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Fonterra: Managing The Worlds Milk Trade

Headquarters: Auckland, New Zealand


Industry: Dairy manufacturing
Revenue: NZ$16 billion
Employees: 15,600
Company details:

Co-operative owned by 11,000 New Zealand dairy farmers

Serves 3,500 customers in 140 countries, including large enterprises like Mead
Johnson and Kraft Foods

Represents 30% of international dairy trade and 25% of New Zealands exports

Exports 95% of the dairy products it produces

While global trade has expanded at over 9 percent a year in the last 20 years, many
international companies still rely on outdated manual processes and paperwork for
conducting their international trade business. In 2010, global trade of goods and services will
amount to a staggering $15 trillion. Thats a little bigger than the entire United States
economy ($14 trillion). There are many complex challenges that managers face when
conducting business on an international scale. Chief among these challenges is managing
the import and export business process.

Managing an import/export business involves managing three processes: compliance with


foreign and domestic laws, customs clearance procedures, and risk management. Each
country you export to has different laws governing imported products and different customs
procedures. Trading across boundaries raises financial and contractual risks. What if you
export to a foreign company and it doesnt pay you? What kinds of credit assessments can
you perform in various countries? What if your goods are stalled at a foreign port for lack of
proper documents? What are the proper documents? The potential pitfalls are numerous.
In the past, time-consuming and error-prone manual methods were incapable of handling
the complex challenges of global trade. To conduct business in other countries, your
company must comply with local laws, satisfy trade security measures, meet documentation
requirements, understand complicated tariffs and duties, and coordinate the involvement of
all parties. Handling these responsibilities manually increases the risk of errors. According to
a United Nations study, the inefficient administration of customs regulations and documents
accounts for 7 percent of the cost of international trade.
Thats $1 trillion lost annually on a global basis to inefficient handling of customs documents.
Poor management of compliance and risk accounts for even more losses. Increasingly,
international firms are turning to enterprise software and business intelligence applications
to manage their import/export business processes on a global scale. One world, one
business, one set of software tools with pre-defined business processes that are the same
the world over. Thats the dream. Fonterra provides an example of a firm (actually a
cooperative) that is implementing an import/export process control system.
Fonterra is the worlds leading exporter of dairy products. Owned by 11,000 New Zealand
dairy farmers, Fonterra is a cooperative that exports 95 percent of its products to 140
countriesof all the dairy goods it manufactures; only 5 percent are consumed within its
domestic market. Fonterra is primarily an exporting firm. Fonterra has $10 billion in assets,
annual revenues of $12.1 billion, and produces 3.6 billion gallons of milk each year. If you
wonder how thats possible, the answer is Fonterra relies on the contributions of 4.3 million
New Zealand cows, and over 15,000 employees. Fonterra accounts for over 25 percent of
New Zealands export trade, and about 30 percent of all global trade in milk and milk
products.
Fonterras operations generate a substantial amount of transactional data. The volume
going through this platform is quite significant in both dollar and transactional terms, says
Clyde Fletcher, Documentation Center Manager at Fonterra. But we dont just rely on New
Zealand. We procure our products from multiple countries to try to spread the risk. We also
export out of Australia, the United States, Latin America, Europe, and Asia. This data needs
to be captured in an enterprise database, and then moved into a data warehouse so
management can monitor the firms operations. To handle more complex import/export
processes, Fonterra turned to the SAP BusinessObjects Global Trade Services solution.

SAP Global Trade Services (SAP GTS) automates import/export processes, while ensuring that
transactions comply with all customs and security regulations. SAP GTS helps companies
standardize and streamline trade processes across their entire enterprise and business units.
And it fosters use of shared data and shared collaboration knowledge, replacing highmaintenance manual processes. With SAP GTS, Fonterra has been able to lower the cost, and
reduce the risk, of doing business internationally. To date, SAP GTS has helped Fonterra
standardize and streamline trade processes across its entire enterprise and business units.
And it has fostered the sharing of data, greater collaboration, and sharing of knowledge
throughout the firm. SAP GTS manages the complexities of global trade and ensures full
regulatory compliance. The solution helps reduce buffer stock by improving transparency
throughout the supply chainsharing cross-border trade information will all partners,
including freight forwarders, insurance agencies, banks, and regulatory entities. SAP GTS has
helped Fonterra avoid supply chain bottlenecks, costly production downtime, and errors that
can result in expensive penaltiesand even revoked import/export privileges.

