7 Big Questions: IT Implementation in the Indian Diary Industry
Despite being the largest producer of milk in the world, the Indian dairy industry is a very small player globally due to frequently poor quality and the relatively high costs of milk production , processing and marketing . Technology adoption , whether the automation of the milk collection process or deployment of enterprise resource planning solution in the back end , is emerging as a key factor for improving the Indian dairy industry to compete globally . In this interview, Bharat Dave, chief information officer (CIO), Parag Milk Foods Pvt . Ltd ., shares how the Indian dairy industry is benefiting from IT implementation within its organization .
ForwardView: Could you share how the domestic Dairy Industry is different from the global industry?
Bharat Dave: India is the largest producer of milk in the world but holds a negligible share in world trade. However, it has the potential to become one of the leading players in milk product exports. Indian Dairy farming is basically a smallholder production system, characterized by milk production by the masses rather than mass production of milk. While Dairy is becoming increasingly commercialized in some areas, it remains a subsistence farming activity, constituting a complementary or supplementary enterprise to crop farming with regular sales of surplus production. The global Dairy market is far more advanced than the domestic markets, even though the latter is undergoing rapid developments. One characteristic feature of the global markets is that milk is sourced from large farms instead of small, diverse farmers, which ensures commitment to quantity. This streamlines the planning process for procurement, processing and packaging—all the crucial stages in a Dairy setup. The Indian Dairy Industry is fast catching up with its global counterparts as domestic players as well as global entities in India in the processed foods industry are focusing on critical areas such as product branding and information technology (IT) deployment. This will help take India forward a few notches in the global Dairy scenario.
ForwardView: What is the current level of IT deployment in the domestic Dairy Industry?
Dave: Efficiency measurement is essential with any consumer product including the Dairy Industry, but it can happen only at the production stage. This parameter of success can be tracked by enterprise resource planning (ERP) and other analysis tools. As a result, companies are realizing the importance of IT in augmenting their bottom lines; hence, adopting ERP to track and mitigate wastage and process losses. Over the last few years many dairies have implemented SAP systems within their organizations. Even the smaller dairies are implementing a variety of ERP systems to get an integrated view across various functions. There are standard milk procurement software programs developed by small-time developers that are local in nature and are widely used to capture milk procurement and pricing.
ForwardView: In which process stages are you implementing IT at your company?
Dave: We are implementing IT at every process stage. There are primarily four stages in any Dairy-based company. ERP reports cannot produce this kind of information. IBM has developed models that help us extract such specific information. At the milk processing stage, we use a critical report called mass balancing that helps us in the separation process after the milk is procured from various vendors. The mass balancing report gives information about the movement and stocks of the fat and SNF parts of the product. During both the making of the raw product and packaging stages, like any other processed foods industry, there are methodologies available in standard ERP systems, such as batch manufacturing characteristics measurement, quality checking and shelf-life control. A few characteristics unique to the Dairy Industry are:
a. Being a mix of a continuous process (manufacturing) and a batchmanaged industry (consumer product and food industry) makes the Dairy Industry complex, so the solution should be able to incorporate these challenges.
b. Conversion process: In any other industry, material planning is usually based on finished goods planning. In the Dairy Industry, a conversion process is followed where vendors supply milk for the conversion process and take back converted goods. There should be reports to capture such complex scenarios.
c. Unlike any other industry, the Dairy Industry measures products and production capability by a “fat” content characteristic. Hence, analysis tools should be able to address complex scenarios where product characteristics are measured alongside production capabilities. We are looking at IBM to fully integrate our processes in order to gain visibility into critical business information from a centralized ERP system.
ForwardView: How can IT implementation improve various processes at the plant level?
Dave: We at Parag Milk Foods Pvt. Ltd. are using an IBM-deployed SAP application with the aim of integrating with the operation of the organization—for example, financial management, sales and logistics management at different levels—to completely incorporate the production and management process. This will allow us to share the data within the business and enhance the management ability of the organization. Tracking product processes in ERP determines what stage the company is incurring losses such as spoilages, mishandling and so on. Such reports cannot be produced manually; hence, we are using IBM-deployed SAP applications to streamline our plant processes.
ForwardView: How are you using IT to further sales and marketing activities at Parag Milk Foods Pvt. Ltd.?
Dave: Forecasting is of critical significance to the sales and marketing function. Following the deployment of IBM installed ERP, we expect to develop a rolling forecast for three to four months to help us augment our planning process. It will be helpful from the depot level itself. The depot sends the forecast requirement, which is then sent to the plant. The plant then makes production plans to address this requirement, followed by material planning based on the developed production plan. The various sales reports developed using ERP modules help in deriving information such as segment-level analysis—sales of which product is taking place in which geographic region and season and so on. Deployment of business analysis tools will help in analyzing the sales pattern. Usually, primary sales reports are developed that produce information/data from the depot to distributor. To get a better pulse of the market, it is essential to have a secondary sales report that tracks sales in shops. We are planning to capture secondary sales and stock information in the IBM-installed SAP application. Once we have successfully started using ERP for sales and marketing functions, we are keen to install customer relationship management (CRM) and other business tools in the second stage.
ForwardView: Why did you choose IBM from among other vendors for ERP deployment at Parag Milk Foods Pvt. Ltd.?
Dave: IBM is doing an SAP implementation at Parag Milk Foods Pvt. Ltd. It is a fast-track, four-month project implementation wherein IBM will install various modules per our requirements. These requirements are all logistics, commercial and human resource management. The reason why we opted for IBM visá- vis other vendors is the high regard for the methodologies adopted by IBM and the quality of skilled resources it brings on board. These are seasoned professionals who have in-depth knowledge of the industry as well as solutions. Further, the company uses practices benchmarked against the best in the industry. A global leader, IBM has a proven track record of installing cutting-edge solutions. Another reason for opting for IBM was that we wanted one single vendor to undertake both hardware supply and implementation.
ForwardView: How do you envisage the ERP implementation helping with the bottom line? Can you put a figure on it?
Dave: Availability of information will bring effectiveness. Tracking of losses at the stage where they are generated will help put better control mechanisms at each level. Integration of the entire logistic cycle into an ERP system will reduce inventory and increase market serviceability. We anticipate the SAP implementation will bring down our operating costs considerably and result in a significant increase of our profits. It might be too early to put a figure on it, but the fact that we are looking at deploying CRM capabilities in the second phase of the project indicates that we are very confident of achieving the desired results