Fresh Produce

The Moraitis Diaries

Part I Vegetable Soup(ed) Up

How a greengrocer takes a greenfield site and grows its IT network (CIO June 2004)

With full executive support, Moraitis CIO Con Colovos leads the fruit and vegetable giant through the challenge of an extensive IT makeover.

Part II Sowing the Seeds

With the infrastructure, networks and IT skills in place, Moraitis is ready for ERP (CIO September 2004)

Colovos and his team have until February next year to get phase one of the $3 million program up and running, which includes reformation of many processes that the largely blue-collar workforce had been comfortable with for years.

Fresh Produce

Future proofing the business is a key challenge for CIOs. This third instalment in the Moraitis story finds the fruit and vegetable supplier piloting RFID and edging closer to the rollout of its new ERP platform, with one eye firmly fixed on the future.

If Con Colovos needed convincing that barcode tracking systems are fallible, then his recent fact- finding trip to Europe provided the goods. His luggage, duly barcoded and loaded in Europe, never made it back to Australia and is still out there somewhere, unloved and unlocated. If the airline and baggage handlers had used radio frequency identification (RFID) he might still have had his luggage.

"I recently went to RFID conference in Sydney and one of the speakers was the head of IT services for San Francisco Airport that utilizes RFID tracking luggage in and out of the airport. He said that the ability to identify and track luggage has increased tenfold," says Colovos, the CIO of fruit and vegetable supplier Moraitis.

As part of the information systems overhaul that Moraitis is undergoing, Colovos is now rolling out a pioneering RFID system that will be a precursor to a company-wide rollout, once that is mandated by big clients such as Woolworths and Coles, which he firmly believes will happen. RFID is expected to significantly streamline the supply chains in all sectors - as soon as the technology becomes affordable and better understood.

So far though, at least in Australia, there is a lot of tyre kicking going on. A survey of local companies called From Barcode to Electronic Code, sponsored by Gillette, ECR Australia and Accenture, and released earlier this year, found that four in five Australian retailers had appointed RFID "champions" to work with the technology in their business. However at the time of the report, only a handful of companies were running trials - among them packaging companies Amcor and Visy and retail giant Coles Myer.

Coles's is the first trial of RFID for the Australian retail sector. Begun in May 2004 the pilot involves tracking RFID-tagged roll-cages between a distribution centre at Hampton Park in Melbourne and a supermarket in Glenferrie. The roll-cage tags are scanned as they leave the distribution centre and as they arrive at the supermarket. According to Peter Mahler, CIO of Coles Myer, although RFID systems are clearly cutting edge, the company still needed to be assured that using RFID would deliver bottom-line benefits. As he put it: "What we are testing through this trial is the idea that they [RFID] can deliver a better, simpler, cheaper service in our busy supply chain."

If the reality lives up to the promise, the moment one big retailer rolls out RFID its rivals will be forced to follow suit or forego the competitive edge, and suppliers will be sent scrambling to integrate RFID. The report suggests the adoption window for retailers to move to RFID will be from two to five years. In the meantime, many retailers are still using barcodes to refine their supply chain before taking the RFID plunge, attracted no doubt in part by the lower set-up costs.

Page Break

Woolworths, for example, is rolling out its Mercury program, which demands of all its suppliers that each pallet supplied from January 2005 must bear two human-readable barcode labels that conform to the EAN-128 standard. The labels must contain information including the serial shipping container code, the traded unit number describing the product on the pallet, the number of boxes or crates on the pallet and the pack date. Additional information is optional.

The trick for suppliers will be to comply with current requirements of retailers, while ensuring they will be able to handle the demands of RFID when that becomes mandated. According to Con Colovos, two main challenges are thrown up once a company decides to become RFID-ready. First it needs middleware that can handle data flowing into its ERP from the RFID readers, and second it needs to know what information to collect on the tags and how to store and access it.

In the Moraitis trial, which will be with a tomato supplier in Tatura, Victoria, trays of tomatoes will be RFID-tagged. Each of those tags can store up to 32KB of data. Tutura ships three million trays of tomatoes a year. In theory Moraitis could have to deal with a flood of information from the use of RFID - 9.6 gigabytes a year about tomatoes alone, each year.

"That's what no one understands," says Colovos.

The challenge will be to manage the information flow effectively, trawling it for value, and discarding the chaff - otherwise the system will quickly be swamped.

Getting to the right information is critical, according to Nick Drasic, group general manager of Moraitis, who believes that RFID will be a logical extension of the ERP system now being rolled out through the business, and provide improved information flows to management. "The big thing is to trade more effectively with your partners - be it a supplier or an independent greengrocer," says Drasic. He believes that the data integrity predicted as a by-product of RFID will facilitate effective trade, and probably also deliver labour efficiencies and reduce waste.

