Maple Leaf Foods’ ERP system project: A CIO strategy

A tainted meat scandal that made national headlines. A higher Canadian dollar that costs the company in excess of $130 million a year. A dizzyingly diverse number of products that confuses customers. With these kinds of challenges, you’d wonder why Maple Leaf Foods would want to take on an enterprise resource planning project too.

And yet, almost exactly two years after Maple Leaf Foods announced an ERP system project with SAP Canada, the company has flipped the switch in its frozen foods and poultry business units, and will soon move onto its prepared meats business unit. The entire implementation is expected to be complete by 2013, but in the meantime, modules have been popping out of the company’s IT department with nearly the same regularity as wieners at its plants. There have been 35 “go-lives” in two years, with something new deployed at least once a month. And in that time perhaps key among those new deployments was not a piece of software or changed business process but a new CIO.

“I had an opportunity to go back into consulting for one of the larger strategy firms,” says Jeff Hutchinson, an American who joined Maple Leaf Foods about a year ago. “I was just about to sign the agreement when a recruiter asked if I would be interested in interviewing with Maple Leaf Foods. I said, ‘Who?’”

It’s not as though Hutchinson, who was once North American CIO for yogurt maker Dannon/Danone, was unfamiliar with the consumer food industry, but he says that despite its size, Maple Leaf Foods is not as well known in the U.S. What he might have learned at that point was less than positive. In 2008, 23 people died amid 57 confirmed cases of listeriosis, an outbreak that was linked to 191 possibly contaminated meat products that came from a Maple Leaf Foods plant in Toronto. Although the company instituted a voluntary recall before the outbreak was confirmed, the incident led to hundreds of temporary layoffs and cost the firm $37.5 million, $17.5 million more than originally estimated by management during the recall.

The ERP rollout, which has internally been dubbed Project LeapFrog, is not about preventing another outbreak. It’s about dealing with something much more serious, which had led to a restructuring plan at Maple Leaf Foods as early as 2007. As Maple Leaf Foods CEO Michael McCain told the Financial Post last October, the company was put together 15 years ago by a series of 30 acquisitions of meat and baked goods companies, a process that was relatively complete by 2004. Over the next six years, however, the Canadian dollar appreciated by 50 per cent, which has hammered its ability to keep up with U.S. rivals, as Maple Leaf operates at a cost gap of 15 to 25 per cent to its U.S. competitors.

“If it’s going to grow, it can’t rely on the exchange of the U.S. dollar,” Hutchinson says. “If it’s going to compete against the U.S. and European players, it needs the right capabilities in house.”

The golden rule(s)

Most of the attention regarding Maple Leaf Foods’ five-year business plan, which McCain announced late last year, was focused on the expected closure of some of its 55 plants and bakeries across Canada and intentions to raise prices to offset the costs for raw materials – decisions that the company hopes will boost earnings by 75 per cent. Project Leapfrog, however, could dramatically further the company’s biggest goal of improving productivity by simplifying its complex web of ERP systems that manage key processes. Hutchinson says Maple Leaf Foods gained about 30 different versions of ERP as it bought up smaller firms. Project LeapFrog will put the entire organization on a single instance of SAP.

“We’ll start to see what the reality is and be much faster at adjusting to market conditions as they change,” Hutchinson says. “We’ll be able to make sure that our trade promotion monies, for example, are giving us what we want to get out of them. Too often, unless you are very proactive there, it just becomes a slush fund.” SAP’s customer relationship management (CRM) software will give the company the ability to better target that money in ways that increase profitability, he says.

To get there, Hutchinson says his team is operating by three “golden rules” throughout Project Leapfrog: Stick with SAP, commit to changing business processes, and treat data as king.

SAP stalwart

Although it is cutting costs wherever it can, it’s not like Maple Leaf Foods isn’t spending any money. It has plans for a new mega-plant for its meat products in the next couple of years, and also has a $100 million bakery facility under construction in Hamilton. Next to those kinds of investments, ERP might seem cheap, but the software can cost in the neighbourhood of US$20 million or more.

Despite a library’s worth of cautionary tales, ERP is also still prone to failure. Just last year SAP reached a settlement with trash hauler Waste Management, which had sued the vendor in 2008 for an allegedly botched implementation that it said led to more than $100 million in losses and more than $350 million in the benefits it had hoped to gain. Last November, the city of San Diego said it was forced to delay a city budget for six months due to data issues in its SAP payroll system, and Marin County decided to rip out its SAP system entirely, a project that has led to a lawsuit against integrator Deloitte.

