1-June-2005 05-06-003
SIG Combibloc - Supply Chain Innovations It was July 2002 and Theodore Streng, Head of Supply Chain Management (SCM) of SIG Combibloc, the second biggest supplier of aseptic packages for food and beverages just tried to prioritize the aspects he was about to present at the meeting of the executive committee on strategic positioning. The key issue of this meeting was the benchmark report which compared SIG Combibloc to its main competitor Tetra Pak. The results of the study were striking: “Whereas both companies are head to head in all major qualitative aspects, SIG Combibloc lags behind in speed of implementation of new printing designs and customer order lead time”. Senior management was obviously very uncomfortable with these negative benchmarking results and expected him to address this issue and to come up with a solution. Theodore Streng and his team had identified the key problem and would take the lead in the improvement project. This however would involve a radical change in the supply chain management strategy. Theodore Streng realized that it would be on him and his team to convince the executive committee to make the change happen and to decide about the “when”, “where” and “how”. It was clear to them that it would take several months if not years for the effects to materialize. But they were determined that they could turn his vision of an integrated supply chain that linked suppliers and customers to the same platform into reality.
Company Information In 1853, SIG Swiss Industrial Group was founded in Neuhausen (Switzerland) by 3 partners as a train car manufacturing plant, employing 150 people. The location was deliberately chosen due to the “Rheinfall” where the t he waterpower could be used to run the factory. To diversify operations, SIG started the production of small arms in 1860, and became the supplier of the Swiss army as well as the manufacturer of choice for high-precision sporting guns at world championships, and Olympic Games. SIG also transferred the know-how acquired throughout the years to other activities, and set up complementary business lines. Its extensive experience in the treatment of steel for example eventually led to the construction of pneumatic hammers, and hydraulic pumps, which later entailed further diversification. Along the way SIG also became involved in the manufacturing of products like automobiles, planes and vending machines, which were produced in smaller numbers. Dominik Boskamp, Holger Materlik, Franziska May and Dominik Steinkühler prepared this case under the supervision of Professor Lutz Kaufmann and Alex Michel to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Copyright © 2005 by WHU, Version 2005-06 – 01 No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of the supervising author. We continuously want to improve our case development process and ask you to share your experience with us. For feedback please contact Lutz Kaufmann at
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SIG – Supply Chain Innovations
In order to offset the economic downswings of the train manufacturing and small arms businesses in 1906, SIG commenced the production of packaging machines, which initially focused on the packaging of chocolate and soup cubes. In 1944 the first packaging machine in the non-food area was introduced for washing powder. Through the acquisition of PKL (“Pack- und Klebstoffwerke Linnich”), Germany, in 1989, SIG entered the field of liquid packaging for milk, juice, soups, and sauces. Several years earlier, in 1975 PKL had made its international breakthrough by introducing “combibloc aseptic”, a leak-proof folding carton packaging system for aseptic food packaging. In 2000 SIG went through a redefinition of the group’s strategy, and decided to focus on packaging technology. The subsequent divestment of its rail vehicle and arms business thus irrevocably ended the “railroad era” with which SIG’s history had once started. At the end of 2002, the SIG Group was composed of three major divisions. The first, SIG Combibloc, was the heir of the former PKL business, and produced aseptic packaging for food and beverage products (as described above), as well as aseptic filling machines, spouts and corresponding application machinery. An overview of Combibloc’s products is shown in Appendix A. The second division, SIG Beverages, provided integrated lines for the beverage industry for cans as well as plastic and glass bottles including filling machines, fitment and labeling equipment, downstream equipment, and stretch-blow molding machines for PET bottles. An overview of the products and services of the Beverage division is shown in Appendix B. The third division, SIG Pack, manufactured packaging systems and machines for fast-moving goods like food, and consumer goods. SIG was constantly expanding its businesses by setting up subsidiary companies in foreign countries in order to achieve greater proximity to the local markets, and to react more quickly to various customer demands. In 2002 SIG Combibloc had just laid the foundation stone for a new packaging plant in China to expand the global reach. An overview of SIG Combicloc’s sites and the sales per region can be found in Appendices C and D. SIG Combibloc was by far the most important division, accounting for over 50% of total Group revenue, and contributing most of the company’s profits (see Appendix E for a group income statement). In 2002, the SIG Combibloc activities were managed by a central Holding in Switzerland which also managed the three central functions IT, R&D / Filler Production and allCap systems (see Appendix F). Financing, Controlling, HR and legal were also administered by the Holding. SCM had been established as a central function in 2002. The business activities were grouped in five regional business units (Western Europe, Eastern Europe, UK, Asia, America) which independently managed the packaging and service activities. SIG Combibloc had approx. 3,700 employees and worldwide production in 2002 amounted to more than 10 billion carton sleeves. Especially its mid-term progress was remarkable. Average compared annual sales growth since 1990 had been 9% p.a. and within just three years the division had been able to double its operating profit. The business model of SIG Combibloc envisaged the provisioning (sales / leasing) of filling lines to the customers, and later the exclusive supply of carton sleeves for their production. Most of the time, the prices charged for the machines hardly covered their production and assembly costs. On the other hand to a certain extent they presented the means to achieve the desired level of customer retention for the sale of carton packages in the years after the installation of the filling line. Therefore, the business of SIG Combibloc was much less cyclical than the classic engineering sector because it did not depend -2-
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on one-time projects of expensive machinery or systems. Instead the profits were made by the subsequent sale of aseptic packaging materials, which were continuously needed by customers in order to run their operations.
