If you had to pick out a single company to stand for the whole New Zealand economy then dairy giant Fonterra would be very high on the shortlist. We caught up with chief executive officer Andrew Ferrier to gain his insights on how technology helps to exploit the opportunities and address the challenges that face this global exporter.

Ferrier, who hails from Montreal in Canada, started his career in the sugar industry almost 25 years ago. After completing an MBA “with a finance bias,” he joined the trading desk of sugar company in Canada, before becoming involved in financial planning and then sales and marketing. He rose to run the Canadian operation of British sugar multinational Tate & Lyle , and eventually took charge of the company across North America, which included the United States operations and a joint venture company in Mexico.

Then around 2000 he entered “a totally different world”, when he became the CEO of a Toronto-based building products supplier, GSW.

“It was a fantastic challenge because I’d been in the sugar industry for 16 years and I wanted to see if I could transfer CEO skills to a totally different industry,” Ferrier explains. He soon discovered that he could.

“I had a good run. We got the stock price up very, very substantially, I guess it was a bit of a turnaround…” That was when he received a call “right out of the blue” from a headhunter who wanted to know if he would be interested in running Fonterra. “I am pretty sure this was because of sugar background rather than GSW,” says Ferrier.

The dairy industry in New Zealand has much more in common with the North American sugar industry than you might think.

“When you actually cut to the chase, both are agricultural products, both you are dealing with farmers right through to consumers. Both of them sell products not just to consumers through grocery shops but as ingredients to food companies. Both of them invest in quite a bit of technology to get up the ingredient value chain and both are dealing with trade barriers all over the world. So there’s a fair amount of similarities between sugar and dairy.”

Ferrier says the two industries both offer exciting opportunities to create new high value products through technology. “It’s pure R & D whether you are dealing with the sucrose molecule or the compounds that go into milk. Technology is splitting these molecules up and finding the most useful applications.

In sugar it was the creation of high intensity sweeteners based on the sucrose molecule. Tate and Lyle for example is very well known for its Splendour product, a high intensity sweetener. It’s made from sugar but it’s 600 times sweeter and you can’t metabolise it so there’s no calories.”

With milk, Ferrier says the opportunities are “just endless” and he cites pro-biotics, or “good bacteria” which people are now seeing as a positive thing in yoghurt,” as being just one example.

Core systems
At a more mundane level, Ferrier says you need robust systems to run the day to day operations of either a multinational like Tate & Lyle or a global business like Fonterra. ERP systems are playing an important role in unifying Fonterra and aligning the company in a new direction.

“When Fonterra was created four years ago it became a standalone company with a different mission to its predecessors,” Ferrier explains. “We are now a business which is trying to be driven by our international customers. So what we had to do was turn the whole supply chain around from being supply driven to demand driven. And in our ingredients business we had to take all that back office infrastructure in our independent sales offices around the world and create one single ERP system that worked globally.”

Fonterra rolled out SAP across its ingredients business as part of a project that was internally named Project Jedi. “What we have done is create a global back office for the entire 140 countries that we are selling in throughout the world and a global customer service centre here in Auckland. It works 24/7 in multiple languages and it’s dealing with the world as a single market.”

At the time, the local SAP software component was reported as being worth $15 million but Ferrier says the total cost of the project world wide was around $230 million.

“This was a very significant rollout of a suite of SAP initiatives and solutions across our ingredients business,” he says. Ferrier says Fonterra’s branded business, which includes Anchor milk and butter, is operated as a separate business unit because “the customer drivers are different.”

However, the company is always looking to achieve efficiencies through closer integration of the two business units.

“Increasingly what we are doing in Fonterra is trying to identify those businesses only by the parts that face the customer to the extent that we can share a common supply chain and share common support services. The first thing that we did was we went to common systems in the ingredients business and that was the SAP thing. The branded business is more decentralised. It uses a JD Edwards platform and consolidates that way.”

Ferrier, who has a lot of experience in integrating systems across disparate organisations (Tate & Lyle’s US operation consisted of around 60 constituent companies), says the process is by no means complete.

“We are just in the process of evaluating the opportunities of creating that single supply chain across the company. We’ve changed the responsibilities in core manufacturing to make sure we can do that and there’s a lot of technology we want to put in.”

