SAP PI Proposal (Use to Prepare Proposal)

SAP™ ERP for the Dairy Industry

Challenges, Strategies, and BenefitsThe Solution


SAP AG 2006

Farmer Tank Truck

DairyProduction

Retailer

Dairy

Cooperatives Authorities External Laboratories

Raw Material, Packaging, Service Wholesaler

Distr. Centers

Broker

Collect Raw Milk

Sell Raw Material and Ingredients

SupplierAdd. Purchase of Raw Material / Raw Milk

The Dairy Industry Ecosystem

SAP AG 2006

YOUR FOCUS

Increase Shareholder ValueIncrease Revenue and Profit Margins

Operational ExcellenceProduct Leadership

Improve Customer Satisfaction

Dairy Companies Often Havethe Right Focus and the Right Strategies…

Protect and enhance revenue

Improve margins

Drive for lower costs

Get closer to the consumer

Improve time-to-market

Enhance operational efficiency

YOUR FOCUS

Increase Shareholder ValueIncrease Revenue and Profit Margins

Cost LeadershipProduct Leadership

Improve Customer Satisfaction

Business STRATEGY

SAP AG 2006

…But Mostly They Lack the Ability to Execute

A business enabler is required to help the organization refocus on business strategies!

Often employees cannot execute the company’s business strategy because the business platform is …

COMPLICATED TO OPERATE Complex and broken process flows Incomplete or hidden information

DIFFICULT TO CONTROL Lack of visibility Lack of traceability

CHALLENGING TO CHANGE Multiple costly integration points Redundant and inconsistent data

Business Enabler

Business STRATEGY

Ability to EXECUTE

SAP AG 2006

Market Forces and Business Needs

Market Forces Retailer power (Wal-Mart effect) Consumer concerns about food safety;

media attention Increased legislation and regulations

around food safety by FDA and other authorities (e.g., EU Dir. 178/2002, the U.S. Bioterrorism Act of 2002)

Changing consumer demands due to demographics and trends

Shorter product life cycles Extreme price pressure and margin

erosion Restrictive consumer spending pattern Market consolidation (globalization, M&As) Increasing competition Emerging private labels New technologies reshaping the industry

Resulting Key Challenges Develop new products faster

and more effectively Optimize supply chain Increase efficiency in

procurement Optimize manufacturing Ensure food safety and

regulatory compliance Improve sales efficiency

SAP AG 2006

Develop New Products Faster and More Effectively

Benefits Faster development by

creating reusable product specifications

Reduced time-to-market Ensured competitive

advantage

Strategies Enable collaborative

engineering Consolidate product

development data and documents

Reduce development effort and time-to-market

SAP® can help you Integrate all product-related

information Reduce data redundancy and

inconsistency Integrate into manufacturing

process

Challenges Adapt to ever-changing

consumer tastes and requirements

Develop product efficiently Address increased demands

for new products

SAP AG 2006

Optimize Supply Chain

Benefits Improved operations

excellence Lower capital commitment Reduced operating costs Higher customer satisfaction

Strategies Reduce costs Streamline supply chain

processes Improve supply chain control Gain more supply chain

visibility

SAP® can help you Optimize distribution

processes Optimize end-to-end planning Improve asset utilization Fully integrate logistics

management, including transportation and warehouse and inventory management

Shorten order-to-delivery cycles

Challenges Decrease process costs Create operational efficiencies

and supply chain transparency

Manage shelf-life-based picking and distribution

Ensure accurate and timely shipments

Avoid out-of-stocks

SAP AG 2006

Increase Efficiency in Procurement

Benefits Increased demand planning

accuracy Consistent internal and

external procurement reporting

Integrated processes

Strategies Reduce costs Streamline processes Gain more visibility and

transparency Improve relationship with

producers

SAP® can help you Set up integrated and flexible

processes for procurement Streamline raw milk collection

and reception Ensure integrated quality

management Track batches

Challenges Cope with ever-changing

quantity and quality of the raw milk

Manage complex payment conditions

Cope with seasonal fluctuation

Create operational efficiencies and transparency

SAP AG 2006

Optimize Manufacturing

Benefits Improved asset utilization Increased profitability of

produced product mix Consistent cross-stages

monitoring Integrated processes

Strategies Maximize raw material

utilization Increase demand planning

accuracy Streamline processes Gain more visibility and

transparency

SAP® can help you Set up integrated and flexible

processes for manufacturing Monitor raw material

utilization and losses Ensure integrated quality

management Track batches

Challenges Base plans on a non-

standardized raw material Define optimal product mix Create operational efficiencies

