Welch's focus on innovation is one of the reasons it is a leader in the competitive consumer fruit products marketplace with more than 400 offerings on grocery shelves—from jams and jellies to bottle and refrigerated juices. Welch's is the processing and marketing arm of the National Grape Cooperative Association and it depends on Oracle enterprise resource planning (ERP) tools to help effectively manage its manufacturing, inventory, and distribution processes. Welch's began the move to Oracle ERP in 2003 and expects to complete the deployment in 2007. Welch's CIO Larry Rencken has spearheaded the move from the firm's formerly nonscalable environment to one that offers a strong foundation on which to grow. Important core processes are being transformed under Oracle ERP, including product lifecycle management, plan to produce, and demand generation. Learn how Welch's is achieving a single comprehensive data repository, smooth integration among production facilities, and streamlined and automated processes with Oracle's ERP applications—putting the firm in a stronger and more flexible position to embrace opportunities in highly competitive arena.

As Published In May 2006

The Big Squeeze
By Molly Rose Teuke

Built-in best practices help Welch's get the most from ERP.

When they talk about the weather at Welch's, it's not idle conversation. Weather conditions have a direct impact on crops harvested by Welch's 1,309 growers across the U.S. and Canada, and that, in turn, has a direct impact on the complexity of Welch's manufacturing, inventory, and distribution processes.

Welch's can't do much about the weather, but it can embrace a climate of change in supporting and driving those processes. The company—and the fruit juice industry as a whole—is still using the pasteurizing principles Dr. Thomas Bramwell Welch borrowed from Louis Pasteur in 1869 to process the first unfermented commercial grape "wine." But even as the company remains true to its scientific roots, innovation is what keeps Welch's a leading presence on grocery store shelves. Its portfolio of some 400 products ranges from jams, jellies, and spreadable fruit to bottled juices, refrigerated juices, and sparkling juice cocktails; frozen and shelf-stable concentrates; and a variety of single-serve fruit products.

Welch's began implementing enterprisewide technology solutions in the early 1990s and made a decision in 2003 to implement Oracle's enterprise resource planning (ERP) tools. Which brings us back to the weather and its impact on how the company does business.

"When our growers bring in a very large crop, we have to have demand in place that balances well with our supply," says Larry Rencken, Welch's CIO. "And a large crop that's high quality is a much different dynamic than a large crop that's poor quality, because we have very strict standards for our end products. With these factors in place at the ground level, we needed to make a good decision from an overall infrastructure perspective that allowed us to compete in a profitable way."

A Changing Climate

Welch's is the processing and marketing arm of the National Grape Cooperative Association, charged with building stable, long-term value for its growers. It's no easy task. The weather, which in 2003 brought about the poorest-quality crop in memory and in 2005 helped produce an exceptionally bountiful crop, is one factor. Another is a drastic increase in cost of inputs—plastics and other raw materials, energy, and transportation—which have increased by more than US$38 million in 2005.

Growing Welch's, says Rencken, is essential to remaining competitive in the larger marketplace of consumer fruit products. In an average year, roughly 25 percent of the company's portfolio is less than five years old. "We're the leader in grapes, but we're competing against the large beverage manufacturers and other juice facilities as well," Rencken says. "A future focus for us is to take the equity that we have in juice and continue to expand it into other fruit products that are not necessarily juice. We're developing fruit snacks and dried fruit and other products to expand that portfolio." An example is Welch's new fruit spreads, packaged in inverted plastic bottles with a proprietary no-fuss valve for squeezing out just the right amount.

End-to-End Efficiency

As Welch's has adapted to the requirement for product innovation, the same adaptive imperative has begun rippling through the company's IT infrastructure. In 2003 Rencken, who moved from the sales and operations side of Welch's to become CIO last June, began the search for enterprisewide technology solutions.

"It really started with the fact that we had an old and fragile infrastructure with three platforms and some products up to 25 years old—applications that were so customized they were not upgradable," says Rencken. "We were a classic organization in the 1990s in that most of what we did, we did in a one-off environment. We ended up with a nonscalable environment in categories that were becoming more and more competitive. We also wanted one source of truth. And we wanted a foundation to grow upon. We had an infrastructure with a lot of spaghetti code keeping it together, and we now have a desire for one fully integrated enterprise."

The company's IT spending has jumped to about 2.5 percent of annual revenue, higher than the consumer goods industry's average of 1.8 percent (according to Grocer's Manufacturers Association), but Rencken expects that to fall back in line once Welch's completes its ERP deployment in 2007. "It's important to lay that comparison against a decade in which we were half again below the industry average year in and year out," he says. "You always have competing capital demands within an organization. Choices that were good choices at the time—where we may have made the investment in a production line or in packaging and maybe not in what ended up being diverse configurations, where the IT infrastructure was different at each plant—are now exposed when you put this integrated suite in. We had to catch up and add additional investments to get to an integrated environment. Up to now, we've been one of only 9 percent of CPG companies without bar coding in our distribution centers. We didn't feel that by itself bar coding provided enough benefit, but you don't realize the benefit of Oracle without a data collection environment, so we're adding it."

The attention to infrastructure is essential to successful implementation, says Jim Shepherd, senior vice president at Boston-based AMR Research. "You need to think about this as a business transformation project, an opportunity to do organizational change and business process improvement," he says. "The real value of ERP for many companies is the implementation process itself. It forces people to ask, 'What do we do? How do we do it? Why do we do it this way? Do we need to do it at all?' The ERP software becomes an enabler of that. It's a catalyst, but it also provides guidance, because lots of best practices are built into the ERP system. As companies examine how they do things and look at end-to-end business processes, they begin to realize how much inefficiency has crept into their operation, or been designed in, or is forced in because of the siloed ways they're organized or because of the political fiefdoms that have been established."