Tech savvy
Another area where technology is employed extensively at Fonterra is in financial modelling and business intelligence. The global nature of the business means that it is uniquely exposed to vagaries of the foreign exchange market, commodity price fluctuations and the very changing tastes of consumers around the world.

This is another field where Ferrier has first hand experience. In 1983 he was put in charge of the first ever PC owned by his first employer in the sugar industry with a view to modelling its trading operations. “Eventually they put me in charge of planning for the company. I put the whole company on Lotus Symphony, a spreadsheet that was a forerunner of Excel.”

Ferrier says Fonterra gets involved with a lot of modelling starting with macro economic and customer preference perspectives. “To stay absolutely on top of the world you need to have a model. We’ve got a number of systems but for some things we outsource. For most macro economic analysis for example we find it more convenient to use research institutes. We’re certainly not afraid to recognise what we can do ourselves versus what somebody else can be better or more cost effectively. We outsource nearly all of our IT infrastructure for example. It’s part of the search to find where the expertise is.”

Ferrier says he gets most of his reports online. “Some I’ll choose to print if I’m travelling but first and foremost everything comes online these days, that’s where it starts. I get a lot of performance reporting, like reports on production – how are we doing compared with how we thought we were doing – mostly as a series of online graphs by region. It’s come a long way, 20 years ago everything was printed. Nothing arrives on paper now.”

RFID tagging
Ferrier rates biosecurity issues as the biggest single exposure the company faces and to address this challenge Fonterra has embarked on a major rollout of Radio Frequency Identification (RFID) technology. “We are viewed very positively in the world, we’ve never had issues with Foot and Mouth and we’ve certainly never had issues with BSE, but we have to be prepared for it. So one of the things that we are doing is improving our traceability system. If ever there was an outbreak of any significance we need to be able to trace that right back to the cows on the farm. We would need to know where did this come from? We’d need to know at which of our 23 plants it originated, what products it got to and what customers.”

“That’s why we are in the process of putting RFID tags in all of the vats that Fonterra owns across New Zealand. We’ll be able to trace milk from the vats to the tanker and up through the supply chain.”

Down on the farm
Another unique characteristic of Fonterra is that its suppliers, over 11,000 farmers, are also its shareholders. The internet has revolutionised Fonterra’s communication with this vital constituency.

“Our connection to the farmers is being driven increasingly by broadband internet,” says Ferrier. “I think that 75% of our farmers, representing roughly 84% of our supply are on broadband internet now.”

According to Ferrier farmers have “acted quite fast to adopt new technology” so Fonterra can increasingly handle transactions like billing and supplier payments electronically. The company has set up an online portal, Fencepost. com, which acts as the major conduit of information flowing both to and from farmers.

“A farmer can log on to Fencepost and get an analysis of the milk that was picked up from the farm for example,” says Ferrier. “We have a real partnership with farmers as they are our suppliers and our shareholders and so we have invested in technologies to make that relationship both better and less costly.” While Ferrier admits there was some early scepticism from farmers he says the technological relationship with farmers is now is “very constructive” and the internet allows the company to communicate with a group that would otherwise be hard to reach.

“Farmers who weren’t at the AGM can go online and hear what I was saying or what the chairman was saying, and those speeches will be online five minutes after the event, so we routinely use these communications vehicles.” Ferrier says that when he first arrived in New Zealand the general level of access to technology was quite similar to his native country. “New Zealand was slower to adopt broadband than Canada but New Zealand now seems to be catching up.”

However Ferrier is critical of the high cost of internet service provision in some areas.

“You can get it everywhere now, but the problem is in some areas it has to come through by satellite so the cost still remains high. So I’m satisfied with the availability but I’m not yet satisfied with the cost of that availability.”

He adds that there a now very few technological barriers anywhere around the world. “There’s a few annoyances around, where there’s a few countries that have different mobile phone technology than other countries so you cant take a GSM phone and use it in Japan for example. So there’s a few small things that need to be worked out, but we are not seeing major technology issues anymore. It’s just the five or six countries where I can’t use my GSM phone or my BlackBerry that get on my nerves.”

