General Mills moves giant buy to the Internet

Packages are developed collaboratively in real time, saving time and creating new opportunities for aggregation.

By -- Purchasing, 11/16/2000

General Mills (GMI) is going to the Internet for packaging specifications management-a move that will save significant dollars in materials and information technology costs, get products to market faster, and reduce production errors.

Helping to lead the effort is Kevin Fitzpatrick, who was until recently director of the food company's half-billion-dollar per-year packaging buy. He recently became the company's director of purchasing-strategic e-business alliances with an eye on building partnerships to continue improving GMI's supply chain.

Focal point of the project is a Web-based tool called SMA/RT (for Specification Management Application/Real Time) established by packaging Internet company Empriva Technologies. General Mills will put all of its packaging data on the SMA/RT system, allowing graphics professionals, designers, purchasing staff, quality managers and other team members to communicate electronically through a common site.

"One of the biggest challenges of the project was to bring together complex, cross-functional interests," says Fitzpatrick. "With the new system, all key stakeholders can view projects in real time, make comments, take other actions, and eventually make approvals. One of the biggest benefits is that we can review and approve packaging decisions in real time rather than in a time-consuming linear mode."

Key packaging suppliers will all have access to design and other appropriate data. Products covered include paper and paperboard, metal, various fabricated plastics, stretch wrap, labels, pallets, molded parts, closures and miscellaneous items. Sonoco and Printpack are already using the system as well.

Some of the savings are very simple, says Mike Stradinger, chief executive officer of Empriva, which was known as idmarket.com until last August. "Something simple such as whether numbers refer to height, width or depth seems basic, but is actually a costly source of confusion very frequently," he says. "At the very least, the confusion will result in several time-consuming phones calls to clarify. At worst, it can mean unusable materials halting production and costing a fortune in downtime."

Empriva hired a team of experienced packaging engineers and they started with the basics: defining terminology in the industry (see box). This puts the different parties that communicate on the SMA/RT system all on the same page.

Users place data in specific fields when designing and defining packages, allowing the software to assemble information in a consistent, standard way. Regardless of where data originates, information contained in quotes, reports, purchase orders and other documents means the same thing. The system also allows for automated analysis, comparing apples to apples. "Right now, this type of information is squirreled away in a thousand different desks, filing cabinets and hard drives," comments Stradinger.

To market, to market

In a typical consumer products' company, time from concept to market is three to nine months, with 12 months or longer required for major, complicated projects. But Fitzpatrick says General Mills will move products to market faster with the new packaging system.

The design stage involves a mountain of input, feedback and suggestions from internal team members and suppliers. "Someone has to monitor all the changes, keep track of specifications and designs, and keep communications active," says Fitzpatrick. Purchasing's role in the design process is often to scout suppliers with their R & D counterparts and bring suppliers' resources to bear as much as possible as soon as possible. Ultimately, purchasing is responsible for selecting suppliers and buying packaging components. The process includes gathering information, qualifying suppliers, bidding, negotiating terms and issuing POs. According to Stradinger the "design and sourcing process is very time consuming, especially if purchasing has to track down a lot of detailed documentation from a variety of sources.

"If more than one supplier is involved, as is often the case, the difficulty of coordination expands dramatically," he adds. "And if more than one company or division is involved in group purchasing, the lack of standardization and common terminology can create a purchasing nightmare."

The buying process

In addition to the SMA/RT system, Empriva gives buyers the option of conducting business across its marketplace. A buyer simply clicks a button labeled "create RFQ" and follows prompts on the specific material template. Buyers can attach CAD drawings or other technical documents as they determine general order requirements, including specs and shipping data. Buyers then indicate which suppliers should receive their RFQs. Suppliers selected by purchasing receive RFQs on their home pages embedded in the Empriva site. Companies with seats, including General Mills, its alliance partners, and suppliers, pay fees to Empriva.

