Appetite for SAP

The complex structure of the company – which includes seven production plants and subsidiaries of various profiles such as agricultural and livestock farms, as well as an entity dealing with export – was one of the greatest challenges in the SAP implementation. It also divided the project into stages. Currently, the SAP solution is being rolled out to the distribution centres.
An equally important challenge was to cover industry-specific processes with the system. The handling of livestock purchases, returnable packaging distribution and accounting, as well as transportation planning and accounting required innovative tools to be built in SAP.

There were over 70 involved in this implementation project which took more than ten months to complete coupled with an earlier, large effort to restructure the company and modernise its business processes – recent years have been busy, and not only for the managerial staff of the Sokołów Group.

The following people talk with us about the effects of this work from the perspective of the company and the positions they held there:

• Wanda Tomaszewska, Deputy Finance Director, Chief Accountant
• Paweł Traczyk, Logistics Director
• Robert Chmiel, Deputy Purchasing Director
• Bogdan Biłas, IT Director
• Zbigniew Kostka, Controlling Office Director

Wanda Tomaszewska, Deputy Finance Director, Chief Accountant, the Sokołów Group

First things first: centralisation of finances

The incorporation of an integrated SAP IT system into the structures of seven plants owned by Sokołów was a difficult task, but already now, after several months, we can see how many improvements it made in the day-to-day business and how many benefits it has brought us.

From my point of view as chief accountant, the most important thing is the centralisation of the Accounting Department, because it has improved the management of the company’s finances and provides ongoing control over the cash flow. The system enables accounting employees to analyse, plan, and manage sales and distribution from order placement through to payment receipt, which has greatly improved the customer service process and cooperation with suppliers. Reports are created according to individual users’ needs.

This computerisation of work means a reduction in the number of debit notes issued between plants and cost-reductions as a result of limiting the number of copied, sent and posted documents in paper form. In SAP, all financial data is recorded automatically in the course of operations performed and therefore it is always complete, accurate and accessible online, and the system allows for multiple operations to be carried out simultaneously.

The broad access to information enables you to freely look at data entered by other users within the company. This allows for early detection of alarming signals, and thereby the efficient elimination of all and any inconsistencies.

The fully automated processes allow for the expedient closure of accounting periods, including the settlement of variances and costs, the balance sheet valuations of open items of assets and liabilities, reclassifications on accounts, aging of receivables and payables.

An up-to-date preview of financial statements is made available without the need to take action and transfer data to other subsystems. There is the possibility to generate statements simultaneously for both the current and previous periods.

It is much easier to prepare tax returns as well as statistics and customs declarations. In addition, there is a function for sending them directly by electronic means.

The centralisation of financial management means uniform financial reporting in each entity. Due to the lack of systematisation in the previous chart of accounts arising from the fact that before 1st of May 2010 all branches had separate IT systems, the data between individual plants could not be easily compared. The common chart of accounts is a significant progression in the analysis of financial data, since it has standardised the recording and reporting of business events.

SAP allows us to analyse receivables from all customers at a central level. To obtain complete information about a customer we use the Single Customer View tool, which enables a full analysis of data on one screen. Upon issuing, sales invoices are directly posted in the system, which facilitates the monitoring and control of contracting parties’ debts. The capability to automatically load and reconcile multi-item specifications of payments is particularly important in settling accounts with big business parties.

In early January, when VAT rates were changed, the system passed an important test. We had prepared ourselves for this operation in advance by identifying all the cases requiring necessary conversions related to their change. The necessary work was done at a convenient time without tying up other work. This allowed us to maintain full control of the revised PKWiU (the Polish Classification of Products and Services) codes and rates. The verification of changes in the system was also carried out automatically. Furthermore, the qualification of costs for income tax is also very well modelled.

We also use the solution to handle two accounting periods, since as a company with foreign owners we additionally keep accounts in accordance with the Danish financial year, which is different than the calendar year. Posting in the second period is done automatically in such a way that documents are updated and, at the same time, posted to the Danish period. SAP allows us to eliminate any possible errors in this process.

The company’s asset management in SAP has streamlined the ongoing analysis of investment tasks and keeping a record of inventory. As a result, the company’s assets are managed more effectively. Currently, the automatic loading of data from banking systems for incoming and outgoing transactions is more efficient, and it is noteworthy that in such a large company like ours thousands of operations are performed every day.

