 (Network of associates)
Turnover in last financial year:
Not disclosed
Primary customers:
Food & Drink retailers
Most significant market area:
Island of Ireland, United Kingdom, Continental Europe. Plans for the Far East
Focus of case study
Process & system
Key words:
Logistics
Background and objectives This case study outlines the origin and the results of a collaborative programme on distribution logistics conducted in 2005. This initiative followed an integrated study on “Supply chain logistics and transportation on the island of Ireland” commissioned by InterTradeIreland61 and conducted jointly with the Joint Business Council of the Irish Business and Employers Confederation (IBEC) and the Confederation of British Industry (CBI). Distribution in and out of Ireland is less cost effective due to- many drops, poor load fill, less-developed supply chain infrastructure than in other European countries. One of the key recommendations in this report was: ‘Supply chain management encourages the sharing of information and development of partnerships between organisations for the mutual benefit of all.
61
InterTradeIreland, the Trade and Business Development Body, is one of the six cross-border bodies established under the Belfast Agreement, 1999. InterTradeIreland's mission is to enhance the global competitiveness of the all-island economy to the mutual benefit of Ireland and Northern Ireland through measures such as the creation of knowledge-intensive all-island trade and business development networks and the implementation of all-island trade and business development programmes. See www.intertradeireland.com 97
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InterTradeIreland should encourage appropriate government bodies, trade associations etc., to act as ‘honest brokers’ in encouraging the development of collaborative efforts between companies in all areas of the supply chain’ Since the publication of the joint report, InterTradeIreland has developed a Supply Chain Strategy focussed on the promotion of supply chain awareness and development of best practice to achieve competitive advantage. The LOGISTICSXP Distribution Collaboration Pilot, one of the key initiatives, was launched in January 2005 with eight participating companies. Their participation was partly funded by InterTradeIreland. The intent was to demonstrate where opportunities exist for collaboration between participating companies in both Northern Ireland and Republic of Ireland in relation to reducing distribution and supply chain costs, while simultaneously increasing value for the respective participants.
e-Business activity The starting point for the project participants was to explore the potential opportunities for collaboration outbound to customers and inbound from suppliers located on the Island of Ireland and in England, Scotland, and Wales. Companies that participated in the pilot study included, amongst others: Henderson Group, owners of the SPAR, VG and VIVO franchises in Northern Ireland, which distributes food and grocery related products to the convenience retail sector. Henderson Wholesale offers over 4,500 ambient lines, 1,100 fresh food lines and 500 frozen food lines to the retailer Irwin’s, Northern Ireland’s largest independent bakery, with an extensive distribution resource which supplies a wide range of fresh traditional Irish breads daily to supermarkets throughout the UK and Ireland Moy Park Ltd, Northern Ireland’s largest food processing company and one of Europe’s leading poultry companies which supplies chicken products to retailers throughout UK, Ireland and Europe. It is part of the OSI Group. H. J. Heinz, the global food company Royal Numico, a specialised nutrition company, whose brand names include Nutricia, Cow & Gate, Milupa, Mellin, Dumex, SGM, Nutrison, Neocate and Forticare Argos, owned by GUS plc, and part of the Argos retail group. It is the UK’s leading general merchandise retailer.
Methodology The project led by Barbara Anderson Consulting, supported by ELUPEG62 (European Logistics Users, Provider and Enablers Group) and Translogistica commenced with a Phase I high level “Business Profiling” to determine the networks and infrastructure of the participants to ensure that the project had sufficient ‘reach’ to achieve the anticipated benefits from collaboration. Evaluation continued in Phase II “Detailed Data Gathering” with the comprehensive collection of organisational data including: outbound & inbound
62
See www.elupeg.com 98
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customer demographics, transport temperature regimes and supplier demographics. Phase III “Data Matching” collated and compared information about individual outbound and inbound raw materials and finished goods movements for each participant. “What if” scenarios were also calculated. In Phase IV the potential for collaborative deliveries to customers within similar / same geographic regions was identified, including potential backhaul opportunities and consolidation of warehousing among partners.
Supporting Technology The ‘Data Matching’ engine that sits behind this process of seeking out collaborative partners and opportunities, is PreFlex eRFC™ (Request For Collaboration) provided by Translogistica (http://www.translogistica.com/). This collaboration tool enables companies to safely, anonymously and easily understand the scale of the opportunity, and perform what-if analysis of the impact of moving distribution centres. The individual inbound and outbound raw material and finished goods movements for each participant were collated and entered into the system along with most of the detail necessary for potential collaborative matching (e.g. temperature regime, volumes, number of trucks, frequency). PreFlex eRFC™ then produced a series of reports indicating full and less than full truckload (FTL/LTL) outbound load-sharing and backhaul potential matches based on permutations of origin and destination (portions of post code and city). Exhibit 4-2:Translogistica Preflex eRFC™
Source: Barbara Anderson Consulting (2006) ©Translogistica Ltd
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Impact Based on the results of the analysis some companies have collaborated independently without need for any further involvement by the LOGISTICSXP programme. However, in general, it was necessary to have an independent trusted broker conduct an arms length process to facilitate follow up action. Even then, specific clear opportunities have not been acted on for various reasons. These include simple lack of resources and an inability to commit to collaboration due to other ongoing work and commitments in the supply chain, as well as perceived strategic differences.
Collaborative Opportunities Identified Many participants are currently delivering to a customer base spread across the same geographic areas in Ireland and the UK; and receiving supplies from similar geographic areas. To optimise the cost of shipments, all participants aimed to achieve full loads delivered direct to customer distribution centres (DCs). However, all participants have similar issues in terms of providing a cost effective distribution service of less than full loads to smaller customers. The suggestions from the analysis range from the potential of sharing backhaul capacity or volume to the innovative contemplating of mixing products across temperature regimes and industry sectors to enable vehicle sharing e.g. running trucks with the refrigeration unit powered down, using branded general merchandise trucks to transport fresh bakery products from a different company. Specific areas for collaboration include: Collaboration on combined deliveries to customers within similar / same geographic regions; ‘Backhaul’ opportunities from suppliers. Many supplies are purchased at ‘delivered cost’ - thus there exists a huge potential to collaborate on balancing ‘Inbound and Outbound’ between some project participants and also with other companies, possibly yet to be identified; Consolidation of warehousing among participants.
Potential Commercial Benefits Identified The potential cost reductions identified by the Pilot project participants, and confirmed by an independent auditing firm, ranged from €65,000 to £375,000 at a company level. In percentage terms these cost reductions range between 5 - 20%. The total estimated value of the potential cost reduction benefits exceeds a million euro – taking into account projects which will have an additional cost in order to enable collaboration which in turn will generate ‘Revenue’ for one partner and deliver ‘Cost reduction’ for the other partner. It was anticipated that this number would increase with implementation of the collaborative opportunities. This was expected to require a further 6–18 months. In addition to the potential cost reduction benefits, many of the companies had identified revenue-generating opportunities from participating in the Collaboration project. The value of these opportunities was estimated to be in the region of € 750,000. The participants also identified further ‘competitive advantages’ to be gained through enhanced customer service. 100
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In general terms the potential benefits arising from the proposed collaborations, if and when implemented, would result in: Fewer deliveries / increased vehicle utilisation Enhanced customer service Reduced distribution costs (inbound and outbound) Better utilisation of warehousing resources
Lessons learned This type of collaboration has a huge potential to reduce costs for participants and position Logistics Service Providers (LSPs) as strategic partners for all. An important practical consideration highlighted by Barbara Anderson is that “participants must not seek to maximise their individual potential gains; this is a network which will only grow and be successful when the benefits are shared equitably”. In effect, the pilot must encourage the sharing of supply chain management information and development of partnerships between organisations for their mutual benefit. To this end, data provided by the participants remain anonymous (or confidential) at all times until and after respective participants agree to share this information. Notwithstanding this anonymity requirement, all participants must have direct access to their own data (via the broker). Participants would also have access to the available information on the collaboration opportunities identified and be able to seek further opportunities as more companies join the group.
LOGISTICSXP Process Overview Based on the experience in the pilot, a revised process developed by Barbara Anderson Consulting is shown in Exhibit 4-3. This is used in other initiatives as well and is also intended to be used in the follow-on InterTradeIreland project aimed at SMEs. Exhibit 4-3: LOGISTICSXP Process Overview
Source: Barbara Anderson Consulting (©2006) 101
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Follow-on pilot project As a result of the success of the initial pilot programme aimed at large companies, InterTradeIreland has decided to run a second pilot initiative (2006-2009), this time aimed at providing direct support for 12 selected SMEs (all sectors eligible) in the first year. Enterprise Ireland has also agreed to support 12 companies according to the same conditions. This phase will continue to have a specific food in focus as the “Fit for Market” Project Team (DARD and INVESTNI) Food Strategy Implementation Partnership (FSIP) have committed to support an additional 12 SMEs per annum from this sector in Northern Ireland. In order to ensure that the collaboration base is relatively compatible and thereby maximise the potential for collaboration it is likely that several of the other 24 companies selected will also be from the agriculture / food sector. Depending on the outcome of each preceding year, it is envisaged that the project will continue subject to the same conditions for each of the following two years (2006-2009).
Conclusions Barbara Anderson highlighted the value derived from the successful pilot programme and its wider potential: “Cross-fertilization between participants and other industries is an essential part of this process. All companies, regardless of size and industry sector, can increase their customer value by participating in the LOGISTICSXP Programme and by acting on the opportunities identified. Company participants have access to a full distribution diagnostic, the opportunity to collaborate with other project partners, and professional brokered assistance to help ensure that opportunities are fully explored and consolidated”. She welcomed the continued role and contribution of InterTradeIreland, Enterprise Ireland and FSIP/Northern Ireland to continue the pilot in favour of assisting SMEs (up to 250 employees).
References Research for this case study was conducted by Henry J. F. Ryan, Lios Geal Consultants, on behalf of the e-Business W@tch. Sources and references: Interviews with Ms. Barbara Anderson in May and July 2006. Desk based literature research, and information available from the InterTradeIreland website www.intertradeireland.com; including the report “Supply chain logistics and transportation on the island of Ireland: an integrated study” (22 January, 2002) and the “LogisticsXP Brochure” (28 March 2006). Translogistica website, http://www.translogistica.com/
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4.2.2
Use of CRM
Introduction to the technology One of the ICT applications that can help companies to improve the distribution of their products is Customer Relationship Management (CRM) for business intelligence purpose. CRM systems help a company to systematically increase their knowledge about customers and profitability, and to build and adapt marketing strategies on the basis of this intelligence. CRM is a term that refers to a broad range of methodologies and software applications that help an enterprise manage customer relationships in an organised way. Normally, this will be based on some kind of database with systematic information about customers and the business record the company has with them. Ideally, this information will support management, salespeople, people providing service, and possibly the customers themselves in their tasks; for example by matching customer needs with product plans and offerings, and by reminding customers of service facilities and requirements. Three levels of application of CRM are commonly distinguished:63 Operational CRM: supporting front-office work by storing basic data on customers (e.g. addresses, track record of contacts); front-office will enter new data as part of their work; Analytical CRM: analysis of data gathered through operational CRM in order to segment customers; Collaborative CRM: facilitates interactions with customers through all channels (personal, letter, web, e-mail) and supports co-ordination of employee teams.
Use of CRM in the F&B industry According to the results of the e-Business Survey 2006, CRM is not yet widely diffused in the F&B industry. If CRM systems are used, it is mainly by the sector’s large enterprises and, if so, companies make use of CRM mainly for operational and analytical purposes (see example of Ebro Puleva in box). There are a few specific forms of CRM application in the F&B industry including, for example, CRM supporting batch recall processes. This includes all steps that are required to recall a defect batch, which has already been delivered to a customer. If a batch does not fulfil a customer's quality demands, or if a defect is discovered, it may be necessary to notify all affected customers that received items of the respective batch. CRM systems including a respective module can greatly support this process (by combining information about who received items from the batch with communication functions). Moreover, automatic follow up activities can be created to handle the returns of the defect batch.
63
Cf. www.mariosalexandrou.com/definition/crm.asp: "CRM Definition" 103
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Typically, CRM systems will also include modules or functions for handling returns and complaints, supporting companies in managing reclamation processing. In the beverages industry, CRM can include functions for empties processing. The system provides information on the number, location and status of empty bottles and crates, which can be important when processing customer orders. This functionality demonstrates that there can be close links between CRM and other ICT based information systems in the company, such as ERP and / or inventory management. CRM systems can also support extended rebate processing, either in direct sales or in indirect sales (e.g. via a distributor) with a customer.
Business example
CRM use by Ebro Puleva The Spanish food company Ebro Puleva, a leading company in the Spanish food market, uses CRM in two areas. The first one is for analytical CRM: to collect centrally and analyse data which are first collected at the selling points for the dairy products. Data are obtained locally by use of PDAs (Personal Digital Assistants) that have a bar code reader for products of Ebro Puleva and competitors. The company used 40 PDAs in 2005. The second area of CRM use is for customer service in the sugar business line. This includes assistance by phone, fax and e-mail. This is a typical example of operational CRM. Source: Case study on Ebro Puleva, e-Business W@tch sector study on food and beverages, July 2005. See www.ebusiness-watch.org
The following case study is about the implementation of a CRM strategy by Godiva Chocolatier Europe. According to this strategy, the physical channels (shop counter, phone/fax) are complemented by ICT applications, dedicated website and the back-and front-office applications integrated with intranet and extranet.
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C ASE S TUDY : ICT E UROPE
IN SUPPORT OF CRM AT
G ODIVA C HOCOLATIER
Abstract Godiva Chocolatier is specialised in the production of premium chocolate. The company is based n Brussels, Belgium. It has manufacturing facilities in Belgium and the USA and nearly four thousand points of sale world-wide. Customer relationship management at Godiva is a core part of the business strategy. Focusing on creating and maintaining lasting relationships with its customers, the company has developed a CRM solution. The physical channels (shop counter, phone/fax) are complemented by ICT applications like dedicated website and the backand front-office applications integrated with intranet and extranet. Case study fact sheet Full name of the company:
Godiva Chocolatier
Location (HQ / main branches):
New York – US, Brussels - Belgium
Sector (main business activity):
Production of chocolate, confectionery and drinks
Year of foundation:
1926
Number of employees:
600 in Europe
Turnover in last financial year:
n.a
Primary customers:
Retail and distribution outlets , franchising outlets, private and corporate customers
Most significant market area:
Europe, US, Japan, Hong-Kong
Focus of the case study:
LINK-Extranet system , part of CMR
Key words
CRM
Background and objectives Godiva Chocolatier was created in 1926 by the Draps family, and for the first 40 years, the company operated regionally as family business. In 1966 Godiva entered the American market and six years later the company became a wholly-owned subsidiary of Campbell Corporation (USA). Presently, the two production units in Belgium and the USA distribute Godiva products all over the world. The range of offer, which traditionally comprised premium chocolates, now includes ice-creams and cocoa-based beverages. In the United States, the Pennsylvania plant supplies the whole North American market via the network of proprietary boutiques and upscale retail outlets. The Belgian production supplies markets in Europe, the Middle East and Asia. In these regions, Godiva has developed three distribution channels: its own shops, counters in luxury stores and a network of franchises, which is expanding particularly in Europe. Godiva Chocolatier’s products are also sold through catalogues, via phone/fax orders and on the internet, mainly in North America, Japan and Hong-Kong.
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Godiva faces increasing competition from other chocolate producers, such as the Belgian company Leonidas, Irish Butlers and Thorntons in the UK. Across Europe, there is also a growing number of small new companies selling their products via internet. Competing in this environment is becoming more and more challenging for Godiva. The main challenges are product positioning and branding, as well as the flexibility to meet customers’ changing tastes. Godiva has started using ICT to support the image as a luxury brand and to better develop marketing tools. For instance, Godiva internet website, www.godiva.com, has been one of the important means to promote brand awareness. In 1994, long before e-commerce took off, Godiva launched its own website with an online ordering facility, becoming one of the very first retailers to do so. Since then, the web site has been a tool for strengthening Godiva’s reputation and commitment to customers. Customer relationship management (CRM) at Godiva is a tool for creating and maintaining lasting relationships with customers and lays the basis for targeted marketing and product development. As company spokeswoman Viviane Burgess says, “the Company needs to keep track of evolving consumer behaviours in order to offer those products which best respond to their needs.” The world-wide presence is a challenge, which requires that different solutions are implemented to address the various customers’ preferences. For instance, the company has different websites’ contents (though based on identical templates) and separate CRM solutions for each Godiva division (North America, Japan, Hong-Kong and Europe).This strategy allows better product positioning and development, closer relationship with the individual clients from different markets, and development of targeted marketing.
e-Business activities CRM at Godiva evolved into a company-wide business strategy designed to reduce costs and increase profitability by building and supporting customer loyalty. CRM brings together information from all data sources within an organisation (and where appropriate, from outside the organisation) to give one, holistic view of each customer in real time. This allows customer-facing employees in such areas as sales, customer support and marketing, to make quick yet informed decisions on everything from crossselling and up-selling opportunities to target marketing strategies to competitive positioning tactics. Godiva has developed a CRM strategy in which the physical channels (shop counter, phone/fax) are complemented by ICT applications like dedicated website and the back-and front-office applications integrated with intranet and extranet. To support the strategy, Godiva has introduced suitable software applications and systems over time. Some years ago, Godiva introduced an ERP system to run most of the business processes and, more recently a CRM. Before the introduction of CRM, customers’ data were stored in different locations and in many cases were entered manually, which resulted in omissions and errors. In 2005, the firm decided to develop its own in-house CRM solution based on flexible applications to save cost and time during the development phase and afterward. The developments are taken in stages and are still ongoing, so it is too early to assess impact and benefits of the whole system. However, there are many technological components to CRM, and at the beginning of its implementation Godiva needed a closer links with its clients and automated processes of 106
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order taking and communication. In 2002-2003 Godiva European Division, developed the LINK Extranet system, which links business partners64 via dedicated website (www.link.godiva.be) with Godiva’s office in Brussels, as an integral part of an end-to-end CRM process. In 2002 -2003 the Link project was developed by the company with the help of external consultants. It cost about 120,000 Euros and it took about one year for it to be fully operational, including training of the customers and in house staff. It was relatively easy to convince the customers of the benefits of electronic order placements and communication. This turned into 100% customers using the system after nine months from the start date. The LINK system plays an important role in the company’s CRM. For example serving as a front office system, directly taking customer’s details and orders and then processing this data into a back-office that fulfils and supports customer orders. This way, information about customers, purchasing patterns and models come directly via LINK into company’s CMR/ERP database. Taking into account that nearly 70% of orders in Europe comes from Godiva’s own and franchised retailed outlets, the need and impact of linking them with an automated and streamline process brought significant improvements of customer service and management. The real-time link with customers also increased the possibility to develop and deliver the right products at the right time and season (for example Christmas time, Valentine’s Day) with production being able to respond accurately. Before introduction of the LINK system, each customer (a retail outlet) had to send an individual order by fax or post, sometimes using outdated order forms. This implied that the order could arrive in bad quality and / or with bad handwriting with missing data. The details of the order had to be then manually entered in Godiva’s ERP system for processing. Besides being time-consuming, the process resulted in a certain amount of human error and delays in deliveries. Today, the company receives the orders via www.link.godiva.be websites where registered partners can log in to place and manage their orders 24/7. The LINK application enables automated order placement and processing of real-time data collection on customers’ behaviour. Moreover the LINK application has established an easier and faster communication channel between the company and its partners. The application plays an important part in the collaborative function of the CRM ensuring close contact with customers. Clients and partners have an access to daily updated information on products, details on training65, events and other developments. By using banners and pop-ups the reading of important information is promoted. Profile-based information is sent to different customers, allowing for promoting different products in the regions, for example; chocolate without alcohol, but making possible exceptions on customer level. Then the marketing, sales and customer service strategies are based on the data and feedback collected via LINK, supporting the analytical function of CRM. The company saves cost and time on sending marketing materials and ensures that the massages reach the targeted audience fast.
