Becoming a cigarette manufacturer through a world class IT system
A. Mohammad B.S
SWA Magazine, 9-22 Agustus 2007
HM Sampoerna has long been regarded as an IT-minded national company. However, the company's acquisition by Philip Morris has brought with it particular changes. What are those newly introduced IT policies and systems?
Baharuddin fell silent after reading a company announcement that reads ".training will be held for salesmen in operating handheld device." After thinking about it for a while, he came to his supervisor and spoke out his intention to not attend the training and to resign from his position as a salesman, or to be reassigned as a driver. "I doubted whether I would be able to operate the sophisticated handheld device. I'm 54 years old, and I felt that my memory has begun to fail me. The only things I can do with my mobile phone are only to make a phone call and to send and receive SMS messages," said this Panamas salesman in Makassar. "It crossed my mind to just quit from being a salesman and become a driver," he said.
That's how he was not long ago. It turns out that Baharuddin's concern was unfounded. After three days of training and one-on-one support, he evidently managed to able to operate the device and fulfill his duties as a salesman. It even turned out that he was able to achieve his target of visiting 55 customers daily. It was ease that he finally got. "The device is in fact easy to understand and use. It does take a bit of patience and carefulness to be able to use it, but this device is making my job easier to do out in the field," said Baharuddin.
Yes, beginning in early 2007, HM Sampoerna (HMS) has equipped its sales force with a personal digital assistant (PDA) and a small portable printer. The use of handheld device by about 1,500 HMS salesmen was launched through a program called International Sales & Merchandising System (iSMS). The objectives are to automate sales, so that salesmen no longer need to prepare their report manually. They can even print invoice in real time.
Was there any problem in HMS sales practice that they needed to create a new system? It's not very clear, but what's clear, as Angky Camaro admitted, is that the system is a facility introduced by Philip Morris (PM) after it officially acquired HMS in March 2005. But obviously the even bigger "change" to HMS' IT system is its integration with PM's IT system along with its global coverage. "Yes, the system surely has to be integrated. For example, we have now integrated Philip Morris' intranet portal with that of Sampoerna," said Angky. "We project to be able to integrate HMS technology to Philip Morris worldwide. This is the direction that we're headed to," said Aryani Tjokroprayogo, HMS' Head of IT Development.
Angky claims that HMS' IT system had actually reached a good level of sophistication even before the company was acquired by PM. "The company had already gone paperless as from the 1990's. Everything had become all electronics since then," he said.
The foundation to HMS' IT system began in 1992, while the switch from the local area network (LAN) to wide area network (WAN) took place in 1995. Afterward, corporate business applications became the next focus of attention. Following a screening process, the management decided to employ Oracle's ERP applications, which is still used to this day. "Sampoerna uses Oracle, but Philip Morris uses SAP worldwide. Going forward, we need to use the same system, but for now we have used an interface to integrate both systems," said Angky who seems quite familiar with the ERP system used in his company.
According to Sugiharto Hartono, Director of Sales, Planning, Systems & Development PT Panamas, the use of Oracle's ERP covers almost all important business processes, from accounting to finance, and manufacturing to procurement and finished goods management. Oracle's ERP is also being used by HMS affiliates, namely PT Panamas (HMS' sales and distribution subsidiary) and PT Handal Logistik Nusantara (logistics and warehousing company). "Sampoerna's business units also use self-developed applications to accompany the ERP solution, particularly for sales and receivables processes," said Sugiharto.
The proof HMS' IT sophistication is also evident from its supply chain management. Look at the tens of thousands HMS tobacco farmers, who receive IT support in the form of barcode system. Each barcode contains among others the name of the farmer, land area, type of tobacco and its variety. So right after harvesting, the leaves can be shipped with barcode. This way, the leaves can be scanned right away upon receipt in the storage facilities in Lombok and Madura, eliminating the need of a recording officer. The barcode system has also been in place in materials procurement and warehousing.
According to Angky, the company uses the barcode system since farmers produce different leaf grades. Currently, HMS consumes 60-70 thousand tons of cured tobacco leaves annually, but Angky did not remember the total land area used by tobacco farmers to supply to HMS. Angky explained that each hectare of tobacco field can produce up to 15-20 tons. In accordance with the appropriate process, the harvested leaves will be stored in the warehouse for 18-24 months to age naturally.
HMS has also employed sophisticated technology in its manufacturing facilities. Activities from manufacturing operations, blending machineries to cigarette testing have employed robotics system. This way, the analytical process no longer relies on subjective preferences, but on factual data, resulting in standardized product quality. "With human sense of taste and smell, we will not get the same quality. In addition, the quantity is overwhelming for humans. Just imagine; one mixing involves 15 tons. This is just humanly impossible," said Angky. "Again, it is all electronics from the upstream to the downstream processes in Sampoerna," he added.
Equipped with such sophistication, according to Sugiharto, PM did not actually revolutionize anything in HMS' IT aspects. He prefers to call the changes brought about by PM simply as developments and improvements. "Our core objective is to obtain the synergy between Sampoerna and Philip Morris. We maintain what's good and benefit from what PM has to keep improving," he said.