However, with a keen eye on the bottom line, he notes that the tags remain very expensive. "My position is that while we are innovators, and we want to be one of the first, I'm mindful of keeping a rein on costs." Drasic, who went to Europe with Colovos to look at fresh produce companies that are also using the Navision ERP system to underpin their operations, believes that the Europeans are not as far along the RFID curve as Australians. "I think the penny has just dropped for them."

A penny that has dropped for Drasic is that you cannot throw technology at a business and hope it will improve. Until Colovos came along as its first CIO, Moraitis had a patchy relationship with technology; investing in the TIMS information system that did not deliver the information that had been expected or the benefits anticipated. What Drasic learned was that before applying technology the underlying processes have to be right.

With the old, largely-manual processes, a lot of the business process was driven by the need to have people in certain places at certain times in order to move paper around, he admits. Now the information systems serve the people, and "with the ERP we will get quality information at a better rate, and that will also progress the streamlining".

For Drasic the benefits of faster, cleaner information are clear. "If I can make better decisions quicker than my competitor then sooner or later I will win." And his horizon is well defined. "In three to four years I want to be able to trade B2B with major customers. Coles and Woolworths spend substantial amounts on IT. We can't match the money they spend, but we've got to be able to talk to them and trade with them."

According to Colovos the expected demands of these large customers are why the RFID pilot is now under way. "At Moraitis we realize that we will be required to go down the RFID path," he says, pointing to US retailers such as Wal-Mart, which are already mandating RFID use.

Although there are economic barriers given that tags still cost around 60 cents each, Colovos says there is a likely return on investment as soon as the tags drop to five to 10 cents each, which he expects will happen within 10 months. "Then my payback time is two to three years." In the interim, Colovos and Moraitis have applied ingenuity: they are reusing the tags. The tags are slipped in - and out of - small plastic sleeves.

After running the pilot and ironing out any wrinkles in process and technology ahead of time, Colovos says he will be ready when Australian retailers mandate RFID. He is planning to document the program in a Moraitis white paper looking at RFID in fast-moving consumer goods markets. The issue of information management is top of mind. "What are we going to do with this multitude of information about all the different product categories?" he wonders.

In Moraitis's pilot the granularity of the information is such that it will be possible to identify the percentage of waste or spoiled product, then link that spoilage back to the patch of dirt where those spoiled tomatoes grew. It should be possible to identify the type and source of seedlings, and other factors such as the amount of water the tomatoes received, the moisture content of the soil and so on. Using that information it should be possible to, if not eliminate, at least reduce spoilage.

It is a seductive information trail. But the challenge for business will be to limit that seduction to only the information that is valuable, or risk being swamped as storage costs balloon and extraction of meaningful data becomes harder.

Page Break

Taking Inventory

According to the From Barcode report, two-thirds of Australian businesses believe that the most significant benefits from RFID will be in the form of improved inventory management, then elimination of shipping errors and improved on-shelf availability. Data that supports those goals will be imperative.

Not surprisingly the major barriers that were nominated were the cost of the tags, the cost of the RFID hardware, and also the reliability of tags and readers. The cost of RFID software (middleware) was also nominated as a significant challenge.

Despite these hurdles, Australian companies do seem to be outpacing Europeans in the RFID race, which was rammed home to Colovos and Drasic during their trip in the northern summer. They visited a number of fresh produce suppliers in Germany, Belgium and the UK, and also Microsoft's Navision headquarters in Denmark. After committing to spend $3 million on the new ERP system, the trip delivered a welcome confirmation of their decision according to Colovos, and also gave them further insight in how to streamline processes and information systems.

He says he was impressed that UK supplier Greenvale, which is significantly larger than Moraitis, managed to run its entire information systems with a team of five, compared to Moraitis's current rollout headcount of eight. One of his prized photographic mementos of the trip is a shot of Greenvale's sparsely populated IT shop.

"For the sake of 10 working days we got six months' experience," he says. Although the trip was organized on their behalf by Navision and its Australian reseller Dialog, Colovos and Drasic paid their own way. Colovos estimates the trip cost the company around $25,000, "but we picked up $100,000-$150,000 worth of information".

SIDEBAR: Tomato Juice

Thanks to a $200,000 systems upgrade, produce supplier Testarossa has a fresh new outlook on its business

Testarossa is based in Tatura, Victoria and supplies around three million trays of hydroponically-grown tomatoes each year through fruit and veg supplier Moraitis.

