How to optimize business processes in the meat industry without increasing the number of employees and using the same assets exemplified by the case study of Cherkizovo Group
The automation of meat industry enterprises has now become an urgent necessity. The tasks of increasing revenues and entering new markets for selling domestic products, and, as a consequence, continuous adaptation to meet the diverse demands of consumers require high speed from modern manufacturers. They must adapt quickly, keep up with demand and, last but not least, ensure high quality and product safety.
Indeed, in a highly competitive market environment and regular but diverse socio-economic changes in the market, it is very difficult to maintain one's position. Not all manufacturers have been able to take in the situation; the process of business consolidation has already started. For example, in 2022, Noviye Utiniye Fermi (duck farms), a member of «Damate Group», purchased part of the assets of Donstar, once the country's largest duck meat producer that went bankrupt, the through auction. And there have been more than a dozen such deals in the last two years alone.
Major enterprises, however, readily accept the challenges of the time and actively apply promising technological developments to solve the most complex tasks posed by today's dynamically changing external environment. By automating their production operations based on independent and reliable Russian IT solutions, such enterprises create a sustainable business model and improve the country's food security as a whole.
According to Alexander Eder, According to Alexander Eder, Ph.D., Director of Agribusiness Development of K2Tech, food enterprises regularly face a huge number of risk factors and, to minimize them, major market players continue the previously postponed implementation of complex digital projects to automate their business and production processes: "The agricultural sector has always been quite conservative, but now it has become obvious that producers who receive additional support from the government more actively implement solutions that form the digital foundation of their IT infrastructure and then combine them into a single digital platform. At the same time, they rely on mature Russian developments as more stable and promising".
According to Alexander Eder, automation has a direct impact not only on risk mitigation and increases profitability of the company but also on product safety. For example, in the past, meat processing plants used to pack piece products manually: the staff would slice the product, put it on a scale and if it was short of 50 grams, they would take the shortage from another package. The unstructured process of planning the consumption of raw materials and regular human contact with the product adversely affected the product’s quality and shelf life. For example, by automating the day-to-day planning process, meat processing plants can offer their customers guaranteed delivery times and reduce their own costs.
“We can see across the market as a whole that automation in the meat production and meat processing segment remains at a low level. Nevertheless, companies have already begun to accumulate quality expertise in this area. It is important that industry leaders share their experience and continue to develop their systems”, - Sergey Ivashchenko, Head of Production Planning at GoodsForecast, said.
The excessive production of any kind of product leads to losses. Underproduction results in lost revenues. Planning is one of the most important steps at meat processing plants. Mistakes at this stage can lead to serious losses for the company due to the sub-optimal utilization of raw materials, inventories, space and frozen capital. The company may also be penalized for failing to meet delivery deadlines or suffer lost profits by not meeting demand. A company can also lose money on write-offs if its output exceeds the demand. Emergency production changeovers due to planning errors also lead to additional costs.
Today, in many food processing plants, accounting and planning are still done manually. Planners enter data into a large number of Excel spreadsheets, and this approach creates many challenges, including the risks of incorrectly inputting information. In addition, enterprises handle not only actual information but also historical data, and to process the array of such data a person needs a significant amount of time.
An alternative option is GoodsForecast, an automated production planning system developed based on predictive analytics and machine learning and capable of processing tens of thousands of lines of historical records per second. “The system devises an optimal plan for the enterprise, selecting it from tens of thousands of possible solutions. A person is simply not able to go through so many options,” Sergey Ivashchenko, Head of Production Planning at GoodsForecast, said.
By implementing machine learning and artificial intelligence technology, planners are now able to compare multiple production scenarios by changing various input parameters and select the most optimal option for the business taking into account constraints such as scheduled equipment repairs and lack of necessary raw and basic materials.
GoodsForecast balances production and selects the best way to cut raw materials so that customer demand is satisfied to the fullest extent and unused raw materials are minimized. For example, a large regional agroholding, which implemented this technology by integrating it in the company's infrastructure, recorded a 9% improvement in the turnover of the company's fixed assets, an overall reduction in the shortage of finished goods by 20% and a 30% reduction in labor costs for inventory management.
“You can't put the chicken back together once it's been dismembered. Superfluous cutting is unprofitable and low liquid. That's why the ‘healthy sleep’ of a poultry farm’s planer stems from the right production target and automated balancing”, - Lev Belyov, Supply Chain Director of Cherkizovo Group's Poultry segment, said.
Cherkizovo Group produces mainly chilled chicken products. Several large factories operate concurrently to supply the required volume of products to the market. One of the tasks that the company's management had to solve was to organize the process of planning the company's resources in such a way that each customer would receive the required product mix on time.
Cherkizovo Group's specialists had to collect and process orders from retail chains within a very short period, i.e., balance and correctly place the resulting order at the production site. As for specific deadlines, the poultry farm must produce and deliver the products to each retail shelf in Moscow, Saint Petersburg and other regions of the Central Federal District within 48 hours of receiving an order.
It was necessary to distribute the load evenly between the sites, reduce the daily work time of specialists devoted to the distribution of production orders by automating the processes concerned, enable daily production planning using a single logic and factor in more criteria and performance indicators in the optimization process. At the same time, it is necessary to maintain a high level of services.
To that end, Lev Belyov, Supply Chain Director of Cherkizovo Group's Poultry segment, noted: “A peculiarity of our business is that the products are delivered both whole and cut. It would seem that there is nothing complicated about dressing a chicken. However, once you cut something off a chicken, it's no longer possible to put it back into the carcass. Half cut chicken is low liquid and will be difficult to sell. Accordingly, if we dress an excessive number of chickens by not optimally placing orders with our plants, this will result in a financial loss. That said, it is important to realize that chilled chicken’s liquidity period is one day. That is, you can't produce a product in advance - it will not be fresh any longer. Therefore, the poultry farm makes products exclusively to order, strictly against the clock”.
Automated balancing helps generate the right production order with the right lead time. The Russian automated production planning system GoodsForecast was chosen to address the task. The system generates demand forecasts and probable order volumes within minutes given new products, promotions, product cutting options, raw material, production and packaging capacity constraints. By capturing this information, the system generates an optimal production plan and balances orders across production lines. The production forecasting system selects the best option from the many available scenarios for distributing orders among production sites to cover demand at the lowest cost in a matter of minutes.
The project involved not only daily balancing but also monthly, weekly and daily planning with a breakdown up to each chicken chop, customer and region. Production scripts for the next 14 days were also drafted.
The automated system now helps Cherkizovo Group's specialists collect and analyze information by plants, shipping warehouses and customer orders, take into account production constraints, preferences in choosing plants and warehouses, specifics of shipping and production operations, raw materials and finished goods balances, shelf life and vehicle routes. As a result, the company succeeded in balancing its production plan in 5 to 7 minutes and optimized the utilization of its production assets. The system's application resulted in the company recording a 30% increase in sales and a 20% decrease in the write-offs of raw material balances as early as in the first year.
Practice shows that the introduction of automated production planning systems quickly pays off and brings benefits both in terms of finances, process controllability and rational use of resources.