Molini Casillo 1 / 9. 1 Durum totals only 5% of the overall wheat production. The largest market is Italy for pasta together

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1 Molini Casillo This case is for teaching purposes only and it does not intend to suggest business practices. Material collected by Antonella Longo, University of Salento and Gianmario Motta, University of Pavia MOLINI CASILLO... 1 CORPORATE STRATEGY : A VIEWPOINT OF THE CHIEF EXECUTIVE OFFICER... 2 IT STRATEGY : THE VIEWPOINT OF THE CHIEF INFORMATION OFFICER... 4 CORPORATE STRUCTURE... 5 PRODUCTION FLOW... 6 PRODUCTION PLANNING... 7 TRANSFORMATION AND SHIPMENT... 8 THE FUTURE OPERATIONS... 9 Molini Casillo The production of flour for pasta factories is a big business in Italy. However the market is very fragmented and ruled by few pasta manufacturers. Major flour producers are 20, but leaders are only two. Grandi Mulini Italiani (Large Italian Mills - LIM) allocates over 70% of production capacity to the transformation of flour from durum wheat. On the other side, Molini Casillo (= Casillo Mills - CM) transforms durum wheat into semolina 1, that is the flour used for pasta. Given the thin profit margins and the strong power of very large customer corporations (e.g. Barilla, Pasta Zara), players compete on efficiency and flexibility. Casillo s story began in 1958, when Francesco Casillo purchased Molini e Pastifici Coratini (Coratini mills and pasta factory) and appointed his son Vincenzo to run operations. With the following generation of the Casillo family, plants were enhanced, new business were acquired, and new manufacturing technologies were introduced. Nowadays, Casillo is an integrated group, with 220 employees, with a complex structure as seen in the exhibit 1. The core business covers the whole chain of durum. Division Cinque Cereali (Five Wheat) is a recognized leader in purchasing and trading. Division Molino Casillo (Casillo Mills) processes wheat and distributes the resulting semolina to large corporations, as Barilla, Granoro, Garofalo, Pasta Zara with sales over 220 Millions Euro. Division Selezione Casillo (Casillo Selection) addresses a different market segment, by selling wheat products packaged in sack to bakeries, pastry shops, artisan shops, and, also, retail stores. Also, a port terminal in Barletta has been acquired in order to integrate also inbound and outbound logistics. 1 Durum totals only 5% of the overall wheat production. The largest market is Italy for pasta together with North Africa, where durum is used to obtain couscous, a very popular course. Husked but or coarsely ground, it is used for semoules in the couscous of North Africa, and other parts of the Arab world. It is also used for Levantine dishes such as tabbula, kishk, kibba, bitfun and the bulghur for pilafs. In Arab cuisine it forms the basis of many soups, gruels, stuffings, puddings and pastries.coursely ground durum used for making pasta is known as "semolina." When ground as fine as flour, it is used for making bread. In the Middle East it is used for flat round breads, and in Europe and elsewhere it can be used for pizza, torte etc. It is not, however, good for cakes, which are made from soft wheat to prevent toughness (Source: Wikipedia 2010, under Durum ) 1 / 9

2 Figure 1- Casillo Group (from ) Corporate Strategy : a viewpoint of the Chief Executive Officer In 2010, for its first time, Casillo Group is preparing a strategic three years plan. To us, as Pasquale Casillo, CEO of Molini Casillo, pointed out, it is a key point, since it enables to share entrepreneur s strategy with the corporate management. In fact our business is growing in span, size, and geography. Once we were only in wheat transformation (Mills) business for large customers, now we are on several businesses and operations as Wheat Trading, selling of packaged flour and other bio-agricultural products, renewable energy. In transformation Casillo is by large leader in Italian market, and a further growth could be even dangerous. Nowadays Casillo is targeting North Africa and other large consumers of durum wheat, as Brazil or the formerly communist European countries. Trading is also international because of its very nature, and it consists of selling and buying around the world wheat moving on ships or stored in silos. Trading is key for profitability, since wheat is a commodity. Renewable energy (mainly based on by biomasses and scrap generated by wheat transformation) and commercialization are emerging businesses, still local tough. Four generations ago the Casillo family entered wheat business. In the Fifties, they reached an industrial size, based on a fundamental intuition, i.e. moving durum through silos. At that time people were still using sacks, and Casillo was the first business with cement silos. Since then, innovation is one of the key success factors. Some years ago, Casillo completely automated the production process and added new machinery, as de-corking equipment, thus leaving the traditional durum processing cycle 3. Decorking machinery improves the 3 Durum wheat is traditionally subject to four processes: cleaning, milling, tempering and purifying. First durum wheat is cleaned to remove foreign material and shrunken and broken kernels. Then it is 2 / 9