While declaring that he is a firm believer in the value of face to face meetings Ferrier says he is impressed with the rapid advance of electronic communications in areas like internet telephony and videoconferencing, and these will increasingly be used to help run Fonterra’s global operations.

“I encourage a culture within the organisation of pushing the envelope and finding better ways of doing things and VOIP is an opportunity for any business to improve their effectiveness at lower cost. The exciting thing about this is how rapidly technology is moving in the communications space. To cite a personal example the other day I heard my 12-year old son chatting aloud – I knew he was on his own and so I walked in and he was videoconferencing with a friend in Australia, not on Skype but on MSN Messenger. It wasn’t so long ago that we were struggling to have videoconferences from Canada to the UK for example and we’d have six phone lines hooked in. One of the things I am pushing here is to take advantage of that technology, rather than jumping on a plane. The technology is so simple now and so available. You are going to save heaps of money.”…

Children’s wear manufacturer, retailer and wholesaler Pumpkin Patch is one of the great kiwi business success stories of recent years. Founded in 1991 as a mail order business with one store, the company has grown to become the largest specialist children’s clothing retailer in Australia with over 90 stores in four countries. Last September Pumpkin Patch reported its profits had tripled to $24.6 million in the year to June, but the growth won’t stop there. Over the next year the company plans to open over 20 new outlets including six stores in the UK and three in the US.

We caught up with executive chair Greg Muir at the company’s East Tamaki headquarters to gain his insights on how the company has used technology to manage the phenomenal growth of the business.

Executive role
Muir joined Pumpkin Patch two years ago following his stint as CEO of The Warehouse. While running The Warehouse was Muir’s first experience of being at the helm of a public company, he had previously held CEO or general manager positions at the Blue Star Group and TNT Logistics, and prior to that he was a divisional manager of Lion Nathan.

Along the way Muir gained an MBA and part of the course included writing a program for small business financial modelling. He says this helped to spark an interest in technology.

“For 20 odd years technology has held a fascination for me and I’ve been looking to use it wherever I can. The Warehouse in particular was a great organisation for using technology with an incredibly powerful database, very good reporting tools and sophisticated merchandise planning tools. It’s a leader in New Zealand or even the South Pacific in terms of the technology it has and the way that it uses it.

”Muir says this interest in technology helps in his role as a CEO. “I don’t claim to be an expert in it, but I think that having that macro overview of what’s possible is important for a senior executive to know nowadays because it can make such a big difference to your business if technology is employed appropriately.

“At Pumpkin Patch Muir shares the day to day running of the company with managing director Maurice Prendergast who runs the manufacturing and retail side of the business. The “chair” part of Muir’s role focuses on governance and board issues while the “executive” part of his title includes responsibility for the company’s international wholesale business.

“We’ve got wholesale operations in the Middle East, Europe, the United States and Australia, and we are looking at developing through Africa, Asia and some other European countries. That’s the part of the business I look after day-to-day.”

When Muir arrived at Pumpkin Patch his first task was to prepare for an initial public offering (IPO).

“The company was going to float six or nine months later so the most important thing was getting the business ready for the IPO. This meant talking to advisors in the broking, finance and legal sense, preparing the prospectus and generally making sure we were in the best shape when we floated.”

Muir says the company’s IT systems proved to be up to scratch when it came to providing investors and brokers with the information they required.

“One of the really great things about this business is that Maurice Prendergast, who has been the managing director for 12 years, has always had a good understanding of IT. IT has been a cornerstone of the organisation right back from the early days when we were a catalogue business. In that business you needed good IT systems for both your database and your logistics management and we continue to build on both.”

Merchandising and logistics
Muir says the company runs separate systems for outbound merchandising, the catalogue and e-commerce businesses, as well as point of sale (POS) systems in the stores, and general internet and email links.

“We operate in four different countries and lots of our executives are travelling regularly so the technology is an important part of keeping us all in contact with one another.”

All Pumpkin Patch products are designed in New Zealand by the company’s own team of over 30 designers, but nearly all manufacturing takes place overseas. All products are shipped back to the East Tamaki distribution centre before being dispatched to the stores or wholesale customers.

“Technology is what hangs our business together, and I guess the two major components of that are point of sale – being able to sell merchandise – and the second one is logistics. We ship merchandise out of our distribution centre here in Auckland four or five days a week to stores around the world and that requires a good system to do that.”