The business, run by Eric and Frances Testa, is in the throes of a $200,000 major systems upgrade, replacing paper-based information systems with barcodes, and installing a new fruit grader.

It is also the test bed for Moraitis's $30,000 adventure with RFID.

Tomatoes from 18 growers supplying Testarossa are graded and packed into 10 kilogram boxes. The barcodes on the tomatoes identify which grower the tomatoes came from and who packed them; this information is automatically captured by a barcode reader on the grader.

According to Moraitis CIO Con Colovos, the barcode system and the RFID system can sensibly operate in the same environment - but at around 60 cents a tag, RFID is just too expensive to be used at box level. "Until tags come down to a sensible price we will just have the tags on the pallets, although eventually we can RFID at carton level."

Each tag will feature the same pallet's serial shipping container code, and up to 32KB of other information, says Colovos. "This is intended as a pilot proof of concept, so we will store information such as the grower of the produce, whereabouts the fruit was grown, the date the seedlings were planted, the date they were picked, details of the quality assurance program.

"We want traceability back to the seedling," he says, adding that this will provide deep information about each pallet of produce. By understanding how long the tomatoes took to grow, what the moisture content in the soil was, when they were picked, when they were packed, when the were delivered, and when they ended up in a supermarket it would be possible to reduce the amount of spoilage and identify any flaws in the process or product.

In September the company took delivery of 10,000 tags, an RFID tunnel, RFID readers and hardware needed to run the system, and was operational last month. Colovos plans to run the pilot for 30-90 days.

Ultimately the information from the RFID readers will be fed into the Navision ERP system, which nine weeks after delivery was being put through its test paces at Moraitis in preparation for rollout by February. To facilitate that, Colovos is trialling middleware from IBM, which will sit between the RFID hardware and the Navision platform. Later he hopes a middleware solution will be available from Microsoft allowing RFID tag information to be fed easily into the Navision system.

"If the proof of concept works we will put in an RFID tunnel here which will receive the goods from Shepparton (Moraitis's main Victoria depot). Then we will be ready to roll out," Colovos says.

Page Break

SIDEBAR: Supply Chain Hot Potato

For now, one UK supplier is sticking with barcode technology

When it comes to potatoes, Greenvale knows its onions.

The Brits like their potatoes and Greenvale is one of the largest purveyors of potatoes in the UK, supplying the likes of Tesco and Sainsbury as well as consumer goods manufacturers such as chip maker Golden Wonder and McCain. It also supplies seed and dehydrated potato flakes. Managing the supply of all those potatoes and potato products is an increasingly information intensive business.

And with British supermarkets now prepared to fine suppliers if products have to be recalled or redelivered due to quality control issues, understanding where produce comes from, how long it has been out of the ground, and where and how it has been stored is important to the suppliers.

Bruce Nisbet is group IT manager for Greenvale, and he met Moraitis's Con Colovos and Nick Drasic during their European fact-finding mission earlier this year. Like Moraitis, Greenvale runs its operations off a Navision platform, which has been installed for around five years. Unlike Moraitis however, the company has pretty much decided not to proceed with RFID tagging, even in pilot, at least for the next 12-18 months. In part it is an economic issue because of the current cost of equipment and tags - but more importantly it is because as yet British supermarkets and retailers have not mandated RFID.

"In Australia the retailers seem ahead [of us] on tagging," Nisbet says. "Our retailers have played with it." With that in mind hard economics has driven Greenvale's decision. Margins are slim in fresh produce and unless IT investment can be justified at the bottom line it is unlikely to be approved.

At the moment, "there's not a lot of difference in the barcode information versus the RFID information", says Nisbet. Except barcoding is a lot cheaper and the information stored on the RFID tags could just as easily be captured on the barcode. "RF tagging is too expensive," he says, "or was when we last looked at it a couple of years ago. If the costs came down then we might put in the hardware, but at the moment it's just not cost effective."

He says that the real inhibitor is not the tags themselves but the cost of having a lot of RFID readers. If all that was needed was a single RFID tunnel to scan tags as produce left the warehouses then it might not be too costly, Nisbet says. However, if prices continue to drop he would consider having another look at the technology in 12-18 months' time.

Where the benefit would come he says would be from having all boxes and bags tagged. RFID readers could then identify where stock was, where it had been sourced, how long it had been in a particular location and so forth. "If you tagged at the bag level, and say there were 260 bags on the pallet, then the system could alert you to the fact that 130 bags had one sell by date and 130 bags had another," says Nisbet.

That's the sort of thing that could have a supermarket demanding a refund and redelivery. But if it was picked up before the potatoes were shipped the problem never eventuates.