Market Overview The instable macroeconomic and political environment in 2002 due to the aftermath of the terrorist attacks on September 11, and the threat of a potential conflict of the USA with Iraq, caused many customers of SIG to exercise considerable caution, and postpone investments in new systems. On the other hand, market growth especially in Eastern Europe and China increased consumer demand for aseptically packaged goods. Beverage cartons accounted for about 50% of those packaging solutions, and this share was likely to increase even further in the future due to its cost advantage versus other containers and its logistical robustness of the beverage carton. An example of this advantage was the decision of Germany’s Federal Ministry of Environment in 2002 to amend packaging legislations allowing beverage cartons to remain deposit-free. The overall market size for packaging solutions in the segments in which SIG was active (including SIG Beverages and SIG Pack) was estimated to be around 11-12 bn EUR. The Swedish Tetra Laval Group, which was privately held, dominated the market. Other important players in the beverage packaging industry besides SIG were Krones, Sidel, KHS and Elopak. However, Krones, Sidel, and KHS focused on engineering of filling liner for bottles (glass, plastics) and cans, and were not active in the carton business or in the sale of other packaging materials. In the segment of aseptic carton packaging, Tetra Laval with its Tetra Pak held about 85% of the world market and SIG Combibloc covered the remaining share. While Tetra Pak was clearly dominating in the segment of dairy products, SIG Combibloc had a stronger relative position in the aseptic packaging of fruit juice, ice tea, soups, and sauces. Moreover, apart from the absolute size, there was also a fundamental difference between Tetra Pak and SIG Combibloc with respect to the filling technology deployed. While Tetra Pak filling machines were fed by a role of uncut packaging material, where the cutting and creasing was done during the filling process, SIG Combibloc delivered pre-cut and creased packages, which were then filled at the customer plant. The entry barriers into the market for aseptic carton packaging could be considered very high due to the stringent quality requirements of customers, and the complex technology of aseptic filling, which necessitated company know-how in the packaging segment as well as in the engineering segment. Furthermore, the players in the market already endued a strong installed base of customers equipped with a filling machine, which created network effects, and large economies of scale, thus making it hard for new entrants to gain a foothold in the market. In addition, the business model of installing filling lines and building up cardboard plants was very capital intensive, too capital intensive for small local players.
Supply Chain Management at SIG The CEO of SIG did not only foster the concentration of the SIG Group on packaging technology but also strived to strengthen SIG’s supply chain processes. Peter Lose was hired in 2001 as Head of Corporate Supply Chain Management at the holding to initiate additional measures to realize supply-side synergies across the then established divisions and business units, and to strengthen the group’s worldwide -3-
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commodity team organization. Together with the local purchasing and supply chain managers, Peter Lose set up and successively implemented a corporate supply chain balanced scorecard (BSC) in order to align the measures with corporate and business strategies and to provide direction for the numerous strategic initiatives. These initiatives included the implementation of a business warehouse for the consolidation of the business units’ purchasing and supplier data, more professional supplier management, building up group suppliers, the increased outsourcing of noncore materials and services, and training of SIG employees in supply chain-relevant topics, to name a few. Through corporate initiatives, about EUR 14.3 million in savings had been realized in 2001. Despite these impressive results, it was obvious that many important supply chain issues had to be dealt with on a divisional or even business unit level (e.g. Combibloc). For example, supply and demand planning processes were completely different in a machinery (project) business when compared to the processes in the sleeves and spouts (mass production) business. Thus, a strong division-specific supply chain management was vital. SIG Combibloc Supply Chain When Theodore Streng started dealing with the challenges in the Supply Chain Management in spring 2002, his first task was to familiarize himself with the processes in place. So far, Supply Chain Management had not been the top priority, and therefore the available information was marginal at most. He decided to start interviewing his team and those who he regarded as the key personnel in the supply chain process, and to learn as much about the Supply Chain Management of SIG Combibloc as possible since time was critical. When he sat down to form his team and to identify the key persons he became aware that there was no stringent SCM responsibility in the regional organisation. The SCM functions were grouped with other functions (e.g. order processing grouped to Sales, purchasing grouped to finance). This assortment even varied among the different regional organizations. The list of persons that he had