Heineken HOPS - Operational Planning System

Heineken HOPS - Operational Planning System

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Heineken HOPS (Operational Planning System)

Case Analysis

1. EXECUTIVE SUMMARY

This case describes how Heineken USA's in order to gain market share, it needed to achieve a better responsive to the market demand utilizing an internet-based system called HOPS (Heineken Operational Planning System) to allow the parent company to produce the beer closer to the time when they need to deliver it, so the customer receives a fresher product. The implantation of this new system enables Heineken USA to achieve 50% reduction in the lead-time from order to delivery and 10% increase in sales, part of the major success was the good use of IS, which can dramatically improve customer relationships and cut costs.

2. CASE BACKGROUND
Heineken N. V. was founded in 1592 in Amsterdam. The Netherlands Nowadays Heineken N. V. is currently the world's second largest brewer, trailing only U.S. based Anheuser-Busch. It leads the European market with a 60% market share and it is the second imported beer in the United States, following Grupo Modelo's Corona beer, since 1998. Fierce competition from the imported segment contributed to the decline in Heineken sales and as a result of it, Heineken N. V. bought back the distribution rights and established a wholly owned subsidiary in White Plains, N.Y.; in order to achieve a new market push in the United States (Roberts, 1999).
Heineken operations are run from the New York headquarters, where data center plays an important role because it is responsible for running the day to-day operations of the U.S. business. The supply chain from Heineken starts with the brewed and bottled in The Netherlands and later on is shipped via sea to various demand points in the U.S., after distributors place orders and the shipment leaves the closest demand point and is quickly trucked to the distributor. Finally, distributors then deliver the beer to its final destination at restaurants, bars and stores. (see Exhibit 1 for Beer Supply Chain).
In this case, Heineken long lead-time from order to delivery prohibits the company from being flexible and adapting quickly to market demand fluctuation. Therefore the implementation of an innovative Internet system called HOPS, would improve its supply chain performance by reducing the lead-time from order to delivery. In 1996, distributors and sales representatives had to plan out orders three months ahead of delivery, it was daunting task for them to predict the factors that would affect the product sales such as weather, special promotions, and local demand fluctuations in advance.

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All of this time consumed an average of 10 to 12 weeks, time enough to let the consumers choose another supplier. (see Exhibit 2 for Old Distribution Process).
After this long time supply chain process, Heineken came to redesign its production and distribution process to recover the lost market share and to increase sales in the US. Within the redesign of the supply chain process it had to avoid that orders would arrive at all different times, which made it difficult to coordinate brewery production, raw materials purchase, shipment and delivery, especially when the production facility was located 3,500 miles away.

With this new operations and strategic marketing push, better data on product consumption and more sophisticated data analysis would be required, in order to know when a distributor stock was depleted before a replacement order could arrive. The company also would have to able to forecast, process and deliver orders much quicker than they currently were capable of. Finally, Heineken realized that the information system to be used would have to be inexpensive for the distributors and an analysis showed that the use of Internet would be the key to the solution.

3. THE IMPLEMENTED SYSTEM, HOPS
This new developed and implemented system, HOPS; allowed the company to better communicate with distributors and reduce inventory levels, eliminating shortages and putting a fresher product on the store shelves and in the bars. HOPS, also generated order and replenishment recommendations for individual Heineken distributors based on criteria such as past sales performance, seasonal trends and geography. (see Exhibit 3 for New Distribution Process). With this system, Heineken distributors accessed on line and reviewed their sales forecast, modified their order if desired, and submitted their order. Finally, the HOPS system captured the order and made the information immediately available to Heineken where managers can plan brewing and delivery schedules.
Because, the order submissions were available in real time; the Heineken brewery in Europe was able to adjust its brewing and shipment schedules. In addition, the HOPS system could notified distributors of promotional events, new products or production bottlenecks. HOPS, was the first example of a new kind of software called Collaborative Planning, Forecasting and Replenishment (CPFR) (Carlos, 1997); this system uses an Oracle7 database, Secure Sockets Layer 2.0, runs on Windows NT or Unix, and supports all Windows applications. An information system of this nature, has to be capable of deliver qualitative and quantitative results in the short and mid term, and help the company to achieve goals in the long run. Some of the quantitative goals and qualitative benefits are mentioned in the next paragraph.
HOPS, Quantitative Benefits
1. Lead-time on order delivery was cut from 10 to 12 weeks to an average of 4 to 6 weeks
2. Inventory was reduced from 45 to 30 days and sales have soared over the years
3. . Elimination of a 3 data entry positions
4. Gross sales for 1998 topped US$ 7.3 billion
5. Income reached the US$ 522 million, a 39% increase from 1997
6. Heineken's total revenues for fiscal year 1998 were over US$7.3 billion, a 10.4% increase from 1997
7. Net. Total net income was $522.2 million with a net profit margin (see Exhibit 5 for Net Profit of Heineken from 1997 to 2000).

HOPS, Qualitative Benefits
1. Staff spent less time on ordering issues and more time working with distributors to sell beer
2. Relation with distributors improved
3. It eliminated Heineken's district management duties of its sales staff
4. Increased of the sales force, without hiring an additional person
5. Human error in order taking was eliminated and now orders are received electronically instead of via telephone or fax
6. A more accurate planning throughout the entire material flow process
7. Better inventory utilization
8. It allowed the company to learn about new technology and encourage it to think creatively about new ways to do business

4. SUMMARY AND CONCLUSIONS
The implemented web based system, has helped the company to achieve several goals, improve the customer satisfaction and increase Heineken's sales and revenue. However, on the one hand, an Internet system is vulnerable to information attacks; which are the major concern both for Heineken USA and its distributors due to the security issue that it represents to the business. Concerns about confidentiality are a hindrance to both business-to-business and business to consumer Internet commerce.
On the other hand, its web-based supply chain edge is gradually eroding, as their competitors easily adopt the relatively inexpensive web solution. Therefore Heineken must look to further enhance efficiencies in its distribution network and differentiate its service from its competitors, because Heineken knows that there is a growing appreciation of quality over quantity, bringing an increase in expenditure on premium products, such as the Heineken beer. Such challenge to Heineken mean to regaining and retaining the position of number one imported beer in the U.S., which it recently lost to Grupo Modelo, with Corona; a Mexican beer.

References

Gyeung-min Kim, John Price. Annals of Cases on Information Technology Hershey:2003. Vol. 5, p. 88-97 (10 pp.) http://proquest.umi.com/pqdweb?did=434391381&Fmt=4&clientId=309&RQT=309&VName=PQD
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