With Oracle's ERP applications, Welch's is achieving a single comprehensive data repository; smooth integration among its production facilities in Michigan, New York, Pennsylvania, and Washington; and streamlined and automated processes. Rencken cites five core processes that are being transformed under Oracle's ERP: order-to-cash, plan- to-produce, procure-to-pay, demand generation, and product lifecycle management. Underlying those processes are Oracle's financial and human resource management tools. Implementation of supply chain applications is also under way and will be fully operational by 2007. Together, these altered processes put Welch's in a stronger, more-flexible position to create and embrace opportunities in a highly competitive sector.

Owning the Process

Snapshot Welch's www.welchs.com Welch's, an agricultural cooperative, is the world's leading producer of juices, jams, and jellies made from Concord and Niagara grapes, grown in the United States and Canada. Location: Concord, Massachusetts Product portfolio: 350 Does business in: 50 countries Year founded: 1869 Revenue in FY 2005: net (sales) of US$578 million Number of member growers: 1,309 Number of employees: 1,210 Oracle products and services: Oracle9i Database, Oracle Application Server, Oracle Real Application Clusters; Oracle E-Business Suite 11.5.10, including Financials, Human Resources Management System, Manufacturing, Order Management, Supply Chain Management; Oracle Consulting Other products and services: 42-way Dell Servers 2250 and 24-way Dell Servers 6650 running Linux Red Hat version 2.1; consulting services from Rapidigm

As Rencken and his implementation team developed a governance structure for the project, they put company executives in place as business process owners. Working with functional and technical teams, they determined which processes will be commonly used across the enterprise. "We identified 215 subprocesses in our plan-to-produce environment, and only quality was done the same way in all four plants," notes Rencken. "We've communized every one of our five core processes—we haven't necessarily centralized every one, but we may use that same process in a decentralized fashion. It's also important to mention that these business process owners do not go away. They stay with the scope of responsibility."

Lot control is a good example of a critical process transformation. Transparency and accountability are essential in the consumer goods market. "We define a lot as basically what you produce or what you started with," says Rencken. "Any time that you make a change to a lot, it becomes a new lot. If there should ever be a need to track a lot from a store location for any reason, such as tampering, the federal government says you need to understand that product and everything that went into it. Demands will only continue to escalate in terms of being able to quickly understand our entire lot genealogy. Oracle allows us to understand the genealogy all the way down to the individual unit. Oracle enables that increased visibility, and that's very important."

The transparency of automated workflow, Rencken adds, will result in more-effective process audits and a clear view of where bottlenecks are occurring within any business process. Also slated for overhaul is the inventory process, which Rencken notes currently relies on an outdated distribution network that is too closely tied to production facilities and results in inventory levels that are too high. "We don't have visibility into specific inventory in each of those locations in real time," he says. "We're trying to give our internal customers in every department across the organization—International, Finance, HR, Sales and Marketing, Purchasing, Operations—easier, simpler access to real-time data."

"We want this foundation to be one that we can grow on, not necessarily easily, because ERP is not easy, but with the flexibility to build this product to meet our business needs without custom code," adds Rencken. "We're about 50 percent through implementation without custom code. But the product does have the flexibility to be extended with code that is upgradable. We think this is a long-term solution for us. It's not something that we just bring up and never add any more functionality to."

In fact, early in the implementation, Welch's took time out to upgrade to a newly released version of Oracle's ERP software that included several tools that had previously been available only in the customer relationship management suite. "We looked at the new functionality and compared it to areas where we knew we had gaps that we thought we were going to have to live with for awhile. Since we hadn't started implementing on the supply chain side, we decided to go through the upgrade. The functionality and benefit you get from the XML gateway with new products like iSupplier and iProcurement, among others, really take the base product to the level where it's adding the kind of benefit you would expect for your investment," Rencken says. "It was a very successful cutover; we did it on time and on budget."

Although Welch's is just over halfway through implementation, Rencken cites a number of efficiencies already achieved. Large journal entries that once took up to four hours now take only a few minutes. Reporting is downloaded into Microsoft Excel instead of being manually rekeyed; budgets can be uploaded in minutes. Running allocations in the legacy systems was cumbersome, and errors were hard to correct; today, allocations run automatically and can be corrected with a few clicks. Accounts-payable information is more transparent and accessible to those who need it.

"We intend for this [Oracle ERP] product to allow us, as IT, to maximize value to our users by taking out nonstrategic activities that require them to get the data from four or five different sources, take things offline, crunch numbers, and put them back in. They should be able to get it all out of Oracle," Rencken observes.

Looking Forward

For More Information LEARN more about Oracle's solutions for the consumer products industry

Although Welch's can't change the weather, it can make the most of a rapidly changing business climate. "It really comes down to the fact that as a consumer packaged goods company, we go where the largest share of our business goes," Rencken says. "Our largest customers are driving the RFID initiative. They're driving the UCCnet and data synchronization initiatives, which are driving the globalization of what we know today as the UPC code. Soon, it won't matter whether an item of ours is in China or Mexico or the U.S., because we're now communizing shelfkeeping units. Oracle enables us to build in this environment effectively.

"For the vision we have of being able to effectively and seamlessly communicate with both our suppliers and our customers, Oracle's XML layer and where the company is going with that product was very attractive to us," he adds. "It's the Web layer that allows us to work with our partner network without giving them access to proprietary information, because we decide what we want to make available to them in this Web environment. This is the beginning of service-oriented architecture, and we see that as the foundation. We didn't have that before. Without Oracle, we would have been a company that just tried to get by on another one-off.

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