been recommended to contact regarding SCM across the regional organizations was composed of colleagues in production planning, sales, finance and logistics. He was astonished when he was even recommended to talk to an external IT consultant to gather information about the process flow. He strongly felt that there should be a SCM competence center to consolidate the essential knowledge that was currently vastly distributed even to outside of SIG Combibloc. He decided to speak with his team starting with the plant manager first to get closer to business. Gregor Kampos, Plant Manager Mr. Kampos had been working in the production of SIG Combibloc in Germany for over 15 years. When Mr. Streng arrived from the Swiss headquarters, he was given a welcome and they drove through the plant since the first thing on the agenda was a detailed plant tour guided by Mr. Kampos. Before they entered, wearing the obligatory SIG-cap (after all, they were producing products that were in direct contact with foodstuffs), Kampos walked him around the huge factory building employing over 300 people, running three shifts, working 24 hours a day, seven days a week. Upon entering, the first thing Mr. Streng saw where the huge carton rolls being fed into the line in the very beginning. Kampos explained that these rolls, weighting more than 2 tons, were the main input for the beverage cartons they were producing here, and every 14 minutes they would seamlessly connect the next. As they walked along the line, Streng saw how in the first two steps Aluminum foil and several Polyethylene (PE) layers were added. The PE granulate came from huge overhead funnels, were -4-
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first melted and then applied in a liquid stream to the carton from both sides, ensuring that the carton could withstand both forces from the outside, like physical impact, printing, etc. and forces from the inside, i.e. corroding effects of the contained ingredients. In the next hall, the rolls of the thus prepared carton received its print. Kampos explained that the different colors were applied to the material in individual printing steps, finally resulting in the design the customer had ordered. Each design had a set of print cylinders, one for each color present in the design. These cylinders were a unique set that had to be produced by a specialist to engrave the shapes into the chrome surface. Mr. Kampos noted that it often took more than six weeks for a new design to start production because the cylinders were not delivered earlier. The noise coming out of the next room showed Streng that this had to be the place where the rolls were creased and cut into their final shape. In the final production step, the carton was folded and sealed together to become the sleeve that was the final product to be delivered to their customers. Before leaving the plant, the sleeves were packed into cartons and stacked on pallets. Appendix G provides an illustration of the composition of an aseptic carton as produced by SIG Combibloc. Appendix H illustrates the production process of carton sleeves and filling process. The whole place had left Mr. Streng with an excellent impression, and Mr. Kampos surely knew what he was talking about. He showed him all the little steps in the production process, all the machines, all the adjustments that had to be made for the different customers. Some requested a different carton and aluminum thickness, or different characteristics of the PE layer. Of course the main changes in the production set-up were comprised of the printing cylinder changes and the set-ups for the creasing and cutting machines, since the variety of sizes and shapes that the customers requested was significant. Kampos regarded set-up times as substantial, as they were often taking more than thirty minutes to change from one design to the next. And then the production planners gave him regular production plans where the many orders consisted only of single roll lot sizes. The actual production sometimes took less time than the set-up! In the past they had undertaken numerous improvement measures to decrease set-up time, but the truth was with the high number of small orders they received, they would not achieve any major cost reductions. Nevertheless, Mr. Streng had some other issues on the agenda as well. On the top of his list was the point of inventory management. He felt that within the specific Supply Chain Management process they had to put efforts into the logistics processes as a whole, and thereby also include warehousing into the consideration. The warehouses at the plant were also part of the responsibility of Mr. Kampos. He explained that with the inputs from planning, purchasing, and sales, their own scope of possible actions in this field was more or less equal to zero. When Mr. Streng asked about the amount and the disposition of raw material and finished goods he was surprised to get to know that the plant managers monitored the inventory levels to benchmark against other plants but did not have any influence on their disposition. If purchasing ordered supply, he had to store it, and he had to leave the finished pallets in the warehouse until the sales people directed to ship them. Even his intransfer inventory was largely determined by the production planner who planned the production order and utilization of the lines in the plant. Most of this were pre-printed rolls or the cut cartons before they were folded and sealed together.