64
own and franchised shops
65
Training on new IT applications, new products, shelf display 107
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The LINK facilitates interactions with customers and supports co-ordination of employee teams and channels. The system ensures immediate and personalised response to customers’ queries received via extranet making the client feel. For the company, the web collaboration reduces customer service costs, it also improves quality by eliminating errors and delays. Exhibit 4-4: Application of LINK Architecture at Godiva Europe
Application Architecture Administration
E-mail Alerts
Pages
PDF Reports
LINK Extranet
Website
Mail Server
Web Services
DTS Website
SQL Server
Web Services
AS/400
Database
ERP System
Impact Nearly 100% of Godiva Europe customers are business partners (retailers). Godiva manages the commercial relations with such partners through a tailored solution, by linking them with the company via LINK extranet. LINK has been the step-stone towards CRM. The automatic processing of orders and other communication automatically feeds the database, which comprises individual accounts that store information about single customer’s activities. That creates the base for further development of CRM. The LINK project has brought the following improvements of business processes at Godiva: Complete and up-to date customers’ orders and queries in digital form, directly linked with the ERP, imply no more need for manual re-entry, therefore reduced number of errors, speedier and more accurate deliveries. Inventory management and logistics improved, with better central management of all orders. Automated order-flow, resulting in employees liberated time for providing more and better customer service. Accurate and up-to date data warehouse with increase market knowledge. Delivering real time customer feedback that helps product development. 108
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Valued source of gathering market intelligence. Improvement of the company image through personalised services, efficient deliveries and better relationships with its partners. Communication with partners streamlined. Enhanced customer visibility by providing a full view of activities on each customer account. LINK and the computerisation of orders processing was designed not only to improve and speed up the processes within the company but also to add value to customers by providing: Easier and faster communication channel between the company and its partners; Easier order placement, with 24/7 access to manage orders in an intelligent format management and tracking with a possibility to change the order anytime and access the invoice information; Order status and dispatch information tracking; Up-to-date detailed information on products, manuals-on line; Direct communication platform to Godiva.
Lessons learned There are many technological components to CRM, but thinking about CRM in primarily technological terms may be a mistake. Godiva’s case confirms that CRM is as a process that helps bringing together lots of pieces of information about customers, sales, marketing effectiveness, responsiveness and market trends. CRM should be regarded as a strategy to learn more about customers' needs and behaviours in order to develop stronger relationships with them. Good customer relationships are widely acknowledged to be an essential ingredient of business success. CRM provides the resources to track most details of business relationships. This detail improves business process by allowing organisations to make more educated and strategic decisions. In turn, accurate and current information helps improve implementation results. Further on, gathering all the information on individual customers and make it available in one place, CRM allows to sort and process information necessary to improve customer’s experience. It serves as a central communications tracking tool of elements collected at the different points where interaction with customers takes place. “The information collected about a customer -said Mr. Peter Stevens- is more effective when used to create a customer file, which is then available for sharing with the enterprise as a whole. On the marketing side, we needed a way to make more informed decisions about our marketing content and cost, says company representative. We need to collect and keep the data about our customers and their behaviour also to support future product enhancements or customisation.”
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The company chose to develop its own solution based on the specific customers’ needs, to work on enhancing existing business processing, and to replace only those that are no longer valid or sufficient for serving customer. The CRM in place at Godiva Europe has also proofed to be very useful in simplify interactions and communications with the customers. The customers benefit having access to information on demand, improving accuracy, enhanced product knowledge, and marketing message that they want. As the understanding about the customer increases, Godiva finds that it can serve them better.
References This case study was conducted by Aneta Herrenschmidt-Moller on behalf of the eBusiness W@tch in September and October 2006. Sources and references used: Interview and information delivered by company representatives Mr. Peter Stevens and Ms Viviane Burgess Microsoft @ Convention 2004, presentation papers. Company websites: - www.godiva.be (Sept.2006) - http://shareholder.com/campbell/reports.cfm (August 2006)
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4.2.3
Summary of main points and conclusions Food manufacturers and grocery retailers are trying to radically reduce costs and inventory, and move towards a ‘pull’ rather than ‘push’ distribution system, through the application of SCM (supply chain management) and development of integrated relationships, and real-time information transfers. These SCM activities focus on increasing the flexibility amongst upstream suppliers in response to the strategic power of the dominant supermarket chains, by means of a closer integration of external enterprise relations. The Blédina case study illustrates how the implementation of an effective SCM system may successfully support companies in responding to changes in the competitive environment. As SCM systems are used to manage numerous and different tasks, this requires inputs from various applications, and sharing of data with external partners’ Information Systems. As a result, firms clearly need to address a broad range of organisational and technical challenges when introducing SCM. Inter-enterprise integration, represented by SCM, is strongly correlated with and dependent upon the prior effective implementation of intra-enterprise integration (mainly represented by ERP). ERP and SCM represent complementary approaches for addressing the same strategic challenges. SCM, however, provides the opportunity to expand the advantages of optimization and integration to the entire supply chain through the creation of a collaborative, networked environment. CRM is not yet widely diffused in the F&B industry and only by large enterprises. The Godiva case study illustrates how CRM can be successfully implemented for achieving business process efficiency and improving customer service. Supply chain coordination in the F&B industry is heavily dependent on ICT and e-business systems: information technology allows system integration through standardized inter-organisational interfaces. Mutual trust and cooperation of business partners is crucial for the success of programmes aimed at optimising complex value chain, as demonstrated by the Blédina and LogisticXP case studies. These case studies also highlight that complex projects require accurate analysis and planning to ensure effective and successful implementation. Food supply safety and traceability are two important new links in the supply chain: while SCM was previously focused mainly on cost reduction and logistics, today the focus has moved to quality and safety compliance as a part of the demand-driven competitive scenario. Retail chains continue to drive integration along the supply chain, leveraging their bargaining power towards manufacturers, as the Metro business example demonstrates
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4.3
Mobile Applications
4.3.1
Introduction Mobile applications and Wi-Fi systems66, together with RFID67 applications, are intimately connected with supply chain management and quality assurance issues, and hence mostly adopted by large enterprises – though some applications, such as sales force decentralisation and mobile/home offices, are relevant also for SMEs. The widespread diffusion of PDAs,68 mobile phones, laptops and other portable devices, associated with Wi-Fi technology, can help even SMEs to gather, store, analyse and share data, with a timely access to accurate accounting, inventory, sales and CRM information. Wireless devices such as printers and scanners / receivers are frequently adopted along the production and distribution of F&B.69
4.3.2
Technologies and applications Wireless and mobile systems find applications throughout the whole production system, from the production line to warehousing, labelling and distribution. For example, with wireless printers it is possible to print bar code labels on the manufacturing floor and shipping labels at the dock or warehouse, while data collection can be achieved in all step of the process through wireless bar code scanners. A growing number of the new wireless local area network (WLANs) is based on the 802.11b IEEE Wi-Fi (wireless fidelity) standard. But there is more than one wireless technology choice today. There are essentially three choices for wireless implementation: 802.11b Wi-Fi, Bluetooth and infrared (or IrDA for Infrared Data Association). Each of these choices has its place in the supply chain. An example of where wireless printing can make a difference to the efficiency of operations in the F&B industry is in the processing and packaging of vegetables. Production layout in this type of factory is by its nature very variable, both because of the need to make lines flexible enough to cope with the processing of different vegetables and because of seasonal changes in which goods are available. As a result, the type and position of machines used are continually being changed. Using a wireless printer connection makes it easy to move printing equipment to exactly where it is needed, as often as is required. In this environment, Wi-Fi is likely to prove a good choice because it enables the connection of the printer directly to a corporate network.
66
"Wi-Fi" is short for wireless fidelity, a popular term for a high-frequency wireless local area network (W-LAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN.
67
"RFID" is short for Radio Frequency Identification. RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders.
68
"Personal Digital Assistants", i.e. small and easy-to-carry computing devices.
69
The e-business implications of developments in mobile communication are also discussed in other e-Business W@tch sector reports of 2005 and 2006, for example in the sector studies on the telecommunications industry (2006), consumer electronics (2006) and the pharmaceutical industry (July 2005). All study reports are available at www.ebusiness-watch.org ('resources'). 112
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Bluetooth and infrared technologies can be used instead where short-range mobility is required: Bluetooth is a short-range Radio Frequency technology and does not depend on line of sight, while infrared technology does. Infrared, on the other hand, may be a less appealing option, depending on the application, but offers a good price compromise for connecting wirelessly. Since the coming into force of EU Directive 178/2002 in January 2005, a substantial increase in the number of check points in the food supply chain has occurred. Wireless devices look set to become a valuable tool in enabling the production and reading of bar code labels virtually anywhere in the chain. However, they must today compete with the growth of RFID-based solutions, which have significant impact in areas such as inventory visibility, load verification and order pick operations, traceability and quality assurance. The next big push is likely to be the convergence of a number of technologies such as wireless, low cost auto-id (transponders) or RFID tags and readers, combined with software that will provide visibility and management control of individual items without human interaction. This trend will enable enterprises to change the way items are produced, stocked and distributed. The ability to track the flow of goods at the edge of the supply chain, enabling real-time decisions, can bring immediate value in areas such as inventory management, replenishment and shrinkage. Challenges related to the selection, adoption, integration, and simultaneous use of possibly diverse standards in B2B transactions and data synchronization (such as RosettaNet70, UCCnet71 , Web Services standards and ebXML72), need to be consistently resolved in order to obtain the best synergies and manage massive data flows. The diffusion of standards and the problems related to a lack of interoperability of ICT systems have been analysed in Section 3.3 of this report. The e-Business Survey 2006 data highlight that the F&B industry is quite advanced in the adoption of EDI and especially internet-based EDI but there are still interoperability challenges to address in the areas of e-invoicing, payments and regulatory aspects.
Business example
Streamlining deliveries Krispy Kreme Doughnuts is a growing chain of doughnut shops, with stores in North America, Canada, UK, Korea, Mexico and Australia. The rapid expansion of the company created challenges to making sure products are always fresh and available.
70
RosettaNet is an organisation set up by leading information technology companies to define and implement a common set of standards for e-business. RosettaNet is defining a common parts dictionary so that different companies can define the same product the same way.
71
UCCnet is a standards organisation that provides an Internet-based supply chain management (SCM) data registry service for e-commerce companies and companies that have an ecommerce component. A non-profit subsidiary of the Uniform Code Council (developers of the UPC code), UCCnet provides a global repository where enterprises can register item data and share standardised, synchronised supply chain information.
72
ebXML (Electronic Business XML) is a project to use the Extensible Markup Language (XML) to standardise the secure exchange of business data 113
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Krispy-Kreme now relies on a route automation system to streamline deliveries to customers, developed together with Intermec Technologies Corp. and Velocitor Solutions. Krispy Kreme operates over 140 company stores that are independent of its franchise locations. In addition to serving walk-in customers, the company stores prepare and deliver doughnuts sold at other retail outlets. Route drivers operating from the company stores make daily doughnut deliveries to supermarkets, convenience stores, service stations and other retail locations. Mobile computers, printers and route management software are being rolled out to all the company stores primarily to streamline end-ofday processing and back office operations. The system also saves time for route drivers and improves convenience at customer sites. Krispy Kreme’s self-written demand planning and forecasting system at its Winston-Salem headquarters calculates a suggested order for every retail customer, every night. The orders are transferred to an IBM AS/400 computer at the company store that supports each customer. Orders for each route, the sixweek sales history for each customer, plus notes or special instructions for the driver are downloaded to a mobile computer before route drivers arrive in the morning. Drivers pick up their computers and then begin their daily deliveries. Route drivers arrive at retail locations and review orders with customers. Customers use the mobile computer to preview invoices before approving them. To accept, the customer signs on the mobile computer screen using a pen stylus. The route driver then prints a signed invoice for the customer and begins unloading the order. Drivers use the integrated bar code reader in the mobile computer to scan each item as it is unloaded, which updates Krispy Kreme’s inventory record. Drivers also pick up unsold items from the previous day and record them by scanning the bar code. All transactions are stored in a secure memory card in addition to the computer memory to provide backup. The major time savings occur when drivers return to the store after completing delivery. Each store supports between three and 25 routes, which are reviewed and reconciled daily. When deliveries are complete, drivers print their own reports on the mobile printer and submit them to the clerk. The computer is then placed in a docking cradle that interfaces directly with the AS/400 system through an Ethernet connection to upload activity data. Settlement sheets are calculated and printed in about 20 seconds. The entire check-out process can be completed in about two minutes, a stunning improvement over the previous 15- to 30-minute cycle. Stores that have converted to the route automation system have experienced enough time and labour savings to reassign support staff to other duties and have not had to add administrative staff even as sales and retail customers have surged. Customer service report requirements also have been reduced. Using a self-service Web site, customers can view invoices online and print them on demand, complete with the digital signature. Source: Intermec Technologies Corp. case study on www.intermec.com (March 2006)
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"Wireless people" Examples of wireless sales force automation implementations have been presented in previous e-Business W@tch studies on the F&B sector, for instance in the case study about Granarolo73. Companies are providing their mobile workforce (sales and transport/distribution) with ICT tools which enable workers in the field to access corporate databases and applications such as customer relationship management software, as well as the ability to update customer records wherever the work occurs. In the case of Granarolo, for instance, the company equipped the account managers with palm pilots through which they send the orders to a distribution platform. Alongside mobile phones, distributed network computing has been a significant technology trend that has put more computing power directly in the hands of "networked individuals". This has enabled collaborative distributed work in networked organisations and (cyber)communities, including small businesses. Although developing along separate paths, mobile communications and the internet have started to converge. The products of this convergence are sophisticated wireless data services, focussing on mobile data access and electronic messaging on mobile devices.74 Mobile business – i.e. the use of the wireless internet and other mobile information technologies for organisational communication and coordination, and the management of the firm – is likely to have a strong impact on organisations, as wireless technologies and applications begin to challenge the existing processes, strategies, structures, roles of individuals, and even cultures of organisations. A key factor for the success of projects implying new working procedures is the involvement and motivation of the part of the work force concerned. Acceptance of new technologies and systems depends upon the involvement of the workforce and their perception of the possible benefits. This aspect emerges from the case studies presented below. The following case studies and business examples illustrate applications of mobile business in different food sectors: point of sales control and management through PDAequipped company promoters (La Bella Easo, Spain); Wi-Fi technologies applied to warehouse management and product tracking (Pastificio Riscossa, Italy); Podcasting and mobile marketing at Purina (USA). These case studies and business examples highlight some of the advantages previously described, such as availability of company information to mobile sales force, product traceability and personalisation of customer relationship.
73
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Case study on Granarolo, page 20. Available at www.ebusiness-watch.org (‘resources’)
74
An introduction to digital convergence (drivers and types of convergence, implications) is contained in the sector studies of 2006 on ICT manufacturing, consumer electronics and telecommunications as a special section: "Overview: Convergence as a cross-sectoral issue". The study reports with this section are available at www.ebusiness-watch.org ('resources'). 115
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C ASE S TUDY : L A B ELLA E ASO , S PAIN Abstract La Bella Easo is one of the leading companies in Spain’s industrial baking market. Its catalogue includes an extensive range of bakery products. It has a production plant in Saragossa and its commercial offices are in Barcelona. Since 2005, it has also been distributing the Italian Barilla products on the Spanish market. This case study describes the introduction of a system to support point-of-sales control and management. Case study fact sheet Full name of the company:
Productos Alimenticios La Bella Easo, S.A.
Location (HQ / main branches):
Saragossa (head offices and production plant) and Barcelona (commercial offices)
Main business activity:
Food production
Year of foundation:
1968
Number of employees:
350
Turnover in last financial year:
56.31 million euros (2004)
Primary customers:
General consumers
Most significant geographic market:
Spain
Main e-business applications studied:
Management system for point-of-sales information
Key words
Sales force automation
Background and objectives In the years leading up to the project launch, La Bella Easo had recorded sharp increases in its business turnover. This major growth created new needs, amongst which was the restructuring and reinforcing of the sales force. In order to respond to this scenario, the company commissioned a strategic study on how the performance of its sales department could be improved. The outcome was a project which is described in this case. The project’s aim is to provide the organisation with a system that enables all pointof-sales related information to be managed and controlled, thereby supporting and reinforcing the new sales’ methodology. This information is of vital importance to the company’s business development.
e-Business activities Project description The project consists of a point-of-sales information management system. The information management process involves three types of agents: The company’s central sales office, located in Barcelona, which determines and monitors the company’s commercial strategy. Regional Sales Managers, distributed throughout Spain, who are responsible for implementing the commercial policy designed by head office.
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Promoters who are charged with ensuring that the shelf conditions at each pointof-sales are consistent with the agreements reached with customers (price, line position, offers). They also negotiate the terms under which the product is displayed and sold at the end point-of-sales. The proposed information management system catered for the following functional areas: Generation and management of the master data that are considered necessary by the company. Information gathering by the sales force. This is the project’s main area of innovation as far as the Spanish market is concerned. The company chose to equip each promoter with a PDA75 with the idea being to improve point-of-sales data acquisition. This is vital information for the company and prior to this it was collated on an “informal” basis, without exploiting all the possibilities this information provides. Information analysis. Once the problem of having good, systemised information has been resolved, the company has proceeded to analyse it. On the basis of this information, the company has adapted production, distribution and logistics processes to the new data available. From a technological standpoint, the project is noteworthy for its simplicity. It has the following infrastructure: PDAs for company promoters. Each one of the promoters operating throughout Spain is given a PDA with GPRS76 relay facilities. The PDAs have a series of variables that are considered important to the company and whose information underpins the company’s business planning, both in terms of commercial activity and as regards production, logistics and distribution. The promoters use GPRS to link up with the company’s intranet and relay the data collated, as well as to access the reports generated by the company. This was the first project of its kind to be undertaken in Spain. Reinforcement of the company’s technology infrastructure. The system is based on an Oracle database, which stores and manages the information received from the company head office, the commercial offices and the PDAs. In addition, an application server called GPV and a multidimensional database called Board were used for reporting (generation of reports) and for data mining. The company Vincle was responsible for the design and implementation. The company’s ERP system was subsequently upgraded, migrating to SAP® Enterprise, which used several interfaces to link up with the application described in this document.