The company’s core IT system is a Microsoft Great Plains financial package but it is also running a logistics system and various subsidiary ledgers which have been developed in house. The principal POS systems have been developed by local solution provider ALM but the company is currently testing a US-developed solution for its stores in that country.

Online reporting
Pumpkin Patch has also recently implemented a centralised database based on the Microsoft SQL Server platform and the Web FRX web-based reporting facilities which are built on top of that system mean Muir can access all the information he needs online.

“It enables us to drill down, create customer reports, or look at pretty much anything we want to. I still get some reports, for example weekly sales by store, coming through here in hard copy form just because it’s nice to have a paper document to look at sometimes, but pretty much everything else – accounts payable, debtors or sales reports – all come through the web now. Some of those can be pushed through and others you just go into the system and pull out yourself and we can do that from any machine that is web enabled anywhere in the world.”

Because he is working at the governance level for much of the time Muir says he doesn’t have to work too much from reports but he says they are vital for managers working in design, merchandise planning and store operations.

“Data is an incredibly important part of what we do, you literally can’t run that part of the business without it. Having timely and accurate information about various activities is mission critical. In any season we’ve got 1,500 styles and each style will have different variations of colours and sizes. If you take all those permutations and you look at moving merchandise on a daily or weekly basis the number of stores we’ve got around the world you couldn’t do it if you didn’t have sophisticated IT. If you sat down with a piece of paper you’re never going to do it.”

e-Commerce
Pumpkin Patch runs an e-commerce website and maintains separate customer email databases in all the countries it operates in. In New Zealand the company’s e-marketing services are provided by MessageMedia.

“It’s a very important part of our marketing,” says Muir. “If we could we’d like to have the email address of every mum who visited our store and be able to communicate with them. We also do e-marketing in the UK, the US, with separate databases for every country.”

Pumpkin Patch also makes some direct sales from its website at www.pumpkinpatch.co.nz but the volume is relatively small.

“It’s not a huge part of our business any more because bricks and mortar have largely overtaken it. The direct business used to be a huge part of our business but as we started to get stores in all of these towns it calmed down. Now I think the website is starting to add another layer of customers who are either too busy or too far away to buy in the stores.”

Muir is keeping his eye on technologies like RFID (Radio Frequency Identification) and he is aware of forthcoming trials at The Warehouse but he says Pumpkin Patch will not follow its lead yet.

“It may come in time but there are no immediate plans to implement it here. At The Warehouse they have a totally different product group – we have got 1,500 styles, they have probably got something like 100,000 line items – so their complexity matrix is dramatically different to ours.”

VoIP is another matter. “We are starting to have IP links as the primary or the only means of communication to our stores from here, for data and then VoIP over that. We are in the middle of a big change-out of our phone systems and that will include voice over IP as an important part of our voice communications around the globe.”

As Pumpkin Patch is both an importer and exporter Muir says movements in the exchange rate have been largely neutral. At present foreign exchange transactions are handled by a mainly manual system. The company buys in US dollars, so there have been some gains as the greenback has fallen in value, but it also sells in US dollars, Australian dollars and the Euro, the last two of which have been high in recent months.

“Net-net they pretty much wash out to be a neutral currency effect,” says Muir.

Personal kit
Muir lives in Kohimarama with his wife Debbie and their two children, a son aged 10, and a daughter aged seven. Despite his interest in technology, Muir does not surround himself with gadgets. He does have a wireless LAN at home which means he can securely access the corporate network from anywhere in the house, but he likes to spend his leisure time playing golf, coaching his son’s cricket team or refereeing his junior rugby matches.

“I actually quite like to have my email and my telephony separate – I don’t need in my day to day job to have email on the run so I choose not to have a 3G phone, I just have a normal mobile phone. I have a Hewlett Packard tablet PC which is totally portable and which I take all around the world with me and that’s pretty much it.”

For the medium term at least, Muir’s future plans seem to be firmly centred on Pumpkin Patch.

“I certainly plan to be here for quite some time. This is an incredibly exciting business with some wonderful opportunities well beyond the two to three year horizon here for international expansion.

So my horizons pretty much start and end with this place at the moment, it’s a pretty good place to be.”…