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Andreas Molger, Purchasing Manager Coming home to Neuhausen, Mr. Streng thought about the next team member to meet. He scheduled a meeting with one of the Purchasing Managers to discuss the sourcing processes in place at SIG Combibloc. The next week, he met Mr. Molger who told him about his work. His main responsibility heading the purchasing for production material was to agree on framework agreements with the suppliers. Usually these included multiple deliveries during the year, which had to be specified by the local operations depending on their specific needs. Molger just negotiated about price, duration of the contract, quality, etc. And in principle, he pointed out that most of his work went into suppliers of the three main resources, namely aluminum, carton, and PE. The number of key suppliers was relative small. These negotiations were rather difficult. The carton suppliers were the Scandinavian carton giants, and they mostly supplied much bigger volumes to other industries, like to printing companies (newspapers, magazines, books), and foodstuff etc. Compared to these, SIG Combibloc did not buy significant volumes at all. On the aluminum side, it did not look much better. The Aluminum market, as with most raw metals, was huge, and supplied only by few big players. And in comparison to other industries, the volumes Molger was negotiating on were more than insignificant. And with PE the situation was no different. Main suppliers were chemical and oil processing companies and their daily throughput rather targeted the industrial mass market where SIG Combibloc’s demand was not significant. As Mr. Molger took every chance to explain, his situation was quite simple: He felt that in many cases next to price negotiations, he put a lot of efforts on securing safe supply and beneficial supply modalities. Anyway, what was he supposed to do? He could only bundle all the volume to achieve quantity effects but apart from this his options were rather limited. Despite SIG Combibloc only had one production slot per month, in recent years he had managed to get a system in place where at least the carton was supplied to production sites in Germany on “Just In Time” basis. In order to achieve this, the suppliers operated a local warehouse, where they stored all carton for the region, including the monthly supply for SIG Combibloc. Then, several times a day they were supplying SIG Combibloc’s plants with carton, according to the shortterm call-offs. SIG Combibloc would factually buy the carton only in the moment that the trucks physically reached their incoming warehouse in the plant (consignment stock). Whereas PE was supplied daily and stored in silos to allow for constant input into the production, the situation for aluminum was still unsatisfactory. Lead times still aggregated to as much as two months and appropriate levels of aluminum stock had to be kept at each production site. When Mr. Streng asked about the procurement of the printing cylinders, a clear answer became complicated to find because the process largely varied on a case-bycase basis. The customers only defined the design specifications. SIG Combibloc would then order proof prints from the cylinder manufacturers. Some of the manufacturers already used a faster technology for these prints (IRIS proof) that allowed for shortening the process while others still had to manufacture test cylinders first. This could significantly prolong the whole process as the proof prints needed to go through two rounds of approval, one by SIG Combibloc and one by the customer, before the final cylinders could be produced and sometimes the customer demanded additional reprocessing. When Mr. Streng asked about the lead time of printing cylinder deliveries Mr. Molger informed him that there was no constant monitoring in place. However, as lead times fluctuated due to various factors such as correction
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loops, they had made random samples recently which he would make available to Mr. Streng (see Appendix I). David Kühlstein, Production Planner Especially after the talks with Mr. Kampos, Theodore Streng was very keen on meeting the next team colleague, one of the regional Production Planners. For this reason, he flew to one of the plants again to meet with Mr. Kühlstein, responsible for the production planning of that plant. In his office, Mr. Kühlstein explained his work to Mr. Streng. He followed a strict weekly routine in order to keep processes at their optimum. In general, each Wednesday he had to define and on Friday he had to fix an exact production schedule, where he decided for the following week which product for which customer they would produce at which line. This was a highly complex problem, with an enormous amount of variables Kühlstein was controlling, as he emphasized strongly. For him the most important thing was to get all the orders that had been released until that Friday, which he could get from the orders, produced within the next week. When the product would be produced exactly was not a key factor, as the orders could only be released for a delivery within a certain week. The standard lead time was three weeks, but in case of emergency he would make it possible to deliver within just three days. In this context, production planning also used the monthly forecasts provided by Sales to plan material and capacities. But these only lead to problems, Mr. Kühlstein explained. In the past 12 months, forecasts had been on average 41% inaccurate (see Appendix J). An additional layer of this problem was the inability of their current SAP software system to distinguish between planned and actual lead times and therefore they could not completely track their delivery performance. And of course this was a critical game, as they were producing 24 hours 7 days a week, Kühlstein explained. There was not much room, and every hour of down time was foregone revenue. In many cases this was very difficult to accept for those responsible for the production as frequent set ups were not necessarily optimal from a pure production point of view. But for Kühlstein it was impossible to avoid, as he had to get all the orders done that the sales colleagues had placed. And as Mr. Kühlstein was readily explaining, the Key Account Managers and the Sales Administration which managed the order intake were not easy to satisfy. Due to their customer focus they had changes, new orders coming in, and old ones getting cancelled or rescheduled to an earlier or later point of time. How was he supposed to run “his” lines at 100% utilization while maintaining the flexibility to change any lot at any point of time? All this made his work unpredictable and tiresome, Kühlstein told Streng. Therefore, he had to make clear cuts and sometimes make a stand against sales or production. And this meant that in most cases (It was not completely clear to Mr. Streng whether all cases were concerned) the Friday deadline was a real deadline, meaning no changes in the production schedules in the next 7 days were possible, no matter what happened. Of course, for normal orders this meant that an order could be processed 15 days later, if it arrived on a Friday afternoon and was in the next week scheduled for the following Friday to be produced. Christa April, Key Account Manager Following his talks with the Production Planner, Theodore Streng returned to headquarters. His next step was clear: He had to get more information from the downstream side of the supply chain, the market. Thus, he fixed an appointment with Ms. April, who was the Key Account Manager for one of SIG Combibloc’s main customers, a major German-based producer of juices and other beverages. Ms. April -7-