Another thing that facilitates the accounting work is a tool for loading multi-item posting orders from Excel files. In our case, due to very complex cost centres, these files have as many as, and even over, a thousand items. Just imagine how much time you would have to spend on entering so many items manually. Now this data can be loaded automatically.

Despite its complexity, the system has turned out to be transparent and easy to use. We are already planning its expansion, including workflow implementation. By combining Workflow with SAP, we will gain full control over documents from outside from the time they arrive at the company, through the approval process, up to the expiry of a liability.

Zbigniew Kostka, Controlling Office Director, the Sokołów Group

Cost control as a priority

The meat industry is characterised by large fluctuations of demand, seasonality in the availability of raw materials and high competitiveness of domestic and foreign producers. Therefore, the present high volatility of raw material purchasing prices and changes in selling prices require in-depth analyses of various types, not just cost-related ones, in order to react to these changing purchasing and sales conditions on an ongoing basis.

And on top of that, there is a wide range of products offered for sale – the Sokołów Group offer includes a few thousand different assortment items, including meat products, cold foods, ready meals, tinned food, fats, pet food and of course meat. Very low sales margins, at the level of a few percent on individual product ranges, are another distinctive feature – an adverse one from our point of view.

In these market conditions, cost control at every stage – from purchasing prices through production costs up to costs of sale – is a priority for the controlling staff. We are expected to perform a thorough analysis and calculation of production costs, to track down the origin and purpose of a cost, and to respond quickly to market fluctuations and deviations from the expected results.

The boundaries of controlling operations are designated by the information that is accessible to us, and the efficiency of the IT tools. Since mid 2010, the basic tool for reporting and data analysis in the Sokołów Group has been the controlling module in SAP ERP.

The implementation of SAP controlling tools required the restructuring and consolidation of financial and accounting areas as well as controlling areas, and the centralisation of these functions. A coherent structure of accounts by nature and cost centres in all entities of the company enables us to keep a reliable and consistent record of costs and then to analyse and compare data and results between plants, branches or functional areas of costs.

SAP is a uniform reporting system and a single, central source of data for aggregate reports, which are now the basis for the analysis of the company’s situation and management decisions. Information from various levels of management, in diverse views and presentations is available within a short time, and some of it virtually at hand.

Before the implementation of SAP, branches and subsidiaries operated largely on their own account and proper controlling was carried out at lower levels. At the central level, responsible units collected and analysed results based on reports “from the bottom up”. This process was always extended – in order to obtain complete information, you had to wait for the results from all companies and plants. The Management Board had access to general reports updated on a cyclical basis, but they were not able to view the concrete, more detailed and up-to-date information about a selected plant. The possibility to process it was limited.

Unification and a short time of access to data from entities – branches, plants, units – is the biggest advantage over the previously used tools. Global information on all the records of business events is available in SAP – we have ongoing access to it, virtually down to the level of a single document.

SAP has forced us to reorganise  a chart of bookkeeping accounts, accounts by nature and function, as well as cost areas in production facilities. The central posting as well as systematisation and unification has allowed us to fully compare business events between various functional units.

Of course, costs, and especially cost analytics are of strategic importance to us. In terms of daily operational management, reports on the costs of each organizational unit, production volume, sales to individual customers or customer groups, the manufacturing cost of a given range of products, or the margin for a single product, customer, distribution channel or plant are the basis of ongoing controlling activities. The continuous data availability allows you to quickly analyse the situation and react quickly by making adjustments in selling or purchasing prices of raw materials, for example.

In addition to its analytical operations, the controlling office acts as a controlling body, as its name suggests, and thus we have a major impact on the initiation of necessary changes in various spheres of the organization. Our task is also to detect possible irregularities. Some of our tasks are typical accounting ones, since the controlling activities in SAP include analysing costs, issuing correction orders and accounting for them at the end of the month by examining them in terms of posting accuracy, as well as closing the material ledger. In the system, we fully control branches and the whole company.

SAP also allows us to track the completion of budget tasks, to identify inconsistencies and deviations,  and to update budget projections. Current budgets are settled in the system, although they had been created outside the SAP system before it was deployed. The first budgeting in the system for the next year is ahead of us.

We are still in a transition period – in the nearest future, the system will be gradually rolled out to other areas and organisational units – we are currently working on incorporating our distribution centres in the SAP system. Since December, the system has been in operation in Iglomeat in Dębica. Perhaps later the subsidiaries dealing with breeding, transport and repair services will be also supported by the system. The decision will be made after the completion of the implementation of all necessary SAP modules in the parent company and it depends on the decision of the Management Board.

