After the EU milk quota system was scrapped in 2015, Arla Foods faced a significant increase in milk production which destabilized milk prices and pressured farmers. To gain global transparency and coordination, Arla implemented a Sales & Operations Planning (S&OP) process and standardized SAP system. The new process provided integrated demand forecasting, production planning, and inventory projections across Arla's global operations. Early results showed improved forecasting accuracy and coordination. The program increased transparency, improved decision making, and helped Arla maximize value across its global business.

1. CASE
1Implement Consulting Group
As one of the world’s largest dairy
companies, Arla Foods has been directly
influenced by this development. Not least
because the company, as a ­co-operative
owned by the milk ­producing farmers,
is obliged to take in all the milk they
produce.
Add to this the limited durability of milk
combined with an extremely fluctuating
market and increased pressure from still
larger and more global customers, and
you have a challenging situation. But
also a situation with significant benefits
­associated with creating a global over-
view of demand and supply in order to
balance the further processing of milk
in the best possible way. For a company
like Arla, having experienced a tremen-
dous growth up through the 00’s and
early 10’s, this task is easier said than
done. New markets, new suppliers and
production facilities all across the world
had stretched the old country and mar-
ket-based operating model to its limits.
The growth, primarily through mergers
with other dairies, had given Arla the
milk and the markets they had set out
for, but also a scattered IT landscape and
multiple ways of doing things across the
global company.
ONE Arla through a global
over­view of demand and
capacity
Thomas Carstensen, Senior Vice
President Milk and Trading says: “In Arla’s
2017 strategy plan, our top management
provided us with a very clear mandate,
which was to develop and implement
world-class trading and milk allocation
within a period of four years”. That was
in late 2013, and today, not even three
years later, Thomas Carstensen and his
team can conclude that the results so far
are promising to an extent where Arla’s
CEO, Peder Tuborgh, refers to the new
Sales & Operations Planning (S&OP)
process as “the pulse of Arla”.
From a supply-driven to
a demand-driven process
When Arla introduced S&OP, it was
important to change the entire mindset
of the organisation from one where
the markets, roughly said, fended for
themselves, and the core markets’
­supply chains were focused on supply-
ing the market that “owned” them. To
handle the increased milk inflow, which
was ­expected after the milk quota
After more than 30 years of existence, the EU milk quota system
was scrapped in early 2015, resulting in a substantial increase in
the amount of milk produced by European farmers. This again has
had several consequences, the most obvious being a significant
drop in the milk prices, putting many European milk farmers
under pressure.
Creating global transparency
with ONE planning and allocation
ARLA

2. 2Implement Consulting Group
Arla – One planning and allocation
­abolishment, and to serve the ­customers
who were growing more global, the
top management foresaw a need for
the markets and supply chains to work
together as one in a more uniform and
structured way.
Hence, they ordered a global monthly
tactical decision process named Arla
Sales & Operations Planning and an
underlying standard SAP APO IT land-
scape that could decommission the
many legacy systems to be developed
and rolled out. The program ONE
Planning & Allocation was set in motion.
“With a background in sales, my primary
role has been to negotiate the change
process, getting to one harmonised
S&OP business process and organising
the programme. Doing it in a way that
supported the various functions and also
finding compromises on standardised
SAP APO templates. It has truly been
a team effort with Arla staff wanting to
succeed as one, and external consultants
understanding the need to show value
early on”, says Jakob Lignell, Director,
Global S&OP and head of the program
ONE Planning & Allocation.
In order to make the transition, it was
necessary to introduce a process that
could produce a reliable demand fore-
cast on the one hand and a viable plan
for meeting that demand on the other
on a global scale. The process defined by
Arla starts with Sales delivering quality
and commitment for the volume fore-
casting at the demand review meetings
(DRM) headed by head of sales in all
markets. The new global demand plan-
ning template plays a key role in getting
valid global transparency on demand.
The DRM is followed by gap-closing
activities at the business planning meet-
ings in the markets’ leadership teams and
in the two overlaying commercial zones
that have been created in the new “Good
growth 2020” strategy. An organisational
change that also gave Arla a supply
chain divided into two main functional
areas. Providing a clear line of sight from
the 2017 strategy programme mandate
and, hence, supporting the end goal of
one S&OP process, one standard IT land-
scape and one set of numbers.
All plants then look at the demands at
local plant review meetings (PRM) and
give input to the two supply review
meetings (SRM). This is done in a
­standard format guided by the new
SAP APO master production planning
template.
The three most important global over-
views across all sites provided by the
master production plan.
ARLA’S ONE SUPPLY PLAN CONTAINING THREE IMPORTANT GLOBAL OVERVIEWS
What capacity will
be required?
What will the inventory
projections be?
What will milk requirements
look like?