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had been responsible for this customer for the last 5 years, and Mr. Streng was hoping to get some new insights from her perspective. She started off by showing him how business with her client had steadily grown in the last years, how they had started to supply only one of his production facilities with SIG Combibloc filling machines and the corresponding sleeves, and by today were supplying three plants, with rising opportunities for more business in the future. Talking a bit more about details, Ms. April explained how business with the client was characterized by his difficulties in the market and the seasonal demand for beverages. More than all, she said, it is important to understand the German retail industry (see Appendix K). In recent years, discount supermarkets like Lidl, Aldi, or Plus had grown immensely and led to a consolidation unheard of before. These discounters procured huge volumes, and often made up 70 or 80% of the total business of the food producers. On that basis, the retailers had an extremely strong position. Her client often spent hours telling Ms. April how tough and mean his own clients were. If the suppliers could not deliver in time, business was sometimes terminated immediately, bringing the producer in a situation where his existence was seriously endangered. This situation explained much of the nature that Ms. April’s business negotiations had. Due to the unstable demand and low market powers of her customer (see Appendix L), she also had to react as quickly as possible so that her client could continue his business. The SIG Combibloc customer would suddenly be faced with a huge order from one of his retail clients, which would cause him to place an even higher order with SIG Combibloc. The client looked for safety buffers, of course, and Ms. April had heard from her colleagues that some producers actually wanted SIG Combibloc to guarantee large safety stocks in order to absolutely avoid stock-outs. Even though SIG Combibloc had a quite strong position in the market, and chances that the customer would actually stop buying were rather marginal, the pressure on Ms. April came from the retailers and discounters, her client just passed it along the chain, resulting in highest demand uncertainty, and in full warehouses not only at their customer, but also with SIG Combibloc. Naturally forecasts were inaccurate, Ms. April said, but in the end they were merely educated guesses anyway. Not even her client knew what they had to produce in the following weeks, so how was she supposed to know. And in any way, her last forecasts had an accuracy of almost 95%, which she thought was more than sufficient (see Appendix M). The colleagues in Production Planning just did not understand this element of her job, she was to support her clients to do their business as well as possible. If this sometimes meant that the Planning department had to change their schedule, that was a modest price to pay, right? But she often had the feeling that the production people did not even bother to try to understand this. They just wanted big lot sizes, and full capacity utilization. Of course that was nice, but if that made her customers go bankrupt, SIG Combibloc would not benefit either. Flexibility and delivered speed was a key factor for her customers, Ms. April emphasized, and she would continue to fight for that.
Pilot - Coca Cola Project On Theodore Streng’s quest to identify leads on how to modify the established system he had a closer look on the results of a recent pilot project with Coca Cola. Had Coca Cola until now just been the producer of soft drinks in his mind, he learned that the popular Cappy Juice brand belonged to Coca Cola, too. The management had identified Coca Cola as the lead customer as they did not only provide a strong brand name for future projects but were also one of the few large customers that already had a corporate planning system in place. In contrast to other -8-
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juice producers, Coca Cola had established a sophisticated medium and long term planning tool due to their strong brand recognition and their global standards. At the time of project initiation, the joint strategy merely consisted of batch processes. Weekly orders were processed manually and to make it even worse, inside of SIG Combibloc every batch order needed to be split up into individual orders for sleeves and spouts on which basis each line of businesses compiled production schedules and delivery schemes. IT sophistication reached as far as using telephones and fax machines. In a workshop, Coca Cola and SIG Combibloc developed a joint strategy and joint goals among which scrapping of all manual process steps, the implementation of collaborative forecasting and replenishment (CPFR), reduction of joint throughput times, minimization of the bullwhip effect and the reduction of inventory at Coca Cola (safety stock) by as much as 40% without increasing the likelihood of stock outs. Critical success factors were the close collaboration, establishment of a joint IT basis, early definition of specifications and rules as well as an efficient project management. The underlying newly created IT system was called “e-Sig”, which employed powerful middleware to connect all corporate legacy systems and enable smooth information flow. In the new system, the whole process would not be triggered by Coca Cola’s order, but seamlessly on the basis of Coca Cola’s current stock levels, 6 weeks production planning and 52 weeks forecast. These data allowed the e-SIG tool to generate production proposals for SIG Combibloc sales that would align the whole supply chain to the anticipated demand of Coca Cola. This additional transparency allowed SIG Combibloc to trigger actions way ahead of the time of the former order placement of Coca Cola. After the project had been running for some time its successes were staggering: the major improvements in the production cycle planning (automation) translated into much higher capacity utilization, reduced safety stocks and shortened lead times. Coca Cola had benefit by the reduced lead times and by driving down safety stock of packaging material and spouts by as much as 50% and at the same time achieved an even better service level (i.e. less stock outs). Theodore Streng was impressed by the results that had been achieved and at the same time was surprised that the project was initiated by SIG Combibloc itself who in this context was the supplier and not the customer. On the other hand he was aware that SIG Combibloc’s supplier management processes could be streamlined and the origin for the bullwhip effect was on the customer side. Hence, it was the natural step to start on this side of the supply chain, and work back towards the supplier on the base of a CPFR system and a newly designed production trigger mechanism. Although this project seemed to be a major success, Theodore Streng thought that there was still a long way to go for additional improvements and this solution was so far treated as a stand alone project. The pilot system had to be modified for roll-out to other customers and the rest of the organization was still following the old rules and he wondered how he could initiate a transformation process within the organization on a large scale?
