Unisoma – Sadia, Integrated Swine Processing and Industrial Plant Planning

Between 2001 and 2003, UniSoma developed and deployed at Sadia a series of decision support tools, which resulted in the PLAMES/In+S solution for monthly integrated swine processing and industrial plant production planning.

Problem Description

Poultry and swine production at Sadia are based on the Field Integration System. According to this scheme, the company supplies its “integrated” partners with all the necessary resources to raise livestock (feed, technical assistance, financing, etc.) until the slaughter, remunerating them according to the flocks or herds performance. In 2007, Sadia had 6 thousand “integrated” partners for broiler production and 4 thousand for swine production. For poultry, 100% of the production was guaranteed by the Field Integration System; for swine, around 40% was guaranteed, being the rest supplied by independent producers or partial Sadia partners.

At the processing plant, the animals are slaughtered, eviscerated and chilled. For chicken, the cooling process is done by “chiller” equipment. Swine carcasses – after being sawn lengthwise, washed and weighted – are directed to the cold chambers. Once cooled, the parts are submitted to a series of cuts, until the final “natural” meat products are obtained.

Part of the production is used at the industrial plants as raw material. These materials are used in various industrialized lines, with products such as sausages, hams, bologna, burgers, empanadas or frozen meals.

The “natural” meat production mix that is used by the industrial plants include products with greater or smaller added value. Products considered to be more “noble” are chicken breasts fillet, used to produce empanadas, or pork shank, which, after cooking (and possibly smoking) results in ham. Among reduced added value raw material are MSM – mechanically separated meat – from chicken and swine carcasses, as well as trims from the cutting process, all typically used in processed meat products.

The industrialized products are produced according to formulas and process patterns previously established and rigorously controlled, which provide them with the required consistent form, color and texture. The main industrialization steps are preparation (which include adding seasoning, spices, emulsifiers, brine and other raw material to the meat – ground or not), filling, curing process, boiling, smoking process, slicing, packaging and eventual cooling or freezing of the final product.

The Challenge

Due to increased value added products (if compared to the “natural” meat market), the industrialized segment at Sadia (which include cooled pizzas and pasta, margarine and desserts) has received the largest productive investments throughout the past years. In 2007, Sadia’s total production reached 657,2 million tons, against an installed capacity of 852 million tons.

Amongst the various animal chains, swine presents the highest level of integration with the industrialized products area. The effective exploration of the full complementarity potential between these businesses demand the use of integrated planning and management policies, which provide agile and profitable reactions to market fluctuations. Based on this opportunity, and on the expressive results accomplished with the deployment of the PIPA System (in the 90’s), Sadia invited UniSoma, in 2001, to develop an integrated planning system for all its swine and industrial plants.

Examples of practical issues, defined by the executive board at Sadia, that should be answered by the tool were:

» How should a given processed meat product be produced, amongst the various possible formulas?

» What to do with a “natural” meat product that can be potentially industrialized? Sell it to the “natural” meat market, or send it to the industrial plants?

» How to better use a certain raw material, i.e. for which product and with which formula should it be used?

» What is the minimal sales price for an industrialized product that makes it more competitive than others?

» What is the minimal sales price of a “natural” meat product that makes selling more attractive than industrializing it?

» How to correctly measure the transfer price of “natural” meat products, from the processing plants to the industrial plants?

The Solution

The solution was developed gradually and in stages. In 2001 the development began with the PLAMES/In Module, for monthly integrated planning for all the company’s industrial plants. Developed in AIMMS software, PLAMES/In uses a predefined raw material availability in the various processing plants (volumes and costs), and returns (a) the processing plants supply plans, according to the available raw material from the company’s own plants and third party offers, (b) the industrial plants production plans, according to standard and alternative formulas and productivity levels and (c) distribution plans to meet subsidiaries demands.

The deployment of the tool, in September 2002, required an arduous prior survey, gathering information from all of Sadia’s plants (technical lists, capacities and productivities) as well as commercial data (prices and subsidiaries demands).

PLAMES/In is a typical S&OP – Sales and Operation Planning – tool. Besides allowing the generation of integrated production and sales plans, optimized according to a profitability goal, PLAMES/In started being used as a support tool for periodic meetings organized to discuss integrated operations issues between industrialized and “natural” meat products – internally denominated as the “Consensus” meetings, the reason for which, at that time, PLAMES/In was named Consensus. Among other results obtained through the use of the tool, the following are highlighted:

» Identification and “shadow price” definition for production bottlenecks as well as for scarce raw material needed for industrialization;

» Business opportunities identification;

» Cost calculation for restrictions such as fixed sales and market share maintenance;

» “Substitution” costs, such as the minimal sales price for raw material (against internal use at industrial plants) or minimal sales price for industrialized products (against selling its raw material to the “natural” meat market).

PLAMES/S Module

During 2002, UniSoma and Sadia focused their efforts on the PLAMES/S Module, for monthly planning at every swine plant. Also developed in AIMMS, and similarly to PLAMES/In, it possesses a “computational intelligence”, in form of a mathematical programming model, for automatic generation of master production plans, according to optimization criteria based on the total marginal contribution of all Sadia processing plants. This intelligence also guarantees an integrated plan which involves all of the following steps of the business supply chain: swine delivery, carcass processing, finished products distribution to subsidiaries and meeting market demands.

PLAMES/S validation was conducted using Sadia’s largest and most complex processing plant: Toledo, in the state of Paraná. To do this, information was gathered regarding all its products and cutting processes (including yields), later registered in BIBPRO – Product and Process Library, a PLAMES/S sub-module through which the swine carcass to final product transformation chain is determined (according to weight and quality specifications). Besides this, based on historical slaughter data, and using statistical techniques, a typical slaughter profile was determined, in form of a Gaussian distribution. Finally, information was gathered regarding production (capacities and productivities) and sales (prices and demand).

PLAMES/In+S Module

Finally, in 2003, PLAMES/In+S was developed, after uniting the PLAMES/In and PLAMES/S modules. Its deployment required gathering products and processes for all other Sadia processing plants. The final models demanded the use of CPLEX solver, from ILOG, state of the art for large problems.

PLAMES/In+S is an SCP – Supply Chain Planning – solution which integrates several stages of the market supply chain of both “natural” meat and industrialized products.

The main result obtained from PLAMES/In+S is the definition of transfer price of industrialized “raw material”, from the processing plants (where they are produced) to the industrial plants (where they are consumed). The determination of the transfer price is not required purely due to an accounting point: it establishes, in a direct form, the profitability performance of the involved areas, which could lead to internal pressure and tension. A historical practice used to calculate the transfer price involves using market prices, but this methodology presents some problems: besides the price fluctuations, it is not always possible to find references for all products.

Through the model integration, this problem is solved in a simple and effective manner. In PLAMES/In+S, the various transfer alternatives are economically evaluated during the solution of the planning scenarios by considering opportunities of maximizing the total company’s contribution margin.

About Sadia

Agribusiness and food producer, Sadia presented a liquid revue of R$ 9,8 billion in 2007. It is one of the world’s largest natural meat (chicken, pork and turkey) and industrialized products (margarine, pasta, frozen meals, deserts and animal protein derived products) producer and is one of Brazil’s leaders in poultry exportation. Its operational infrastructure consists of 14 industrial units, 2 agriculture and animal production centers, 16 distribution centers and several sales affiliates, present in 14 Brazilian states and Europe. Sadia was elected 4 times (2001, 2003, 2004 and 2005) the most valuable brand in the Brazilian food sector (Interbrand).

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