“A successful ERP implementation, while it provides better business intelligence and helps in reducing costs, it also requires that you have a good understanding of the challenges it brings on,” says Dr. Hamid Noori, a professor in enterprise integration and technology management at Wilfred Laurier University’s School of Business and Economics. “People think that by throwing money at technologies it will work.”

Even in Maple Leaf Foods’ industry of packaged food, ERP rollouts have seen very mixed results. In 1997, Nestle USA’s SAP rollout, ironically code-named Best, took six years and gobbled up US$200 million. Others have fared better. In February, General Mills won a Global Corporate Treasury Award for a supply chain project that was based on its use of SAP’s ERP Financials product.

Hutchinson is aware of all the dark history around ERP and SAP, but chalks it up more to management issues than anything in particular with the products or vendors.

“You can go all the way back to the Hershey disaster,” he says, recalling an SAP implementation in the mid-1990s that has become a textbook case study in poor ERP adoption. “Their business supply chain network was broken. All SAP did was break the camel’s back.”

Instead, Hutchinson’s strategy is not simply to become an SAP customer but an SAP loyalist – adopting its most tested customer processes and being first to try out new products. He says Maple Leaf Foods is among the few early adopters of SAP’s Business Objects 4.0, and he also plans to purchase SAP’s High-Performance Analytic Appliance (HANA).

“We view that with this SAP investment, the software is only a part of it. A big part is the transformation of the business, which is why we religiously have a weekly sponsor meeting.”

SAP Canada president Mark Aboud notes that Project LeapFrog has enjoyed a high level of senior executive engagement, including support from Michael McCain. “It’s not like anyone there is saying, ‘This is an IT project, and let us know when you’re done,’” he says. “They’ve really made clear to the whole organization how important this implementation was and transforming into a better-run business.”

Hutchinson has also been trying to transform Maple Leaf Foods’ IT operation at the same time, recruiting three divisional CIOs who each have deep expertise in the products being deployed and who act as program leads for the business partners running major divisions. “You can’t support an SAP solution with only one or two years of SAP knowledge,” he says.

Jeff Woods, an analyst with Cambridge, Mass.-based market research firm Gartner Inc. who specializes in the ERP market, says companies need to distinguish between ERP admin projects and operational projects. The former refers to software deployments to facilitate finance, human resources or procurement activities. Operational ERP is about strategic transformational business value. Woods gives the example of an organization that wants to present “one face” to the customer, selling different products to customers from different parts of the business – in other words, an organization just like Maple Leaf Foods.

“We work with a number of companies for whom this seemingly simple requirement transforms the way you think about the business,” he says.

‘Pretty close’

The ERP system will obviously create business process changes, and to make the transition easier Maple Leaf Foods is working with a team trained in the Six Sigma management strategy to make sure everyone involved agrees on what the current processes are and understand what will be different.

“A big part of the business is protein – poultry, hog and prepared meats. They each have their way of doing work,” he says. “If you go over to bakery side, like Dempsters, or frozen foods, each of them ran almost every process internally their own way.”

Aboud says many organizations are crippled by this problem. “What could happen is a company wants to get the processes perfect – and we all know there’s nothing that’s perfect – and there comes this great debate on the level of detail that causes the project to string itself out over a long period of time. Sometimes it’s a tendency to make things look like what they already have . . . If the debate goes on too long, it just burns up time and money. Get it pretty close, lock it down and move on.”

Hutchinson has heeded this advice. “We’ve told (employees) that we’re going to use this leading process enabled by SAP – it may not turn out to be the most efficient, but we’ll bring them under a common process and then do enhancements,” he says, adding that the goal is to create a shared service mentality across the company, which can hopefully boost productivity. “It makes no sense in an SAP environment to have every business unit doing their own thing.”

Accepting something straight from the package has its merits, but Woods cautions that even ERP process changes that have millions of dollars of impact don’t offer any differentiation from other organizations.

“This is a big misconception. They’re not necessarily best practices but very good practices,” he says. “It’s one of the mistaken views about ERP. You may have better business processes in your business. You may find pockets where your practices are better. What you really have to get to is what is the strategic motivation for the ERP?”

For Maple Leaf Foods, however, consolidating its ERP footprint isn’t about setting itself apart from its rivals but being more efficient as an organization, Hutchinson says. To do that, however, the company has realized it needs more than just a better ERP system. It needs more up-to-date productivity and collaboration tools.

“When I got here we were on Windows XP release 2,” he says. “We were on Office 2003. There was no SharePoint.”