75
Personal Digital Assistants, i.e. a hand-held portable device, often connected to the mobile phone network, allowing a wide range of applications.
76
General Packet Radio Service (GPRS) is a mobile data service available to users of GSM mobile phones. 117
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Personnel involved The main stakeholders involved in the project were the company’s sales centre in Barcelona, its regional sales managers in Spain, and the technology department.
Project phases The project was implemented in three stages:
Stage 1: Analysis and definition of the project’s scope and functional procedures In cooperation with the IT department, the commercial management defined the variables and criteria deemed necessary for decision-making and for fine-tuning of commercial processes, bearing in mind their major impact on production, logistics and distribution processes. An analysis was subsequently performed to decide upon the most suitable information management solution. Various solutions from different manufacturers were assessed and Vincle was the one ultimately selected. Following the choice of the basic platform to be used, three weeks were devoted to the analysis and design of the specific functional procedures to be applied, in keeping with the commercial management model previously adopted. This task was overseen by a cross-departmental team, including representatives of the IT department, a regional sales manager and a promoter.
Stage 2: Development, installation and adjustment, testing and validation Three weeks were needed for the installation, development and adjustment of the basic application supplied by Vincle. Following an intensive fortnight of field testing, a further two weeks were dedicated to the pilot start-up of the application in a specific region.
Stage 3: Launch Finally, the application was extended to the entire sales force, which involved two key activities: User training. A training course was arranged on how to use the PDA, its functions and the importance of gathering the information, as well as on the project’s aims. This training lasted for two days and was undertaken by regional areas. On-the-job training. The promoters were accompanied by ICT experts on their first visits to the point-of-sales, in order to ensure that they were indeed capable of correctly inputting the data into the PDAs. Furthermore, the aim was to show that the system was so simple that all the information considered necessary could be entered in a very short time. The end result was that the process of entering data took an average of 7 minutes, of the 45 minutes that a typical visit lasts. The project’s definitive launch took place in September 2002. One of the project’s more surprising features was the speed with which it was launched. Its implementation thus took place between June and September 2002.
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Cost of the process No specific information was made available about the cost of the project. The main cost items the following: Acquisition cost of the PDAs Investment in the solution and design provided by Vincle and in the adjustment of the database servers for hosting the solution provided by Vincle. Investment in reinforcing the company’s technology infrastructure.
System upgrade and enhancement The project is reviewed each year in order to assess its results, anticipate any potential problems and propose improvements. The review involves both head office and the regional sales managers and promoters. As a result, new functional procedures have been added to the information that is collated and relayed from the PDAs. The straightforward operation of the PDA itself means that it could potentially be extended to include new fields, whereby the company may dispose of better information on aspects that were hitherto less suitably covered. The project also had positive effects on relationships with distributors. A website was implemented with information specifically for distributors, based on data collected during the project. Furthermore, in January 2005 the company began to distribute the Italian Barilla brand products in Spain. In 2005, this point-of-sales management system was extended to also cover these products. The company’s aim for the coming years is to export the databases to a more powerful system. In other words, the objective is to reinforce the area of analysis of the data received though this point-of-sales management system. The information gathered is considered to be extremely valid, but now the corresponding analysis needs to be improved.
Impact The main impact can be seen in a substantial enhancement of the point-of-sales (PoS) management, which is vitally important for the company. The project demonstrated that the availability of timely information on the various PoS can be greatly improved, which facilitates strategic and operational planning and decision making with regard to distribution and product management. In addition, the project has had other positive impacts on: Professionalism of promoters’ work Improved production planning Improved logistics planning Greater satisfaction amongst distributors and customers
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Lessons learned The project demonstrated that the selected system empowers its users (e.g. in decision making) and is relatively easy to operate. To achieve this effect, however, it is very important that the selected technology matches the work processes which it is meant to support, and not the other way round. In this context, the following factors were critical for the success of the project: Involvement of all relevant stakeholders: Head Office, Regional Sales Managers and Promoters (the PDA users). They all contributed their view and experience and made important suggestions for further improvement during the project. Ease of use: the proposed tool must be easy to use in day-to-day operations. Change Management: users have to accept and feel comfortable with the new tool and not perceive it as a control mechanism. Evaluation and adaptability: the project outcome is undergoing an annual review, in order to assess results and the user opinions.
References Research for this case study was conducted by DBK, S.A. Calle Juan Bravo, 3. Edificio C. E-28034 Madrid (Spain) on behalf of the e-Business W@tch. Sources and references Interview with Antonio Novo Guerrero, IT Officer at La Bella Easo, March 2006 La Bella Easo website: www.labellaeaso.es (March 2006)
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C ASE S TUDY : W I -F I
IMPLEMENTATION AT
P ASTIFICIO R ISCOSSA
Abstract The Pastificio Riscossa is located in southern Italy. Its historical roots date back to the beginning of the 20th century. The factory produces a wide range of pasta recipes and formats, both for the Italian and international market, and commercialize other products such as rice and tomato sauce. Product traceability and the picking77process were recently improved by the adoption of a Wi-Fi order management system, which was integrated with the product labelling and tracking processes. The system led to a substantial reduction of picking times, and enables a quicker traceability of product batches (as required by EU legislation). Case study fact sheet Full name of the company:
Pastificio Riscossa, Fratelli MastroMauro Spa
Location (HQ / main branches):
Corato (BA) – Italy
Sector (main business activity):
Production of various pasta types (Durum wheat flour dry pasta, semolina and egg pasta, organic pasta, biscuits, flours, rice, sauces)
Year of foundation:
1902
Number of employees:
100
Turnover in last financial year:
18 million euros
Primary customers:
Retail chains, organised distribution, grocery shops
Most significant market area:
Central and Southern Italy, Europe, US
Main e-business applications studied:
Adoption of Wi-Fi terminals in the traceability/picking process
Key words:
Wi-FI, order management, logistics
Background and objectives Pastificio Riscossa was founded in 1902 by the same family that manages it today. The factory is located in Corato, Italy, in the Bari province and covers over 18,000 square meters of space. Pastificio Riscossa is known for both their high quality products and for the high standards of technology used in their manufacturing, stocking, and logistic processes. To ensure a constant and clear quality of its products, Pastificio Riscossa purchased a huge milling system in the Italian city of Venosa – in southern Italy – in 1998 that allowed a vertical integration of the productive process. The production is centred on pasta products: durum wheat flour dry pasta, semolina and egg pasta and organic pasta, in a wide variety of recipes and formats covering both traditional pasta shapes and new, fancy formats. The production includes flours and biscuits, while the company commercialises other pasta-related products such as canned tomatoes and bottled tomato sauce, and rice.
77
"Picking" is the operation of selecting and gathering items in a warehouse. 121
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Italy produces around 40% of world pasta production (7 million tonnes per year). Pasta is produced by almost 200 industrial pasta factories and no less than 5000 small pasta producers, for an overall turnover of over 3 billion euros. These include companies of all sizes, from multinationals present in dozens of countries to small workshops, often specialising in the production of filled pasta (ravioli and tortellini), found throughout Italy. The development of competition is generally tied to acquisitions and the pasta market shows a slow but steady concentration process, through acquisitions made by large companies. New entrants, if any, are concentrated in the small workshop sector, catering only to local market (fresh pasta shops). With a daily production of 250 tons of dry pasta, Pastificio Riscossa is in the "middle" section of the market. In this segment many medium-sized enterprises strive to keep their position, battling a strong price war driven by the retail chains. Part of the production is stock, while part is on order, just-in-time Before the Wi-Fi system introduction, each employee who had to prepare an order for shipping received a paper document with the shipping list. The product picking from the warehouse and the setup of the shipping pallet were executed manually, and each product was manually checked out from the paper list. As many small orders were processed every day for the domestic market, it was impossible to keep track of the single batch numbers of the products belonging to each order. The checked paper list was then forwarded to another employee, who manually input all data again into the company's ERP system, specifying product batches for each order. Besides being time-consuming, this procedure caused a rather high percentage of errors, both in the batch reading and in batch number transcription. Moreover, the transport documents could be printed only after all data had been reinserted in the system. The new European legislation on food and ingredients traceability (CE regulation 178/2002, enforced in January 2005) had a strong impact on the Italian pasta producers, as most of the wheat used is imported. According to this regulation, production batches must be indicated on all transport documentation. Moreover, the wide variety of shapes (120 different shapes) and recipes complicates the picking and shipping process, as often many different types of pasta have to be shipped in small qualities to the same retailer. An optimisation of the picking process was also necessary to reduce associated costs and errors due to the manual processing of documentation.
e-Business activities To comply with EU regulations, Pastificio Riscossa – after the integration of its production software in the Unix-based internal company management system – decided to optimize the order preparation, picking and shipping process with the implementation of a wireless system of terminals. The computerisation of picking processes was forced by the obligation to track each and every delivered product batch, enforced by the legislation: a task virtually impossible with manual procedures. The project started at the end of 2004, and the system was up and running by the introduction of EU food traceability regulation, in January 2005.
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The cost of the project was approximately 100,000 euro, including the contribution of the internal IT staff . The company was equipped with a legacy, Sco-Unix-based, ERP system. The Wi-Fi terminals used (provided by PSC (the ICT supplier) were compatible with the legacy system. The relevant software was developed internally, with the help of a local software house (Tecnocomputer) and a provider of automated data identification solutions (MPH). The system had to be open, to be integrated in the legacy internal management system. The positioning of the Wi-Fi antennas in the warehouse required a careful planning, in order to avoid interferences caused by the metallic scaffolding and from the tomato cans: huge metallic structures could cause "shadow zones" where the radio signal could be weak or dead. The warehouse has 30 aisles, each about 50 meters long that are now perfectly covered by the radio signal. The project saw the involvement of various company departments: production (concerned with ingredients and batch numbers tracking and labelling), sales and delivery, as well as HR for employee training. The IT department coordinated the process and actively contributed to the programming and implementation phase. The team responsible for picking was equipped with three portable Wi-Fi terminals (working on two shifts), connected to the ERP system (see following exhibit). Exhibit: Order management at Pastificio Riscossa
DATA RECEPTION
WI-FI TERMINAL FUNCTIONS
PICKING
Wi-Fi terminal shows order and order composition
Wi-Fi terminal reads barcode
Wi-Fi terminal syncs operator code and terminal code
Orders received from server
Options: • • •
Daily order list Priorities definition Transferring order to another terminal (operator)
barcode correct?
yes
no
ALERT
UNIX server with ERP system The terminal receives order data from the central server and shows to the operator the order and its composition (with the option of showing all daily orders, with shipping priorities, and to move orders to another terminal/operator). The operator then chooses the order to prepare The terminal shows the first product to pick and the operator picks the required boxes, reading individual barcodes with the portable Wi-Fi scanner. If the picked product is wrong, the terminal displays an alert and emits a warning sound. When the order is complete and all the products have been placed on the shipping base, the terminal signals the completion of the process and sends the relevant data to the server. The shipping documents are printed, with shipping information and the list of products and batch numbers. For each order, all the data regarding product batch and clients are readily available. Batch numbers are included in the invoice. 123
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Impact The implementation of the new tracking and picking procedure was perceived as a competitive advantage, and had many positive impacts on the company: Complete and detailed tracking of product batches and ingredients – a feature that was not available before - and therefore compliance with European regulations. Inventory management and logistics were improved, with better management of small and complex orders. Acceleration of the picking process, with better organisation and rise in productivity. Improvement of the company image through stronger perceived food safety and more efficient product recall procedures; better relationships with retail (more information supplied). Employees training related to this activity was well perceived by the workforce and sets a base for future projects.
Lessons learned After a few months of activity, the system was put to a test due to a food safety emergency: a whole shipload of wheat imported from Canada was found contaminated with ocratoxin, a carcinogenic substance produced by several fungi. About 58,000 tonnes of durum wheat were confiscated at the port of Bari. The new tracking system allowed Pastificio Riscossa to quickly identify the product batches that could contain contaminated wheat, and a successful targeted product recall operation was then launched. "All the tracking and recall process took about 2 hours with the new system", said Mr Francesco Cassarà, IT director of Pastificio Riscossa, and continued: "With manual systems we actually don't know how long the process would have lasted. Furthermore, there could have been suspicions and imprecision. The operation was a success and greatly improved our image as a modern and reliable company". The company is now planning a further improvement of the delivery procedures, including warehouse automation and further supply chain management processes (expected in 2006-2007). An extension of wireless systems to the production process is also planned.
References This case study was conducted by Databank on behalf of the e-Business W@tch. Interview with Mr Francesco Cassarà, IT director of Pastificio Riscossa, April 2006 Articles on "Logistica Management" (April 2005, pages 115-117) and "Mark Up" (July-August 2005, pages 15-16) Company website: www.riscossa.it (April 2006) Case study from the technology supplier PSC Spa (available at www.psc.com/html/casestudies.htm) www.italtrade.com (April 2006)
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New trend: go direct In an environment where consumer and customer satisfaction is key for any company to survive and grow, popularity of direct-to consumer marketing is increasing. As companies try to get closer to the customers, new trends like podcasting78 and broadband mobile phones are starting to get the attention of food marketers. These media are particularly suitable to reach the target of young adults (see the following business example on Purina). These trends appear with an unprecedented platform for one-to-one marketing.
Business example:
Podcasting and mobile marketing at Purina (USA) In June 2005 Nestlé Purina PetCare, a global player in the pet food industry, launched its first podcasting and mobile marketing campaign, helping to further establish the one-to-one marketing trend in the USA. Podcasting allows listeners to download digital audio files, or MP3s, to their computers or portable media players to enjoy whenever and wherever they want. The campaign includes podcasts of Purina's "Animal Advice" radio programs, where veterinarians and pet lovers discuss topics such as pet nutrition, animal training, pet surgery, behavioural theories and pet insurance. New shows are published every other week. Purina customers can also subscribe to a mobile news feed, that delivers pet care information directly to their mobile phones through weekly tips. This helps them to take better care of their pets, and download personalized ring-tones. Purina's wireless communications are available to consumers with AT&T, Cingular, Sprint and T-Mobile carriers, as long as their phones have text messaging (SMS) capabilities in the USA. The company is evaluating lessons learned from this campaign to determine new ways to include mobile solutions in the marketing mix in the future. Michael Moore, director of interactive marketing at Purina, said: "We are taking these steps to communicate in a unique way with our consumers and share valuable information with them. Given that 68% of young adults and 37% of adults use text messaging (SMS), we think a significant number of pet lovers are ready to receive text messages and wireless downloads from a brand they trust." Source: http://www.purina.com/company/press/2005/ForefrontDownload.asp
78
Podcasting is the distribution of audio or video files over the Internet for listening on mobile devices (cell phones and/or MP3 readers) and personal computers, and has a strong potential for building closer relationships with consumers. 125
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4.3.3
Summary of main points and conclusions Wireless and mobile systems find applications throughout the whole production system, from the production line to warehousing, labelling and distribution. This section presents examples of mobile applications in the sales and warehousing areas. The most common advantages achieved by companies applying this kind of solutions are availability of company information to mobile sales force, product traceability and personalisation of customer relationship.
Sales force automation appears to be the most widespread mobile application in F&B. The sale force is usually numerous and widely distributed over the territory and takes advantage from the flexibility and mobility offered by this kind of applications (see case study about La Bella Easo). Wireless technologies such as bar code scanners and printers allow the reduction of errors in picking and warehousing processes to the shipping and distribution phases “on the road”. Another advantage is the reduction of data entry time and errors (see case study on Pastificio Riscossa). Involvement and motivation of the work force proves to be a key factor for the success of project implying new working procedures. The case study about La Bella Easo illustrated that the involvement of all relevant stakeholders within the organisation highly contributed to the successful implementation of the project. However, specific technological skills should be provided to empower agents and employees, as well as to enable the use of new technologies
4.4
RFID in the F&B industry
4.4.1
Introduction Over the past years, the EU F&B industry has significantly developed the ability to track the flow of food along the supply chain. The implementation of traceability systems is pushed by regulatory pressure and the need to comply with emerging requirements from distribution and consumers (see Sections 4.1 and 4.2 in this report and the 2005 F&B Sector Study79). Besides compliance to regulation, benefits associated with track and trace systems are: Lower-costs of distribution; Reduced recall expenses; Expanded sales of value added products; Enhancement of customers’ trust 79
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Section 2.2. Available at www.ebusiness-watch.org ('resources') 126
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In recent years, F&B firms have been increasingly interested in RFID as the most promising technology that can support traceability and quality assurance. In 2006, eBusiness W@tch analysed the usage of RFID in this and two other sector studies, namely the ones on ICT use by companies in the footwear and the pulp & paper industries80. The results form the e-Business Survey 2006 indicate that the diffusion of RFID is still very limited at a general level and among F&B companies. Only 1% of all firms (accounting for 3% of employment) have adopted RFID; among large firms, 5% say they use RFID. These figures are lower than one could expect, taking into account the high emphasis that sector media and ICT suppliers are setting on RFID usage and potential benefits.
Exhibit 4-5: RFID usage 0
2
F&B (EU-10) Micro (0-9 empl.)
8
10
0 2 1
Large (250+ empl.)
All 10 sectors (EU-10)
6
3
Small (10-49 empl.) Medium (50-249 empl.)
4
5
2
Base (100%): Companies using computers. N (for sector, EU-10) = 775. Weighting: in % of firms. Questionnaire reference: A4a Source: e-Business W@tch (Survey 2006)
4.4.2
RFID: areas of applications and expected benefits RFID is a technology that incorporates the use of radio frequency to uniquely identify an object or product, or even a person or animal. An RFID system allows data to be transmitted by a device, or tag, directly applied to an individual product, pallet, or other type of shipping container. RFID tags may also be applied to mobile equipment to track its usage and location in a factory or warehouse. The tag transmits a signal, which is read by an RFID reader. The data transmitted by the tag may provide part or product identification or location information, or specifics about the product including price, date of purchase, date of manufacture, supplier or other pertinent data. RFID can support the flow of information along the entire production and distribution chain, from the receipt of raw materials, right up to distribution of the finished product. This provides real time visibility of information regarding the product and processing, including traceability and location of goods. During the delivery phase, RFID may be used to verify the sender’s data and to trace the raw materials. During the transformation phase, RFID may be used for food safety and during the distribution phase for tracing the entire supply chain. Tags can be fitted with sensors, which are able to memorise climatic factors (temperature, pressure, humidity) of the environment they are in. Through the use
80
The two e-Business W@tch Sector Studies on the Footwear and the Pulp & Paper Industries (2006) are available at www.ebusiness-watch.org/resources 127
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of tags, it will be possible to monitor the state of conservation of a substance, and receive warnings when temperatures go outside accepted ranges. Progress in RFID development may eventually lead to the substitution of Universal Product Code (UPC) with an Electronic Product Code (EPC), allowing for the full scale integration of RFID technology. While UPC barcodes need line of site readers, EPC tags generate the radio signals necessary to track the item, and can be read at a distance. Identifying each container and warehouse shelf with tags reduces errors in collection and improves identification performances. The use of RFID is also an advantage in the sales outlets, in transportation, for workflows and in maintenance systems.
