Shareholder Services: Looking to the Future
JEDI is focused primarily upon improving information flows within Fonterra's processing, marketing and distribution operations. Whilst this area has been prioritised for ICT system development, specifically utilising improved marketing information to better plan and manage processing, marketing and distribution operations, this does not mean that management is unconcerned about information needs and uses at the supply end of the value chain. Management recognises that a significant amount of information is available within the farm businesses that supply raw milk to the company that could assist in making timelier and accurate decisions, such as future production plans, herd details and other farm and farmer specific characteristics. Likewise, Fonterra information is valuable to farmers making operational decisions about running their farms.
Between Farmer and Fonterra Electronic Information Exchange
At present, many farmers are employing computerised farm management systems that capture farm data and would be able to utilise data held within the Fonterra databases. Both the potential and the demand for such data utilisation are becoming increasingly important as the nature of the "typical" New Zealand dairy farm changes. "Corporate" farms are rapidly replacing the historic supplier stereotype of a single farmer running a few hundred cows. Corporate suppliers typically comprise many farms and herds, with key decision-making undertaken by professional managers who delegate the day-to-day operation of the farms to farm managers. These companies have made significant investments in sophisticated computerised management systems. Indeed, the 40 percent of Fonterra suppliers that meet this farm profile are responsible for 80 percent of the company's milk supply. Hence, integrating these data systems with those of Fonterra offers considerable potential to increase the base of available information, and hence the quality of decision-making by both parties.
Fonterra has long recognised the value of this type of information exchange. The ability of farmers to access information held on Fonterra databases is even more important given that the co-operative nature of the company means that these very suppliers are themselves the company's shareholder-owners. Already, shareholding information is available electronically to farmer-owners via the Fencepost.com portal, along with generic information such as stock prices and weather forecasts, and farm-specific information such as payments due, and the quantity and quality test results of the previous day's milk supply. All information available over the portal is also available to farmers using the Fonterra call centre. Additional information not yet on the portal, for example day-to-day changes to tanker delivery times and schedules, is also accessible via the call centre. But whilst the call centre remains the primary method of farmer contact with Fonterra, increasingly farmers are accessing data from the portal. Mark Adams states that 55 percent of farms supplying Fonterra access the portal at least once every two days, primarily to obtain milk production and milk quality test data, company news, dairy research and weather reports. Anecdotally, milk production and milk quality test data are the most important information available to farmers for daily on-farm decisions, as these data are usually available within an hour of milk collection. Traditionally, farmers had to wait until the next day to receive printed information, but the web portal enables farmers to make decisions about on-farm activities and procedures much sooner. The primary outcome of this application offering more timely information is improved milk quality and lowered wastage of both raw milk and time.
To date, electronic data exchange between farmers and Fonterra has arisen primarily from a "push" of Fonterra data to farmers, with very few opportunities for farmers to share their data with the company. This has occurred principally because the data provided electronically has been predominantly a substitution of data that has historically been provided by the company in other forms (e.g. paper invoices and payment advices, paper records of milk quality testing distributed by the tanker drivers when collecting milk the next day, call centre advice) or an aggregation of farming data from a variety of other sources (e.g. weather, stock prices) on a single-interest portal. Indeed, most of this data continues to be provided in the original forms in addition to the electronic distribution. The portal and associated online services thus form part of Shareholder Services' objective of providing shareholders with multi-channel communications. As Mark Adams says, they are giving shareholders the information and access to services they want in the way shareholders want it, even though this means increased costs arising from multiple replication of communication channels.
The long-term aim of the Fencepost.com portal is to reduce the amount of paper-based information exchange between farmers and Fonterra, as well as speeding up the turnaround of information. Production of paper-based information distributed to farmers' costs several million dollars per year. However, both Mark Adams and Kris Nygren acknowledge that moving to a near-paperless state will require farmers becoming a lot more comfortable with using electronic information exchange, as well as increasing their understanding of how they use information in their on-farm tasks. It also requires farmers to recognise that change at the individual level impacts upon the overall Fonterra corporate performance. For example, farmers "holding out" from using electronic exchange are imposing the costs of duplicate systems on all farmers, via their joint co-operative ownership of Fonterra. Whilst Fonterra staff can provide systems and applications to farmers, achieving the critical mass to "tip" distribution systems towards cheaper on-line methods requires farmers to take responsibility for upskilling themselves and their peers in the new systems. Accumulating the farmer learning necessary to reach this state will take time, and to a large extent, despite an extensive education role undertaken by Shareholder Services, is outside the control of Fonterra management and staff.