Achieving 6 Key Benefits with SAP BusinessObjects Global Trade Services:


Fonterra developed a framework of key strategies to enable its documentation center to
move forward on one global platform. Following these strategies, the company is achieving
six key benefits.

Increased productivity. In the first year of operating SAP BusinessObjects Global


Trade Services, Fonterra experienced a 25% productivity increase. Weve mapped out
some more development enhancements, and were reasonably confident that, after
four years of using the application, we will achieve a 100% productivity increase, says
Fletcher.

Reduced risk. Fonterra sees that SAP BusinessObjects Global Trade Services has
improved the visibility of its compliance issues. This application is quite pivotal for
reducing risk when exporting from one country to another, says Fletcher. People no
longer have to look at systems and processes, trying to figure out what documents
are required from the commercial contracts, what data is on the documents, and how
to get the documents to the customer. All of that is automated.

A move to electronic documents. Fonterra wants to move away from paper-based


documentation and process all trade documents electronically, such that SAP
BusinessObjects Global Trade Services can automatically upload data to and from
multiple source systems, banks, carriers, chambers, embassies, health departments,
and customs offices. Currently, Fonterra is considering doing an electronic bills of
lading project, which will enable banks and customers to take title of the goods
electronically.

To do all this, we need to be able to send data across borders electronically, Fletcher
says, adding that this electronic exchange is contingent on the customer and the
regulatory environment receiving the data. In order to process electronic documents,
you have to work with service providers, commercial and governmental, he says. In
time, all customers will accept electronic documents as technology, legislation, and
people progress, he says.

One unified platform. As a result of deploying SAP BusinessObjects Global Trade


Services to the US, Australia, and New Zealand, Fonterra is doing 80% of its export
business through the application. We believe we can deploy this global platform to
the remaining 20% of the business so that the entire Fonterra global trade operations
are on one platform, says Fletcher. When Fonterra finishes its rollouts of the
application, 100% of its export transactions will be managed with SAP
BusinessObjects Global Trade Services.

Centrally managed processes. Fonterra divides all of its export transactions into two
colors: red and green. Green-lane workers generally work with simple transactions,
while red-lane workers process more complex transactions for countries that require
more data-rich documents, which often involve foreign language documents or
documentary credits. SAP BusinessObjects Global Trade Services manages processes
for both red-laners and green-laners and has enabled Fonterra to centralize red-lane
processing. This means that all complex transactions are done in New Zealand, and
all green-lane transactions are decentralized in Australia, New Zealand, and the US.
The solution is capable of centralization and decentralization, and this unique
feature provides great flexibility, says Fletcher. Were creating a centralized center of
excellence in New Zealand where SAP BusinessObjects Global Trade Services users go
for best-practice ideas, technical knowledge relating to global trade documentation,
or system support. This center of excellence drives uniform standards and processes
across all the users. Its supported centrally, but the discipline built into the solution
also allows this support to be done remotely.

More efficient workers. The automation that SAP BusinessObjects Global Trade
Services provides has enabled Fonterras documentation center staff to use whats
called desktop management, in which the majority of its workflow including
which documents go to whom, when they need to be processed, and what stage of
production theyre at is completed through a desktop computer, not on paper.
Green-laners use very little paper, whereas red-laners tend to use a lot more. The
difference between the red and green is quite sharp.

For example, with the green lane, it is 70% straight-through processing meaning
theres minimal human involvement in the transaction and with the red lane, its
40% straight-through processing, and the remainder is partially automated or
completely manual, Fletcher says. But with the new global platform, the red-laners
are using a lot less paper than they previously needed to manage their work. By 2020,
our aim is to automate the green lane 100% and automate the red lane at least 80%.
CASE STUDY QUESTIONS
1. Describe the various capabilities of SAP GTS. How does using this software help Fonterra
manage its export trade? What quantifiable benefits does this system provide?
2. How would you characterize Fonterras global business strategy and structure? What kind
of a global business is it? Has Fonterras structure and strategy shaped its uses of SAP GTS?
Would a transnational company choose a different solution?
3. What influence does the global business environment have on firms like Fonterra, and how
does that influence their choice of systems?

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