Sunday, August 1, 2010

Valpak APO Implementation case study

Source: SAPInsider 2008 Volume 4 » Issue 2

Printing Billions: How SAP APO Helps Valpak Market North America

Headquarters: Largo, Florida
Industry: Direct marketing
Parent company: Cox Enterprises
Employees: Approximately 1,500
Revenues: Privately held company
Operating highlights:
  • Valpak prints and distributes
    20 billion coupons in more than
    500 million envelopes
  • New facility gives Valpak the capability to produce 54 billion coupons each year
  • More than 60,000 advertisers use Valpak annually
SAP landscape:
  • SAP ECC 5.0
  • SAP BW

Every month, households across North America receive a distinctive blue envelope in the mail stuffed with offers for the local pizza restaurant, hair stylist, or insurance agent. Most of the recipients are blissfully unaware that their Valpak mailing is from one of the nation’s largest media companies, which prints and posts 45 million envelopes each month from a manufacturing center in Florida.

Valpak, owned by Cox Target Media, prints and distributes some 20 billion coupons in more than 500 million envelopes each year. During the second half of 2007, the company opened, in St. Petersburg, Florida, a $220 million, 470,000-square-foot, modern production facility with the capacity to more than double production to 54 billion coupons per year.

The new facility gave the company a rare opportunity: Valpak was now able to reinvent its decades-old product ion processes for printing and distribution and redefine its manufacturing and distribution process from end to end. So it did, but to manage the production and tracking of those billions of coupons, the company made what some might consider an unusual choice of a tool — SAP Advanced Planning and Optimization (SAP APO), the flexible, configurable forecasting and planning engine for supply chains.

“From the beginning, it was an ambitious project based on state-of-the-art technology combined with state-of-the-art vision,” says Brick Rossie, systems project manager. “This plant is a real marriage of mechanical technology, printing technology, collation technology, warehouse technology, and computers, and SAP sits right at the core of it. The driving engine is that SAP APO box.”

Made to Order

The new plant is designed to offer the responsiveness of a job shop, make-to-order (MTO) environment while achieving production economies of scale of a make-to-stock (MTS) model. To make this happen, SAP APO pulls from SAP R/3 (SAP ECC 5.0) the unique characteristics of up to 2,000 orders per week and bounces them against the available work center capacity. At the same time, SAP APO considers and optimizes a schedule against the constraints of a limited storage capacity for work in process (thou shalt not exceed) and a required delivery date (sacred), minimizing setup time between jobs (highly prized).

During a scheduling run, which typically happens once or twice a day, the optimizing engine “chews” on the data and attempts to improve the production schedule by moving jobs back and forth in time or to different work centers. For each iteration, the “value” of the schedule is calculated using the optimizing rules and parameters set up by the planners. The optimizing engine runs until either it reaches the time limit that the planner allows, which is typically around 15 minutes, or successive iterations fail substantially to improve the value of the schedule.

The St. Petersburg plant is an ultra-lean manufacturing platform and high-volume print/mail center, featuring the latest technology in plant automation. The printing presses employ “auto-transfer” technology through which they can change the four-color image on both sides of the 77-inch-wide running web press in minutes — and without stopping the presses. A typical print run for Valpak takes 12 to 20 minutes, and in that time, the large-format presses can complete the printing portion of more than two of the 2,000 jobs per week.

In the past, a single print run could run for as long as a few hours and yield only a small portion of dozens (or sometimes hundreds) of jobs. An intermediate warehouse that was full of partially printed envelopes was then needed in order to collect, sort, group, and queue the output of dozens of print runs for a final assembly up to four days after the first components were printed.

Now, Valpak will be able to increase production while reducing cycle times and labor costs dramatically. “Our former production process took four days to create a customer’s product — start to finish,” says David Fox, vice president of manufacturing for Valpak. “Our new manufacturing process will accomplish that in about four hours. From the time paper feeds into the printing press until the postal carrier delivers the blue envelope to consumers, almost no human hand will touch a coupon.”