and transparency Optimize production

SAP AG 2006

Ensure Food Safety and Regulatory Compliance

Benefits Reduced penalty risk Decreased risk of food-safety

compensation payments Reduced risk of bad

reputation Lower operating costs

Strategies Support mid- and long-term

company success by ensuring regulatory compliance

Set efficient processes in place to enable traceability

Allow targeted product recalls to minimize costs

SAP® can help you Track, monitor, and trace

batches and inventory Streamline procurement,

production, and sales Manage sales returns Enable targeted product

recalls

Challenges Align with governmental

regulations (EU 178/2002, the U.S. Bioterrorism Act of 2002, import/export)

Enable fast, effective product recalls

Track and trace from “cow to consumer”

SAP AG 2006

Improve Sales Efficiency

Benefits Higher sales volume Better account retention Closer customer relationship Optimal sales force operation Higher customer satisfaction

Strategies Obtain first-hand information

about the market Optimize process settlement

in sales Increase customer service

offerings Increase customer

satisfaction

SAP® can help you Plan, track, control, and

optimize sales performance Expand service processes Strengthen collaboration with

partners and key customers Track indirect sales and

customers Ensure correct handling of

rebates

Challenges Protect market share Meet increased service level

expectations of customer Get visibility in the sales

process Manage quality-based price

determination for raw material sales


SAP AG 2006

Analyze, Plan, and Develop

Procure Manufacture Marketand Sell

Deliver and Service

Busin

ess

Obje

ctiv

es

Define business strategy and goals

Understand company performance and profitability

Realize savings in aggregate purchasing

Improve purchasing efficiency

Ensure tracking and traceability

Improve manufacturing efficiency

Ensure quality management in manufacturing process

Establish closer contact with customer

Enhance control over delivery process

Improve marketing effectiveness

Increase sales effectiveness

Description… Focuses on key business processes that create a baseline for future growth

… Delivers immediate benefits by solving the need for system heterogeneity

… Enables significant business process automation

Key Performance Indicators Order Fulfillment Rate Raw Material Utilization and Losses Warehousing/Distribution Costs

Gross Profit/Total Net Sales Demand Forecast Accuracy Inventory Turns

Complete logistical and financial integration

SAP ERP packaged solution for the dairy industry

SAP AG 2006

Suppliers & Partners

Customers (e.g. Retailers) &

Channel Partners

Analyze, Plan & Develop Procure Manufacture Market & Sell Deliver & Service

Sourcing & Procurement Milk Procurement from Producer

Additional Raw Material Procurement Procure to Stock

Internal Procurement

Product Development

Recipe Management

Sell & Deliver Sales Order Processing

Raw Material Sales Returns

Operational End-to-End Scenarios Traceability & Food Safety

Inventory Management Quality Management

Enterprise Management & Support Financials

Financial Accounting Cash Management Asset Management

Controlling Standard Cost & Profit Center

Accounting Product Cost Planning CO-PA for Consumer Products Cost Object Controlling

SAP ERP packaged solution for the dairy industry

Manufacturing Dairy Production

Planning Dairy Process Control

SAP AG 2006

Suppliers & Partners

Customers (e.g. Retailers) &

Channel Partners

Analyze, Plan & Develop Procure Manufacture Market & Sell Deliver & Service

Sourcing & Procurement Procure to Stock



Returns







Generic Food Scenarios

SAP AG 2006

Suppliers & Partners Customers, Consumers, Channel

Partners

Analyze, Plan & Develop

Procure Manufacture Market & Sell Deliver & Service Suppliers & Partners Customers, Consumers, Channel

