Raw Material Management at Welch's, Inc.

Abstract

Welch's, a large grape-processing company owned by a grower cooperative, faced complex logistics in planning recipes for products sold in retail stores. The recently installed integrated MRP and cost-accounting systems did not include ways to calculate recipes at optimal cost based on plant-raw-material and capacity constraints. An imbalance of supply and demand further complicated this problem in raw-materials management. The cross-functional team in charge of managing raw materials spent increasing amounts of time deciding what recipes to use at each plant. We formulated the problem as a linear program model and used spreadsheet optimization to incorporate the model in daily decision making. The company has run the model each month since 1994 to provide senior management with information on the optimal logistics plan. This simple application saved Welch's between $130,000 to $170,000 during the first year.