Drivers and barriers F&B producers are starting to use RFID under increasing pressure from large-scale retailers. The latter are requiring the use of tags to improve inventory and supply chain management. They are essentially forcing members of their extended supply chain to adopt standardized RFID related processes across the enterprise, or be left out, as shown in an earlier e-Business W@tch sector study on the F&B industry.81 Producers also expected to gain potential benefits from increased sales, due to a reduction in waste and returns, as well as better promotion and inventory management. Currently, emphasis on RFID is at the pallet and case level, not at the unit level. At unit level, there are still technological constraints to be solved if the application has to be applied on large scale. In particular, there are issues to work out as for liquid environments and temperatures. The relatively high cost of the technology and the difficulties in making the switch is also holding back many companies from introducing RFID. It is important to remind that the cost is linked not just to the now relatively inexpensive tags, but more to the supporting equipment (readers, receivers) and data management software, as also shown in an earlier e-Business W@tch sector study on the F&B industry.82 Although data for comparison of RFID usage in the USA and Europe are not available, sales83 of RFID tags seem to demonstrate that the US market in adopting RFID at a quicker pace. It can be argued that the role of US retailers, such as Wal-Mart84 who have been pioneers in rolling out RFID tag system has driven adoption. In Europe, only pilot programs are getting under way, such as at Metro (Germany)85
81
See e-Business W@tch Sector Study on F&B Industry, Sep. 2005, Case Study on “Beaver Street Fisheries/Wal-Mart” page 28. Available at www.ebusiness-watch.org (‘resources’)
82
ibidem
83
Das, Raghu / Harrop, Peter (2006): RFID Forecasts, Players & Opportunities 2006 – 2016. Your complete guide to the RFID markets and opportunities. Study by IDTechEx, featured at www.idtechex.com/products/en/view.asp?productcategoryid=93 (April 2006)
84
See e-Business W@tch Sector Study on F&B Industry, Sep. 2005, Case Study on “Beaver Street Fisheries/Wal-Mart” page 28, available at www.ebusiness-watch.org (‘resources’)
85
Information about the implementation of RFID programme at Metro is available at http://www.metrogroup.de/servlet/PB/menu/1014671_l1/index.html 128
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Last but not least, the usage at item level has other implications related to the tracking of consumers’ behaviour. Supermarkets are already tracking buying behaviour with loyalty cards. Through the application of RFID tags they may be able to go further in that direction with possibly unwarranted and serious privacy implications.
Outlook and future developments The main lines of development that are likely to take place as for RFID are: Reduction of tag prices. Prices for RFID tags have fallen in the past few years, in parallel with increase in sales. Now tags are relatively inexpensive, although there may be remarkable differences depending on the type of tag and the number of tags purchased. As an example, tags used by Latterie Virgilio86 cost 0,50 EUR each. Decrease of prices is likely to continue It is expected that prices may fall below 0.10 EUR during 2007, or even in 2006 for very large orders.87 Analysts forecast that the decrease in prices will considerably slow once it has reached a level of about 0.05-0.10 EUR per tag, pinpointing toward the "five-cent mark". The spread of usage, however, is conditioned also by the cost of the technological infrastructure capable of supporting and managing RFID-related data (readers, receivers). Other relevant costs that should be taken into account when implementing an RFID project include: system integration, strategy and technology consulting and costs for changes in business operations, including implementation and training. Standardisation. RFID must complement existing processes, RFID tagging systems need to integrate with the entire company’s information systems and with the IS of business partners. Presently, however, different standards coexist in parallel. Large scale diffusion of RFID will depend on convergence of different standards and on the possibility to assure actual interoperability throughout the supply chain. Convergence and integration in mobile and wireless technologies. The diffusion of mobile phones and other portable devices may expand the range of RFID applications. Wireless connectivity, e.g., allows to use location-based tracking of RFID tags and scanned bar codes, enabling inventory employees to pinpoint the exact location of an item at any time. Control of the right temperature: From a technology perspective, the last frontier of RFID of particular interest for the F&B industry includes the introduction of tags fitted with sensors that are able to memorise climatic factors (temperature, pressure, humidity) of the environment they are in. RFID technology may be used in order to control and maintain the correct temperatures for frozen products88
86
see respective case study in this Section.
87
US manufacturer RSI announced that the price per tag would drop to 9.9 cents by December 2006 for customers that committed themselves to ordering about four million units per year or a two-year volume contract. See: "RSI Pushes Performance Amid RFID Price Wars", by Rhonda Ascierto, 3 November 2005, published at www.computerwire.com (April 2006)
88
See European Commission, Directive 92/1/EC, dealing with the temperature monitoring of quick-frozen foods, http://europa.eu.int/eur-2.lex/lex/ 129
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throughout all distribution phases (transport, warehousing and stacking in sales outlet), until the moment of consumption, to guarantee their integrity and quality. Through the use of tags, it will be possible to monitor the preservation status of a substance, and receive warnings when temperatures go outside the accepted thresholds. From a business point of view, it is likely that an increasing number of F&B firms will have to adopt an RFID strategy to cope with large retailers’ mandate. The following case study is about the application of RFID tagging at “wheel” level by an Italian consortium which produces the well-known Parmigiano-Reggiano cheese. It is a pioneering experience, the results of which are not yet fully deployed. Nevertheless, the interest of this case study relies in the fact that the application of RFID is related not only to food safety and traceability but also aims at achieving advantages in the areas of warehousing, inventory and distribution.
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C ASE S TUDY : L ATTERIE V IRGILIO , I TALY Abstract Latterie Virgilio is an Italian consortium that groups 108 dairy cooperatives with more than 2500 farmers. Its role is to collect, to age and to pack cheese products from its cooperatives, selecting only the ones which grant the safe origin of milk and the quality of manufacturing procedures. Latterie Virgilio supplies to the market wheels of ParmigianoReggiano and Grana Padano, and other dairy products such as milk, butter, mascarpone (fresh cream-based cheese) and milk cream. Other activities concern pork slaughtering and prosciutto (ham) production. This case study focuses on a project that aimed at tracking the flow of cheese wheels (of Parmigiano-Reggiano) along the supply chain, by using RFID tags that are embedded into the crust of the cheese. Case study fact sheet Full name of the company:
Consorzio Latterie Virgilio
Location (HQ / main branches):
Mantova Italy
Sector (main business activity):
Manufacturing of cheese
Year of foundation:
1966
Number of employees:
300
Turnover in last financial year:
300 million euros (2004)
Primary customers:
Distribution
Most significant market area:
Italy (80%)
Main e-business applications studied:
RFID
Key words:
RFID, supply chain management
Background and objectives Parmigiano-Reggiano is an Protected Designation of Origin (P.D.O., DOP in Italian) product and its production and aging are strictly controlled. The name is trademarked, and in Italy there is a legal exclusive control exercised over its production and sales by the Parmigiano-Reggiano Cheese Consorzio (created by a governmental decree). There are strict criteria each wheel must meet early in the aging process, when the cheese is still soft and creamy, to merit the official seal and be placed in storage for aging. A 1955 law defines the standard of this cheese, stating that the whole production should come from a restricted area: the provinces of Modena, Parma and Reggio Emilia and partially Bologna and Mantua. The Parmigiano-Reggiano production system is a unique dairy system. The processing of 1.35 million tons of milk into a high quality product in 600 small cheese dairies using predominantly artisan production techniques is not found anywhere else in Europe. The production is based on a family farm structure, with a strong integration of milk production and milk processing. Many cheese dairies have market relations with just one or two cheese maturing firms and these commitments do not change much over time. Although 131
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many improvements may take place in this market relationship to the benefit of the cheese dairies, the stability of sales to a few purchasers guarantees a high reliability and this in turn reduces transaction costs. Latterie Virgilio is an Italian consortium that groups 108 dairy cooperatives, employing more than 2500 farmers. The consortium began its activity in 1966 with only 27 dairies: today its cooperatives transform each year more than one million tons of milk originating exclusively from cows nurtured in Northern Italy (Pianura Padana) and fed only local forage (with a ban on fermented forage, such as maize silages). The role of the consortium is to collect, to age (at least 12 months) and to pack the cheese products from its dairies, selecting only the ones which grant the safe origin of milk and the quality of making procedures. From their headquarter in the medieval town of Mantua in Northern Italy, Latterie Virgilio supplies to the Italian (80%) and foreign (20%) markets wheels of Parmigiano-Reggiano and Grana Padano and other products like milk, butter, mascarpone, yoghurt and milk cream. Other activities concern pork slaughtering and the production of prosciutto. All products have safe origin, freshness and quality granted by their traceability and food certification. Since 2001 the consortium obtained the certification CSQA89 which guarantees that milk and cream are produced exclusively from Italian cows. In particular the rigid and standardized manufacturing, aging and preservation method of the Parmigiano-Reggiano provides for excellent hygiene and safety characteristics that render it safe to consumers. In 2004 the consortium had a turnover of 300 million euros (+11,5% with respect to 2003). The export quota represents about 20%. The company employs about 300 people. Latterie Virgilio is the main Italian producer of butter, with a market share of 17%. As reseller of Parmigiano-Reggiano and Grana Padano, the consortium detains the seventh place in Italy for market share and the fifth place for export.
e-Business activities One of the main activities of Latterie Virgilio is to collect the wheels of ParmigianoReggiano from the selected dairies, and to age the cheese into its warehouses according to the procedures established by the “Consorzio del Formaggio Parmigiano-Reggiano” This Consortium is a non-profit organisation and its main task is to defend and protect the “Designation of Origin” of the cheese and facilitate its trade and consumption, by promoting every initiative aimed at safeguarding the unique features of the product. One of the most important measures adopted by the Consortium with the aim of protecting the product sales is the introduction, since 1964, of the mark of origin, with the dotted inscription "Parmigiano-Reggiano" encircling the wheels.
89
CSQA is an Italian Certification Authority 132
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The control of traceability of the wheels of Parmigiano-Reggiano from the producer to Latterie Virgilio is done through a casein plate attached on the crust. The casein plate shows the production year, the acronym "C.F.P.R." and an alphanumeric code identifying each single wheel. The selected dairy receives from Latterie Virgilio these casein plates, bearing a unique code which represents the origin of the wheel (the dairy, the production zone, the lot). In the warehouse the wheels are aged, brushed (many times) to avoid mould formation on the crust, and finally sliced for retail distribution In this case the code-number is automatically printed also on the single package label. With this system any distributor or consumer can trace the origin of his wheel or slice of Parmigano-Reggiano. The risks of this procedure could be the following: the numbers marked over the casein plate could be illegible after the repeated brushing of the wheels; human errors of transcription from the casein plate to the register that books the wheels. Until now the control of the traceability has been done manually, but since 2003 the company started a project to automate this control. This project consists in the introduction of a RFID tag under the casein plate that allows to automatically identify the number and the codes of the wheels and transfer this data to a central database. The main advantage of this system is the enhanced possibility to keep track of all sorts of information. This includes not just production lots and codes (as required by EU regulation on traceability), but also, for instance, information about the quality of the wheel (based on the results of the quality checks made when the cheese wheel arrives at the warehouse or is shipped from it). This kind of information may include an assessment of the colour of the crust, the sound that the cheese makes when it is stroked by a rubber hammer, and other food-specific parameters. The investment requested for the pilot program was not very expensive, because Latterie Virgilio automatised its pre-existent traceability system. The cost has been around 20,000/30,000 euros (software, RFID readers and writers, sensors, antennas) plus the cost of about 200 tags at 0,50 cent each.
Technical issues In 2003, Latterie Virgilio started the first testing, which involved few dairies. The aim was to verify technological and organisational problems. The main risk was to verify whether the "hostile" aging environment (with controlled levels of humidity and temperature) could cause a proliferation of bacteria and mildews under the casein plate, or whether the brushing procedures could cause damage to the tag or remove the control system. Many tests were conducted, and they didn’t show problems. In 2004 the second testing started. The main goal was to establish an internal standard to divide the memory space of the chip, in order to insert different sort of codes (dairy of production code, wheel code, lot code, dates and other characteristics of the wheel). 133
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In 2005 the last successful testing (involving more dairies) was achieved, showing the possibility to adopt by 2007 this system for all cooperatives of the “Consorzio del Formaggio Parmigiano-Reggiano”. The tested technology used different types of RFID tags, working at 13,56 MHz frequency. The first version tag had a copper antenna and a diameter of 2 cm. The second version of tag has an aluminium antenna, and a diameter of just 1 cm. The smaller dimension reduces the possibility of bacteria and mildews proliferation under the casein plate. The third version used features an even smaller tag, inserted directly into the casein plate. All these RFID devices are readable and writable. The objective is to allow people that work with the cheese to update directly into the tag the information about the cheese wheel, whenever necessary along the supply chain. The RFID system has been tested only at wheel level but not at unit (cheese slice) level. The single cuts of Parmigiano-Reggiano have the relevant traceability code stamped on their package. Latterie Virgilio is now planning to extend this system to its production of Prosciutto: in this case the RFID tag will be sewed on a side of the ham.
Lessons learned so far So far direct impacts haven't been evaluated, because the RFID system at Latterie Virgilio is not fully implemented but still in a test phase. However the expected impact after the adoption of the system is: reduction of handling times and warehouse costs; reduction of times and human errors during the data transcription from the casein identifying plates to the registers for inventory; limitation of counterfeiting of Parmigiano-Reggiano cheese, thanks to the adoption of a more strictly controlled and certificated system; adoption of a system that allows to link internal procedures to the future request of distribution. The lessons learned so far from this case are: The system can provide in real time information regarding the product, the safety of the production process, the traceabiity and the location of goods; The system grants an accurate control of inventory and allows to link internal processes to the requests of distribution (traceability, safety and other); Small dimension of the tag reduces the possibility to generate bacteria and mildews under the casein plate. Moreover it doesn’t suffer hostile environment; The implementation of RFID is not expensive for companies that already use a traceability system.
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References Research for this case study was conducted by Databank on behalf of e-Business W@tch. Sources and references: Interview with Carlo Buttasi, Technical Manager at Latterie Virgilio, April 2006, Mantova (IT) The Wall Street Journal (July 2005) Company Brochure (October 2005) Websites: - Latterie Virgilio: www.e-virgilio.com (April 2006) - Consorzio Parmigiano Reggiano: www.parmigiano-reggiano.it (April 2006)
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4.4.3
Summary of main points and conclusions The high emphasis that sector media and ICT suppliers are setting on RFID usage and potential benefits is not reflected by the data about RFID adoption. Only 1% of the F&B firms have adopted RFID, a percentage that grows only to 5% among this sector’s large firms (See Exhibit 4-5 in Section 4.4.1). Although RFID is still far form large scale adoption, the experiences analysed by the e-Business W@tch illustrate that the potential benefits are remarkable and that the pioneering adoption of RFID may lead to relevant competitive advantages. Applications and benefits of RFID in traceability and quality assurance have been documented in last year’s e-Business W@tch Sector Study on the F&B industry90. The present analysis focuses on the use of RFID in the delivery and the distribution phase for tracing the entire supply chain, and in particular at item level. In both the application areas, RFID can support the flow of information along a company's value chain, from the receipt of raw materials, right up to distribution of the finished product. This provides real time visibility of information regarding the product and its processing, including traceability and location of goods. The main conclusions to be drawn from the study are: RFID applications are expanding from quality assurance to efficiency gains and control over inventory, delivery and selling/distribution. RFID use is driven by large-scale retailers requiring the use of tags to improve inventory and supply chain management. RFID is still mostly used at the pallet and case level. At unit level, there are still technological constraints to be solved, if the application is to be applied on large scale. The relatively high cost of the implementation (although the cost for tags is rapidly decreasing, other components are still quite expensive) and the difficulties in making the switch is still holding back many companies from introducing RFID.
90
See e-Business W@tch Sector Studies on the F&B Industry, July 2005 and Sep. 2005, available at www.ebusiness-watch.org (‘resources’) 136
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5
Conclusions
5.1
Business impact
5.1.1
Implications for enterprises In the F&B industry, ICT and e-business have their main impacts in the areas of production and logistics. In the marketing and sales areas, the potential of e-business is not yet fully exploited for the benefit of manufactures. Large retailers exert their power and tend to maximise the advantage of their direct control over customers. In general, the powerful ICT systems and e-business solutions of large enterprises enable (and help drive) more advanced practices which yield corresponding greater achievements in terms of savings and efficiency. The concrete e-business activity and the perceived importance of ICT currently differ widely between large companies and the smaller ones.
Perceived overall significance of e-Business All companies were asked to evaluate the perceived importance of e-business for their operations. At the F&B sector level, about half the companies reported that e-business constitutes some part of how they operate, while 15% reported that it constitutes a significant part. Exhibit 5-1: Perceived overall importance of e-business for company operations 0
20
Total Food & beverages (EU-10) Micro (1-9 empl.)
15
10
Medium (50-249 empl.)
12
60
80
100
52
6
Small (10-49 empl.)
32 51 60
Large (250+ empl.)
All 10 sectors (EU-10)
40
31
49
23
47
"Significant part of how w e operate"
"Some part of how w e operate"
Base (100%): Companies using computers (excl. "don't know"). N (for sector, EU-10) = 766 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H1 Source: e-Business W@tch (Survey 2006)
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Data on perceived importance identifies two different sets of experiences which can be neatly described as characteristic of two groups: large enterprises seem to have incorporated e-business in their every day practice as it demonstrated by the diffusion of applications, such as ERP. Figures for micro-to-medium firms still indicate a low adoption rate of e-business.
Impact on specific business areas All companies were asked to indicate if they observed a positive influence of ICT on issues such as quality, efficiency and productivity. The following exhibits (5.2 and 5.3) show the results: in Exhibit 5-2 all data express the percentage of firms from the F&B industry (irrespectively of their size), while in Exhibit 5-3, data for the industry total and the all sectors’ average are weighted by employment, i.e. the percentage refers to the share of employment represented by those companies Exhibit 5-2 shows that 20-30% of firms perceive a positive influence of ICT on the company’s business. Internal work organisation and customer service are the most quoted areas. Given that the share of companies which reported a negative influence is not significant, it appears that a relatively high share of firms (i.e. more that two thirds in this sector) do not experience any impact of ICT on the business areas listed. Exhibit 5-2: Perceived ICT influence on the company's business
-10
0
Revenue grow th
-2
Business processes efficiency
0
Internal w ork organisation
-1
Procurement costs
-3
Product/service quality
-1
Customer service
-1
Productivity
-3
10
20
30
40
50
19 23 33 21 20 31 24 Negative
Positive
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: in % of firms. Questionnaire reference: H4 Source: e-Business W@tch (Survey 2006)
As Exhibit 5-3 shows, positive influence increases proportionally to the firm’s size. The relatively higher influence is registered for internal work process, productivity, business process efficiency and customer service. This fully reflects the situation of the F&B industry, which has focused investments on internal process automation and supply chain efficiency.
