Efficient ResponseBy Deborah Gage | Posted 2002-07-10 Print
The Springdale, Ark., food giant produces more than 146 million pounds of chicken per week and it's looking to electronic exchanges to get more efficient—and gain understanding of the products people want to eat.
Towering over railroad tracks like the ones that once led to the stockyards is EFS Network, on the 21st floor of Chicago's CitiCorp building. This foodservice order exchange is Tyson's remaining investment in business networks—and the only one right now through which it is trading.
The other network it backed, Provision X, ran low on funds and was acquired in February by iTradeNetwork, a maker of workflow software. iTN CEO Robert Bonavito says Tyson will be conducting retail trades through iTN soon.
EFS has a sweeping view of downtown Chicago. But it operates in space occupied by a succession of dot-coms; and it is a sublease. To remind itself of its relative fragility as a startup, EFS has left up a mural painted on a hallway, as a motivating reminder that that prior tenant's Internet venture was whipped into submission by Home Depot.
Carrying dot-com pasts, in fact, are several EFS employees, including CEO Hank Lambert. He combines stints at Internet ventures with experience in traditional businesses that could use the technology in an electronic exchange.
Lambert ran the foodservice business of Nabisco for eight years, selling cookies and crackers, for instance, to the same customers that now buy Wings and Drummies from Tyson.
That may give him the necessary sense of why EFS should have a real role to play in improving its customers' businesses. EFS was founded not just by Tyson, but foodservice distributor Sysco, food processor Cargill and McDonald's, which sells a few billion burgers.
EFS aims to eliminate an estimated $5 billion of waste each year in the movement of products from producers like Tyson to operators like McDonald's. Among the problems caused by poor communications: excess inventories along the supply chain, misdirected products, unauthorized substitutions and spoilage.
"There is nothing more frustrating than being shorted by a supplier, a hundred or two hundred cases of cups, and knowing that somebody, somewhere has made 16-oz. cups and what everybody needs is 12-oz. cups," says BiRite general manager Dennis Collins.
While Provision X was trying to serve a variety of meat customers—including grocers such as Kroger, and processors that turn out products like hot dogs and smoked ham—EFS has focused solely on foodservice, and even more narrowly, on the interactions between suppliers like Tyson and its distributors.
In May 2001, EFS merged with Maverick Xchange, a network of 10 large and mid-sized foodservice distributors, and now claims around 70 members, 19 of which are investors. Tyson and two of its distributors—BiRite and Martin Brothers—were the first three companies to begin trading over EFS and have been processing orders through the network since December.
Processing correct orders and invoices is the cornerstone of what Lambert sees as a five-year plan that will build from managing contracts and rebates through coordinating the delivery of products to managing inventory based on up-to-the-minute information about customer demand.
Lambert figures EFS needs 200 customers to generate more cash from its operations than it consumes. That's a milestone EFS plans to achieve by mid-2003. To date around 20 companies, including Hormel and Reynolds/Alcoa, are trading on the network, and over 20 companies are in various stages of transferring portions of their order-processing online. Cargill is not yet trading, and EFS has just begun talking to McDonald's distributors.
In the beginning, Tyson anticipated no savings from EFS, says Adam Parisi, Tyson's director of e-business. Indeed, the company went into EFS expecting a loss. But it had been frustrated by the limitations of Electronic Data Interchange, a technology that pre-dates the Internet for conducting trades over private networks.
With EDI, Tyson was trying to tackle many of the problems now being tackled by EFS—better inventory management, more efficient operations, and better processes for tracking and recalling products. However, EDI is expensive. For example, transactions over standard Value Added Networks (VANs) were charged by the character. Plus, EDI transactions require negotiating separately with each customer over which data fields should be included in a particular transaction. "In foodservice, a lot of information needs to be traded," Parisi says.
Tyson's Tripp says EFS can help her company establish business practices that will serve a wide range of its distributors.
And the savings could be substantial. Parisi says he would be happy to reduce inventories by even one day, given that Tyson moves $7.2 billion worth of chicken a year.
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