So at the moment we cannot yet talk about a full consolidation of financial results of the whole Group based on data that comes from ERP only. Nevertheless, through appropriate devices and IT programs all aggregated data from these entities is sent to SAP, and consolidated reporting for the Management Board and owners is successively deployed to an increasingly larger extent in the SEM BCS module.

Paweł Traczyk, Logistics Director, the Sokołów Group

Distribution to demanding customers

One of the last stages of Sokołów restructuring, which began back in 2000, was the process of the specialisation of individual plants. It has enabled us to reduce production costs, while improving the quality of our products. The specialisation of production in our plants scattered all over Poland is, however, a very big challenge for distribution.

Sokołów SA has a distribution network, whose main elements are production plants and their appurtenant logistic warehouses, as well as a network of the company’s own wholesale stores. On top of that, there is of course the cooperation with large retail chains, wholesale customers and partners in B2B relationships.

The efficient distribution of meat and meat products in such an extensive network of customers with diverse requirements, while taking into account the organisation of production, is the most important task we have set for the SAP system in this area.

The basis of effective customer service is the availability of our products at a specific time and quality. Customers set very high requirements for us, sometimes very specific ones, such as the delivery of hanging goods. Sometimes the delivery must meet conditions of transport in three temperature ranges within one truck.

Retailer chains have particularly high expectations. They expect to be able to make as few orders as possible, covering a wide range of goods to be delivered to individual stores or central warehouses with the smallest possible number of trucks and preferably within a single delivery. Also the time from order placement to delivery should be as short as possible, and the delivery itself should be accurate down to the minute.

With the production specialisation in our seven plants, it is a very big challenge to meet all these requirements. We must organise the transfer of goods and information between our logistic warehouses in such a way as to enable items to be sent from any of them as a complete shipment, including, for example, salami from the branch in Dębica, ham from Sokolów Podlaski, beef produced in Koło, or sausages produced in Czyżew, etc.

The SAP system stores all data on orders and the status of financial settlements with a given customer in one place, regardless of which of our plants provides service to this customer. The efficient and quick flow of information and its further redistribution in logistic systems allow us to save a significant amount of time and complete the logistic tasks mentioned above.

The implementation of the SAP system involved the unification of the business processes in the supply chain. Previously, various plants and companies in the Group operated according to different rules, serving customers more as meat plants from Sokołów Podlaski or Jarosław than as one company Sokołów SA.

Today, all manufacturing entities operate under the same rules, or simply put – in relationships with customers we act as Sokolów SA, a company which provides comprehensive service ranging from  ordering and delivery, at a high level of quality, through to financial settlement. This is particularly important from the point of view of large retail chain customers served by us all over Poland.

Reports from SAP available online allow us to keep track of inventory levels, financial settlements with customers, as well as shortcomings in the fulfilment of orders.

Information about the balance of goods or sales reports provide a sound basis for making both strategic decisions and decisions in daily operational activities, such as adjustments related to the purchase of the raw materials required to fulfil orders, or stock transfers. In the meat industry, the time needed to get to the information and take corrective actions is a key factor.

In addition to the standard functions of the SAP system, tools for handling returnable packaging and transport have been built. Each month in the Sokołów Group, we send several hundred thousand specialist returnable packaging items, certified in accordance with the standards specified for food transport conditions. Containers and pallets for the transportation of meat and meat products are high value materials that are constantly moved between our plants, distribution centres and customers.

Prior to the implementation of SAP, the accounting of packaging was carried out between a production plant and a customer. Containers were assigned to a specific plant and waited at the customer’s site to be transported to this particular location. It was difficult to ensure the permanent availability of containers in the plants; besides that, we incurred additional transport costs, and relocation of stock was difficult.

Currently, the central database provides us at any time with the information of how many containers, and of what type, are located at each customer’s site, plant or warehouse. We can coordinate the recovery and distribution of returnable packaging at the level of the company, and not of a single plant. In practice this means that customers return the packaging with a subsequent delivery, no matter where our truck goes or where it has come from.

We centrally control the movement of packaging in line with the needs. We can parameterise the circulation process of containers and pallets to optimise their number at individual locations and to ensure that they are available as needed. This flexible control of the movement, especially the movement of containers, allows us also to optimise transport routes. At present, the destination of packaging transported by us is a matter of choice, not compulsion. We have gained considerable operation flexibility and big opportunities to generate savings.