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Exhibit 5-3: Companies observing a positive influence of ICT on … ... on revenue growth 0 Food & bev. (EU-10)
20
40
... business process efficiency 60
0
80 Food & bev. (EU-10)
32
1-9 empl.
50-249 empl. 250+ empl.
42
250+ empl.
All 10 sectors (EU-10)
44
All 10 sectors (EU-10)
... internal work processes 0
20
Food & bev. (EU-10)
40
60
250+ empl.
85 61
... product/service quality
Food & bev. (EU-10)
20
40
60
250+ empl. All 10 sectors (EU-10)
250+ empl. All 10 sectors (EU-10)
20
40
51 28 38 57 63 52
Base (100%): Companies using computers. N (for sector, EU-10) = 775
20
Food & bev. (EU-10)
50-249 empl.
38
50-249 empl.
38
0
10-49 empl.
All 10 sectors (EU-10)
10-49 empl.
... productivity
1-9 empl.
41
1-9 empl.
28
All 10 sectors (EU-10)
250+ empl.
Food & bev. (EU-10)
38
250+ empl.
42
0
25
50-249 empl.
80
27
50-249 empl.
80
17
10-49 empl.
60
18
... customer service
29
1-9 empl.
40
35
10-49 empl.
65
All 10 sectors (EU-10)
20
Food & bev. (EU-10)
48
0
57
1-9 empl.
50-249 empl.
80
84
0
80
26
10-49 empl.
60
58
... procurement costs
56
1-9 empl.
80
46
50-249 empl.
35
60
12
10-49 empl.
27
40
50
1-9 empl.
13
10-49 empl.
20
40
60
80 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band.
44 18 39
Questionnaire reference: H4
47 69 55
Source: e-Business W@tch (Survey 2006) 139
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The impact on revenue growth and savings on procurement costs appear to be evidently lower, according to companies. This observation also applies to the average of all sectors. It should be noted however, that the reported positive influence by companies from the F&B industry is slightly lower for all specified issues. Both e-sales and eprocurement are not yet widely diffused in this sector (See Exhibit 3-18), therefore direct impacts are perceived only in a minority of cases.
Impact on organisation Companies were also asked to indicate the perceived influence of ICT on organisation structure. Here the perception of F&B companies is similar to the average of all sectors: the influence is perceived to be important by all enterprise size bands and increases with company size. More than one third of companies observe an important impact in areas related to organisation; as can be expected, the share is higher among medium-sized and particularly large firms, where organisational issues are generally a more prevalent issue than among small companies. This holds true in particular for employee training, which appears to be the most influenced organisational aspect by ICT both in the F&B sector and across all sectors studied by e-Business W@tch this year. Exhibit 5-4: Perceived influence of ICT on organisational issues: companies observing an important influence on … ... organisational structure 0
20
Food & bev. (EU-10)
40
... task and job descriptions 60
80
0 Food & bev. (EU-10)
40
1-9 empl. 10-49 empl. 50-249 empl. 250+ empl. All 10 sectors (EU-10)
... employee training 20
Food & bev. (EU-10) 1-9 empl. 10-49 empl. 50-249 empl.
80
38
... outsourcing decisions 60
0
80 Food & bev. (EU-10)
40 14 28
10-49 empl.
15
All 10 sectors (EU-10)
41
40
27 13
250+ empl.
81
20
1-9 empl.
50-249 empl.
45
250+ empl. All 10 sectors (EU-10)
40
60
46
All 10 sectors (EU-10)
39
0
37
250+ empl.
46
80
29
50-249 empl.
41
60
14
10-49 empl.
34
40
33
1-9 empl.
22
20
28 46 27
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Weighting: Totals (for the sector and for all 10 sectors) are weighted by employment and should be read as "enterprises comprising …% of employment in the sector(s)". Figures for size-bands are in % of enterprises from the size-band. Questionnaire reference: H7 Source: e-Business W@tch (Survey 2006)
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ICT impact on competitiveness and productivity The analysis carried out for this report and the experiences from case studies provide real life examples of companies that have declared significant savings in cost and time and/or gains in efficiency through the adoption of e-business.91 The impacts of e-business on efficiency and productivity presented in Exhibits 5-2 and 53 confirm that achievements in the areas of internal work processes and business process efficiency are considerable, especially among large firms. The e-Business Survey 2006 results on ERP and SCM systems (see Sections 3.4.1 and 3.5.2, respectively) depict a positive situation: ICT play a crucial role in supporting this industry in tracking the information flow within organisations and along the supply chain. The same results also show that other advanced solutions, such as e-invoicing (see Section 3.4.2) are becoming relatively well diffused among medium-sized enterprises. It, therefore, appears that this industry is on track for a better exploitation of the e-business potential.
Expected ICT impact in the future Interviewed companies were asked to indicate in which areas they foresee the future impacts of ICT. Accounting, marketing and customer support are the most important areas identified by F&B companies. The following exhibit indicates that F&B firms do not foresee major changes in the way that they expect ICT to influence their business. Exhibit 5-5: Anticipated future impact of ICT 0 Management
20
Production Marketing Logistics Customer support
60
19
38
33 60
21
62
24
14
100
51
29
48
27
25 19
80
30
19
Accounting R&D
40
55
26
21 Expect high impact
52
27 Expect medium impact
Expect low /no impact
Base (100%): Companies using computers. N (for sector, EU-10) = 775. In % of firms. Questionnaire reference: H8 Source: e-Business W@tch (Survey 2006)
91
See also the e-Business W@tch Special Study on the "Impact of ICT on corporate performance, productivity and employment dynamics" (2006), available at www.ebusiness-watch.org ('resources') 141
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Concluding assessment Exhibit 5-6 summarises the impact of ICT in various areas of business activity. The scores should not be understood as 'exact' results of a quantitative computation, based on some model; they are tentative and merely indicative, reflecting the impression the study team gained from interviews, case studies and the literature review. They are presented and should be regarded mainly as an instrument to stimulate debate. The qualitative analysis also confirms that ICT and e-business in the F&B industry have their main impact in the areas of production and logistics (including traceability). As regards the marketing and sales area, the potential of e-business is not fully exploited for the benefit of manufactures. Large retailers exert their power in this area and tend to maximise the advantage of their direct control over customers. In general, powerful ICT systems and e-business solutions of large companies allow more advanced practices which turn into greater achievements in term of savings and efficiency, as mirrored by the following table. Nevertheless there are areas – traceability is the most important – where SMEs are adopting ICT and e-business on a relatively large scale and therefore significant impacts are observed. Exhibit 5-6: Impact of ICT and e-business on competition in the F&B industry Business areas where ICT and e-business can have an impact 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Observed impact in large firms
Observed impact in SMEs
low < > high
low < > high
Organisational structure Work-flows / operational organisation Sourcing and procurement Production / service provision Logistics Marketing / sales Customer support Research & development Product & service innovation Process innovation Skills requirements Outsourcing Employment Traceability and food safety
Maximum: 3 points (
or
) Source: e-Business W@tch (2006)
Skills requirements arise as an important issue whenever e-business is implemented, especially among SMEs. Smaller companies are obviously less equipped in terms of ICT skills and tend to be less receptive towards sophisticated solutions. Case studies conducted this year confirm evidence presented in last year’s e-Business W@tch report
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on the F&B Industries.92 Indeed, it appears that the choice of user-friendly solutions and of mature and widely-spread supporting technologies, together with involvement and motivation of the work force are all essential for the successful implementation of ebusiness among SMES.
5.1.2
Implications for industry structure This section assesses the implications of ICT and e-business adoption on the structure of the respective industry. As in the 2005 report, the 'five-forces-model' developed by Michael E. Porter (1980), is used to discuss and assess the specific e-business implications.
Background information:
Michael E. Porter’s Five-Forces Model The ‘Five Competitive Forces’ model was developed by Michael E. Porter in his book „Competitive Strategy: Techniques for Analysing Industries and Competitors“ in 1980. Since that time it has become an important tool for analysing industrial structure, competition and strategic options of players. Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organisations external environment. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and, hence, the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organisation. Porter’s model helps to identify the main driving forces in an industry. Based on the information derived from the Five Forces Analysis, companies can decide how to influence or to exploit particular characteristics of their industry. The instrument has been applied by e-Business W@tch since 2004/05 to assess the influence of ICT and e-business on competition in a sector. Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School.
92
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, Case Studies about Sadpol and e-PIIM . Available at www.ebusiness-watch.org (‘resources'); and Case Study on “La Bella Easo” in Section 3.3 of the present report 143
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Exhibit 5-7: Impact of ICT and e-business on competition in the F&B industry Competitive forces
1 2 3 4 5
General importance in the sector (currently)
Impacts of ICT and e-business
low < > high
Low < > high
Threat of new entrants * Substitution of products / services Bargaining power of suppliers Bargaining power of customers Rivalry in the market
* Note: "New entrants" in the sense of new companies being founded. New entrants in the sense of companies from a different geographic area entering the European market is considered under "rivalry in the market". Maximum: 3 points (
or
)
Source: e-Business W@tch (2006), developed from Michael E. Porter
Threat of new entrants New competitors have entered the F&B industry in recent years. Generally speaking, there is intra-sectoral mobility, i.e. firms already present in the F&B industry move into other F&B sub-sectors, either by expanding their range of offer or, more often, by acquiring other firms. There is also a process of concentration for which large – often multinational – groups acquire small and medium players operating at regional and national level, in order to enhance their offer and to strengthen their position vis-à-vis distribution chains. New entrants in this market rarely come from other industrial sectors. ICT has enhanced the possibility to access the market. This has been possible because: Greater speed and ease of access to information have allowed savings in terms of learning and experience Some raw materials are now easier to find and to purchase via ICT-supported channels.
Substitution of products / services This threat is rather strong at intra-sectoral level and has been further accentuated in recent years, following phenomena such as the launch of new, more versatile multi-use products (such as functional food, see Section 2.2.2), the changes in traditional meals, the breaking down of cultural borders, and changes in eating habits. ICT have contributed to increasing the threat of substitute products by lowering the costs of shifting from one supplier to another. Data from the survey, however, illustrate that the impact of e-business on the number and the location of suppliers has been rather limited so far (see Section 3.5, Exhibits 3-20 and 3-22). ICT may also facilitate the finding and exploitation of consumer-related information in order to develop products tailored to specific needs of customers’ groups. Again, however, the potential of ICT is not fully exploited for the purpose of product and process innovation by this sector’s companies (Section 3.7, Exhibit 3-30).
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Bargaining power of suppliers Negotiation power of F&B industry suppliers is generally low due to their high level of fragmentation. As regard commodities, suppliers’ power is related to the various raw materials involved: The optimisation of logistic processes and rationalisation of procurement procedures have led to more efficient relations between raw material suppliers and manufacturers. This is witnessed by the survey data showing that SCM and links with suppliers’ ICT systems are diffusing in this industry (Section 3.5.2, Exhibit 323) Agri-food suppliers can take advantage of easier access to information in trying to control large price fluctuations, thereby increasing their bargaining power. In this respect, it seems likely that ICT may favour the creation of raw material supplier consortia.
Bargaining power of customers Negotiation power of the F&B companies’ customers is high overall. Over the years, the contractual power of modern trade has grown progressively, due to high-volume purchases and the process of concentration amongst the chains. Suppliers and retailers need to work together more closely to exchange data and this is forcing food manufacturers to a more efficient usage of ICT. Indeed, survey data presented in Chapter 3 of this report show that F&B firms, especially large ones, are increasingly linking their ICT systems with those of their suppliers (see Exhibit 3-29 in Section 3.6.2). This trend is most probably related to the high number of B2B transactions in this industry and, as illustrated by the case studies about LogisticXP and Blédina (presented in Section 4.2.2), this kind of co-operation may bring relevant advantages to the players involved. In this context, SMEs and companies that are less developed from an ICT perspective are at risk of losing their contractual power towards distribution as they may not be able to meet the distribution chains’ requirements.
Rivalry in the market Rivalry in the market is the most important competitive force, together with the bargaining power of customers. Rivalry is in fact connected to the growing bargaining power of distribution, as this industry faces the squeeze of lower shelf prices and high commodity prices on their margins. The sector is polarised between a relatively limited group of large firms, often multinationals and a majority of SMEs, which are generally stronger at local level. ICT influence competition in various ways. On the one hand, ICT has allowed relevant labour savings and has enhanced the possibility of collaboration between firms and of improved customer service. Therefore, ICT may make it easier for companies to support their competitive position. On the other hand, ICT has contributed to increase competition on prices and services. Moreover it requires substantial investments in terms of equipment, software and, more importantly, organisation and skills: this may make it difficult to create and maintain a competitive advantage. 145
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To complete the picture about ICT impacts on industry structure, the survey addressed the perceived impacts of ICT on competition within the industry. The perception of players in the F&B industry about the impacts of ICT on competition in their sector is practically in line with the average of all 10 sectors studied in 2006 by the e-Business W@tch. Exhibit 5-8 also shows a high similarity of views between medium-sized and large enterprises, about half of which consider that ICT has led to at least some more competition in the industry. Since these companies generally deal directly with large distribution chains which impose their rules and standards on their suppliers, this may explain why F&B firms feel that ICT has an effective impact on competition. Overall, ICT is perceived as an important enabling factor for competitive strategies but not as a competition factor per se. Exhibit 5-8: Perceived impact of ICT on competition in the industry
80 60 40
9
20
33
3 18
25
-3
-5
-4
To tal Fo o d (EU-10)
M icro (1-9 empl.)
0
8
10
9
17
40
42
35
-1
-2
0
-1
-20 Small (10-49 M edium (50empl.) 249 empl.)
Large (250+ empl.)
A ll 10 secto rs (EU10)
"Significantly increased due to ICT" "Somew hat increased due to ICT" "Rather decreased due to ICT"
Base (100%): Companies using computers. N (for sector, EU-10) = 775 Questionnaire reference: H6 Source: e-Business W@tch (Survey 2006)
5.2
Policy implications This section highlights policy implications arising from the e-Business Survey 2006, the qualitative analysis and the case studies. E-business developments can have implications for several policy areas. Relevant considerations made in this context can be grouped around two overall objectives, which are paradoxically, to some extent, antagonistic: Promote ICT adoption: Policy may have an interest in accelerating the adoption of ICT and e-business activity among companies, particularly among SMEs. This is based on the assumption that ICT are a driver of productivity and competitiveness.
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Counteract ICT induced market failure: At the same time, policy will have to consider intervention if e-business activity causes undesirable effects on the aggregate level, i.e. market failure. At a general level, policies that can promote ICT adoption include those aiming at improving the development of infrastructure and the legal and regulatory environment, as well as to create a favourable business environment. The following table summarises the main policy issues that arise from the analysis of the present report and are specific to the F&B industry. Exhibit 5-9: Policy implications arising from e-business activity in the F&B industry Policy issues
Possible initiators
Policy leverage low < > high
1
Facilitate F&B compliance to quality and safety issues
2
Improve e-skills, especially among SMEs
3
Promote a favourable environment for innovation
4
Standardisation
Maximum: 3 points (
or
European Commission National Governments Industry associations European Commission National Governments Regional Governments Intermediaries and industry associations European Commission National Governments Industry federations Business support networks European Commission National Governments Standardisation bodies Industry Associations
) Source: e-Business W@tch (2006)
Facilitate compliance to quality and safety issues Fulfilment of regulatory compliance is particularly burdensome in the F&B industry. Presently, all establishments operating in this sector are obliged to trace the origin of every product or animal feed through the various stages of production, processing and distribution. Food industry and consumers’ groups have welcomed regulation in this field. However these requirements are putting pressure on F&B manufacturers. In addition to the legislation requirements, retailers are also putting in place additional mechanisms and measures to guarantee that if there is a recall, any problematic stock could be contained quickly. This is motivated by the fact that distribution chains are increasingly investing in building customer loyalty and trust and, through private labels, their brand is directly present on the shelves93. The aim to exert a full control over suppliers turns into a situation where retailers, as well as legislators, are leaning heavily on manufacturers to install technology that will guarantee complete traceability. In
93
See Section 2.2.2 “Trends and Challenges” in this Report. 147
Food and beverages
addition to technology, a considerable degree of B2B integration with business partners is also necessary. However, traceability and its integration in the information systems imply additional costs, which tend to be relatively higher for small and medium-sized enterprises. Apart from a considerable investment into the adoption of the required technologies, there are also changes required in business processes and practices. The importance of regulatory aspects in the F&B industry is confirmed by data from the eBusiness Survey 2006, which underline the relevance of interoperability issues in order to obtain a better connection along the value chain (see Section 3.3). F&B firms, especially SMEs, should be supported by measures including the provision of relevant information and education support in this field. Policy may have a role in supporting the diffusion of information through public programmes and with the help of industry associations. In this context, it would be important to provide information and advice about technological solutions able to support tracking and traceability, such as ERP. Results of our analysis, presented in Section 3.4, indicate that these solutions are increasingly adopted, even among smaller firms and bring relevant competitive advantages.
Improve e-skills, especially among SMEs ICT and e-business are rapidly changing the way business is conducted in this industry. Innovative applications require changes in organisation and working procedures, as demonstrated in the business example about Castelcarni, in the e-Business W@tch Sector Study on the F&B Industry of July 200594. Skills upgrading and personnel training are important to assure the successful implementation of new applications, as demonstrated by the case study about La Bella Easo.95 However, SMEs in particular seem to have difficulty in exploiting opportunities related to the introduction of new technologies due to lack of the necessary skills. Results from the e-Business Survey 2006 (see Exhibit 3-3), indicate that the percentage of F&B firms providing their employees with regular ICT training is in line with the 10 sectors’ average. However, the adoption of ICT systems dedicated to the F&B industry (for instance those related to traceability), requires not just generic training but a radical analysis and reorganisation of business processes. This may be a hurdle for smaller enterprises which need to be supported in order both to raise awareness about potential benefits and to lower the organisational barriers to such ICT systems. The previously mentioned examples of Castelcarni and La Bella Easo illustrate that personnel involvement and cost-benefits assessment are essential for the successful implementation of e-business solutions. Policy may, therefore, have a role in:
94
See e-Business W@tch Sector Study on the F&B, Industry, July 2005, page 27. Available at www.ebusiness-watch.org (‘resources’).
95
See case study in Section 3.3 of this Report. 148
Food and beverages
Promoting entrepreneurial and managerial understanding of e-business applications and related potential benefits. Survey data demonstrate that economic benefits such as revenue growth and/or procurement savings are achieved only by a minority of companies. F&B firms, especially SMEs, should be made aware that e-business potential benefits may vary considerably and need to be assessed in relation to the different situations of each single firm. Providing information about e-business and support to decision-making through the sharing of practices. F&B industry associations may support the sharing of successful e-business practices at sector level, between companies of similar size. Encouraging the improvement of skills related to the reorganisation of working processes and procedures and the implementation of innovative technologies. For instance, the introduction of mobile applications for the sales force requires ad hoc training on the usage of tools and applications.