3 process yield and quality because it gently removes, layer by layer, the cork from the grain. In this way, precious substances, present only in one layer, can be captured and used. The automation has been eventually extended to the whole factory, in order to fully exploit the costly plants on 24 hours and assure the quality requested by the large and powerful customers. Nowadays, thanks to the experience made with Casillo, the automation provider is one of the leader in agro-business automation in Italy and North Africa. Figure 2 Casillo s strategic roadmap : the first phase (from ) Operations in European Union imply a good understanding of EU politics, since Italy is more and more depending on import of raw wheat. In general wheat is a mature market, even if consumption of pasta is constantly growing and new countries are approaching pasta cooking. In this market you have to grow by conquering markets shares, by innovation and efficiency. Innovation should be on processes and services rather than on product contents. Casillo implemented new initiatives, respectively on logistics and food safety. Inbound logistic is totally managed from wharfs (where Casillo owns its own terminals) to mills; furthermore, Casillo manages intermodal outbound logistic (truck + rail + ship). In order to assure and control quality, Casillo has established a certified lab, one of the very tempered to a moisture content, toughening the seed coat for efficient separation of bran and endosperm. Durum milling is a complex procedure involving repetitive grinding and sieving. Proper purifying results in maximum semolina yield and the least amount of bran powder (Source: Wikipedia 2010, under Durum ) 3 / 9

4 few ones among these kind of firms. In such a mature market, size is a success factor. A large scale enables critical mass and critical mass enables research and innovation. Size also implies more structured business, more focused managers and researchers, more focused suppliers in a virtuous circle. In short a first critical success factors - the CEO summarized - is innovation, in product, services, organization, and production technologies. Also size and integration are critical. Without scale we could not survive and a poor integration would drive us to inefficiency and, eventually, out of the competition. Looking to the future, renewable energy and intermodal logistic respond to our needs while packaged product, sold through agents, is an emerging market. The bug threaten is that our product will be classified as a pure commodity and service and quality would not anymore be recognized. All our business lines are consistent. However the challenge is to develop an organization consistent with our objectives. We have to evolve from the solution of individual problems to the organizational systems. For instance, our Receivables office does a fantastic job on payments, but they spend a lot of effort on individual cases. My vision is a different scenario, where computer systems process routine and people work on exceptions. Figure 3 Casillo s strategic roadmap in the 2000s (from ) IT Strategy : the viewpoint of the Chief Information Officer Casillo s IT is similar to other transformers. Systems are organized into three logical layers. At the lowest level, SCADA (Supervisory Control and Data Acquisition) system coordinates the physical production flow. In turn MES (Manufacturing Execution System) enables to monitor 4 / 9

5 business information about the plant. Finally, a business system processes transactions such as customer orders, bill of lading and alike business records. The operations support systems were based on a custom software, developed and maintained by a local software house. The software, that was tailored to the specific needs of the company, was giving a good functional coverage, but mode hard to maintain. Additionally its software architecture was somewhat rigid and frequently used stored procedures 5. In 2007 the company made its IT strategic decision, by adopting SAP r/3 as ERP system. However SAP was initially used only in the financial area, and only SAP FI-CO modules were installed. As the IT manager pointed out, the company was still thinking sales and factories as self contained silos. In 2008 the decision was made of adopting SAP ECC 6.0 fort the whole organization. Since SAP notoriously has a user unfriendly interface, a software layer was ordered to a local company. This software layer, based on MS technology, was intended to incorporate the business logic of the existing legacy system and use SAP as a backend engine, that should provide data base integration. In short the idea was to have user frontend, and business logic in the new system and let SAP run as a kind of database server. This innovative architecture resulted too complex and dangerously close to a custom approach. In June 2009 an IT group was established, led by Francisco Garcon, a young manager with a previous experience in the Italian branch of a multinational company. In July 2009 the project began. In February 2010 the system has been released and a parallel project to interface SAP, the Lab System, PITECO (an application software for treasury transactions) and the Enterprise Service Bus is going on. Corporate structure Figure 4- Simplified organization chart of Molini Casillo 5 Stored procedures are sequences of SQL instructions that are stored in the database. In a more formal definition, a stored procedure is a group of Transact-SQL statements compiled into a single execution plan. Stored procedures enable a consistent implementation of logic across applications. SQL statements and logic needed to perform a frequent task can be designed, coded, and tested once in a stored procedure. 5 / 9