Benchmark Report When Theodore Streng got appointed to lead SIG Combibloc’s SCM, he discussed with his team about the competitors and their respective technologies. It was clear to them that the quality of the packaging material was one of the key strengths of SIG -9-
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Combibloc. Customers valued this, but most of the large ones had filling machines of Tetra Pak as well. What did they value with the competitors that SIG Combibloc could not deliver to that extent? In order to find that out, they referred to a recent benchmark study on customer satisfaction of SIG Combibloc vis-à-vis Tetra Pak (see Appendix N). The results of this benchmark study spoke a clear language and basically revealed three major points: Over the range of criteria, SIG Combibloc and Tetra Pak placed very similar. Strengths and weaknesses were very much aligned. In most areas the performance of both SIG Combibloc and Tetra Pak was already very good and left little room for improvements. Just two criteria left room for improvement for both and revealed SIG Combibloc’s perceived performance to be much weaker than Tetra Pak’s and hence allowed for differentiation. These two criteria were the speed of implementation of a new printing design and the time period from order to delivery. Theodore Streng thought back to his interviews with the team and to what he had just learned about the key success factors and the effects of the Coca Cola pilot project. This new e-SIG system allowed SIG Combibloc to initiate actions when Coca Cola was not even thinking about placing an order and thereby dramatically reduced lead time for the customer. With the integrated CPFR system SIG Combibloc had an excellent basis to work closer with the cylinder suppliers to develop and improve printing designs and deliver additional value for the customer. It became clear that the key to success was a completely redesigned SCM strategy on the basis of the Coca Cola pilot project. Top management strongly supported the Coca Cola case, but the changes for the internal organization of SIG Combibloc would be extreme, should the e-SIG model not only be a stand alone project but the general mode of operations. After some intensive weeks of preparation with the team, Theodore Streng read over the key aspects of his presentation again. He knew that this project would be the most complex challenge that he and his team ever faced and it would take months if not years to fully transform the company and implement this strategy of which he knew was the major success factor. But was it really worth the effort? His team knocked on his door to join him for the executive committee meeting. From that point on, there was no turning back. The scope of their mission would grow to not only convince their colleagues but also to get SIG Combibloc’s customers and suppliers to work on this new strategy together.
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APPENDIX Appendix A: SIG Combibloc Overview Product Range
Packages
Fitments
Filling machines
Applicators
Source: SIG Combibloc Intern
Appendix B: SIG Beverages Complete lines
Product
Processing Sterilizing
Glass
PET
Can
Depalletizing
MoldMaking
Rinsing
Blow- Coating Molding
Filling
Capping
Labelling
Inspecting Palletizing
x
SIG Corpoplast SIG Simonazzi SIG Alfa SIG Moldtec / SIG Ryka SIG Manzini / Comaco SIG Cantec
CanMaking
Source: SIG Intern
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Appendix C: Overview SIG Combibloc Locations Worldwide
Source: SIG Combibloc Intern
Appendix D: Sales per region in Mio. Units 2001 SIG Combibloc North America 5% SIG Combibloc Asia 16%
SIG Combibloc Eastern Europe 18%
SIG Combibloc Western Europe 61%
Source: SIG Combibloc Intern
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Appendix E: Extract of SIG Group Income Statement 2001 FY 01 / mn EUR Net sales Operating Income
SIG Group SIG Combibloc 1589 854 1654 907
Raw materials and supplies Personnel costs Other operating expenses Operational financial income from third parties EBITDA EBITA EBIT
SIG Pack 284 298
SIG Beverages 332 345
Other 142 136
Corporate 0 18
Eliminations -23 -50
708 442 315
393 167 162
