The Fonterra Business and Information Model
The merger that created Fonterra enabled the business to completely refocus on its information needs. Whilst the new entity could continue to function with the legacy systems of the three contributing entities, better use of information to guide the company's decision-making activities required a complete refocusing of information priorities. This was achieved via a complete business process re-engineering (BPR) exercise.
The BPR exercise required the company to re-examine its core strategies and its entire supply and value chains6 The core strategy of the organisation, built around the supply chain concept, required the company to "focus in more depth on fewer parts of the dairy market and to leverage (our) capabilities to establish true leadership and superior returns." 7 The strategy is depicted in Figure 1.
Figure 1: Fonterra Strategy
Whilst each of the contributing companies had previously been responsible for portions of the supply and value chains, the new entity was obliged to focus on the total chain. By first conceptualising the supply and value chains, it became clearer how both products and information to support the production, processing, marketing and distribution of those products, flowed through the company. The output of this exercise was the map provided in the diagram "One Team, One Way of Working".
Figure 2: One Team, One Way of Working
→ Full Size Version of Figure 2 [236KB GIF file]
Fonterra management recognises that the "One Team, One Way of Working" focuses strongly upon the processing, marketing and distribution aspects of the business. Customer service and supply chain management information systems have been prioritised for development first. The flow of information between Fonterra and farmers is also a critical part of its operations, and activities are underway to improve these. The long-term information plan is to integrate both on-farm and Fonterra information for the benefit of all aspects of the business, creating a true two-way flow of information throughout the company and its supplier-owners.
Fonterra is thus undertaking a supply chain integration exercise, albeit one within a large vertically integrated organisation. The long-term objective is to directly integrate information from the 13,000 suppliers into the system. In the meantime, other interfaces between Shareholder Services, the production arm of the business and farmers transfer information necessary to the operation of the business.
Managing the Supply Chain
Figure 2 illustrates the flow of raw milk into the processing system to be transformed into products sold by the network to end customers. All other aspects of the operation support this process. However, the decisions about which products and quantities to make, and who to sell the products to, are determined by information generated by customers. Ultimately, the core processing decisions made by Fonterra rely upon accurate forecasts of future customer purchasing behaviours and future supply of raw milk. The information systems supporting these decisions will depend upon the accuracy of these forecasts. By-product information produced during these activities is used to support the finance, human resources, management information, marketing and innovation processes.
Whilst all forecasts of future events are only as good as the technical capabilities of the forecasting processes allow, all forecasts can be compromised by inaccurate information being used as the inputs to these processes. Operational systems and resulting decisions utilising the forecast information may be technically correct in their function, but the company fails to generate the desired returns if the information feeding into these systems is poor. The fragmented nature of the existing legacy information systems Fonterra inherited from the merger meant that there were many sources of information available for making many decisions.
Duplication, however, spread far wider than merely the multiple systems of the three contributing entities. Even within each entity, there were multiple copies of data that each purported to be representations of a "fact" required for decision-making, within various computer systems, individual spreadsheets, paper reports or even within the minds and memories of individual employees. For example, within the Finance department alone, it was discovered that over 3000 individual spreadsheets maintained separately on personal computers, remote from the core organisational databases, were in regular use. Knowing which of the "facts" were the reliable was problematic, and use of inconsistent data was inevitably leading to inaccuracies and greater uncertainty in decisions. Reconciling discrepancies caused by the inaccuracies and inconsistencies was time-consuming, and the outcomes of poor decisions made on inaccurate data were costly to the business. Moreover, Fonterra could be "held up" by employees withholding company information for personal gain.
It became clear to the decision-makers within Fonterra that the only way for the "One Team, One Way of Working" conceptualisation of business to drive all decisions within the company was to support it with management information and decision systems based around "One Source of the Truth" - that is, a single central repository of all operational data, accessible via a host of applications to all arms of the business from farmer/shareholder through to the marketing network, that was accurate, timely, consistent, reliable and authoritative. Wherever possible, data would be stored electronically to maximise its availability to those who required it for operational purposes. Emphasis would also be given to the design of storage and access to non-electronic data and systems. This would simplify business processes, remove the problems of system and data duplication, support the new, integrated supply chain vision of the business and reduce the risks and costs to Fonterra of not being able to access information held by individuals.
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