6 CM is a family owned company, that is run by four brothers, each in charge of some specific business area. Four Vice Presidents report to the CEO (Chief Executive Officer): CFO (Chief Financial Officer) who manages all support activities (Accounting, Planning and Control, Human Resources, ICT) Production and Retail Sales, who manages 7 plants (5 in Apulia Region and 2 in other Italian Regions) Procurement and Wholesale, who is in charge of purchasing wheat worldwide and manages wholesale accounts (Barilla, Zara etc,) Quality, who is in charge of the quality raw materials, in process and product quality, and manages quality labs In plants located in Apulia work 4 mill foremans, 10 senior and 16 junior plant conductors; 10 people work in plants located in other regions. The Lab staff totals 9 people. The Manufacturing department is headed by a Production Manager, to which the manager of Manufacturing operations reports, who supervises mill foremen. Production flow Figure 5 Wheat tanker entering Molini Casillo to unload wheat into trenches and silos (from ) The wheat is transported by special trucks, similar to trucks that transport fuel in a tank. Actually, the wheat behaves like a liquid, and, furthermore, cannot be exposed to air and pollution. Trucks, as they arrive to the plant, download wheatin a trench for cleaning. Cleaning eliminates rough impurities e.g. leaves, pieces of wood, small stones etc. Rough cleaned wheatis put in silos within the production plants or storage facilities. The technical purchasing specs define physical, biological and chemical characteristics of wheate.g. proteins, gluten, ash, stain, humidity etc. The production plan defines quantities and recipes for each mill. Each recipe specifies the blending of different wheatvarieties and water that reflect the order specs defined by customer order. The production is a seamless process, closer to a refinery than to a manufacturing plant. It begins with picking wheat from storage cells, and includes blending, fine cleaning, conditioning, crushing, and storage of the end product (the durum semolina) and of sub products. The production is fully automated and secured. Wheat and semolina are never exposed to open air (hygienic requirements) and are processed and flown in a totally automatic way. All equipments are intelligent and the production flow is controlled by a SCADA system (Supervisory Control and Data Acquisition) and by a MES (Manufacturing Execution System) layer. MES enables to monitor business information about the plant. 6 / 9

7 While the process is running, samples of wheat, semolina and by-products are gathered according to a sampling plan that is defined by Quality Control. Specifically, samples are gathered every 15 minutes at the end of each process phase. Figure 6 Silos monitoring on SCADA (from ) Figure 7 The cleaning phase of transformation (from ) Production Planning Each Friday afternoon production manager plans operations according to the sales orders portfolio. The resulting master production plan (PP) allocates semolina batches to be produced to each mill and defines blending recipes (% of wheat varieties to be blended), In general PP reflects the stock on hand plus planned deliveries and available production capacity. In order to ease planning, a dozen of reference recipes have been 7 / 9