These distribution tools are associated with another solution built on SAP in line with our requirements, namely a tool for transport support. Its main functions include building optimal routes for delivery of goods and returnable packaging, and the allocation of transport costs to individual sales directions.

In the system we have parameterised distances for each route, so when checking the transport documentation, we do not have to spend time on verifying the number of kilometres travelled. This enables us to automatically allocate and post transport costs.

We have covered with this solution all branches and all people in charge of transport. This allowed us to optimise another element of the supply chain.

By interoperating with other systems that support the logistics area, the SAP system has given us a full picture of distribution-related costs and in some areas has allowed them to be rationalised. We are still figuring out the new solution, but I can say that we are getting increasingly better at it.

The primary objective of the SAP implementation in logistics was to increase the quality of customer service and improve the performance of the company’s operations. To a large extent, this has already been achieved after a few months of working with the system. However, it is never so good that it could not be better. The system is being developed and modified on a continuous basis. Currently, we are working on a solution for handling price tags and delivering them directly to production, among other things. In the longer term, we are also planning further development related to the use of the SAP system in production planning.

Robert Chmiel, Deputy Purchasing Director, the Sokołów Group

Livestock purchasing – innovation in SAP

Sokołów has five production facilities where the slaughter of livestock is carried out. Three of them deal with the slaughter of pigs, while the other two – the slaughter of cattle. We needed a solution for handling the livestock purchasing.

As a Deputy Purchasing Director I am responsible in Sokołów for pig purchasing and the subsequent accounting. Together with Leszek Jakielski, a Deputy Purchasing Director, who has a similar scope of responsibilities with regard to cattle, we were responsible for preparing the conception and implementation of a solution for handling the livestock purchasing in the SAP system in Sokołów. In this pioneering project, in which custom SAP tools were used, the company’s employees and SNP consultants were engaged.

In our company, similar mechanisms are used for the purchasing of both pigs and cattle. Differences in accounting methods were also included in the developed solution. Before the SAP implementation we did not have a common IT solution for the accounting of slaughter costs. Virtually each facility used a different application for this purpose.

Every day livestock from over a hundred suppliers heads to slaughter. At present, there are several thousand suppliers of livestock in total which are registered in our database and this number is still growing. Agricultural production contracts are our primary source of livestock for slaughter. We meet the rest of our needs by purchasing on the free market and from dealers.

Before the SAP implementation, the purchasing process began with agreeing to transaction terms with the supplier, and after slaughter an appropriate price list was assigned to the delivery.

In SAP, we commence the purchasing process much earlier, a few months before slaughter, which begins with the fattening of pigs or cattle. Even as early as this a contract is recorded in the SAP system. Over the next months all changes in the quantity of a herd, that is death and sales for slaughter, are registered.

Prior to any sale a manufacturer submits a number of animals for sale, and the Purchasing Department employee enters an order into the system, specifying all the conditions for a given transaction, including a basic price, a weight limit, types of additional payments that are to be applied and the conditions for delivery and collection of animals.

The slaughter and entering of slaughter data into the SAP system are followed by what is referred to as “pairing" – the slaughter data is combined with a specific order and the delivery accounting is carried out. The accounting of each porcine and bovine animal is made on an individual basis and theoretically, each animal from the same delivery can finally have a different average price. For purchases under agricultural production and program contracts each sale of animals is followed by updating the number of available animals for a given contract and calculating the percentage of the contract fulfilment.
If the supplier is a flat-rate farmer exempt from tax on goods and services, Sokołów issues invoices on behalf of the supplier (RR).

Reports prepared in SAP enable us to draw up specifications required by various institutions, such as the Ministry of Agriculture and Rural Development, as well as for purposes of the company’s internal settlements.

The solution for purchase accounting combines many areas of the company operation into one system: purchasing of livestock and raw materials, logistics, bookkeeping, sales and controlling. It allows you to gather data from multiple locations of the company and present it in a uniform structure. One source of data used on many levels ensures consistency and reduces the risk of errors.

We have the option to carry out a multidirectional analysis, which is useful in making business decisions on the purchase of livestock and raw materials.

We also have a multi-level database of suppliers and herds, which in the long run will allow us to affect the quality of raw materials.

We use innovative solutions for the registration, implementation and monitoring of agricultural production and program contracts. New organisational solutions, including, for example, improvement of IT and management systems, have allowed us to improve productivity and effectiveness. The entire purchasing process is strictly controlled.