Partners


Procure Manufacture Market & Sell Deliver & Service

Sourc ing & Procurement Procure to Stock

Third Party


Third Party

P lan & Manufacture

Production Planning Production

P lan & Manufacture



Direct Store Delivery (DSD) Rebate & Bonus Management

Commissions Indirect Sales

Returns Empties Processing





Operational End-to-End Scenarios Inventory Management Quality Management

Traceability & Food Safety Cross Company Transactions



Enterprise Management & Support Financials & Controlling

Excise Duty (Beverage) G65



Procure to Stock

Industry Pain Points Improving purchasing activities efficiency Realizing savings in purchased value Allowing visibility on vendors’ conditions

and services Ensuring tracking and traceability

Supports price comparison of vendors’ offers Provides tools to gain greater spend visibility in procurement Helps to manage quotations, contracts, batch handling and quality

Business Benefits Automate operational tasks Improve vendors’ selection and prices comparison

through quotation handling Formalize agreements by contract management Guarantee quality check through goods receipt

inspections

SolutionProcurement of Stock materials

Procurement – Contracts

Request for quotation

Prices Comparison Purchase

requisition Purchase order

processing Goods receipt Inspect goods Batch number

assignment Stock update Invoice verification

Create contract: Quantity contracts; Value contracts; Delivery schedule

Create purchase requisition

Assign vendor to contract

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture



















Industry Pain Points Improving internal purchasing activities Ensuring tracking and traceability

Encompasses cross-plant internal procurement of products including creation of all required documents for both with or without delivery

Provide functions to monitor stock in transit

Business Benefits Automate operational tasks Increased visibility of stock and stock transfers

SolutionStock transfer with delivery

Stock transfer without delivery

Create stock transport order

Process delivery Post goods issue

Create stock transport order

Post goods issue

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture


















Sales Order Processing

Industry Pain Points Managing variable pricing conditions Long order cycle times Meeting customers’ requests for

improved services Managing sales returns cost effectively

Manage the entire customer order process — variable pricing, delivery, invoicing, and payment.

Includes Electronic Data Interchange (EDI), handling of consignment sales, and foreign trade

Business Benefits Improve sales execution timeline Improve order fulfillment rate Provide the customer with alternative services and

methods for invoicing and payments

Solution

Sales Distribution

Process sales order

Billing Payment

Picking & distribution based on shelf life expiration date

Freight settlement Handling unit mgt.

Inbound/Outbound EDI Processing

Inbound sales order via EDI

Outbound billing document via EDI

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture


















Returns

Industry Pain Points Efficient handling & document

complaints. Managing sales returns cost efficiently.

Focuses on the processing of credit memos if no goods are sent back. Includes quality evaluation for returned goods and appropriate stock

movement.

Business Benefits Enable corporate compliance strategy Effective batch-specific returns processing

SolutionReturns and Complains

Returns Processing

Process credit memos

Quality evaluation Goods movement

to blocked or unrestricted stock.

Ship pallets Return pallets

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture


















Traceability and Food Safety

Industry Pain Points Complying with food regulations

HACCP (Hazard Analysis & Critical Control Points) EU (Article 18 of Regulation 178) US (the US Bio-terrorism Act 2002)

Addressing growing food-safety concerns from consumers

Business Benefits Professionally managing a possible product

recall Minimize risk of non-compliance with food &

beverage regulations Effective batch-specific returns processing

SolutionQuality

ManagementBatch

Management

Capability to track and trace products at all stages of production, processing, and distribution

Allow fast and efficient recall of a defective product batch

Quality planning Quality inspection Recording of

laboratory analysis Quality reporting Quality

improvement

Batch creation and determination

Batch-where-use lists

Recall batches and create follow-up activities

Manage batch-specific return processing

Manage batches based on shelf life expiration

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture


















Inventory Management

Industry Pain Points Maintaining low inventory levels Avoiding out-of-stock situations at retailers Establishing visibility to inventory levels

throughout the entire supply chain

Business Benefits Reduce working capital by keeping

inventory levels low Increase sales by reducing out-of-stock

situations Improve consumer retention due to

product availability

SolutionInventory

Management

Consists of the whole procurement and delivery cycle with warehouse for the storage management, including quality inspection