While Valpak arranged for the new facility to have state-of-the-art technology for printing and collating, it still needed a solution for detailed planning — production planning and scheduling — that would interact with its systems, which falls directly into one of SAP APO’s main objectives. “Also, we were already an SAP R/3 customer and very familiar with the product,” Rossie notes.

No Single Solution

Valpak learned during its due diligence in designing the facility that there was not a single solution that met its needs, even among manufacturers of publishing equipment. It was faced with either creating an application from scratch or configuring SAP using creative workarounds for functionality that wasn’t available. Developing its own custom enterprise software solution would be time-consuming and expensive, as well as difficult to maintain over time.

The advantage of using SAP APO was its sophisticated planning engine that was best capable of handling the detailed scheduling required by the mix of MTO and MTS strategy, which is the nature of the Valpak product. Each custom coupon order is unique, hence the traditional way to handle the production for such an environment is to deploy an MTO process for both planning and production. Such a process, however, is not efficient. The company felt that if some of the planning and production process was modeled after a partly pre-assembled MTS environment, the overall process would be more economical and produce a higher throughput. Therefore, Valpak chose to implement a model where MTO and MTS models co-existed.

The MTO part of production is represented within the printing processes; every coupon printed is specific to a particular job on a specific date and to a specific zip code. The MTS stream comes in the form of coupons supplied by advertisers, which after receipt in Valpak warehouses, are picked to stock in standard box quantities and merged with the in-house print stream during final assembly at the collation machine. “In our old manufacturing process, we optimized around our printing, to make printing efficient,” says Rossie. “In our new process, we optimize around the collation and assembly of the final envelope.”

Early in the project, Valpak brought in SAP to gather requirements and put together a high-level workflow using SAP APO and SAP ERP. The results, according to Rossie, were promising. Subsequent to that exercise, “we went searching for a partner and that’s how we got hooked up with Bristlecone,” Rossie says. Supply chains using SAP are a specialty of Bristlecone, a consultancy based in Milpitas, CA. Valpak’s SAP APO implementation is exactly the sort of project that Bristlecone is known for: “Challenging, the type nobody else will do,” according to George Thomas, director of partners at Bristlecone. He laughs.

The 60/40 Split

“The key to all SAP APO projects is that the integrator needs to understand business requirements at a deep level,” Thomas explains. “You need to understand the functionality of [a] system, need to match that with the requirements, and then you need to come up with smart ways to put this together.” Thomas and the rest of the Bristlecone team spent considerable time at the Valpak facility and immediately began breaking down the requirements. Over a period of several months, Bristlecone developed a prototype that included many “creative” solutions, showing how Valpak could make SAP APO work in the most efficient manner.

Thomas estimates that SAP APO fulfills about 60 percent of the requirements desired by Valpak. During blueprinting, Bristlecone identified the functionality that fell outside SAP APO, developed workarounds or other options, and then presented them to Valpak for validation. “We gave them the pros and cons, so they would know the difference between choosing one option over another. If there was any further doubt, we would demonstrate it by prototyping. There may be issues, but the client understood those issues.”

New Manufacturing Process

Before the blue Valpak envelope shows up in a mailbox, “there’s a lot of science behind it,” says Thomas. “The offers are targeted to ‘Neighborhood Trade Areas’ (or NTAs, Valpak’s trademarked demographic system).” NTAs are Valpak’s proprietary groupings of 10,000 homes that enables advertisers — local, regional, and national — to target a single neighborhood, city, designated market area (DMA), or combination thereof.

While the technology behind the old production processes was not cutting edge, “it wasn’t a group of employees sitting at tables stuffing envelopes,” says Fox. The technology was older, but it wasn’t obsolete. It was, in fact, industry standard: 80 to 90 big long collators that stuffed and stacked envelopes. Those have been replaced by nine machines that not only collate, but wrap the blue envelopes around the stacks and print the addresses. “In the new building, now our people aren’t running machines. They are now monitoring from a control center,” Fox explains.