Promote a favourable environment for innovation A finding of the e-Business W@tch Special Study on “ICT Impact on Corporate Performance, Productivity and Employment Dynamics” is that “ICT and innovation are positively associated with turnover and productivity growth at the firm level.” The same study also points out that “instead of promoting ICT in general or specific ICT solutions, policy should focus on improving the framework conditions for innovation in general. This includes improvements and higher investments in education in many countries of the European Union, more public engagement in research and development, a further deregulation of markets to stimulate competition via innovation, and improved conditions for firms to finance risky and innovative projects”. 96 This holds particularly true for the F&B industry. As clearly indicated in the European Technology Platform Document97, innovation is essential if it is to respond to consumer demands regarding quality, health, safety, diversity, convenience and affordability. However, the innovation process is often expensive and companies need to deeply understand their competitive context, their consumers’ requirements and their internal abilities. According to the e-Business Survey 2006, F&B firms are quite dynamic in their product and innovation processes (see Exhibit 3-30). ICT, however, enables mainly process innovation, with an interesting emphasis on customer services and on the creation of customer communities. Nevertheless, it is scarcely used for product innovation in this sector, for example as a tool for gathering and analysing market information. European F&B firms should be increasingly supported in their innovation processes in order to sustain their competitive positioning, both on the domestic and the international markets, and vis-à-vis distribution. Therefore, e-business policies aiming at creating a favourable environment in this respect could focus on: 96
See e-Business W@tch Special Study on the "Impact of ICT on corporate performance, productivity and employment dynamics" (2006), available at www.ebusiness-watch.org ('resources')
97
CIIA, European Technology Platform on Food for Life. The vision for 2020 and beyond – http://etp.ciaa.be/asp/about_etp/welcome.asp 149
Food and beverages
Promoting value chain co-operation and sharing of good practices among F&B firms. Stimulating participation of SMEs in business networks.
Standardisation There is evidence98 that standards play a critical role when innovation is introduced -be it product, process or service innovation- and to support integration within and among companies. For the F&B industry, in particular, this report has highlighted the importance of eintegration of business partners along the value chain. Results form the e-Business Survey 2006 indicate that interoperability in the F&B industry appears to be an important issue for optimisation of critical areas such as e-invoicing and payments, as well as for regulatory aspects, linked to food safety and traceability (see Exhibit 3-12). Without standards and interoperability of information systems, advanced forms of digital integration in B2B exchanges is hardly possible. Presently, the ICT system of 10% of small firms is integrated with that of business customers and this percentage is likely to increase. The governance of this process of integration is crucial for the competitiveness of small F&B firms The F&B industry appears quite advanced in the adoption of EDI and especially internetbased EDI. There are also indications that F&B firms are relatively more dynamic in migrating form EDI towards XML based standard (see Exhibits 3-8 and 3-10 in Section 3.3.1). This attitude should, therefore, be further supported by policy measures which should aim at fostering faster and wider uptake of standards: At sector level, measures should include awareness raising and support mechanisms for standardisation initiatives, with the aim to stimulate participation of SMEs. Relevant stakeholders, such as industry federations and standardisation bodies, should be encouraged in making information about and benefits arising from standards and practices in this field available to F&B firms, especially SMEs. At cross-sector level, F&B SMEs should be assisted in initiatives aiming at the establishment of standards for electronic integration with distribution. According to statistical findings, presented in Section 3.6.2 of this report, the ICT system of 10% of the sector’s small firms seems to be integrated with that of their business customers - and this percentage is likely to increase. The governance of this process of integration is crucial for the competitiveness of small F&B firms. The case study about LogisticXP provides an interesting example of such a collaborative initiative.
98
See e-Business W@tch Sector Study on the F&B Industry, September 2005, Section 2.5; eBusiness W@tch Report on e-Business Interoperability and Standards, September 2005. Both study reports are available at www.ebusiness-watch.org 150
Food and beverages
References
Publications Carr, Nicholas (2003). "IT Doesn't Matter". In: Harvard Business Review, May 2003. CIES Supply Chain Conference – Barcelona, October 2005, Report CIIA, Data and Trend of the food and Drink Industry, 2005 CIIA, European Technology Platform on Food for Life. The vision for 2002 and beyond Das, Raghu / Harrop, Peter (2006): RFID Forecasts, Players & Opportunities 2006 – 2016. Your complete guide to the RFID markets and opportunities. Study by IDTechEx, featured at www.idtechex.com/products/en/view.asp?productcategoryid=93 (July 2006) Deloitte, What’s Cooking in the Food Industry, 2005 EFITA/WCCA Joint Congress on IT in Agriculture “A conceptual Framework for E-Business Adoption and Development for Enterprises in the Agri-Food Industry”, Matopoulos, A.; Vlachopoulou, M,; Manthou, V.; Manos, B. July 2005 European Commission, DG ENTR, Salmi, H., Measurement of Competitiveness as the basis for policy development "Logistica Management" (April 2005, pages 115-117) "Mark Up" (July-August 2005, pages 15-16) Official Journal of the European Communities, 21/7/1998. Porter, Michael E. (1985). Competitive Advantage. New York: Free Press. Page references in quotations refer to the Free Press Export Edition 2004. Porter, Michael E. (1980). Competitive Strategy. New York: Free Press. Page references in quotations refer to the Free Press Export Edition 2004. The Wall Street Journal (July 2005) e-Business W@tch Reports on the F&B industry, 2005 e-Business W@tch Reports on e-Business Interoperability and Standards, September 2005
Websites The European Federation of European Food and Drink Industries: www.ciaa.be/ (April 2006) European Commission, DG Enterprise: www.europa.eu.int/comm/enterprise/food/index.htm (April 2006) www.accenture.com (August 2006) www.atosorigin.com (August 2006) www.ciber.com/news/article (July 2006) www.computerwire.comwww.fmi.org/technology (March 2006) http://etp.ciaa.be/asp/about_etp/welcome.asp (October 2006) www.fda.gov/oc/bioterrorism/bioact.html (March 2006) www.easynet.com (August 2006) www.ebusiness-watch.org/resources/food/SR01a_Food_2005_web.pdf www.elupeg.com (September 2006) www.e-virgilio.com (April 2006) http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_031/l_03120020201en00010024.pdf (April 2006) http://europa.eu.int/eur-2.lex/lex (October 2006) 151
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www.godiva.be (September 2006) www.heinz.com (March 20069 www.ibm.com (July 2006) www.idtechex.com (July 2006) www.indexsystems.co.uk (March 2006) www.intertradeireland.com (September 20069
www.italtrade.com (April 2006) www.labellaeaso.es (March 2006) www.mathiesons.co.uk (March 2006) www.metrogroup.de/servlet/PB/menu/1014671_l1/index.html www.mph.it (August 2006) http://www.nel.co.uk/evolve/ (September 2006) www.oracle.com (August 2006) www.parmigiano-reggiano.it (April 2006) www.prodika.com (March 2006); www.psc.com/html/casestudies.htm (March 2006) www.riscossa.it (April 2006) www.rossinc.com/ (March 2006) www.sap.com (August 2006) http://shareholder.com/campbell/reports.cfm www.tecnocomputer.it (August 2006) www.translogistica.com (August 2006) www.uk.foedevarestyrelsen.dk/Forside.htm
Interviews conducted for this report Mr Antonio Novo Guerrero, IT Officer at La Bella Easo, March 2006. Ms. Barbara Anderson, CEO Barbara Anderson Consulting, May and July 2006 Mr Francesco Cassarà, IT director of Pastificio Riscossa, April 2006 Mr Carlo Buttasi, Technical Manager at Latterie Virgilio, April 2006 Mr Frank Lia, Managing Director, Chocpix, March 2006 Mr. Peter Stevens, and Viviane Burgess , IT director of Godiva Europe, August 2006 Mr Philippe Cherigie, SAP France, September 2006
152
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Annex I: The e-Business Survey 2006 – Methodology Report Background and scope e-Business W@tch collects data relating to the use of ICT and e-business in European enterprises by means of representative surveys. The e-Business Survey 2006, which was the fourth survey after those of 2002, 2003 and 2005, had a scope of 14,081 telephone interviews with decision-makers in enterprises from 29 countries, including the 25 EU Member States, EEA and Acceding / Candidate Countries.99 Interviews were carried out in March and April 2006, using computer-aided telephone interview (CATI) technology.
Questionnaire The questionnaire is similar to those used in the previous surveys from 2002 to 2005 in order to ensure a basic continuity of the research approach. The module on ICT impact was substantially extended compared to 2005, in response to current policy interest, in exchange for some questions from other modules. Some questions which were also used in previous surveys were slightly modified. The most important change in this context concerns questions on e-commerce: up to 2005, companies were asked whether they "purchase / sell online"; in 2006, companies were asked whether they "place / accept orders online". This is a more precise question, since the terms "purchasing" and "selling" leave it open whether ordered goods also have to be paid online in order to qualify for "online purchasing / selling". Some specific topics were added or expanded in the questionnaire in order to reflect the latest e-business developments; examples are the new questions on the use of RFID and Voice-over-IP. The questionnaires of all four surveys (2002, 2003, 2005, 2006) can be downloaded from the e-Business W@tch website (www.ebusiness-watch.org/about/methodology.htm).
Population As in 2005, the survey considered only companies that used computers. Thus, the highest level of the population was the set of all computer-using enterprises which were active within the national territory of one of the 29 countries covered, and which had their primary business activity in one of the 10 sectors specified on the basis of NACE Rev. 1.1. Evidence from previous surveys shows that computer use can be expected to be 99% or more in all sectors among medium-sized and large firms. Differences are more relevant, however, for micro and small enterprises, in particular in the food and beverages industry, the textile and footwear industries, construction and tourism. In these four sectors, 1030% of micro enterprises and 4-15% of small firms (depending on the country and sector) do not use a computer.100 This should be considered when comparing figures over the
99
The EEA (European Economic Area) includes, in addition to EU Member States, Iceland, Liechtenstein and Norway. Acceding Countries with whom an Accession Treaty has been signed are Bulgaria and Romania; Candidate Countries, which are candidates for accession into the EU, are (as of September 2006) Croatia, the former Yugoslav Republic of Macedonia, and Turkey. In most of these countries, interviews and/or case studies were conducted.
100
Non-computer users include typically small craft firms (textile, construction), bars, restaurants or pensions (in tourism), and small food producing companies. 153
Food and beverages
years, as figures either represent a percentage of "all companies" (as in 2002 and 2003) or a percentage of "companies using computers" (as in 2005 and 2006). Differences are minimal, though, when figures have been weighted by employment. The 10 sectors which were selected for the 2006 survey are extremely heterogeneous in terms of their size. Construction and tourism are by far the largest with about 1.5 million enterprises in each of the EU-25.101 At the other end of the range is the consumer electronics industry with about 5,400 enterprises; this is a factor of about 280 between the largest and smallest sector. This imbalance has inevitably a substantial impact on weighting and thus on aggregate results, which are dominated by figures from construction and tourism. Table 1: Population coverage of the e-Business Survey 2006 No.
NACE Rev. 1.1
Sectors covered
No. of enterprises in EU-25 *
No. of interviews conducted
1 2 3 4 5 6 7
DA 15 (most groups) DC 19.3 DE 21 DL 30, 32.1+2 DL 32.3 DM 35.11
Food and beverages Footwear Pulp, paper and paper products ICT manufacturing Consumer electronics Shipbuilding and repair Construction
282,000 13,700 18,400 31,800 5,400 7,200 1,546,000
1,709 980 1,158 1,687 665 150 2,655
Tourism
1,500,000
2,663
Telecommunication services Hospital activities
12,900 (e) 13,000
1,580 834
8 9 10
F 45.2+3 (selected classes) H 55.1/3, I 63.3, O 92.33/52 I 64.2 N 85.11
* mostly based on Eurostat SBS, latest available figures (e) = estimated on the basis of figures for the former EU-15 (no figures available for EU-25)
Sampling frame and method No cut-off was made in terms of minimum size of firms. The sample drawn was a random sample of companies from the respective sector population in each of the countries, with the objective of fulfilling minimum strata with respect to company size class per countrysector cell. Strata were to include a 10% share of large companies (250+ employees), 30% of medium sized enterprises (50-249 employees), 25% of small enterprises (10-49 employees) and up to 35% of micro enterprises with less than 10 employees. Samples were drawn locally by fieldwork organisations based on official statistical records and widely recognised business directories such as Dun & Bradstreet or Heins und Partner Business Pool (both used in several countries). The survey was carried out as an enterprise survey: data collection and reporting focus on the enterprise, defined as a business organisation (legal unit) with one or more establishments. Due to the rather small population of enterprises in some of the sectors, target quota, particularly in the larger enterprise size-bands, could not be accomplished in each of the countries. In these cases, interviews were shifted to the next largest size-band (from large to medium-sized, from medium-sized to small), or to other sectors.
101
Construction (NACE Rev. 1.1 F 45) in total has about 2.3 million enterprises. The sub-sectors covered in 2006 (see Table 1) account for about 1.5 million out of these. 154
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Fieldwork Fieldwork was coordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in cooperation with its local partner organisations (see Table 2) on behalf of eBusiness
[email protected] The survey had a scope of 14,081 interviews, spread across the 29 countries and 10 industries covered. In 10 countries ("EU-10"), all 10 sectors were covered; in the other countries, selected industries were surveyed. In most countries, between 400 and 750 interviews were conducted. Pilot interviews prior to the regular fieldwork were conducted with 23 companies in Germany in February 2006, in order to test the questionnaire (structure, comprehensibility of questions). Table 2: Institutes that conducted the fieldwork of the e-Business Survey 2006 and no. of interviews per country (#) Institute
# Int.
Institute
# Int.
BE
Ipsos Belgium, 1050 Brussels
400
MT
Misco International Ltd., Valetta VLT 04
101
CZ
Ipsos Czech Republic, Skolska 32/694, 110 00 Praha 1
750
NL
Ipsos Belgium, 1050 Brussels
400
DK
Vilstrup Research AS, 1360 Copenhagen
403
AT
Spectra Marktforschungsgesellschaft m.b.H., 4020 Linz
400
DE
Ipsos GmbH, 23879 Mölln
800
PL
Ipsos Poland, 02-508 Warszawa
752
EE
Marketing and Public Opinion Research Centre SKDS, Riga LV-1010
314
PT
Ipsos Portugal, 1070-15 Lisbon
400
EL
Synovate Hellas, 15451 Athens
407
SI
GfK Gral-Iteo trazne raziskave d.o.o., 1000 Ljubljana
400
ES
Ipsos Eco Consulting, 28036 Madrid
754
SK
GfK Slovakia Ltd., 813 41 Bratislava 1
400
FR
Ipsos France, 75739 Paris
751
FI
Taloustutkimus Oy, 00510 Helsinki
752
IE
Landsdowne Market Research, Dublin 1
400
SE
GfK Sverige AB, 22100 Lund
400
IT
Demoskopea S.p.A., 00199 Roma
756
UK
Continental Research, London EC1V 7DY
750
CY
Synovate Cyprus, 2107 Nicosia
209
LV
Marketing and Public Opinion Research Centre SKDS, Riga LV-1010
432
NO
Norstat Norway, 0159 Oslo
401
404
BG
TNS BBSS Gallup Interbational, 1164 Sofia
400
LT
EEA and Acceding/Candidate countries
LU
Ipsos GmbH, 23879 Mölln/20097 Hamburg
117
RO
Field Insights, Bucharest 2
440
HU
Szonda Ipsos, 1096 Budapest
772
TR
Bilesim International Research & Consultancy Inc. Turkey, 34676 Istanbul
400
102
The survey was carried out under two different contracts. The survey in the six largest EU countries (DE, ES, FR, IT, PL, UK) was carried out as part of the e-Business W@tch contract between the European Commission and empirica GmbH; the survey in the other countries was carried out in parallel, but under a different contract (following an open call for tender for the "extended e-Business W@tch survey", issued in 2005). 155
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Non response: In a voluntary telephone survey, in order to achieve the targeted interview totals, it is always necessary to contact more companies than just the number equal to the target. In addition to refusals, or eligible respondents being unavailable, any sample contains a proportion of "wrong" businesses (e.g., from another sector), and wrong and/or unobtainable telephone numbers. Table 3 shows the completion rate by country (completed interviews as percentage of contacts made) and reasons for noncompletion of interviews. Higher refusal rates in some countries, sectors or size bands (especially among large businesses) inevitably raises questions about a possible refusal bias. That is, the possibility that respondents differ in their characteristics from those that refuse to participate. However, this effect cannot be avoided in any voluntary survey (be it telephone- or paper-based). Table 3: Interview contact protocols: completion rates and non-response reasons (2006, examples)
1
CZ
DE
ES
FR
HU
IT
NL
PL
FI
UK
5595
7763
7730
8686
21540
8533
4576
11054
3016
11821
283
1055
0
186
5545
717
349
2282
139
2663
1.2 Not a company (e.g. private household)
79
80
356
66
2076
89
219
681
34
324
1.3 Fax machine / modem
56
48
0
79
1120
61
28
53
4
130
1.4 Quota completed -> address not used
43
124
660
1939
1665
2154
1002
877
66
158
1.5 No target person in company
17
359
730
142
9
178
232
959
319
736
1.6 Language problems
9
18
0
25
0
1
36
0
41
20
1.7 No answer on no. of employees
2
1
10
13
6
8
1
19
1
0
48
47
158
250
279
314
235
460
28
51
134
330
103
156
0
113
47
813
49
215
Sum 1.1 – 1.9
671
2062
2017
2856
10700
3635
2149
6144
681
4297
Sample (net)
4924
5701
5713
5830
10840
4898
2427
4910
2335
7524
1071
582
1645
6
1023
647
82
513
22
1898
Sample (gross) 1.1 Telephone number does not exist
1.8 Company does not use computers 1.9 Company does not qualify 2
2.1 Nobody picks up phone 2.2 Line busy, engaged
83
122
57
46
89
0
3
73
1
1
2.3 Answering machine
143
145
121
1315
1200
0
9
127
1
145
2.4 Contact person refuses
2080
1125
2553
131
2011
729
1653
2009
578
2523
2.5 Target person refuses
450
1865
202
1475
2776
642
113
280
405
1618
3
11
70
182
2571
384
112
150
50
376
2.6 No appointment during fieldwork period 2.7 Open appointment
295
953
35
1896
258
1041
21
763
459
51
2.8 Target person is ill / unavailable
2
31
0
0
0
13
0
29
2
32
2.9 Interview abandoned
43
67
271
29
108
686
34
176
15
130
2.10 Interview error, cannot be used
4
0
5
5
32
0
0
38
50
0
4174
4901
4959
5085
10068
4142
2027
4158
1583
6774
Successful interviews
750
800
754
751
772
756
400
752
752
750
Completion rate (= [3] / [2])
15%
14%
13%
13%
7,12%
15% 16,48%
15%
32%
10%
Average interview time (min:sec)
19:19
18:46
17:29
19:39
17:14
23:44
20:19
20:16
Sum 2.1 – 2.10 3
156
16:43
19:00
Food and beverages
Feedback from interviewers No major problems were reported from the fieldwork with respect to interviewing (comprehensibility of the questionnaire, logical structure). The overall feedback from the survey organisations was that fieldwork ran smoothly and that the questionnaire was well understood by most respondents. The main challenge was the fulfilment of the quotas, which was difficult or impossible in some of the sectors, in particular among the larger size-bands. Some of the more specific remarks from fieldwork organisations, which point at difficulties encountered in the local situation, are summarised in Table 4. Table 4: Comments by national fieldwork companies on their experience (2006, examples) Country Belgium
• •
Bulgaria
• •
Czech Republic
•
Denmark
•
Finland
• •
Germany
• • •
Greece
• •
Spain
•
France
• • • •
Hungary
•
Ireland
• •
Comments The questionnaire was very clear. Business-to-business (B2B) research (i.e. surveys on behalf of companies or authorities amongst companies) is often difficult when the questionnaire length is longer than 15 minutes; target persons often complained that they have no time for an interview during their normal work. Positive reaction from respondents that the results can be found on the website. Many companies (especially within the tourism sector) have outsourced their ICT operations. Therefore, it was sometimes difficult for respondents to understand the questions. It was difficult to fulfil quotas in several sectors which are mainly represented by very small companies, often by one-person-companies (self-employed), many of which are not willing to do a relatively long interview. There was a high percentage of refusals among micro-companies. Some technical terms (such as internet protocol, LAN, W-LAN, VPN, RFID, and EDI) were hard for interviewers and respondents to understand. The questionnaire was quite long and that is why there were more refusals than normal. Smaller companies often refused to answer or interrupted the interview because they thought that they did not know enough about e-business. Respondents in the pulp and paper sector were especially not interested in this topic due to comparably low ICT usage. As with previous e-Business surveys carried out, fieldwork ran relative smoothly overall and the questionnaire was easy to understand and interesting for most of respondents. Respondents from small companies often had difficulty when answering questions related to specific technical terms and applications. Respondents reacted positively to the fact that the survey was carried out on behalf of the European Commission. There were several cases where companies have outsourced the IT support and thus there was no person to interview. Respondents who were not IT specialists found some of the IT terminology difficult to understand. Fieldwork did not run as smoothly as expected due to several bank holidays occurring during the period, therefore it was difficult to reach the target persons. IT professionals in large companies were the most available. In general, the fieldwork went without any problems and the questionnaire was understood by the respondents. For some sectors, the lack of contact addresses was a serious problem. For future surveys, the case concerning new companies which cannot answer the financial questions should be considered. The cooperation level in this survey was similar to other telephone surveys among companies; but a problem was that many small companies use only one computer, and only for basic functions. The B2B sector (not general population or household surveys) is very over researched in Ireland; hence there was a high level of refusals. In Ireland more than 90% of businesses employ less than 9 employees so many companies do not have the need nor use for ICT.