Buyers will be able to review status of quotes at their desktops using only Web browsers. As buyers review quote details, they can click on a button that provides background data on the supplier, such as plant locations and type of equipment. For injection molders, it may indicate clamp tonnage, shot size and press process control technology. When a quote is selected, the buyer clicks on a button labeled "create a purchase order." Buyers fill in the quantity desired, insert a PO number and select a billing and shipping address. The system then informs buyers when the PO has been sent and accepted.

Improved supplier asset utilization

There will be two levels of aggregation at General Mills, says Fitzpatrick: internal and external. "We historically have done a good job of aggregating requirements. Our R & D folks have a great track record of discovering opportunities to standardize specifications." One recent example was the redesign of a major product line from 11 carton specifications to three.

The Net-based system may help uncover some new possibilities, however, particularly considering that the package buy is roughly half a billion dollars and total revenues at General Mills are in the $7 billion area. SMA/RT will enable users to sort data by similar components, design materials and suppliers across divisions and brands. The goal is to optimize specifications to improve suppliers' asset utilization. "We know from experience that we can save up to 10%, while helping our suppliers run more efficiently," says Fitzpatrick.

Fitzpatrick says other companies-both in and outside of the food industry-may combine their purchases when common specifications are discovered. Lucent is also using the SMA/RT system, and other companies are coming on board. "One of the most powerful aspects of the project is that it involves packaging, much of which is common to many industries," says Fitzpatrick.

Other savings will come from reduction of simple errors. "We work in the highly competitive and challenging area of consumer products in which there are often eleventh hour changes in package design and graphics," he says. "Sometimes, it's difficult or even impossible to quickly communicate all the changes to all of the supply chain. There are some situations in which suppliers have had to make assumptions in order to meet very challenging deadlines. In the new system, they can go online and see all of the data, even technical drawings, as changed." They can ask questions electronically, receiving feedback and sign-offs from engineering, design and purchasing-and still meet deadline. Those savings are difficult to quantify, but potentially very large.

Lucent Technologies, which also recently began using the Empriva system, is reporting major progress in error reduction.

"Upon installation of the SMA/RT system with our packaging suppliers, the frequency of defects has decreased significantly," comments Ken McCrina, packaging engineer at Lucent. "Customized packing slips and inventory tracking have improved our suppliers' abilities to provide accurate shipments and available stock. Changes are immediately registered, and new products are added with ease." He notes the system is particularly beneficial in dealing with worldwide operations-from California to China.

Start with POP displays

General Mills began its system test in October on a trial basis, with point-of-purchase (POP) packaging displays. These are special types of packaging that are often installed at highly visible locations in retail stores. They may contain sample-size cereal boxes or promotional materials. "These are a good test of the system and offer particularly large potential savings, because they are put together on a last-minute basis and are often highly customized," says Fitzpatrick. It's also a good test because POP displays cover a wide range of packaging materials from paper and corrugated to sheet and molded plastic. After a learning period, General Mills plans to broadly implement the SMA/RT system early in 2001.

"We will probably need to make some business process changes to take best advantage of the system," Fitzpatrick says. It's too early to cite many details, but new ways of aligning graphics, design and purchasing look like a good bet.

There has been little internal resistance to the program, Fitzpatrick says, because it makes good sense. Besides, General Mills has been an early adopter of Net technology. In June, the food giant announced a strategic partnership with MarketTools Inc. which describes itself as the world's leading ASP (applications service provider) for research and feedback solutions. The alliance will do market research over the Internet.

In March, General Mills joined an alliance to create an Internet-based freight and logistics exchange with the aim of improving truck utilization rates, lowering administrative costs and improving customer service. The exchange is using technology from Nistevo.com to match product shipments and destinations with available trucks. Other partners in the alliance are Pillsbury, Land O'Lakes, Fort James Packaging and Graphic Packaging Corp.

Management strongly supports General Mills' move into the online packaging data system. Says Randy Darcy, senior vice president of supply chain at General Mills: "We believe SMA/RT will allow us to realize significant cost savings by automating processes we have been doing manually. By aggregating our many specifications, we will have greater control over the production process, ultimately reducing defects, and increasing our production efficiency through logistics management."

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