Sugiharto admitted that several changes have taken place following PM acquisition. These changes include, among others, infrastructure development by extending connections to about 30 sales and warehouse offices that were not connected. Another example of such change is the implementation of project methodology for all IT projects in HMS. He admitted that the project methodology approach is one of PM's strengths. What else? "We are also undergoing a standardization process with application solutions that PM uses. We think this process will continue in the next two to three years," he said.
Aryani said that there is still more. Following PM acquisition, HMS has started to use IP Telephony technology for its communications. This enables telephone lines for both voice and data. It also makes long distance calls the same as intra-office calls, simply by dialing the extension number. Another thing that Aryani explained was the improvement to the networking system, which is targeted to be integrated in the next two years. In addition, added Aryani, there is now clearer division of tasks: all software has to be licensed; and a few global applications (from PM environment) have been introduced. "This shows our future global direction. In planning, for example, all reports are sent to our regional office for consolidation," said Aryani.
The most concrete example is the implementation of the integrated sales solution (iSMS) as from April 2007. The iSMS system has been defined as standard PM software, but in Asia, it has only been implemented in Indonesia. Around the world, HMS is the fourth PM affiliate to use it after Turkey, Mexico and Spain. In Indonesia, the system has covered Denpasar, Makassar, Padang, Palu, Papua and a number of remote areas.
Within the iSMS, salesmen are given PDA-like handheld devices and mini-portable printers. So when they visit a retail store, they can input the data right away into the PDA. Afterward, they can print the invoice themselves with the Bluetooth portable printer. "Sometimes they would amaze the shopkeepers, because they thought the salesman could print paper from his belly," said Angky laughing.
The handheld device branded Intermac, which the salesmen carry is priced US$1,000 per unit. The total investment made to procure the entire units is US$10 million. The development of the iSMS system is conducted by the IT Support Group team in PM headquarters, assisted by Eksim (the handheld application vendor) from Turkey and IBM India. According to Sugiharto, HMS has actually tried to initiate the same effort by using the CTM Pro application, which was developed in-house. At that time, the salesmen in Surabaya had a chance to carry handheld devices with Symbol brand. "But after Philip Morris, we just decided to use the integrated software so that we follow the worldwide standard," he said.
Another objective of the iSMS, according to Angky, is for efficiency. What they have currently is a time saving of up to three hours of work for the salesmen. Previously, they had to input data manually into the computer in the office after touring around the shops and stores, but now, all they need to do is synchronize. Angky also said that the iSMS can be used as a data collection facility that offers speed and data validity. Beyond that, the iSMS can integrate data to all the existing applications, including the ERP, forecasting, Orafin (Oracle Financial) and so forth. "The iSMS system not only performs retail and sales tracking, but it also does it quickly and accurately. Beyond actual data tracking, it also assists us in tracking," added Sugiharto.
For forecasting purpose, according to Sugiharto, they use the Arima Forecasting and Expressial Forecasting methods, which have been used for the last ten years. He claimed that forecasting errors could be reduced from 20% to below 5%. "For the major brands, the forecasting errors could even reach 2%-3%," said Sugiharto.
Angky said that in principle, the IT development in HMS is not meant for show off, but to actually support company performance. He said that the IT strategy in HMS is aimed toward consolidating the existing application system and responding to arising business demands, for example by standardizing the business process by implementing the same ERP solution by HMS to all business units. He admitted that the ongoing application consolidation and integration process-that coincides with the implementation of the new business system-enables the company to monitor the key performance indicators better, for example the issue of operational efficiency in Panamas back office support. The IT system can reduce the level of overtime besides enabling the salesmen and administrative staff to complete their work faster. "Now we can also see the performance of sales and inventory movements in a timely manner, and as a result, we can improve our service to the customer," added Sugiharto.
To build and improve the IT system in HMS, Angky said that the management has allocated US$5 million annually. The development of the system, in addition to the local and regional IT teams, is also supported by many vendors in and out of the country, such as IBM, Sigma and Mitrais. "The IT development is intended such that the business process can be more effective, accurate and quick," said Aryani. "It's also designed to integrate with Philip Morris system worldwide," she added.
The influence of PM in HMS, according to Kristianus Yulianto, an IT professional from an IT consulting company, can give very important benefit to HMS, namely the adoption of new proven tools or technology from PM. To this day, PM's IT infrastructure and technology are widely recognized as the best practice benchmark in the cigarette industry. In field practice, the technology impacts all the levels in HMS. For the top levels, it helps them in analysis and decision making; for the mid levels it helps them in operations control and analyses; while for the bottom level, it simplifies the processes. "In the end, it improves efficiency and productivity. In addition, it will automatically develop a new, positive culture that supports company performance," said Kris.
So what do they need to do in order to make the transition from the existing HMS system to the new PM system-if indeed that is the direction they're headed to-go on smoothly? Kris suggested that during the system transition period, when the existing system has not been substituted entirely, an interim solution is provided. For example, HMS and PM might utilize the existing standard application to the maximum by enhancing the system. In other words, instead of buying specialized applications, Kris suggested that it is better to develop new applications that are still based on Oracle. "Buying new applications will make things worse, because it will create new 'islands' of applications," said Kris. "Building new Oracle-based applications during the transition period will be the best and efficient way to go," he added.