157
Food and beverages •
Italy
•
Latvia
•
The Netherlands
• • • •
Norway
•
Poland
•
Sweden UK
• • • •
•
Many refusals among the smallest and/or family owned business, where only one PC is available and used more for personal reasons than for business. Respondents often lost their patience because considering the low use of the PC in their business, they had to spend time on the phone always giving the same answers ("no, do not use …"). The main problem was the length of the questionnaire. Although the average interview length was 16 minutes and thus the shortest of all participating countries, surveys among companies with interviews lasting more than 15 minutes are generally not recommended in Latvia. It was rather hard for IT managers to answer about budget, market shares and so on. The questionnaire was very clear, so positive. Business-to-business surveys are often difficult when the questionnaire length is longer than 15 minutes. Secretaries/receptionists in the Netherlands are very well trained in refusing the transferring of a call. Interviewers experienced that many respondents / businesses did not wish to participate due to the topic of the survey. Main reason was that they did not feel competent, although they qualified from the results of the screening. There were some difficulties in getting an interview with computer/IT specialists. In many big companies they refuse to take time for an interview. Many small companies did not understand some of the more technical terms. The questionnaire was understood by most of the respondents. Although some of the questions do appear to be quite technical, this did not prove a particular problem for respondents. There was a very low universe of companies in certain quota cells. Given the limited sample available in some sectors, and the need to target a high proportion of large companies, a longer field period would probably have helped to maximize the number of complete interviews. It is becoming increasingly difficult to secure interviews with IT/DP professionals, and we suspect that this situation will only worsen in the future.
Weighting schemes Due to stratified sampling, the sample size in each size-band is not proportional to the population numbers. If proportional allocation had been used, the sample sizes in the 250+ size-band would have been extremely small, not allowing any reasonable presentation of results. Thus, weighting is required so that results adequately reflect the structure and distribution of enterprises in the population of the respective sector or geographic area. e-Business W@tch applies two different weighting schemes: weighting by employment and by the number of enterprises.103 Weighting by employment: Values that are reported as employment-weighted figures should be read as "enterprises comprising x% of employees" (in the respective sector or country). The reason for using employment weighting is that there are many more micro-enterprises than any other firms. If the weights did not take into account the economic importance of businesses of different sizes in some way, the results would be dominated by the percentages observed in the micro size-band. Weighting by the number of enterprises: Values that are reported as "x% of enterprises" show the share of firms irrespective of their size, i.e. a micro-company with a few employees and a large company with thousands of employees both count equally.
103
In the tables of this report, data are normally presented in both ways, except for data by sizebands. These are shown in % of firms within a size-band, where employment-weighting is implicit. 158
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The use of filter questions in interviews In the interviews, not all questions were asked to all companies. The use of filter questions is a common method in standardised questionnaire surveys to make the interview more efficient. For example, questions on the type of internet access used were only asked to those companies that had replied to have internet access. Thus, the question whether a company has Internet access or not serves as a filter for follow-up questions. The results for filtered questions can be computed on the base of only those enterprises that were actually asked the question (e.g. "in % of enterprises with internet access"), but can also be computed on the base of "all companies". In this report, both methods are used, depending on the indicator. The base (as specified in footnotes of tables and charts) is therefore not necessarily identical to the set of companies that were actually asked the underlying question.
Statistical accuracy of the survey: confidence intervals Statistics vary in their accuracy, depending on the kind of data and sources. A 'confidence interval' is a measure that helps to assess the accuracy that can be expected from data. The confidence interval is the estimated range of values on a certain level of significance. Confidence intervals for estimates of a population fraction (percentages) depend on the sample size, the probability of error, and the survey result (value of the percentage) itself. Further to this, variance of the weighting factors has negative effects on confidence intervals. Table 7 gives some indication about the level of accuracy that can be expected for industry totals for the EU-10104 (based on all respondents) depending on the weighting scheme applied. For totals of all-sectors (in the EU-10), an accuracy of about +/- 3 percentage points can be expected for most values that are expressed as "% of firms", and of about +/- 2 percentage points for values that are weighted by employment. The confidence intervals for industry totals (EU-10) differ considerably depending on the industry and the respective value; on average, it is about +/- 5 percentage points (in both weighting schemes). Confidence intervals are highest for the shipbuilding and repair industry, due to the small number of observations, and because this sector is more sensitive to weights due to its structure (i.e. the dominance of large firms in a comparatively small population). Data for this industry are therefore indicative and cannot claim to have statistical accuracy. The calculation of confidence intervals is based on the assumption of (quasi-) infinite population universes. In practice, however, in some industries and in some countries the complete population of businesses consists of only several hundred or even a few dozen enterprises. In some cases, literally each and every enterprise within a country-industry and size-band cell was contacted and asked to participate in the survey. This means that it is practically impossible to achieve a higher confidence interval through representative enterprise surveys in which participation is not obligatory. This should be borne in mind when comparing the confidence intervals of e-Business W@tch surveys to those commonly found in general population surveys.
104
The EU-10 are composed of those countries in which all 10 sectors were covered by the survey. To ensure data comparability, only interviews from these countries are included in the aggregated "total" values. The EU-10 are: CZ, DE, ES, FR, IT, HU, NL, PL, FI, UK. These 10 countries represent more than 80% of the population and GDP of the EU. 159
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Table5: Confidence intervals for all-sector and sector totals (EU-10)
All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-10 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-7 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities All sectors (aggregate), EU-7 Food and beverages Footwear Pulp and paper ICT manufacturing Consumer electronics Shipbuilding and repair Construction Tourism Telecommunication services Hospital activities
Survey result 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%
Weighted as "% of firms" 8.1% - 12.3% 6.6% - 14.8% 7.5% - 13.2% 7.8% - 12.7% 7.9% - 12.6% 7.4% - 13.4% 4.8% - 19.7% 6.9% - 14.3% 6.6% - 14.8% 7.6% - 13.1% 7.2% - 13.7% 26.8% - 33.4% 24.2% - 36.6% 25.9% - 34.5% 26.4% - 33.9% 26.5% - 33.8% 25.6% - 34.8% 20.2% - 42.0% 24.7% - 35.9% 24.2% - 36.5% 25.9% - 34.4% 25.3% - 35.2% 46.4% - 53.6% 43.2% - 56.8% 45.3% - 54.7% 45.9% - 54.1% 46.0% - 54.0% 45.0% - 55.0% 38.2% - 61.8% 43.9% - 56.1% 43.3% - 56.7% 45.4% - 54.6% 44.6% - 55.4% 66.6% - 73.2% 63.4% - 75.8% 65.5% - 74.1% 66.1% - 73.6% 66.2% - 73.5% 65.2% - 74.4% 58.0% - 79.8% 64.1% - 75.3% 63.5% - 75.8% 65.6% - 74.1% 64.8% - 74.7% 87.7% - 91.9% 85.2% - 93.4% 86.8% - 92.5% 87.3% - 92.2% 87.4% - 92.1% 86.6% - 92.6% 80.3% - 95.2% 85.7% - 93.1% 85.2% - 93.4% 86.9% - 92.4% 86.3% - 92.8%
confidence intervals at α=.90
160
Confidence interval Weighted by employment 8.7% - 11.5% 7.3% - 13.6% 7.6% - 13.1% 7.5% - 13.3% 7.6% - 13.0% 6.0% - 16.2% 4.6% - 20.4% 7.6% - 13.1% 6.8% - 14.4% 6.6% - 14.8% 7.2% - 13.8% 27.9% - 32.2% 25.4% - 35.0% 26.0% - 34.3% 25.8% - 34.6% 26.1% - 34.2% 22.9% - 38.1% 19.7% - 42.8% 25.9% - 34.4% 24.6% - 36.1% 24.2% - 36.5% 25.3% - 35.2% 47.6% - 52.4% 44.7% - 55.3% 45.5% - 54.5% 45.2% - 54.8% 45.5% - 54.5% 41.7% - 58.3% 37.5% - 62.5% 45.4% - 54.6% 43.7% - 56.3% 43.3% - 56.7% 44.6% - 55.4% 67.8% - 72.1% 65.0% - 74.6% 65.7% - 74.0% 65.4% - 74.2% 65.8% - 73.9% 61.9% - 77.1% 57.2% - 80.3% 65.6% - 74.1% 63.9% - 75.4% 63.5% - 75.8% 64.8% - 74.7% 88.5% - 91.3% 86.4% - 92.7% 86.9% - 92.4% 86.7% - 92.5% 87.0% - 92.4% 83.8% - 94.0% 79.6% - 95.4% 86.9% - 92.4% 85.6% - 93.2% 85.2% - 93.4% 86.2% - 92.8%
Unweighted 9.4% 8.4% 8.4% 8.5% 8.7% 8.0% 6.0% 8.3% 8.3% 8.4% 8.1% 29.1% 27.4% 27.3% 27.6% 27.9% 26.8% 23.0% 27.3% 27.3% 27.4% 26.9% 49.0% 47.0% 47.0% 47.3% 47.7% 46.3% 41.8% 47.0% 46.9% 47.1% 46.5% 69.1% 67.2% 67.2% 67.5% 67.8% 66.5% 61.9% 67.2% 67.1% 67.3% 66.6% 89.4% 88.1% 88.1% 88.3% 88.5% 87.6% 83.9% 88.1% 88.0% 88.1% 87.7%
-
10.6% 11.9% 11.9% 11.7% 11.5% 12.4% 16.1% 11.9% 12.0% 11.9% 12.3% 30.9% 32.8% 32.8% 32.5% 32.2% 33.5% 38.1% 32.8% 32.9% 32.7% 33.4% 51.0% 53.0% 53.0% 52.7% 52.3% 53.7% 58.2% 53.0% 53.1% 52.9% 53.5% 70.9% 72.6% 72.7% 72.4% 72.1% 73.2% 77.0% 72.7% 72.7% 72.6% 73.1% 90.6% 91.6% 91.6% 91.5% 91.3% 92.0% 94.0% 91.7% 91.7% 91.6% 91.9%
Food and beverages
The e-Business Scoreboard 2006 The e-Business Scoreboard approach was developed by e-Business W@tch in 2004. It is a compound index that condenses data on ICT adoption and e-business activity, enabling comparisons across different sectors, countries or size-bands. Conceptually, the e-Business Scoreboard owes a debt to the Balanced Scorecard (BSC) approach, which suggests that an organisation should be viewed from four perspectives, and that metrics (and targets) are to be defined for each perspective. Similarly, the eBusiness Scoreboard looks at ICT use by enterprises from four (inter-related) perspectives. The Scoreboard consists of 16 component indicators (see next page), which represent the metrics for these perspectives. Component indicators (CI) can be aggregated on several levels. First, CI can be aggregated into the 4 main sub-indices (with 4 CI each) that represent major application areas of ebusiness. Second, the four sub-indices can be further aggregated into 2 dimensions and, finally, into the overall "e-Business Index".
16 Component Indicators A.1 Internet A.2 LAN A.3 W-LAN A.4 Remote B.1 Intranet
4 Sub-Indices (by business function)
E-Business Index
A. Access to ICT networks B. e-Process integration C. Supply-side activity
E-Business Index
B.2 ERP etc.
D. Marketing and sales
The e-Business Scoreboard takes into account the percentages (diffusion rates) from all sectors (size-bands, …) and show how a specific sector (size-band, …) differs from the all-sector-average. An index value is based on mean values and standard deviations. Thus, index values express the multiple of the standard deviation (1 or (-1)) for a specific sector and the selected indicator. 0 equals the mean value for all sectors (size-bands, …). Indexes simplify multi-dimensional concepts. To correctly assess the validity and shortcomings of the Scoreboard and its overall index, the following notes should be taken into account: Weighting: Results are influenced by the selection of the underlying weighting scheme for component indicators. If employment-weighted figures are used, ebusiness activity in large firms is emphasized. If indicators are weighted by the number of enterprises (irrespective of their size), the situation in smaller firms is emphasized. Component indicators: The selection of component indicators may have a bias towards manufacturing activities, as some indicators can be more relevant for manufacturing than for service sectors (e.g. ERP use). Relative comparison: The Scoreboard results do not represent absolute measures of e-business activity, but depend on the respective set of sectors (or countries, ...) that are compared to each other, because figures express standard deviations from the average of the respective set.
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Component indicators of the e-Business Scoreboard 2006 (Definitions for indicators weighted by employment)
A. ICT infrastructure and basic connectivity A.1
Internet connectivity
=
the percentage of employees working in enterprises that are connected to the internet, with a supplementary indicator for the type of internet connection in terms of bandwidth. Enterprises that are connected with broadband (via DSL, cable, direct fibre or wireless broadband) are computed with a factor of 1.0, enterprises connected via analogue dial-up modem or ISDN with a factor of 0.5. The maximum value of 100 would be returned if all employees work in enterprises with broadband connections.
A.2
Use of LAN
=
the percentage of employees from a sector working in enterprises that have connected computers with a Local Area Network (LAN).
A.3
Use of a Wireless LAN
=
the percentage of employees working in enterprises which use a Wireless LAN.
A.4
Remote access to the company's computer network
=
the percentage of employees from a sector working in enterprises where it is possible to access data from the company's computer system from a remote location.
B. Internal business process automation B.1
Use of an intranet
=
the percentage of employees working in enterprises that use an intranet.
B.2
Use of an ERP system
=
the percentage of employees working in enterprises that have implemented an ERP (enterprise resource planning) system.
B.3
Use of online technology to track working hours and/or production time
=
the percentage of employees working in enterprises that use online technologies (other than e-mail) to track working hours and/or production times.
B.4
Companies sending or receiving e-invoices
=
the percentage of employees working in enterprises that send and/or receive e-invoices.
C. Procurement and supply chain integration C.1
Companies placing >5% of their orders to suppliers online
=
the percentage of employees working in enterprises saying that they place orders to suppliers online on the web or via other computermediated networks, for example via EDI based connections to their suppliers, and that these online orders account for at least 5% of their total orders.
C.2
Use of specific ICT solutions for e-procurement
=
the percentage of employees working in enterprises that use specific IT solutions to support the selection of their suppliers and/or procurement processes.
C.3
Companies linking their ICT system with suppliers
=
the percentage of employees that work in enterprises whose ICT system is linked with those of suppliers.
C.4
Companies managing capacity and inventory online
=
the percentage of employees working in enterprises that that use technologies to manage capacity and inventory online.
D. Marketing and sales processes D.1
Use of CRM software systems
=
the percentage of employees working in enterprises that use a CRM (customer relationship management) software to organise data about their customers electronically.
D.2
Companies receiving >5% of orders from customers online
=
the percentage of employees working in enterprises saying that they accept orders from customers online on the web or via other computer-mediated networks, and that these online orders account for at least 5% of their total orders received.
D.3
Use of specific ICT solutions to support marketing and sales processes
=
the percentage of employees working in enterprises that uses specific IT solutions to support marketing and sales processes.
D.4
Companies linking their ICT system with customers
=
the percentage of employees that work in enterprises whose ICT system is linked with those of customers.
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Annex II: Expanded Tables – Data by country
General remarks on country data break-downs The studies of e-Business W@tch have a sectoral perspective and focus, within sectors, on small and medium-sized enterprises; the analysis of geographic differences is not in the foreground. This decision on the study focus recognises that the e-business activities of a company are mainly determined by its business activity, the configuration of its value system and its size, rather than by the location of a firm. For several reasons, country data on e-business adoption must be taken with a pinch of salt. They can reflect, at least to some extent, the structure of the economy rather than the overall e-maturity of firms. In Italy, for example, sectors dominated by small firms are much more prevalent than in other countries. Since large firms are more advanced in electronic business, aggregated data may point at a lower level of e-business activity in Italy. In contrast to Italy, the relative performance of French and Dutch companies is significantly better if the emphasis is on larger firms. These benchmarking results suggest that the digital divide between small and large firms could be quite pronounced in these countries. It should also be considered that the average size of the companies interviewed in a sector can differ by country, depending on industry structure and the available business directories used for sampling. It cannot be excluded that some directories may have a bias towards smaller / larger firms. Although this effect is counteracted by weighting the answers (according to the representation of various company sizes in the population), it cannot be excluded that structural differences in the sample have an impact on results. Ideally, comparisons between different countries should only be made within the same size-band of firms, rather than on the aggregate level. However, at least within a given sector, the number of observations available does not allow a break-down by country and size-band.