Return rejected goods to the vendor

Integration with supply chain accounting

Goods receipt Goods issues Managing different

stock categories Inventory valuation

Transportation Management

Plan transports Monitor execution Calculate costs Manage

transportation settlement

Warehouse Management

Storage Management

Quality Management

Quality Inspection Return of goods

SAP AG 2006


Partners



Partners




Third Party


Third Party

P lan & Manufacture


P lan & Manufacture


















Financials and Controlling

Industry Pain Points Meeting local legal and fiscal requirements Improving administrative activities efficiency Maintaining focus on most profitable customers

and brands

Business Benefits Implement an ERP solution fully compliant

and continuously updated with local legal and fiscal requirements

Improve efficiency in accounting activities due to a seamless process integration

Enhance company profitability analysis through profit and loss calculation

SolutionFinancials Controlling

Helps to get an insight into all aspects related to accounting and controlling

Provides streamlined functionalities that allows visibility, increases productivity and regain control of their business processes

General Ledger accounting

Accounts payable accounting

Accounts receivable accounting

Bank accounting Closing activities Cash management Assets

management

Standard cost and profit center accounting

Profitability analysis

Product costs planning

Product cost controlling

SAP AG 2006

Suppliers & Partners Customers (e.g. Retailers) & Channel

Partners



Our Specific Solution Offering for the Dairy Industry


Returns



Food

Sourcing & Procurement Procure to Stock






Manufacturing

Milk Procurement from Producer Additional Raw Material Procurement

Product Development

Recipe Management

Dairy Production Planning & Process

Control

Raw Material Sales

Dairy

SAP AG 2006

Product Development with Recipe Management

Industry Pain Points Slow and inefficient product development Changing consumer tastes and

requirements Increasing demand for new products

Business Benefit Reduce development cycle time & costs Ensure company-wide consistent product

information Reduce time-to-market to gain competitive

advantage

SolutionProduct Data Management

Product Lifecycle Management


Partners



Sourc ing & P roc uremen t Milk Procurement from Producer

Addi ti onal Raw Material Procurement Procure to Stock

Produc t Developme nt

Recipe Management Manufac tu ri

ng Dai ry Producti on Planning

Dairy Proce ss Control

Sell & Del i ver Sales Order Processing

Raw M aterial Sales Indi rect Sales

Direct Store Delivery (DSD)

Opera ti onal End -to -End Sc ena ri os Traceability & Food Safety

Inventory Management Quali ty Management

Cro ss Company Transacti ons

Ente rprise Management & Support Financials

Control ling

Managing the fast and efficient product development by structured re-usable product specifications

Seamless integration into the production planning and execution process

Maintain product specifications

Label Management Multilevel recipe

mgt. Define Batch

Management

Document Management

Change Management

Integrate Recipe into production process

Create master recipe

Create process order

SAP AG 2006

Milk Procurement from the Producer

Industry Pain Points Managing the complex payment conditions Coping with seasonal fluctuation and

changing demands Complying with the high quality standards

and traceability requirements

Business Benefits Enable accurate payment both for

producer and transport service provider Provide payment reporting to the producer Streamline raw milk collection & reception

process

SolutionMilk Collection Milk Reception Milk Analysis

Milk Payment Reporting & Analysis


Partners
















Control ling

Encompasses the efficient procurement and collection of raw milk Ensure compliance with high quality standards and traceability requirements Calculate payments based on quantity and quality characteristics Monitor procurement and payment process

Maintain standard routes

Provide route list to truck driver

Dairy reception cockpit

Process purchase Order

Automatic creation of inspection lot and batch number

Batch management

Gather results of inspection lots from producer samples

Gather results of inspection lots from tank truck samples

Create usage decision for inspection lots

Calculate payment for producer

Calculate payment for transport service provider

Settle payment Maintain payment

calculation scheme

Monitor raw milk quantity & quality characteristics

Payment reporting

SAP AG 2006

Additional Raw Material Procurement

Industry Pain Points Determining demand for additional

required raw material due to ever-changing quantity and quality of collected raw milk