3. 3Implement Consulting Group
Arla – One planning and allocation
The process ends with a large meeting
with all heads of sales, supply chain,
planning, product management and
category supported by finance, being
briefed on hard numbers and deciding
on corrective actions to take on tactical
issues for the coming 1-15 months. Also,
setting the guiding operational principles
for Arla.
“The global executive S&OP meeting
is a bit like the tale of the bumblebee
that should not be able to fly. Too many
issues, too many people and too little
time is often what we hear from new
people being introduced to the concept.
But the fact-based format supported by
our IT standardisation efforts and the
structured process leading up to the
meeting underlined with sheer decision
power and teamwork across the com-
pany makes it work to an outstanding
degree”, says Thomas Carstensen.
“Overall, and this goes for both
the business process as well as for
the ­programme as such, we have
­implemented a mindset saying that
silence is ­acceptance. We provide the
necessary information on the right level
of detail and to a forum for people to
voice their opinion. That said, we are
always tender-hearted on the people,
but tough-minded on the issue”, says
Jakob Lignell.
Designing an S&OP process
and IT-enabling systems is all
about people and governance
Arla set out to get the basic business
process aligned and started up before
embarking on the IT part of the pro-
gramme. This made it easier to align on
IT requirements, but it also enabled Arla
to harvest many IT and ­business benefits
as early as possible in the programme.
When asked, Jakob Lignell points out the
actual management of the programme
as one of the deciding factors for the
success: “Right from the beginning, it
was important for us to create results
early in the projects and on an ongoing
basis. We were inspired by an initiative
from The Danish Industry Foundation
called “Project Half Double” where the
aim is to create results in half the time
with double the impact”, he says.
This approach had several conse-
quences for the way that the project
was ­managed. One was the decision
not to wait for 100% solutions, but to
be pragmatic and learn from practical
experience in smaller and more flexible
loops. Another was to do away with
the well-established routine of rolling
out solutions one market at a time and
change to a roll-out by product group.
ARLA’S S&OP PROCESS
DRM
MY SRM Global Exe
Business planning Supply planning
Europe
CBP SRMInternational
DRMDRMDemand
review
DRMDRMDRMMarket
DRMDRMDRMPlant
review
Arla Sales & Operations Planning process

4. 4Implement Consulting Group
Arla – One planning and allocation
By doing so, the project team is able
to introduce global overviews on for
example capacity early in the project as
opposed to waiting until all markets and
their product groups are aligned.
“A crucial point was also to have clear
line-of-sight governance that insured a
high level of involvement of ­stakeholders
in sequenced forums through the
­different levels in the organisation,
anchored with an executive management
steering committee. All forums having
clear role descriptions and mandates to
agree on a common way of working or
standard APO template design features
and accepting the escalation points if
consensus could not be reached at a
certain level. This, combined with a very
active business ownership approach and
a dynamic IT organisation, has insured
that the programme has stayed on time
and budget throughout its course” Says
Senior Vice President Torben Fabrin,
Arla IT.
Measuring impact
The overall impact case was built around
our S&OP KPIs that were defined in the
early days of the programme. Forecast
accuracy being the key measure to
track improvement. In this simple way,
we have been able to track a significant
improvement of the overall performance,
delivering well above expectation already
18 months before the programme is set
to end. A big part of this improvement is
derived from the business process and
the training in the SAP APO demand
planning template, but “the biggest
­surprise for me was that we only saw
a very minor drop in forecast ­accuracy
after first-user go-live of our new demand
template and a learning curve taking us
above par already after one month,” says
Jakob Lignell.
More tangible benefits for the business,
and what has proven to be the true
value for Arla, is the global transparency
S&OP HAS MANY HARD AND SOFT BENEFITS
– BUT MOST BENEFITS COME FROM BETTER CO-ORDINATION AND DECISION-MAKING ACROSS ARLA
SHard benefits
Customer service
Inventory
Obsolescence
End-to-end supply chain costs
Order lead times
Supplier lead times
Time to launch new products
Plant productivity
Better CAPEX usage
oft benefits
Greater control and grip on the business
Greater accountability
Better decision-making
“Structured” communication
Enhanced teamwork and global mindset
Better transparency on forecast
and delivery performance
Better consensus on market opportunities
S&OP creates a clear meeting structure to enable transparency on demand and supply – and an
escalation forum where potential issues or demand-shaping opportunities can be raised to top
management to make well-informed decisions that maximise value across Arla as a global entity.

5. 5Implement Consulting Group
Arla – One planning and allocation
Contact
Søren Skjødt, sos@implement.dk, +45 5138 7402
creating alignment and decisions that are
cascaded throughout the organisation in
an increasingly seamless way. Making our
top management eager to take part in
the different steps in the S&OP process.
Issues like clear market prioritisation
when in lack of products or raw material
is a constant theme. An example could
be a temporal lack of organic milk that
has become very sought after by the
consumers: “A topic like this is close to
heart for all markets and will give a lively
debate, and it is vital that we can trust
the numbers supplied at the meetings”,
says Jakob Lignell.
Other examples are the clear guiding
principles that are formed via case-
based decisions that are actively lifted
to ­principal guidelines helping steer the
company with less friction.
Demand shaping built on optimal overall
profitability is also a recurring event at
the meetings as well as movement of
production between plants and gap-
closing activities built on top of the
­realistic demand plans supplied by the
SAP APO demand planning template.
The examples above are just a few
among several others that underline the
impact created by the One Planning and
Allocation programme.
Overall, the process also supports hard
benefits such as better customer service,
reduced inventory and lead times, higher
productivity and better CAPEX usage.
The benefits acquired also include more
intangible ones like better decision-­
making, enhanced teamwork, a more
global mindset, better transparency,
structured communication in a common
language and much better consensus on
market decisions.
Learnings
For Jakob Lignell and his team, and
not least for Arla, the One Planning
and Allocation programme has been
a ­success. This is, of course, basically
a direct result of a tremendous effort,
change readiness and willingness to
­contribute of all involved parties in
Arla. But if we take a deep dive into
the underlying factors, it is possible to
­pinpoint the vital few success ­factors
that other companies and project
­managers facing a similar challenge
may benefit from:
• Focus on impact early in the project
• Create an environment of trust
between IT and the business
• Be ambitious regarding the vision
and the end goal of the project
• Be pragmatic and flexible in the
process – rather go for the 20% that
are used than waiting for the entire
solution to be finished
• Don’t be afraid to present solutions
that are not 100% perfect and learn
as you go along
• Remember that while plans and
systems are important, it is all about
people in the end. So be tender-
hearted on the people and tough-
minded on the issue