Improving the Efficiency of Sugar Beet Logistics Key Aspects of Implementation

2015-10-14

Jozef Holota, AGRANA Beteiligungs-AG

Eduard Gers, ANASOFT

Sugar is a commodity that fights for its clients mainly by price. Consequently all logistics expenses that are embedded in the final product may increasingly determine the competitive position of any sugar producer.

Improving the Efficiency of Sugar Beet Logistics Key Aspects of ImplementationThis paper deals with practical aspects of implementation of modern technologies in the process of increasing of efficiency as well as the automation of beet supply management in the environment of a sugar beet campaign, that were in more detail described in the article “How to increase the efficiency of beet logistics using modern technologies”, published in Sugar Industry No. 7, July 2015.

 

Outsourcing of Responsibility

Organization, processes and priorities of every company are shaped by the environment in which it operates, including corporate culture and historical development. These factors determine not only the business potential but also limits the ability of the company to implement new solutions.

Historical context of sugar industry beginnings, importance of production costs and the marketplace influenced by legislation, favorited the priorities of production and purchasing department as well as the relationship with beet suppliers, which until now dominate the business decisions of the sugar plants management. 

In a traditional organizational arrangement, the engagement of a third party (transportation company) is the best solution in many ways, because it brings along business skills that are not present in the in-house departments – as production deals with technology and raw material department is preoccupied with organizational, contractual and agricultural issues.

This arrangement outsources responsibility for optimal supplies of raw materials to an external logistics supplier. However, outsourcer at the same time lacks the proper position for implementation of optimal logistics because of the following:

  • Usually controls only part of the system and cannot manage the remaining areas;
  • Has other hierarchy of priorities in which the needs of sugar plant functioning are dominated by optimizing own functions which may result in less effective solutions that do not require additional investments or merely changes.

Management of Sugar Plant Competitiveness

Effective management of data is the mainstay of modern solutions. Correct application of contemporary technologies allows precise and complete collection of operating data and their processing as well as evaluation in real time. A desired side effect of such solutions is the increase in visibility of all internal relationships of the supply chain.

Market driven competitive pressures on companies is particularly reflected in attempts at cost reduction. However, the responsible approach requires understanding of all expense items and their detailed categorization. That is why unambiguous and accurate evaluation of data give the management an effective tool for management of the company competitiveness.

Automated dispatching of sugar beet supply is from the logistics view an application of generally accepted and proven pull system (LEAN methodology). Decision of its implementation is not about choice of a solution but it is a decision of the ability to master the technological challenges at acceptable cost.

In the view of ending of EU support activities, increased financial difficulties of sugar producers and with respect to the influence of solution proposed at the end of this article, every producer has to answer the question if maintaining of the status quo in the area of logistics of beet supply is worth to give up the potential benefits of the described solution by denying an investment into a management system based on transparent and unambiguous data.

How to Successfully Implement the Logistics Optimization Project

The philosophy of solution described in the article “How to increase the efficiency of beet logistics using modern technologies” rests on following basic principles which in various forms apply modern theories of management of the supply chain and is confirmed by the most successful firms of the industry:

  • In cooperative systems such as sugar plants the possibilities for optimizing separate subsystems are different and often contradictory. Optimizing the whole is more promising and profitable than the sum of independent optimizations of all the parts.
  • Elimination of waste throughout the entire supply chain is the only effective way to maintain the competitive edge of a company.
  • To successfully develop, enhance and improve the system, it is imperative to manage it internally as opposed to transferring responsibility.             
  • In the innovative and change process management the potential benefits are proportional to the ability to pragmatically evaluate existing processes and solutions and change them based on such evaluation.

Derived from the above stated, following frame conditions have to be met for a successful implementation of the project of increasing the efficiency of beet supply logistics by using an automated dispatching system:

  • It is imperative to manage and evaluate any optimizing effort to achieve a single common goal  (integrating logistics of raw material supply into an effort to achieve a successful sugar beet campaign).  Common goal helps to create a hierarchy of priorities for all system participants. As the sugar plant is in this process the final arbiter who can formulate goals connected to its own competitiveness it must take charge for the optimizing of logistical functions.
  • Existing method of communication, distribution of roles and responsibilities of individual participants of the sugar beet supply must be made available and agree to the process change.