Managing Complex Sales Orders

“We decided to set up our sales orders using variant characteristics,” Rossie says. Valpak has a “super BOM” (bill of material) that has more than 100 potential components. “We had to configure the system to be able to build thousands of unique sales orders by choosing from the super BOM menu, then passing the order-by-order results through SAP’s Core Interface (CIF) to the SAP APO environment. The other twist that we had was our monster printing presses that can do six jobs simultaneously. The jobs come in different shapes and sizes, so we had to invent a custom program to be able to break up our sales orders into manageable pieces for the printing presses.”

The Bristlecone and Valpak teams determined how to merge the custom process with SAP APO, which then reports initial planning results. A second process groups the results into blocks that represent complete print runs and returns to SAP APO a second time to run through block planning, which is another SAP APO functionality. The result is optimized again and at the end, Valpak has a production schedule that works for the whole shop.

“We have a huge volume running through the plant, [so] we’re planning our productions two and sometimes three times each day,” notes Rossie. “When we get to full volume, we expect to do somewhere between 50,000 and 60,000 orders per year.” It will run 24 hours a day, six days a week

SAP APO then becomes critical because the printing process, once in full production, will have very limited buffers. “We must, at full capacity, move orders through the plant from start to finish in about four hours,” says Chris Cate, director of information systems at Cox Target Media. “If we don’t, we can’t run the plant at all. SAP APO is an instrumental part of that, to figure out how to line up all the pieces, and everything has to be ready to go.”

The Future of SAP APO

“We are collecting huge amounts of information and data from the machines on the floor, and we have reserved that for a future project to move into a ‘balanced scorecard’ type of reporting,” explains Cate. “In the next year or two, we can begin to track and analyze the data using BI.”

“There’s significant competitive advantage in our new process,” says Rossie. “From the pure product standpoint, once the plant is running at full capacity and all of our systems are finely tuned and operating the way they should be, we’ll have advantages as far as the types of products that we can offer and at a competitive price.”

The Sales Order Process

Valpak coupons are sold to advertisers by some 200 franchisees around North America. “After our franchisee places an order, the new system looks at aggregate demand, determining where commonalities across all orders exist,” says Rossie. For example, if a customer in Tuscaloosa and another customer on Cape Cod require compatible numbers and configurations of coupons in their envelopes, their jobs can be scheduled contiguously to save press set-up time and reduce production costs. Similar considerations apply to the collation processes. In addition, Bristlecone has enabled Valpak to create a supply plan that recognizes and works with capacity and material constraints.

“Our NTAs [Neighborhood Trade Areas] consist of 10,000 households, so an advertiser can come to us and choose the NTA or NTAs that make sense for him,” Cate says. “One added feature of the new facility is the advertiser can not only pick the groups of 10,000 he wants, but he can also send a different version of his offer to every area. If he picks 50,000 homes to mail to, that’s five groups of 10,000; he could send five different offers to those groups.”

Sales orders from franchisees are programmatically aggregated, and at the St. Petersburg facility, they come in as specs for the finished blue envelope, which contains anywhere from 20 to 100 different coupons. Each unique coupon is a component. The super BOM (bill of material) looks at all of the possible variations, including coupons and flyers that are printed externally.

Tips for a Successful SAP APO Launch

The secret to SAP APO is modeling. “[SAP] APO is all about modeling,” says Bristlecone’s Thomas. SAP APO’s flexibility and configurability allows a user to model hybrid planning environments extremely well. “Smart modeling is the key to solve issues,” adds Thomas.

Carefully manage expectations throughout the project. Bristlecone never tried to sell the Valpak team that SAP APO would match 100% of its requirements. For every requirement, however, Bristlecone carefully explained what was and what was not possible. During blueprinting, Bristlecone identified the functionality that fell outside SAP APO, developed workarounds or other options, and then presented them to Valpak for validation. “We gave them the pros and cons, so they would know the difference between choosing one option over another. If there was any further doubt, we would demonstrate it by prototyping. There may be issues, but the client understood those issues.” He adds, “Managing expectations — that’s the key to keep[ing] the client’s confidence.”

Plan, plan, then plan again. When tackling an SAP APO implementation, particularly when applying it on the scale that Valpak required, the approach must be very methodical and detail-oriented, “because it’s not a lightweight venture to put all of these pieces together,” says Rossie. “Make sure you hire very, very smart people.”

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