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Exhibit A2-1: Internet access and remote access to company network Companies with internet access % of empl.
Food & bev. (EU-10)
95
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
% of firms
88
Companies with broadband internet access % of empl.
% of firms
72
85 91 100 100
64
Average share of employees with internet 105 access % of empl.
n.a.
61 62 78 83
% of firms
Remote access to company network % of empl.
25
% of firms
35
32 18 23 47
14 11 20 37 69
Belgium Czech Republic Denmark Germany Greece
98 97 98 94 94
97 86 93 84 76
86 69 85 65 54
86 59 81 49 18
n.a. n.a. n.a. n.a. n.a.
38 46 39 27 26
57 44 68 26 52
17 25 23 19 19
Spain * France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania
100 90 99 94 81 91 94 95 97 86 100 100 94 87
100 77 96 89 54 84 88 91 90 69 98 97 91 68
88 81 95 69 50 73 73 68 62 77 81 65 79 47
80 72 66 59 13 59 72 49 49 55 79 65 69 35
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
27 18 31 22 33 47 41 25 58 21 44 53 40 29
50 31 66 20 37 31 40 49 28 19 28 51 19 22
45 6 29 6 13 20 14 18 18 4 22 42 11 15
95
93
76
69
40
43
35
16
All 10 sectors (EU-10) Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.)
89 98 99
62 75 83
Large (250+ empl.)
99
84
firms using firms using Base (100%) computers computers N (for sector, EU-10) 775 775 Questionnaire reference A1 A3 * Data only indicative due to low number of observations (N < 50).
51 29 33 44 firms with internet access 715 A2
Source: e-Business W@tch (Survey 2006)
105
The average share of employees with internet access in the F&B industry is 25% 164
12 22 43 60 firms using computers 775 A5
Food and beverages
Exhibit A2-2: Demand for ICT skills and skills development
Companies employing ICT practitioners % of empl.
Food & bev. (EU-10)
26
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
% of firms
11
Regular ICT training of employees % of empl.
% of firms
26
5 11 24 70
14
Companies with hard-to-fill vacancies for ICT jobs in 2005 % of empl.
% of firms
2
10 16 22 50
Companies using e-learning % of empl.
0
% of firms
16
0 1 1 1
9 7 10 21 35
Belgium Czech Republic Denmark Germany
46 11 50 21
6 6 26 6
26 41 28 12
4 11 5 4
5 1 8 0
1 1 1 0
21 27 19 16
8 5 3 7
Greece Spain * France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania
59 31 19 42 32 19 34 28 29 42 25 16 14 31 4
32 25 1 19 8 10 8 3 5 8 6 11 14 13 4
49 31 21 19 21 25 17 29 30 50 19 12 25 21 32
24 35 11 11 7 22 5 6 8 13 6 6 16 13 15
8 1 0 0 4 11 0 0 0 1 0 0 7 10 3
7 0 0 0 0 1 1 0 0 1 0 0 3 8 6
19 12 7 26 7 8 9 25 16 20 9 12 27 26 35
11 20 10 24 6 4 7 9 10 15 5 10 19 22 30
All 10 sectors (EU-10)
27
14
22
13
2
1
21
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
12 15 29 59
9 16 28 41
firms using firms using computers computers N (for sector, EU-10) 775 775 Questionnaire reference B1 B4 * Data only indicative due to low number of observations (N < 50). Base (100%)
2 0 2 6 firms using computers 775 B2
Source: e-Business W@tch (Survey 2006)
165
11 12 11 19 35
firms using computers 775 B5
Food and beverages
Exhibit A2-3: Companies ordering supply goods online
Food & bev. (EU-10)
Place orders online
Place up to 25% of orders online
Place more than 25% of orders online
Use specific ICT solutions for e-sourcing
% of empl.
% of empl.
% of empl.
% of empl.
54
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
% of firms
39
% of firms
86
91
32 54 58 70
% of firms
14
9
94 90 77 95
% of firms
14
6 10 23 5
5 2 7 16 41
Belgium Czech Republic Denmark Germany Greece Spain *
57 59 83 59 54 33
51 34 78 55 37 30
93* 62* 47* 85* 69* 95*
85* 67* 27* 88* 83* 99*
7* 38* 53* 15* 31* 5*
15* 33* 73* 12* 17* 1*
13 6 13 14 16 19
3 3 8 5 9 15
France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania
52 52 43 33 43 53 61 57 30 65 68 38 44
38 51 30 27 37 41 52 41 21 61 72 33 39
99* 74* 85* 83* 91* 74* 90* 79* 89* 83* 82* 68* 67*
100* 89* 98* 62* 74* 93* 88* 74* 85* 85* 84* 67* 71*
1* 26* 15* 17* 9* 26* 10* 21* 11* 17* 18* 32* 33*
0* 11* 2* 38* 26* 7* 12* 26* 15* 15* 16* 33* 29*
17 25 11 5 10 7 18 12 11 13 9 7 20
1 15 6 9 3 1 9 1 3 9 4 9 13
All 10 sectors (EU-10)
57
48
74
75
26
25
16
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
44 54 60 68
73 80 76 75*
firms using firms placing computers orders online N (for sector, EU-10) 775 385 Questionnaire reference E1 E3 * Data only indicative due to low number of observations (N < 50). Base (100%)
27 20 24 25* firms placing orders online 385 E3
Source: e-Business W@tch (Survey 2006)
166
9 7 10 16 29
firms using computers 775 E7
Food and beverages
Exhibit A2-4: Companies receiving orders from customers online
Food & bev. (EU-10)
Accept orders from customers online
Receive up to 25% of orders online
Receive more than 25% of orders online
Use specific ICT solutions for e-selling
% of empl.
% of empl.
% of empl.
% of empl.
31
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
% of firms
19
82
13 26 40 41
% of firms
87
18
95 89 90 83
% of firms
13
% of firms
14
5 11 10 17
4 1 9 14 51
Belgium Czech Republic Denmark Germany Greece
22 31 31 38 23
20 18 29 20 18
** ** ** ** **
** ** ** ** **
** ** ** ** **
** ** ** ** **
10 8 23 12 12
1 7 10 4 5
Spain France Ireland Italy Cyprus Hungary Netherlands Austria Poland Portugal Finland United Kingdom Bulgaria Romania
17 25 32 20 3 18 25 28 25 12 42 48 23 26
25 9 31 13 2 22 20 22 32 8 37 38 13 24
** ** ** ** ** ** ** ** ** ** ** ** ** **
** ** ** ** ** ** ** ** ** ** ** ** ** **
** ** ** ** ** ** ** ** ** ** ** ** ** **
** ** ** ** ** ** ** ** ** ** ** ** ** **
14 10 30 12 12 14 5 23 24 5 11 18 13 24
10 1 11 1 9 5 2 5 3 5 9 17 8 12
All 10 sectors (EU-10)
35
25
73
75
27
25
18
Micro (1-9 empl.) Small (10-49 empl.) Medium (50-249 empl.) Large (250+ empl.)
23 26 29 26
79 76 75 74
21 24 25 26
firms using firms accepting firms accepting firms using computers orders online orders online computers N (for sector, EU-10) 775 212 212 775 Questionnaire reference F4 F6 F6 F10 * Data only indicative due to low number of observations (N ~ 25-50). ** Data are not displayed, since number of observations (N) for this follow-up question is very small (< 25 in most countries). Base (100%)
Source: e-Business W@tch (Survey 2006)
167
9 6 12 16 27
Food and beverages
Annex III: Glossary of Technical Terms Definition106
Term Access
The ability to retrieve information and to communicate online through the use of digital information and communication technologies.
B2B
Business to Business. Electronic transactions between companies.
B2B e-marketplace
Electronic trading platforms on the internet where companies can sell and/or buy goods or services to/from other companies. They can be operated by a single buyer or seller or by a third party. Many marketplaces are industry-specific. Some marketplaces require registration and membership fees from companies that want to conduct trade on them.
B2C
Business to Consumer. Electronic transactions, between companies and consumers.
Bandwidth
The physical characteristic of a telecommunications system that indicates the speed at which information can be transferred. In analogue systems, it is measured in cycles per second (Hertz), and in digital systems in binary bits per second. (Bit/s).
Broadband
High bandwidth internet access. In e-Business W@tch reports, broadband is defined as the capacity to transfer data at rates of 2 Mbit/s (megabits per second) or greater.
Channel
In communications, a physical or logical path allowing the transmission of information; the path connecting a data source and a receiver.
CRM
Customer Relationship Management. Software systems that promise the ability to synthesize data on customers' behaviour and needs and thus to provide a universal view of the customer.
Dial-up
The process of establishing a temporary connection (to the internet) via the switched telephone network.
Digital signature
An electronic signature that can be used to authenticate the identity of the sender of a message or the signer of a document, and to ensure that the original content of the message or document that has been sent is unchanged. Digital signature usually refers specifically to a cryptographic signature, either on a document, or on a lower-level data structure.
DRM
Digital rights management. DRM is a system of IT components and services, along with corresponding law, policies and business models, which strive to distribute and control intellectual property and its rights. Product authenticity, user charges, terms-of-use and expiration of rights are typical concerns of DRM.
DSL
Digital Subscriber Line. A family of technologies generically referred to as DSL, or xDSL, capable of transforming ordinary phone lines (also known as "twisted copper pairs") into high-speed digital lines, capable of supporting advanced services. ADSL (Asymmetric Digital Subscriber Line), HDSL (High data rate Digital Subscriber Line) and VDSL (Very high data rate Digital Subscriber Line) are all variants of xDSL
e-Business
Electronic business. The e-Business W@tch uses the term "e-business" in the broad sense, relating both to external and to company internal processes. This includes external communication and transaction functions, but also ICT supported flows of information within the company, for example, between departments and subsidiaries.
ebXML
Electronic business using XML. A proven framework and unified set of internationally agreed upon technical specifications and common XML semantics designed to facilitate global trade.
e-Commerce
Electronic commerce. As distinct from the broader concept of e-business, e-commerce refers to external transactions in goods and services between companies (B2B), between companies and consumers (B2C), or between companies and governments (B2G) and may therefore be seen as a subgroup or component of e-business activities.
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Some of the definitions in this glossary are derived from or based on definitions suggested by Whatis?com, a leading online ICT encyclopaedia and learning centre. See http://whatis.techtarget.com. 168
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EDI
Electronic Data Interchange. A way for unaffiliated companies to use networks to link their businesses by using a common technical standard for exchanging business data. While electronic mail between companies is common, electronic data interchange passes bigger bundles that replace large paper documents such as bills and contracts.
EDM
Electronic Document Management. The management of different kinds of documents in an enterprise using computer programmes and storage devices. An EDM system allows an enterprise and its users to create a document or capture a hard copy in electronic form, store, edit, print, process, and otherwise manage documents.
e-Invoicing
Electronic invoicing. A business-to-business transaction in which invoices are generated, delivered (and normally paid) electronically, replacing the equivalent traditional paperbased invoicing processes.
e-Learning
e-Learning means supporting training with learning material in electronic format, for example material that is available on the intranet or the internet. e-Learning applications can be used for ICT-related training, but also for sector-specific or even companyspecific training content.
ERP
Enterprise Resource Planning. A software system that helps to integrate and cover all major business activities within a company, including product planning, parts purchasing, inventory management, order tracking, human resources and finance.
Extranet
A network using internet protocols that allows external organisations (for example customers or suppliers) access to selected internal data. Essentially it is an Intranet which gives external users restricted access (often password protected) to information through the firewall.
Firewall
A firewall is a set of related programmes that protects the resources of a private network from users from other networks. The term also refers to the security policy that is used with the programmes.
ICT
Information and communication technology. ICT includes networks, computers, other data processing and transmitting equipment, and software. The application of ICT in business processes leads to e-business.
Information security
Measures taken to protect information systems against unauthorised use and attacks
Internet
The world's largest computer communication system, with an estimated 700 million 107 The internet is a loose confederation of principally academic and users worldwide. research computer networks. It is not a network but rather the interconnection of thousands of separate networks using a common language.
Interoperability
The technical features of a group of interconnected systems (includes equipment owned and operated by the customer which is attached to the public telecommunication network) which ensure end-to-end provision of a given service in a consistent and predictable way.
Intranet
An internal internet, that is an internal network running using TCP/IP, which makes information available within the company. Most Intranets are connected to the internet, and use firewalls to prevent unauthorised access.
ISDN
Integrated Services Digital Network. An international telecommunications standard for transmission of voice and data over dial-up lines running at 64 Kbit/s (kilobits per second). It allows sharing of multiple devices on a single line (for example, phone, computer, fax).
IT
Information technology. IT includes hardware (computers, other data processing and transmitting equipment) and software.
KM
Knowledge Management. ICT solutions that support enterprises in systematically gathering, organising, sharing, and analysing their knowledge in terms of resources, documents, and people skills. Knowledge management software typically involves data mining and some method of operation to push information to users.
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LAN
Local Area Network. The most common way of connecting computers in a small area (typically inside a building or organisation) for sharing databases and communication facilities. The two most common versions are Ethernet and Token Ring. Implementation is based on coaxial cables or plain wires. Speed achieved ranges from 10 Mbps to 100 Mbps.
Leased line
A private communication channel leased from the common carrier. It is usually a dedicated fixed-route link (e.g. point-to-point frame relay).
m-Commerce
Mobile commerce. E-commerce that takes place using mobile connection devices and through data transmission via technical standards for mobile communication.
Micro enterprise
A company with fewer than 10 employees.
Modem
Modulator/Demodulator. A device that modulates outgoing digital signals from a computer or other digital device to analogue signals suitable to be transmitted through a conventional telephone line (copper twisted pair telephone). The reverse procedure takes place for incoming signals.
MRO goods
Maintenance, repair and operating goods. Supplies which companies need to maintain their operations, for example office supplies, in contrast to "direct production goods" which are components of the goods and services the company produces.
OOS
Open source software refers to computer software under an open source license. An open-source license is a copyright license for software that makes the source code available and allows for modification and redistribution without having to pay the original author.
Processes
Business processes are operations that transform the state of an object or a person. This can, for example, be an order placed via the internet. Ordering an object or a service creates a liability for the supplier to deliver, and initiates the transfer of property rights from one entity to another. The electronic handling of processes is likely to speed them up and to introduce new processes in the realisation of the same transaction.
PLM
Product lifecycle management. The process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. PLM software helps companies effectively and efficiently innovate, for example by managing descriptions and properties of a product starting from conception and development.
Remote access
The ability of a company computer network's transmission points to gain access to a computer at a different location.
RFID
Radio Frequency Identification. A wireless technology which is used to uniquely identify an object, animal, or person. RFID is coming into increasing use in industry as an alternative to the bar code. The advantage of RFID is that it does not require direct contact or line-of-sight scanning.
SCM
Supply Chain Management. Software that helps businesses to match supply and demand through integrated and collaborative planning tools.
Sector
Sectors of the economy with comparable business activities. These constitute the main research unit of the e-Business W@tch. Aggregated information at the industry level is used to document the diffusion of activities within the industries as well as the overall importance of the observed phenomena for changes in the economy as a whole. The definition of sectors follows NACE Rev.1.1 classifications.
Secure server technology
Secure server technology means that data exchange between computers is based on certain technical standards or protocols, for example "Secure Sockets Layer" (SSL).
SME
Small and medium-sized enterprises with 0-249 employees. To be classified as an SME, an enterprise has to satisfy the criteria for the number of employees and one of the two financial criteria, i.e. either the turnover total or the balance sheet total. In addition, it must be independent, which means less than 25% owned by one enterprise (or jointly by several enterprises) falling outside the definition of an SME or a micro-enterprise, whichever may apply. The thresholds for the turnover and the balance sheet total will be adjusted regularly, to take account of changing economic circumstances in Europe.
SSL
Secure Sockets Layer. A commonly-used protocol for managing the security of a message transmission on the internet. SSL has recently been succeeded by Transport Layer Security (TLS), which is based on SSL.
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Standard
A standard is a technical specification approved by a recognised standardisation body for repeated or continuous application, with which compliance is not compulsory.
Transaction
Electronic transactions can be subdivided into several steps, each of which initiates a process. There are pre-sale (or pre-purchase) phases, sale and after-sale phases. Typically a transaction starts with information gathering, price and quality comparisons and possibly pre-sale negotiations. During the sale phase contracting and delivery are the core processes, and payment is the final stage of this phase. After-purchase transaction stages comprise customer service, the administration of credit payments and the handling of returns as well as marketing activities preparing for the next purchase.
UMTS
Universal Mobile Telecommunications Service. A third-generation (3G) digital standard for mobile communication, enabling packet-based transmission of voice, text and video at data rates up to 2 megabits per second (Mbps).
Value added
Gross output minus intermediate inputs. It is valued at producers’ prices and includes all indirect taxes, but excludes VAT and subsidies.
VoIP
Voice over Internet Protocol (IP). The use of telephony services over internet networks, by means of digitised voice transfer technology.
VPN
Virtual Private Network. A way to use a public telecommunication infrastructure, such as the internet, to provide remote offices or individual users with secure access to their organisation's network.
WAN
Wide Area Network. A network allowing the interconnection and intercommunication of a group of computers over a long distance.
WAP
Wireless Application Protocol. A communication protocol for delivering data over mobile telephone systems, allowing cellular phone sets and other mobile hand-set systems to access WWW pages and other wireless services.
Website
A related collection of World Wide Web files that includes a beginning file called a home page.
Wi-Fi
Wireless fidelity. A popular term for a high-frequency wireless local area network (WLAN). Wi-Fi technology is rapidly gaining acceptance as an alternative or complementary infrastructure to a wired LAN.
W-LAN
Wireless Local Area Network. An implementation of a LAN with no physical wires, using wireless transmitters and receivers. It allows a mobile user to connect to a LAN or WAN through a wireless (radio) connection. A standard, IEEE 802.11, specifies the technologies for wireless LANs.
WWW
World Wide Web. The collection of pages in HTML format which reside on web-servers. Although WWW and the internet are different, the terms are increasingly becoming interchangeably used.
XML
Extensible Mark-up Language. A standard to describe the contents of a page or file. XML is a way to create common information formats and share both the format and the data on the World Wide Web, intranets, and elsewhere.
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Contact information: European Commission
Enterprise and Industry Directorate-General Unit D4 “Technology for Innovation / ICT industries and e-Business” 1040 Brussels, Belgium Fax: (32-2) 2967019 e-Mail:
[email protected] Web: http://ec.europa.eu/enterprise/index_en.htm
e-Business W@tch c/o empirica GmbH Oxfordstr. 2 53111 Bonn, Germany e-Mail:
[email protected] Web: www.ebusiness-watch.org