8 pre-defined, that cover most customer specs. In the Friday evening meeting, mill foremen share and tune PP. Daily, in the evening, the mill foremen defines production orders (POR) for the following two days. PORs state quantity and variety of semolina to be produced, associated recipes, silos wherefrom wheat will be picked up and silos where the end product will be stored, humidity rate to be obtained in the tanks, resting period of the wheat after the first humidification. To prepare production orders the mill foreman analyzes production requirements (semolina specs, shipment priorities, equipment status). PORs, after being set, are scheduled (i.e. sequenced). When an individual POR is released, the previous POR is almost over. Only one recipe is processed in an individual mill at the same time. However, different varieties semolina may be obtained by a same recipe, e.g. semolina B is obtained by refining semolina A. The actual production process can be changed on the fly, due to corrections to non compliant semolina, urgent requests from customers, unavailable equipment. Production changes are documented by Change Requests (CR). A first kind of CR may reflect a change to a scheduled order. The change involves three steps. First, the request goes to mill foreman. If the CR can be accepted, the foreman forwards changes to PP the Production manager. Second, the manager, who controls all productions going on, can reallocate productions accordingly and generate a new PP. Third, if the reallocation is unfeasible, CR is forwarded to the Production director, who will accept or refuse. A second kind of CR may also reflect a new customer order (COR) forwarded by Sales department. The Production manager may accept the request and reallocate PP to accommodate it. If not, the request is forwarded to the Production director who will make the final decision. Transformation and Shipment Wheat is unloaded from trucks into trenches. Wheat is cleaned and rough impurities e.g. leaves, pieces of wood, small stones etc. are removed. Several trucks, typically from the same batch, may be downloaded into the same trench. The transformation is triggered by the release of PORs, that are entered in SCADA by the plant conductor. Each POR specifies a recipe, that states which wheats should be used and how much water should be added. First, wheat is moved from storage cells to the cleaning tanks, each having around a kg capacity. Tanks are filled in 3 hours. In tanks the wheat is gently humidified. The humidification slightly increases the weight of wheat, and this marginal change is recorded. After humidification a second cleaning operation follows. Subsequent operations include peeling, crushing, storage. The mill foreman is monitoring production through SCADA and MES and appropriately intervenes when problems of product yield and/or compliance arise. The foreman makes a preliminary diagnosis and, depending on the problem impact, calls the plant maintenance staff and informs the production manager. 8 / 9

9 All operations stated by PORs are automated thanks to the real time / near real time between MES and the field shop floor system (PLC-SCADA). The MES : Forwards PORs to the shop floor system Collects from the shop floor system fabrication data (cells, balances equipment used in each operation, weighting results, duration of each activity) The whole process lasts 12 to 14 hours. Most time is spent for humidification and conditioning, while wheat is resting in order to reach the humidity grade needed for cleaning. Generally, from 1 kg of wheat 0,7kg of semolina are obtained (70% yield). As the process is over, the semolina batch can be shipped. Before shipment, further blending of semolina may be decided by Production manager and performed by the mill foreman, who, each evening, enters a corresponding Blending Order (BOR) for each shipment. A BOR states the semolina batches should to be blended, the storage cells wherefrom to pick batches, and the blending percentages. This information is forwarded to the Outbound Logistics department, and also to Quality department, which certifies the semolina to be shipped, to comply with tracking requirements. Loading a lorry takes some minutes, and loading is monitored also by the mill foreman. The future operations Pasquale Casillo, President of Molini Casillo, was wondering the excellence factors of the corporation. Molini has been excellent in the quality of product - with a strong focus on quality control, and excellence in processing technology. Of course also the quality of process and service to the customer were a key. However, in the forthcoming years, with the increasing commoditization of the product, the value to the customer would increasingly come from customer service. In a conversation with a study team of University of Pavia and University of Salento key issues were emerging. Should corporate customers and retail customers and/or agents have their own CRM (Customer Relationship Management) systems trough which they could place order, check order status and track their deliveries? Within the factory, should physical processes and related business processes be monitored in terms of quality? Would be it necessary go through a formal process of designing the future architecture of business units, business processes and services and related Information Technology? Should the system interface be structured by stakeholder a systems for management, a system for customer, a systems for mill operators etc. Also, the team underlined that many factors were pushing toward an intimate link between business and IT. The need of production efficiency and quality required more and more integration at different levels: from the individual machinery to machining group, from group to factory, and from process control systems to the incoming ERP platform. More extensive production control means less scrap, higher quality, higher image and, last not least, higher level of customization. A planned and integrated evolution, argued the team, could deliver highly competitive potential benefits, such as a shorter lead time to serve customers, higher flexibility to customer requests, higher versatility in responding retail business and an even higher productivity of plants and processing technology. To get these benefits, was concluding the team, a commitment of management, was required and a strong effort of staff in analyzing, monitoring and improving processes and services was needed. Could the corporation afford it? 9 / 9