The security and authorisation system enables us to control access to information, which has significantly increased the confidentiality of data.

All reports and analyses are available online at each location of the company. It’s a convenient and fast solution, which significantly improves work and allows us to save energy and office supplies. With our scale of operations, the money saved this way is significant.

The application of this tool means an innovative use of the SAP system to provide comprehensive management of the livestock transport process, from a transport order through loading, transport, unloading, livestock receipt at the recipient’s site, up to allocation and posting of freight costs.

Bogdan Biłas, IT Director, the Sokołów Group

The project of the decade

Sokołów SA is continuously improving its business processes on many levels. Two years ago the area that was looked at closely was the sphere of a broadly defined computerisation of the company. Every day, business challenges prompt us to introduce a far-reaching unification and standardisation in IT, however with taking into account the specific features of individual plants resulting from the widespread specialisation.

Prior to the implementation of the SAP system, each plant and company had autonomous software for the management of their business processes. Due to the number of locations there were over a dozen types of systems in use then.

Upon its launching, the SAP system took over the responsibility for handling most of the key processes. We left only those applications whose replacement with a new system in our opinion was not commercially reasonable or would not have brought any new benefits.

The SAP implementation project was perceived from the beginning as the biggest undertaking for many years, not just an IT project. The implementation was, and still is, one of the key elements of the company’s restructuring and it had resulted in significant organisational changes long before the first works were commenced.

The project covered all branches of the company and the Management Board Office as well as the processes that are critical for the company’s operation: the supply of raw materials and production inputs, purchasing of livestock, warehouse management, distribution and logistics, finance and accounting, as well as controlling including consolidated financial reporting. A data warehouse and PI platform were also implemented. The latter functions as a link between SAP and other applications, including production, automatic product identification, post-slaughter classification applications, etc.

Due to the scale of the project and the geographical dispersion of production plants, around 70 people were directly involved in the project. Some of them were released from their daily duties for that period. The full engagement of the entire team, from the stage of building a concept through to acceptance tests, allowed us to avoid – almost mythical – problems with the system implementation.

Senior executives and management board members were also engaged in the project. The latter often had to make decisions crucial for the project. As the head of the project I can say that the enormous support provided by the management board for the project was extremely important for project risk management.

On May 4th, 2010, after only 17 months following the start of the project, the system went live in six production plants and in the Management Board Office simultaneously. We also rolled out the SAP system to the plant in Dębica, which was incorporated into the structure of Sokołów on December 1st, 2010.

We are planning a further expansion of SAP. Currently, the system is being implemented in regional distribution centres. SAP HR and several related solutions will be implemented for sure. A production planning module is waiting to be implemented. We have also identified a large need to build a system that will improve internal communication in a broad sense, and I don’t mean e-mail.

As you can see, appetite comes with eating and I’m sure that the coming years will be full of further challenges, which will cause Sokołów to continue to be perceived as an innovative and well-managed company.

The daily IT support of production plants and the implementation of all IT projects in the company are the responsibilities of the Sokołów IT Office, which I am pleased to manage. At present, there are 26 people on the team. We have establishments in all branches. The head office and the central server room are located in Sokołów Podlaski. The centralisation of IT staff has enabled us to better manage competence, to provide business-oriented training of personnel as well as to plan and budget activities in this area more precisely. The IT Office is also involved in planning the majority of investment projects of the company.

An IT system is a “living organism", which changes with the changing business environment. The possibility of continuous support and development of its functionality is not negligible. So we decided to cooperate with SNP in SAP service and application support. This allows us to respond to emerging business needs on an ongoing basis by creating tools in the SAP environment that enable them to be handled in the best possible way.

At the same time, we systematically build our own competence on many levels. We have extensive experience in system administration; we are also familiar with ABAP development and building necessary interfaces in cooperation with a SNP team. This makes the road from an idea to its implementation very short in our company.

In recent years the role of IT in a modern enterprise has changed substantially. Currently, IT is an integral part of the business. By providing a variety of forms to reach an internal and external customer, we support the competitiveness of the company and change its image. By providing management staff with precise, reliable and timely information, we create the conditions for making responsible decisions and reacting quickly to changing market realities.

The image of an IT specialist has also changed radically. There are people among us who have a business degree in addition to specialist IT qualifications. All this helps establish partner relationships and better understand the needs of those who must quickly respond to the needs of our customers in order to build a new measurable value in the short and long term.