Managing the vendor payment based on raw material quality characteristics

Business Benefits Increase demand planning accuracy Handle the quality-based payment for the

vendor

SolutionRaw Material

Demand Planning

Raw Material Reception

Raw Material Analysis

Raw Material Payment

Reporting & Analysis


Partners
















Control ling

Supports the additional purchase of raw materials from other companies on the determined shortage in the demand planning process

Calculate vendor payment based on the raw material quantity and quality characteristics.

Determine required additional raw materials

Create purchase order

Post goods receipt Automatic creation

of inspection lot and batch number

Batch management

Gather results of inspection lots


Calculate vendor payment for additional purchased raw material

Settle payment Maintain payment

calculation scheme

Monitor raw material quantity & quality characteristics

Payment reporting

SAP AG 2006

Dairy Production Planning and Process Control

Industry Pain Points Production Planning based on a non-

standardized raw material High cost of the raw material comparing to

the total production costs Defining optimal product mix in order to

maximize utilization & profitablity

Business Benefits Optimize and streamline production process Increase profitability by improved visibility

to raw material utilization and losses Comply with the high quality standards and

traceability requirements

SolutionProduction Planning Process Control Quality

Management

Controlling & Analysis


Partners
















Control ling

Manage the multilevel manufacturing processes including seamless batch and quality management

Incorporates the ever-changing quantity and quality of the raw material Provide powerful tools to gain a cross-stages raw material controlling

Demand planning based on historical data

Production planning synchronous to sales

Material resource planning (without shelf-life)

Simulate planning Graphical capacity

planning

Maintain product master data & recipes for multilevel production

Batch management across all stages

Separate raw milk into components

Material valuation Manage shelf-life

expiration date for final products

Create inspection lots for semi-finished and finished goods

Gather results of inspection lots


Cross-stages raw material controlling

Product costing Batch information

cockpit Production

information system

SAP AG 2006

Raw Material Sales

Industry Pain Points Managing variable pricing conditions

based on quality characteristics

Business Benefits Simplify price determination by using

the integrated batch and quality management system

Improve sales execution timeline

SolutionProduction Sales Distribution

Billing


Partners
















Control ling

Supports the sales of raw materials between dairies based on the raw material requirements and the available surpluses

Pricing and distribution are based on the raw material quality characteristics

Manage process order

Create inspection lot

Process sales document

Picking based on quality characteristics

Create inspection lot for picked raw material

Usage decision and goods issue

Invoice processing Price determination

based on quality characteristics

SAP AG 2006

Reduce operating costs and increase efficiency

SAP ERP for the Dairy Industry Provides Increased Shareholder Value for Your Business

ShareholderValue

RevenueGrowth

Improve customer satisfaction

Increase sales

Reduce Cost

Reduce Working Capital

Customer service

Distribution

Inventory

Reduce Risk

Finance

Procurement

Production

SAP Scenarios(SAP ERP for the Dairy Industry)

* For further details, please refer to the SAP ERP for the Dairy Industry Brief.

Comply with food regulations

Improve order fulfillment

Improve sales execution timelineImprove customer understanding

Improve order fill rate

Improve efficiencies in accounting activities

Lower raw materials costs

Calculate and monitor production costs seamlessly

Business OpportunitiesBusiness AreasBusiness Objectives

Utilize full track-and-trace capability

Optimize inventory usage

Financials and Controlling

Sales and Customer Order

Manufacturing

Inventory Management

Food Safety

Indirect Sales

Returns

Procure to Stock

Increase efficiency for sales returns

Milk ProcurementImprove transparency in dairy procurement

Improve yield and reduce waste

Product Cost Controlling

Enable detailed profitability analysis

Realtime access to production cost information

Raw Material Sales

Recipe Management

SAP PI Proposal (Use to Prepare Proposal)

Documents