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.”

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