A farmer-owned cooperative with headquarters in New Zealand, Fonterra is the world’s leading milk processor and dairy exporter – responsible for more than one-third of international dairy trade. The company employs 16,000 people in New Zealand and across the globe, and produces more than two million tons of dairy ingredients, speciality ingredients and consumer products each year.
New Zealand is considered to be the most efficient dairy farming country in the world, and, in turn, Fonterra is regarded as a leader in large-scale milk procurement and processing. Fonterra’s global supply chain oversees the seamless integration from farm to customer in more than 140 countries.
In March 2000, Fonterra and its unions jointly adopted TRACC as the framework for its Operational Excellence program. The program followed a typical best practices implementation, beginning with the “foundation” practice areas and progressing to the “pillar” practice areas.
Fonterra legacy company Kiwi Dairies and the New Zealand Dairy Workers Union approaches CCI with a view of deploying TRACC as a framework to assist them with improving operational performance.
Kiwi Dairies appoints CCI to assist with TRACC deployment at two pilots — the Cheese plant and the Milk Collection department at the Whareroa site in the Taranaki region. The group’s continuous improvement initiative is named “Manufacturing Excellence” (later to become “Operational Excellence”.)
The Cheese plant is identified as a pilot due to sporadic quality issues, such as foreign matter in the cheese. In the tanker fleet operation, due to its unique environment, it is decided that the most effective deployment plan for Milk Collection would be to focus initially on the fleet maintenance workshop. The logic here was that increased vehicle availability would impact capacity available for collection, play strongly into more efficient fleet and route planning, while also reducing maintenance and running costs.
To get the ball rolling at Milk Collection, a TRACC Setup Time Reduction blitz is introduced with three objectives:
- Increase on-the-road capacity of its tanker fleet at any given time
- Streamline maintenance processes to ensure efficiency gains are sustainable and do not come at the expense of quality
- Maintain the tanker fleet’s reliability (breakdown or unscheduled maintenance rates) and total availability rates
- Within two years of TRACC deployment, the Cheese plant increased OEE by 24.8% and achieved an impressively positive ROI (nearly 57 times payback on investment)./li>
- On Product Time (OPT) increased from 76% to 84.5%.
- As a result of the blitz activity, the maintenance workshop at Milk Collection achieved an 87.5% reduction in time spent off the road for maintenance, a 94% reduction in the distance walked during the service, a 65% reduction in service time, and a truck availability rate of 99%. By reducing service time by 87.5%, the fleet is now operating at overcapacity, enabling Fonterra to delay capital outlays for fleet expansion. The more efficient service also allows for higher quality of maintenance, translating into fewer breakdowns and higher truck availability.
- The Whareroa site is awarded two prizes at the Taranaki District Business awards for achievements in Health and Safety, as well as Training and Development. The Operational Excellence program is credited with having made a significant contribution to the achievement of these awards.
If every turnaround time in the business could be reduced by 14 minutes it would save Fonterra $20 million pa in deferred capital.
– Max Parkin, Fonterra executive (retired)
Following the successful conclusion of the pilot projects, Manufacturing Excellence is rolled out nationally to 25 sites as well as to all 10 factories on the original site, over a two-year period. The initiative is renamed “Operational Excellence”.
The EU Quota butter market provides high returns and its production is subject to strict standards and regulations. Following a loss and waste analysis, the Cream Products department identifies over-weights on the quota line as a significant contributor to revenue loss. A fishbone analysis (cause-and-effect diagram) reveals several improvement opportunities.
Widespread rollout of TRACC commences. Business plans, including practice maturity targets, are introduced. The system is now supported by a total of 30 Operational Excellence Coaches (internal facilitators).
This is seen internally as the period of refinement. Progress tracking tools are refined and Fonterra is starting to operate as a “national” dairy company. The process focus is on the Leading and Managing Change and Focused Improvement TRACC best practices.
For example, an increased departmental workload highlights issues in the group’s Information Systems (IS) department’s service delivery, resulting in high levels of customer dissatisfaction. A kaizen blitz is conducted with personnel and suppliers over a five-day workshop. Two focus areas are identified: initial order integrity and accuracy, and supply chain speed. Actions are formulated, prioritized and allocated to participants, including restructuring the online method for ordering and capturing correct information, and revising and enhancing stock management and reporting.
- Following the kaizen actions, backlog call volumes and age dropped to an acceptable level of around 97% — less than five days.
- Customer satisfaction has increased by around 13% and is now averaging 4.02 on a 5-point scale. The query volume after billing has dropped substantially from about 22 to three a month.
- Mean Time to Completion (MTTC) also showed a remarkable reduction from 19 working days to six working days.
A kaizen blitz is initiated at wholly-owned Fonterra subsidiary Canpac to improve On-Product-Time (OPT) performance on Line 4 can assembly to meet both current increased demand and future demand. The blitz is aligned with the gradual introduction of a 24/7 production process, which is fully implemented in October 2007. In the same year, the Operational Excellence initiative yields some impressive results at Fonterra’s Te Rapa site, considered to be one of the company’s backbone manufacturing operations. Located in one of New Zealand’s largest farming communities, Te Rapa is responsible for nearly 20% of Fonterra’s whole and skim milk powder production.
- Applying Setup Time Reduction methodology, the kaizen blitz results on Canpac’s Line 4 indicated that changeover times could be cut by half over time, which meant the improvement target of 30% had been exceeded. Reference changeovers were stabilized at 13 minutes from 24 minutes — nearly a 50% improvement. This released significant capacity (over three hours’ line time per week). Similar results have been achieved for other changeovers, releasing more than 10% line capacity.
- Te Rapa achieved a record production of cream cheese, up 3% from the record set the year before. This prompted the plant to set even more aggressive production targets for the next season.
There can be no doubt that our plants present better since the introduction of Manufacturing Excellence (TRACC).
– Brent Taylor, former General Manager, New Zealand Manufacturing, Fonterra
After benchmarking a range of world class companies, plus an internship by two managers in an Alcoa operation in Brazil (arranged by CCI), Fonterra decides to establish a “Learning Site”. This provided a local operation to more rigorously role model the development of holistic continuous improvement systems and processes within a working site to allow other Fonterra operations to benchmark and learn from. In 2009, this is extended with the creation of the Learning Centre for knowledge sharing purposes.
The TRACC business performance improvement approach is now deeply embedded within the Fonterra manufacturing operations as Operational Excellence, and the next phase, of building an integrated and defining business system begins. Rebranded as “The Fonterra Way”, the initiative builds on the achievements to date and becomes the framework for the fully internalized approach to all work.
After 15 years of ever deeper work in Operational Excellence, and with OE (now The Fonterra Way) increasingly central to strategy, it can be said that the journey which started with two small pilots in Taranaki in 2000 has been an overwhelming success. Sustained for the long term, the two pilots are delivering superb results along the way at every turn — emerging as a cornerstone for competitiveness which will stand Fonterra in good stead to take on ever greater challenges in the future, and to achieve its long-term ambitions. Continued effort at The Fonterra Way really does hold the key to creating a truly world class business where the organization itself serves as the ultimate source of sustainable competitive advantage.
CCI is immensely proud to have worked closely with Fonterra since 2000 in building its capability in Operational Excellence, proudly known today as The Fonterra Way.