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Case study: how major poultry producer gained 2% margin increase by implementing IBP platform
Led by TeamIdea, the project optimized production processes across 18 poultry farms. The study explores the initial business requirements, the approaches tested, key lessons learned, and the resulting business benefits. Enjoy reading and get insights for improving your supply chain efficiency and integrated business planning process.
About the company
The company is one of the largest agricultural holdings, TOP-2 producer of poultry meat in CIS. In addition to poultry the company also produces sunflower oil and diary products, manages crop cultivation on 340,000 hectares, and has flour production facilities. With a historically strong export channel, it supplies over 145 million tons of poultry annually to more than 65 countries worldwide. The scale of its production capacity and supply chain complexity is immense: over 18 poultry farms across different regions, more than 15,000 poultry cutting options, and 150 production resources.
The company’s assortment consists of 10 brands and 800+ SKUs, sold through multiple channels: major retail chains, export markets, auctions, distributors and fast-food chains like KFC.
Project prerequisites
Given the high complexity of the supply chain and sophisticated sales channel structure, balancing demand with supply was a time-consuming and labor-intensive process. Poultry has fixed growing period of 6-8 weeks. Once this period ends, the livestock must be transferred to fabric and processed. At the same time retail chain orders arrive and must to be fulfilled with high service level. Any violation of order delivery time or order volumes can result in penalties and loss of valuable shelf space in Retail stores.
Carcass cutting can be done in multiple ways producing legs, wings, whole carcasses, soup kits and more. However, each cutting option yields a fixed set of co-products determined by poultry anatomy. You have to deal with ultra-fresh surplus items and solve so-called “anatomy balance” issue. The customer has an advantage of freezing surplus stock and selling it thought export channel, but chilled meat is more profitable than frozen.
The most complex task of poultry production is to find out the best way of processing poultry avoiding deficit for retail chain orders while producing the most market-demanded and highest-margin products. Production planning is further constrained by capacity, minimum shelf-life requirements, and cold storage limits. Production planning impacts core value generating business processes of poultry producers and therefore receives significant attention.
Before the project, planning was carried out manually in Excel, relying on expert input and some custom-built formulas and tools. This was not only time-consuming but also failed to guarantee an optimal solution. TeamIdea conducted a brief process audit and demonstrated the advanced planning capabilities of Integrated Business Planning solution from SAP.
The recommended roadmap included the sequential implementation of Response and Supply and S&OP modules. The Response and Supply (R&S) module was prioritized because its production optimizer solves balancing problem using advanced mathematical algorithms embedded into the IBP platform.
About the project
The TeamIdea team included not only SAP IBP functional consultants but also industry experts from other TOP FMCG holding producing poultry and meat. The customer team comprised IT specialists and production planning experts.
The functional scope of the project included following areas:
- Calculation of production plans at strategic, medium-term and short-term levels (from 3 years to 1 day).
- Selecting the most marginal method of cutting livestock when forming a production plan, taking into account demand and constrains such as machinery and personnel capacity, inbound livestock delivery schedule, supplier restrictions, remaining shelf-life, etc.
- Considering poultry carcass grade and caliber when modeling cutting options.
- Balancing capacity across different plant.
- Implementing a multi-level system for prioritizing customer demand.
- Forming planned volumes of finished goods for auctions. Plan-fact analysis for the finish goods production, accounting for production “debts” in the next planning period.
- Integration with ERP-system and automation of complex data preparation for planning using SQL scripts for correct ETL processes.
The first major project challenge was helping business users in data preparation for running optimizer. Optimization algorithms require correct routings, BOMs, available capacity, stock information, costs, penalties and many other data for finding the best fit solution for maximizing target function. Not all of this data was available in the required quality within the ERP system. To address this, the project team developed custom scripts for transforming and validating data before loading it into IBP platform. This made data preparation process lean and automated.
The second challenge was related to explaining optimization run to business users. The optimizer uses complex matrix calculations based on the simplex method, which cannot be easily shared or reproduced by users. In fact, optimizer acts like a “black box” leading to lots of questions from users to implementation consultants during integral testing and go-live. TeamIdea addressed this by conducting additional iterations of testing, training and providing comprehensive key-user support. This included explaining optimization results, reviewing input data together, and finding the root cause of any discrepancies between user expectations and system-calculated outputs.
During the R&S implementation, TeamIdea also performed a process audit for sales and operations planning, providing recommendations for business process changes and future IBP for S&OP implementation.
The results: proven production margin increase and successful roll-out
After the go-live the company reported a 2% increase in production margin. Thanks to intensive knowledge transfer from TeamIdea team during the project, the customer established its own IBP center of expertise and successfully rolled out the production planning optimizer to over 18 poultry farms, extending business benefits across the entire supply chain.
Planners of the company adopted optimization techniques into daily workflows and became capable to perform rapid situation analysis, recalculation and scenario modeling for covering changing demand, serving both domestic customers and export channel effectively.
Lessons learned
Pilot first. Piloting complex solutions on a smaller segment of supply chain is an effective way to engage and motivate key users working in the new planning system.
Prioritize data quality. When implementing an optimizer, data quality is critical. If ERP data is insufficient, automating data transformation and enrichment is a smart strategy to mitigate errors early.
Blend IT and industry expertise. Building a team that includes domain experts with real-world industry experience from similar companies helps bridge the gap between technical IT aspects and practical business needs.
Next steps
Are you considering optimizing production planning in your company but have doubts about your data readiness or implementation roadmap?
Contact us for a free expert consultation to develop an optimal, risk-mitigated path toward implementing advanced IBP features in your organization!
Key takeaways
- The major poultry producer automated production planning by implementing SAP IBP for Response and Supply Optimizer.
- The project covered several fabrics and was followed by successful roll-out led by customer center of excellence.
- The project yielded significant, measurable results: +2% to production margin. This case offers several critical insights for other organizations: split project scope for smooth go-live, invest in data preparation automation, and include industry experts in your implementation team to build trust in the algorithms.