109 115 63
169 101 63
58 53 29
0 6 26
-21 0 -28
0 189 78 60
-2 187 103 103
-1 12 1 0
-2 14 6 -11
0 -4 -12 -12
1 -15 -15 -15
4 -5 -5 -5
Source: SIG Annual Report 2001
Appendix F: SIG Combibloc Organizational Structure 2002
SIG Combibloc International AG Neuhausen, Switzerland
SIG Combibloc Systems GmbH (Filler Production, R&D) Neuss, Germany
SIG Combibloc Weastern Europe (CBWE – Western Europe, South America) Linnich, Germany
SIG IT GmbH
SIG allCap AG (Cap Systems) Neuhausen, Switzerland
(Information Technology) Linnich, Germany
SIG Combibloc United Kingdom
SIG Combibloc Eastern Europe
SIG Combibloc America
SIG Combibloc Asia
(CBUK – Geat Britain) Houghton-Le-Spring, GB
(CBEE – Eastern Europe) Saalfelden, Austria
(CBAM – NAFTA) Columbus, USA
(CBAS – Asia) Bangkok, Thailand
Source: SIG Combibloc Intern
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Appendix G: Composition Aseptic Carton
Board
75%
Polyethylene
21%
Aluminium
4%
Polyethylene (liquid barrier) Aluminium (aroma and light protection) Polyethylene (liquid barrier) Board (carrier material) Polyethylene (liquid barrier)
Only 28.5 g of packaging protect a content of 1 litre
Source: SIG Combibloc Intern
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Appendix H: The Aseptic System Sleeve Production Coating Printing Laminating
Paperboard
Longitudinal seam
Shipment
Creasing/ Cutting
PE PE AL PE
Filling Process
1
2
3
4
5
6
Source: SIG Combibloc Intern
- 15 -
7
8
9
10
11
12
SIG – Supply Chain Innovations
Appendix I: Lead Time (in days) Order #
1 2 3 4 5 6 7 8 9 10
Initial order intake 2 2 1 2 3 2 2 1 2 3
Proof Correction loop Order Cylinder Cylinder Cylinder Quality Carton C us to me r processing production approval delivery assurance production production S IG 7 8 13 10 12 9 14 7 8 10
No No No No No Yes No No No Yes
No Yes Yes No Yes Yes No Yes Yes Yes
1 1 2 1 1 2 2 2 1 3
10 10 10 12 10 10 10 10 10 13
1 1 1 1 1 1 1 1 1 2
3 3 3 4 3 3 4 3 3 3
1 1 1 1 1 1 1 1 1 2
1 4 5 2 3 1 5 5 4 5
Carton Delivery to customer 7 9 2 2 13 9 3 5 16 24
Total lead time (including time for correction loops) 33 42 45 35 48 48 42 39 56 76
Source: Invented figures imitating the actual trends at SIG Combibloc
Appendix J: Forecast Measurement David Kühlstein
Jan 00
Feb 00
Mrz 00
Apr 00
Mai 00
Jun 00
Jul 00
Aug 00
Sep 00
Okt 00
Nov 00
Dez 00
PLANT 1 Customer widget GmbH Felengi AG milky juicy Product 1 Liter 0.5 Liter Average 1 Liter 0.5 Liter Average 1 Liter 0.5 Liter Average 1 Liter 0.5 Liter Average FC 100.000 0 50.000 5.000 20.000 50.000 12.500 2.000 AC 50.000 0 25.000 5.000 14.000 10.000 3.500 3.500 Inaccuracy 100% 0% 50% 100% 0% 50% 43% 400% 221% 257% 43% 150% FC 40.000 0 60.000 5.000 15.000 50.000 5.000 5.000 AC 60.000 0 40.000 4.000 20.000 15.000 8.000 8.000 Inaccuracy 33% 0% 17% 50% 25% 38% 25% 233% 129% 38% 38% 38% FC 50.000 0 50.000 5.000 30.000 50.000 5.000 5.000 AC 60.000 0 40.000 6.000 0 15.000 5.000 5.000 Inaccuracy 17% 100% 58% 25% 17% 21% 100% 233% 167% 0% 0% 0% FC 60.000 0 50.000 5.000 15.000 25.000 10.000 10.000 AC 65.000 0 60.000 5.000 30.000 50.000 5.000 5.000 Inaccuracy 8% 100% 54% 17% 0% 8% 50% 50% 50% 100% 100% 100% FC 80.000 10.000 50.000 5.000 15.000 35.000 10.000 10.000 AC 70.000 10.000 70.000 5.500 35.000 50.000 20.000 20.000 Inaccuracy 14% 0% 7% 29% 9% 19% 57% 30% 44% 50% 50% 50% FC 80.000 10.000 120.000 5.000 15.000 20.000 10.000 10.000 AC 80.000 20.000 70.000 5.200 40.000 80.000 15.000 15.000 Inaccuracy 0% 50% 25% 71% 4% 38% 63% 75% 69% 33% 33% 33% FC 100.000 15.000 80.000 5.000 15.000 45.000 15.000 15.000 AC 100.000 20.000 80.000 10.000 35.000 100.000 25.000 25.000 Inaccuracy 0% 25% 13% 0% 50% 25% 57% 55% 56% 40% 40% 40% FC 100.000 15.000 45.000 5.000 15.000 50.000 15.000 15.000 AC 120.000 30.000 60.000 5.000 27.500 90.000 14.500 30.000 Inaccuracy 17% 50% 33% 25% 0% 13% 45% 44% 45% 3% 50% 27% FC 80.000 20.000 45.000 5.000 15.000 50.000 20.000 20.000 AC 90.000 25.000 30.000 4.500 30.000 80.000 15.000 15.000 Inaccuracy 11% 20% 16% 50% 11% 31% 50% 38% 44% 33% 33% 33% FC 80.000 15.000 40.000 5.000 25.000 60.000 15.000 15.000 AC 75.000 20.000 30.000 4.000 25.000 75.000 17.500 17.500 Inaccuracy 7% 25% 16% 33% 25% 29% 0% 20% 10% 14% 14% 14% FC 60.000 15.000 40.000 5.000 15.000 60.000 15.000 15.000 AC 70.000 15.000 35.000 5.500 20.000 50.000 15.000 15.000 Inaccuracy 14% 0% 7% 14% 9% 12% 25% 20% 23% 0% 0% 0% FC 60.000 15.000 40.000 5.000 15.000 45.000 13.000 13.000 AC 70.000 15.000 30.000 5.000 20.000 40.000 15.000 15.000 Inaccuracy 14% 0% 7% 33% 0% 17% 25% 13% 19% 13% 13% 13% Inaccuracy Widget Gmb 25% Inaccuracy Felengi AG 25% Inaccuracy milky 73% Inaccuracy juicy 42%