Practical experience with implementation of such a project shows that managing the redistribution of internal responsibility in a sugar plant and exploitation of benefits given by data utilization is much more challenging than engaging third parties such as transporters and growers into the project. The two major worries and doubts provide the following issues:

  • Transfer of responsibility for timely raw material supply from (logistics) supplier to the sugar plant
  • Lack of internal experience in management of logistical systems at the sugar plant. 

Sugar Plant as a Coordinator of Raw Material Delivery

For better understanding of the issues it is useful to define the two basic roles and their associated responsibilities:

  • Transporter – is responsible for moving material from point A to B on the basis of precisely defined instructions assuming professional care. Responsibility rests on reliable transportation output of allocated transportation capacities and a choice of most appropriate method for executing a given order.
  • Raw material supply coordinator – the goal is design, calculation and management of sugar beet supply and coordination of participants. Main responsibility is assuring timely supply of raw materials in sync with the sugar plant needs and integration of this task in the sugar beet campaign environment (interfaces with production, growers, eventually consumers of by-products).

As long as the transporter fulfils the role of a raw material supply coordinator following situation takes place:

The transportation providers see coordination as a specific service with an added value. The primary motivation to provide this service is in securing adequate compensation and keep the client by building a specific tailor-made know-how. Difficulty arises in trying to gain authority in relationship with other system participants such as growers and the production side of the sugar plant.

In the transport company as a coordinator model the final result will not be ideal either from the efficient utilization of expenditures view nor the reliability of delivery, because the profit motive is primarily of the transporter and lacking influence on the whole process is mainly compensated by increase in reserve vehicle capacities which is an inefficient use of a cost item.

Automated dispatching system

Independent Coordinator on the sugar factory side significantly streamlines the beet logistics processes compared with the coordination on the side of transport companies.

Independent Coordinator on the sugar factory sideAutomated dispatching works with mathematical and statistical tools, enabling accurate evaluation of supply situation and at the same time detects current trends – such as the status of loader, vehicle capacity and expected exhaustion of resources.

In a typical operation the automated dispatching system is dominant over human dispatchers thanks to a number and quality of accurate data and ability to make decisions in real time in order to assure stable raw material supply.  

Thanks to time series and simulation of operation using various input parameters it enables fast and effective identification of the best combination of operation’s controlling parameters. This ensures such management of the raw material supply to maximize the period of stable operation. This ability is made available even to the system users without expertise in bulk material logistics.

The need for human dispatchers is not eliminated but is reduced to managing unusual situations arising from factors that cannot be described/evaluated in a mathematical model reliably. Usually these situations are of the type such as non-planned interruptions, inability to reach raw materials, as well as critical drop in availability of loaders, vehicles or roads.

Typical for these situations is a capacity discrepancy resulting in supply of sugar beets being lesser than the sugar plant demand. Optimal solution in those cases is a temporary change of basic requirements in order to maintain continuation of operation such as using additional raw materials in available localities, change in production tempo or utilization of additional vehicle or loading capacities. These are, however, managerial decisions available to personnel with proper authority, which is usually lacking at the transportation company.

The question of distribution of responsibility is complex because of business relationships of the sugar factory and its suppliers as agreed upon in various commercial agreements. Due to the importance of beet logistics, the respect for any changes in these agreements are for the sugar plants natural and understandable. For the factory the ensuring of uninterrupted processing is one of the highest priorities within the campaign as problems related to interruption of technological production process need to be avoided.  

In conclusion

Taking responsibility for sugar beet supply in combination with automated dispatching causes the following effects achieved in unison:

  • Increase in quality of routine operation;
  • Increased reliability of routine operation;
  • Dramatic improvement in predictive ability and proactive solutions in unusual situations;
  • Increased independence from the need for a specialized logistics know-how of external organizations without the need for such expertise in-house;
  • Increased ability to react optimally and effectively to crisis situations by changing basic parameters of supply chain;
  • Opportunity for global management from the needs of the whole campaign as opposed to partial solutions of discrete units such as growers, transportation or production.

In every ton of sugar there is a cost item of logistics for 6-7 tons of sugar beet. Hence, every saving in this area can have an important influence on cost of the final product. This view, together with the Einstein quote at the beginning, should serve as a starting point of a new approach for optimization of sugar beet logistics, its goals and priorities.