Adjusting to change is supposed to be easier for companies running on an integrated system. But the ERP systems of the past have not been responsive enough to keep up with the pace of change today. At Mindfuel 2020, we heard from customers adapting to some of the most challenging market conditions companies have ever faced. Diginomica documented a number of these use cases during the IFS Mindfuel event.
One standout is the story of Al Rabie, and how it has adapted to a flurry of disruptive changes, including a sugar tax that changed the landscape for drink manufacturers.
In his MindFuel interview with IFS Vice President of Manufacturing Colin Elkins, Al Rabie CEO Monther Alharthi accompanied by CFO Nisar Ahmed discussed how their enterprise systems have buttressed the organization. Reliable information, systems and processes are required if an organization is to keep its footing even as the Saudi economy, which had already shrunk by 1% in the first quarter of 2020 due to plummeting oil prices, was thumped by the coronavirus pandemic.
But Al Rabie was also affected by a number of government policy changes that increased business operational costs. Between a reduction in oil and gas exploration and production and reduced travel and commercial activity due to the pandemic, Al Rabie was facing a serious demand shock.
As the leading juice and nectar vendor in the Middle East and the single largest in Saudi Arabia, Al Rabie Saudi Food Products Co. produces more than one million liters of beverages per day. The diverse distribution model, large number of stock-keeping units (SKUs), packaging configurations, traceability requirements and perishable inventory all contribute to a business environment that requires consistent, documentable processes, good data integrity and visibility. Changes across all those SKUs is a potentially major project. Alharthi explained:
Most of our product is purchased on the go-people buy it on the road. With the curfew and the hospitality business almost nil, the airline business being affected, we are not out of the woods yet. And a number of expatriates living in Saudi will be leaving because a lot of (oil and gas) projects are stopped. So that means between one and two million inhabitants will be leaving the country.
Adapting to new conditions required a fresh approach to ERP
A business of this scale cannot adapt, unless its IT systems and processes are aligned. When Ahmed joined Al Rabie, he faced that challenge head on:
Al Rabie is a household name and it does really well as a business. But when I joined, I realized the systems and processes were in quite a state. The company's IFS software solution was not implemented well enough to accomplish what he thought the company required, and users were not engaging with the system.
The IT-business disconnect was a genuine concern:
The observations we made was business was blaming IT, and IT was blaming business. The root of the problem was an arm's length implementation and an arm's length design without ample support.
Ahmed's team almost did a rip-and-replace of its core ERP system, but ultimately, they realized the problem was not just a technology problem. It was a business user alignment and trust problem - one that a modern ERP platform could help to solve. After an assessment of their situation, Al Rabie decided that IFS was the right platform - but they did need to upgrade. Otherwise they would be stuck with an IT/business disconnect.
After the decision to stay with IFS was made, selling the idea internally was still hard, said Ahmed.
The biggest challenge for me personally was to engage the users to win their trust and involvement. Without that, no matter how good the product or how good the intentions, it would not work regardless. The key users - the finance and supply chain users - were totally disconnected from the system and using Excel.
Innovation in time
Al Rabie had some practice absorbing serious blows to the business thanks to a new excise tax on sweetened beverages that went into effect December 1 of 2019 - adding 50% to the retail cost of sweetened beverage products. Al Rabie went live on their upgraded system of record in that same month, just in time to handle the fallout from the excise tax. Ahmed recalls:
Overnight, the price of the product will have to go up 50%, and that will have a significant effect on the volumes that we produce and sell in the marketplace. The timing of the project could not have been more perfect. Only a super agile, super-efficient company will survive. The volumes will drop and that will impact the cash flow, and the average company could not survive. Being agile, cost efficient and eliminating manual processes, automation - all essential to survive.
Altering course for the pandemic
In the MindFuel interview with Elkins, Ahmed outlined the shifts to commercial practices and strategies the company is making in light of the pandemic.
With the market shrinking and traffic to Al Rabie's channels of distribution decreased, the company then had to adjust to additional taxes levied by the Saudi government to offset reduced oil revenues and an economic downturn brought about by the coronavirus. Alharti explains:
They are increasing the value added tax (VAT) from 5% to 15% as of tomorrow and in addition to that, customs duty has been increased from an average of 5% to 15%. Living costs will be higher on the general public. Purchasing power will be down.
So how has Al Rabie responded? Ahmed continues:
We are pretty much diversified. We have a quarter of our business in exports. That gives us some breathing space in how we run our organization. We have started reorganizing our departments, how we do our research and development and rolling out a new five-year plan. Cash is the name of the game, and so far, we are managing it. We are focusing more on multiple new products where there is no excise tax, placing more emphasis on our export market and pursuing new countries. That is helping us.
Alharthi suggested that, if anything, crises like the ones they have seen both before, and now with the pandemic, mean Al Rabie must step up innovation efforts rather than slow down:
We have strategic priorities we are working on, but the time scale has changed. Things we wanted to do in two or three years we have to do now. With digitalization you can base your judgement on current information. Whatever tools we can we need to apply quickly. We have to accelerate this. There is a need to automize or automate - we have to look into it. Things that used to take us a couple months to make a decision, now we have to take a couple weeks. We have to react faster than what the environment is hitting you with.