Overall inaccuracy: - FC: Forecast - AC: Actual sales - Inaccuracy as ratio FC/AC - Aggregation of inaccuracies by calculating the average
Source: Invented figures imitating the actual trends at SIG Combibloc
- 16 -
41%
SIG – Supply Chain Innovations
Appendix K: The Top Ranked Retail Stores in Germany (2002 in Mio €) Company
Ownership
Percent from Food
Gross Sales Food Receipts
Metro Group
German/Swiss
32,022
14,442
45%
Rewe Group
German
28,622
19,635
69%
Turnover by Type H: 37%; CC:20%; O:43% H: 6%; S: 39%; D: 16%; CC: 27%; O: 12%
Edeka/AVA Group
German
25,177
20,922
83%
H: 80%; O: 20%
Aldi Group
German
25,000
20,250
81%
Schwarz Group
German
17,150
13,789
80%
Tengelmann Group
German
12,463
7,764
62%
SPAR Group
French
7,539
6,958
92%
D: 100% H: 46%; D: 51%; CC: 3% S: 20%; D: 45%; O: 45% H:18%; D: 40%; CC: 42%
Lekkerland-TabaccolandGerman
8,170
1,629
20%
O: 100%
Schlecker
German
5,200
5,035
97%
Dohle Group
German
2,884
2,425
84%
H: 2%; O: 98% H:82%; S: 17%; O: 1%
Wal-Mart
U.S.
2,875
1,438
50%
H:100%
H = Hypermarkets S = Supermarkets D = Discounter CC = Cash & Carry O = Other
Source: German Retail Food Sector Report 2003 by Gain Report (all figures are in US)
Appendix L: Quarterly Sales Data Product 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0
Widget Widget Felengi Felengi milky milky juicy juicy
Product 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0
Widget Widget Felengi Felengi milky milky juicy juicy
Product 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0
Widget Widget Felengi Felengi milky milky juicy juicy
Q1/95
Q2/95
Q3/95
Q4/95
Q1/96
0
0
14 5. 000
150. 000
1 40. 000
135. 000
12.000
13.000
15.000
12.000
12.500
12.000
15.500
12.000
85. 000
95. 000
90. 000
80. 000
90. 000
100. 000
95. 000
85. 000
60.000
70.000
70.000
65.000
60.000
75.000
95.000
70.000
35.000
45.000
40.000
35.000
35.000
55.000
50.000
40.000
20.000
25.000
35.000
25.000
17.500
27.500
40.000
20.000
20.000
25.000
35.000
25.000
17.500
27.500
40.000
20.000
Q3/97
Q4/97
0
0
0
140. 000
17 0. 000
190. 000
Q1/98 0
1 65. 000
0
Q4/96
0
Q2/97
0
Q3/96
120. 000
Q1/97
0
Q2/96
Q2/98 0
150. 000
0
155. 000
170. 000
Q3/98 0
185. 000
0 157 .000
Q4/98 0
220. 000
0 180 .000
14.000
14.000
15.750
13.500
14.000
13.500
17.500
13.500
90. 000
110. 000
105. 000
80. 000
97. 500
130. 000
120. 000
92. 500
60. 000
95. 000
105. 000
75. 000
50. 000
100. 000
160. 000
100. 000
35.000
75.000
65.000
50.000
28.500
75.000
70.000
55.000
18.500
30.000
50.000
25.000
17.000
30.000
60.000
22.500
18.500
30.000
50.000
25.000
17.000
30.000
60.000
22.500
Q1/99
Q2/99
Q3/99
Q4/99
0
0
0
0
160.000
205.000
265.000
207.500
15. 000
14. 500
18. 000
14. 000
102. 500
17 5. 000
175. 000
92. 500
50. 000
12 0. 000
200. 000
1 35. 000
32. 500
85. 000
70. 000
55. 000
17. 000
35. 000
65. 000
32. 500
17. 000
35. 000
65. 000
32. 500
Source: Invented figures imitating the actual trends at SIG Combibloc
- 17 -
SIG – Introduction of Supply Chain Innovation Processes
Appendix M: Forecast Measurement Christa April
Source: Invented figures imitating the actual trends at SIG Combibloc
- 18 -
SIG – Introduction of Supply Chain Innovation Processes
Appendix N: Benchmark Report 2002: Results of the Customer Survey (Figures modified by weighted factor)
• Quality of packaging material / filled packages (e.g. stability of filled package, quality of print, leakage rate)
• Information about / transparency of status of delivery* • Supplier reliability / observance of delivery dates for packaging material (right quantity/right time)
SIG Combibloc
• In time delivery of shipping documents* Tetra Pak
• Condition/quality of delivered packaging material* • Speed of implementation of a new printing design • Time period from order to delivery* 0%
20%
40%
60%
80%
% of answers: very good
Source: SIG Combibloc Intern
- 19 -
100%