In parallel to Project LeapFrog, Maple Leaf Foods is now transitioning to Windows 7 and Office 10. Microsoft’s Office Communications Server is up and running, it is using Tandberg for videoconferencing and has migrated to voice-over-IP. “We’re starting to get the tools in place to manage the SAP environment as we go forward,” he says.

Although many organizations are still wary of tablets, Hutchinson sees potential, especially after Michael McCain became the company’s first iPad user. RIM’s PlayBook and other devices coming to the marketplace may also offer possibilities, he adds.

Ideal analytics

Everyone who has ever worked on a data management project has probably heard the phrase “garbage in, garbage out,” meaning that even the best systems can’t offer benefits to a business if they’re filled with error-prone information. Hutchinson has his own variation on this adage: garbage in, gospel out.

“If you put the garbage in, people will think it’s real,” he says. “SAP is a monster that can chew up data, it’s very regimented, but where’s the benefit? It’s in the business intelligence and analytics.”

Hutchison says the master data fed through SAP’s ERP system will be used everywhere, from financial governance calculations to statistical trending and monitoring for its food safety program.

“Transactional and IT efficiencies do not get you to your full cost of your ERP project,” adds Woods. “You need to enable new information flows or new insight into the business.”

SAP is seeing a similar emphasis on data quality across its customer base, according to Aboud.

“The ERP business in Canada is less than half of our business,” he says. “A great amount of it would be in the analytic space – a lot of (customers) have ERP systems but they still want the information out of their business, to get intelligence on what markets they should penetrate.”

As the go-lives continue, Hutchinson has developed what he calls a Key User Network to help test out new modules, provide critical feedback and suggest improvements. Beyond ensuring readiness of the tools, the Key User Network helps identify potential employee trainers within the organization, as well as ongoing support and continuous improvement.

That last part is crucial. Denver, Colo.-based Panorama Consulting Group, which conducts an annual research project of North American ERP users, recommends calculating the total cost of implementation as a percentage of annual revenue as the best standard for measuring ERP success, but it won’t mean much unless a process of continuous improvement is in place, said its president, Eric Kimberling. “Most companies fall miserably short in this area, which is why so many companies don’t realize the benefits they expect,” he says.

Top dog

In February, the Globe and Mail published an article about Maple Leaf Foods’ drive to greater efficiency that provided an in-depth description of how the company makes a wiener. Raw hot dog batter called “emulsion” gets squished into casings made of collagen, then pushed into the proper shape before they are heated and the casings are removed, the finished wieners rolling onto the assembly line. It’s a four-hour process to create something that isn’t necessarily that healthy.

ERP systems aren’t much different. Many of them take data from disparate sources, push and prod them through different pieces of software to spit out information that sometimes doesn’t improve a company’s bottom line.

If Maple Leaf Foods’ turnaround project succeeds, it is unlikely Project Leapfrog will get much of the credit. If technology is mentioned at all in financial reports and conference calls with investors, it will likely be the industrial technology within its new plants rather than information technology. There is nothing particularly revolutionary about installing an ERP system, though Kimberling suggests otherwise.

“I think CIOs have such a mediocre track record with ERP systems that they can be recognized as forward thinking and innovative if they do an implementation right in a way that delivers real business value to their organizations,” he says.

Perhaps it also means making sure the world at large recognizes the value, too. That may inform Hutchinson’s PR strategy. It was he who reached out to this magazine to discuss a project he has only half-way completed. He has also spoken to our sister publication in the United States, and probably a few others. He was recently selected as the vice-chair of the Grocery Manufacturing Association’s (GMA) IS Committee. Earlier this month he was a keynote speaker at the CIO Association of Canada’s Peer Forum, with the theme, “The CIO Imperative – Creating C-Level Synergy,” and his presentation drew raves from other attendees, including John Thorp, an IT consultant who cited Hutchinson’s approach as one that exemplified sound strategy in his own speech.

“I think he was right on the money. That wasn’t Jeff the IS guy driving it,” he said of Project LeapFrog. “That was Jeff as an executive owning it.”

As he continues to pursue a large-scale IT project that’s part of his business’s transformation, Hutchinson is actively looking for opportunities to share the results with colleagues that will demonstrate his capabilities as a leader. If he can do the same internally and around his industry, the importance of his department’s role within the organization will only skyrocket. In this he reflects his employer’s turbulent journey. As Maple Leaf Foods has learned over and over again these last few years, success has a lot to do with how you package it.

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