Nonetheless, the potential for much more extensive productivity-enhancing information exchange is well understood by Fonterra management. For example, communication of daily milk quantities and qualities from the farm to Fonterra would enable real time adjustments to be made to tanker collection and factory production schedules, whilst communication of tanker schedules to the farmer would enable more efficient scheduling of on-farm tasks. Remote monitoring of equipment (for detecting malfunctions and scheduling routine maintenance) and milk storage conditions (to ensure milk quality) could also free farmers to concentrate on tasks that require human input. Even though these applications have already been developed, widespread usage is limited by the poor quality of rural Internet infrastructure in many locations. Whilst the pages on Fencepost.com have been "stripped down" so that they provide only the barest information necessary, many farmers experience significant delays in downloading data, in addition to interference from electric fences and low quality phone lines "cutting out" during transmission.
Broadband Network
In order to overcome the obstacles to more widespread use of electronic information exchanges between farmers and the company, Fonterra has worked with Telecom and BCL to create a propriety broadband network. This network will ensure that access to broadband Internet is available to all of Fonterra's 13,000 shareholders by May 2005. The difference between the Fonterra network and public access to infrastructure being made available in rural areas often by the same infrastructure providers is the guarantee of 100 percent coverage, additional call benefits and the guarantee of data security and service performance requirements to Fonterra shareholders. The business case for the network is justified by the benefits to farmers accruing from improved access to existing applications in addition to already developed feasible, but not yet implemented, applications.
Kris Nygren, formerly project manager of the rural telecommunications initiative, describes Fonterra's move to create the network as a collective response to a market failure in rural Internet access. However, he admits that it is difficult for Fonterra on its own to justify the investment, given that with current applications most of the benefits accrue to farmers rather than on the Fonterra balance sheet. But as the farmer-shareholders were the ones to benefit from the investment, the board was in effect acting as the agent of the shareholders in making a decision that was directly to the shareholders' benefit, even though benefits to Fonterra are indirect, intangible or hard to measure using traditional accounting measurements. Kris acknowledges that it is unlikely that a standard investor-owned company would have taken the lead role in investing in such a network on the business case as it stood, given that the majority of tangible benefits accrued to farmers. Indeed, the only other large-scale examples of such networks linking producers in the typically costly-to-service rural sectors are co-operatives, notably a coffee-producers' co-operative in South America. Normally, the lead company would not move to implement such a network until the applications available delivered positive benefits over costs to the lead company alone, irrespective of the size of benefits to users. Fonterra thus demonstrates a benefit arising from the co-operative form of ownership.
Future Applications
Whilst Fonterra management recognise that the potential of integrating farmer information systems into the company information systems is an important future direction, at the current point in time, future development of shareholder services is seen to be of secondary importance compared to JEDI. Linking this data in to the corporate information flows will be addressed once JEDI is operational. The lower priority given to this exercise fits within the wider Fonterra strategies as to date there are few applications developed within the production, distribution and marketing arm of company to utilise detailed farmer information. Mark Adams, Alex Duncan and Jason Dale all acknowledge that such information-utilising applications are largely still yet to be developed.
Research is currently being undertaken into gathering better on-farm information and developing improved mechanisms to benchmark individual farm performance with others of like characteristics, locally regionally and internationally, over a variety of parameters such as financial, production, stock quality, etc However, identifying which areas will provide the best returns from such information processing development is complicated by limited understanding amongst farmers of firstly what information they are creating on their farms that could be of value to the wider organisation, and secondly a lack of awareness of new uses of information. Whilst farmers are able to articulate what they do currently, Mark Adams admits it is not necessarily easy to identify new ways in which information can be used to improve the ways tasks are undertaken unless farmers themselves are actively involved in the processes of developing these applications, in much the same ways as Fonterra staff are engaged in specifying the requirements for JEDI.
Furthermore, some farmers are uneasy about allowing Fonterra access to their individual farm information and are concerned about the security of any individual information stored by the company on its databases. Unless these problems are overcome, development of new applications may be problematic at best. Farmer education is seen to be best way to address these problems. Future developments thus rely upon the acquisition of new skill-sets by farmers who are not accustomed to thinking about information ownership, supply chains, information flows and integrated systems. Hence, Shareholder Services sees a need for considerable expansion of its education activities before such applications developments can be undertaken.
Nonetheless, many larger farms and especially the growing number of "corporate-style" farms that have already invested in computer and communication technologies are increasingly seeing ways in which their own systems can be developed and enhanced, both between farms and by interacting with Fonterra. These farms offer probably the best avenue for the integration of farmer information, and the integration of farmer decision-making with Fonterra information, into future Fonterra ICT systems development.
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