Goya Foods Transforms Its Supply Chain to Enhance Profitable Growth and Service

The title of this posting comes from a speech Peter Unanue, Executive Vice President at Goya Foods, gave at the JDA Software user conference last month.

Goya Foods is the largest family-owned Hispanic food company, and the number one Latin brand, in the US. The company’s Americas supply chain contains six factories and fourteen distribution centers (DCs). Goya has about 350 vendors and it carries 1,600 authentic Latin products, including beans, rice, regional specialty foods, frozen foods, condiments, beverages, and other types of food. That is a lot of SKUs, but according to Unanue, “Hispanics are united by language but separated by the bean.”

What is most interesting about Goya’s supply chain is that it is a direct store delivery (DSD) organization. I would not have expected canned foods, for example, to be a DSD product. In metropolitan areas, Goya may deliver to two different bodegas, separated by just a few blocks, but that order very different products based on the ethnic backgrounds of their customers. Smaller stores and chains in particular appreciate the personal service and labor-saving activities delivered by a DSD supplier.

Goya has 500 salespeople who visit stores and take orders. Orders placed during the day are picked, loaded onto trucks, and delivered to the stores the following day. There are no backorders. If inventory is not in the DC, it is a lost sale. On the other hand, shelf space is extremely important. Goya does not want to lose slots in the store because of bad service.

Goya set itself the goal of achieving a 98 percent service level at the shelf with no increase in inventory. It had been running at 95 percent. Improving service levels would increase sales. The company also wanted to sell more types of food. Historically, it sold longer shelf life products, such as canned products. Goya wanted to expand into shorter shelf life products too. Finally, in taking on more products, the company did not want to hire more buyers, so buyer productivity had to improve.

Although the family-owned company had grown aggressively, it still had a small-company culture. But growth requires changes and the company needed new systems. Goya examined many different types of solutions and it concluded that having better demand planning and fulfillment capabilities would best meet its needs. Goya implemented JDA’s Demand Planning, Order Optimization, and Fulfillment solutions beginning in April of 2009. The solution was brought live in phases, with the final phase completed in September of 2010.

Historically, Goya’s demand planning was based on an 8-week moving average. This methodology was particularly inaccurate in forecasting seasonal and promoted items. The demand planning solution uses statistical forecasting methods with automatically-tuned, best-fit algorithms by SKU.

The Fulfillment solution ensures that the right amount of inventory is at the right locations. Goya rarely has to move inventory from one DC to another anymore. The solution contains a Bill of Materials–i.e., the inventory needed to meet demand for a particular product can be expanded out into the raw materials that will be needed by the factories to produce that product. This has helped Goya’s production process. In the past, from time to time, the company would be ready to start a production run and discover it did not have one of the key ingredients. That does not happen anymore. Now the company has fewer changeovers.

Goya has also used the Fulfillment solution to test vendor managed inventory (VMI) on certain SKUs between one of its factories in Puerto Rico and some of its east coast DCs. The company’s DC in New Jersey, for example, could place an order for an SKU for next week. Meanwhile, its DC in Miami could place an order due in two weeks. Goya’s production planners can now see inventory across all locations, see the forecast, look forward, and create its own production orders. Again, this improves production efficiencies by allowing for longer production runs.

Finally, the Order Optimization solution takes that demand and translates it into optimal purchase orders for raw materials for Goya’s factories and finished goods for its warehouses. The cube and weight limits of 40 or 28 foot trucks are taken into account in the ordering process. Goya got an unexpected bonus from this solution; the order minimum logic helps to insure that its trucks are fully loaded more consistently.

Previously, Goya’s PO generation process had been time consuming. Now, it is highly automated. Buyers are required to review and approve the JDA-generated POs. Ninety percent are approved. Building an order used to take 20 to 30 minutes, now it just takes 2-3 minutes. This allows buyers to spend more time developing new vendors and working on vendor relationships.

In summary, Goya achieved its main goals: a 98 percent service level without increasing inventory, more efficient buyers, and the ability to add more short-life items. But the company also achieved savings in transportation and production that it had not expected.

The next steps? Driving service levels up to 99 percent while actually reducing inventory levels, and expanding its VMI program. Alas, a supply chain manager’s job is never done.

(Note: JDA Software is an ARC client)

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