Heineken Hops (Operational Planning System)

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. 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