November 2006 | Case Studies | I.T. Toolkit

From Doughnuts to Dollars

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Krispy Kreme finds sweet savings in streamlining financial and supply chain transactions with EDI.

Early each morning, 600 to 700 trucks roll out across the United States loaded with hot, fragrant Krispy Kreme doughnuts. Krispy Kreme stores—some company-owned, some franchises—make the product overnight, both for themselves and for wholesale customers such as supermarkets and convenience stores.

The trucks make two runs each day—one to deliver red, green, and white boxes of doughnuts for sale on store shelves; the other to deliver loose doughnuts for the deli case.

With 293 factory stores turning out 7.5 million doughnuts every day, Krispy Kreme's distribution network generates a huge volume of invoices and payments. In the past, every shop sent a separate paper invoice for each delivery made to individual customer locations.

"A shop could generate 10,000 invoices in one month," says Greig Radford, manager of iSeries and e-commerce at Krispy Kreme, Winston-Salem, North Carolina.

Many customers sent their payments to the shops, each of which employed two or three bookkeepers to handle the crush of paper. Some large national grocery chains, which are served by numerous individual shops, preferred to send a single, consolidated check to Krispy Kreme headquarters.

But even then, bookkeepers in each shop had to enter data in an accounts-receivable (AR) system to note that the customer had paid each of its own invoices.

"Somebody had to keep up with clearing 10,000 invoices per shop," Radford says.

AR Meets EDI

In 1998, Krispy Kreme started to automate parts of its AR system by introducing electronic data interchange (EDI). It used EDI Integrator from EXTOL, an e-business software and services vendor located in Pottsville, Pa., to electronically apply payment data to the appropriate invoices.

Since then, Krispy Kreme has continued to find new uses for EDI Integrator, creating EDI transactions to automate financial and supply chain functions with both its customers and its suppliers. The next EDI project will make it easier for grocery and convenience stores to place orders for their doughnuts.

"I can't imagine how a company today can expect to grow and work with suppliers and customers without EDI," Radford says.

Krispy Kreme started looking for an EDI solution because it wanted to reduce the time it took to apply a payment to an invoice—usually seven to nine weeks. The company's information technology staff chose EDI Integrator, which is part of EXTOL's Business Integrator platform. EXTOL specializes in technologies that not only transmit and convert data from one format to another, but also integrate data with internal business processes.

Krispy Kreme's IT department implemented EDI Integrator without help from EXTOL. "Krispy Kreme knew its problems and objectives, and was able to deploy the system quickly," says Steve Rosen, vice president of marketing at the software developer.

The doughnut maker is unusual in that it first applied the technology to the financial side of the business; most EXTOL customers start by tackling supply chain challenges, Rosen says.

That's because many manufacturers face continual demands from large retail chains to implement new business processes supported by electronic transactions. These transactions need to reach into the manufacturers' supply chain management systems.

"Suppose the business process worked this way: A company receives a purchase order and the customer wants confirmation that the inventory is available, as well as a delivery date. After it receives the inventory and transportation information, the company confirms the order with the customer," Rosen says. "It sounds simple enough.

"But if the warehouse management, inventory management, accounting, and EDI systems are not fully collaborating, providing the customer the requested information is a painful, difficult challenge," he adds.

EXTOL's Business Integrator provides tools that companies use to exchange data with trading partners, and present incoming data in formats they expect. The aim is to synchronize activities among trading partners, and a company's own diverse internal systems.

The latter is necessary because a company might, for example, use an ERP system from one vendor, a warehouse management system from a second, and an accounting program from a third; one runs on a Microsoft platform, one under Linux, and one on an IBM AS/400.

"We remove barriers to collaboration by eliminating the fact that the systems are different," Rosen says. "We can coordinate and synchronize how they function."

While companies need to exchange data with trading partners, "they also have to add intelligence at either end of the data transfer so they achieve a higher-order business goal than just moving documents around. The intelligence supports business functions," Rosen says.

EXTOL markets the Business Integrator to mid-sized companies, which Rosen defines as those with $100 million to $1 billion a year in sales.

The cost of the system starts in the "mid-teens" for an EDI solution involving a limited number of trading partners. At the high end, for an unlimited corporate license covering EXTOL's entire range of functions, including EDI, data synchronization, integration, and incorporating data from a radio frequency identification system, the price tag reaches about $100,000.

The first step in Krispy Kreme's EDI conversion was to have its bank send information about payments received from its largest customers. "These customers were paying about 100,000 invoices company-wide each week," Radford says.

Using the bank's information, the company created electronic reports that parsed out the portions of these payments that applied to invoices from individual shops. Bookkeepers at the shops used the reports to apply payments to their invoices.

$1 Million in Five Seconds

Soon, Krispy Kreme started using EDI Integrator to centralize AR functions, transmit invoices and remittance information, and match payments to invoices electronically.

"Using this system, one person can apply a $1-million check in five seconds, then deal with a few thousand exceptions, as opposed to 10 people applying a $1-million check over several days and dealing with every invoice on it," Radford says.

Instead of two or three bookkeepers at each shop applying the checks, Krispy Kreme now covers that function from its headquarters with just seven employees. That improvement alone produced enough savings to pay for the software and the IBM iSeries hardware it runs on, say Krispy Kreme executives.

"The amount of money we saved is staggering," Radford says. "We actually would not have been able to grow if we had not become centralized."

Since 1998, Krispy Kreme has continued to add electronic transactions. The company transmits invoices to its 30 largest customers and receives their payments via EDI.

"On the manufacturing side, we send purchase orders and receive invoices electronically," Radford says. Krispy Kreme continues to add new trading partners to the system.

The biggest improvement Krispy Kreme has seen since implementing EDI Integrator is a better flow of information. "We've smoothed and facilitated the process flows we have created on both the manufacturing and the customer side," Radford says.

More effective reporting is another major benefit. "Imagine how difficult it was to do a company-wide AR report when operations were decentralized," Radford says. "Now we have complete visibility, minute by minute."

Krispy Kreme's next big EDI project will change the process customers use to order doughnuts. Currently, they place orders with the individual shops that serve their region; soon, they'll place them to a central facility.

"We will receive orders from several customers and distribute them to our shops," Radford says. "That's a big deal, because it helps customers leverage their own ordering systems and statistical ordering models."

The automated, centralized process will be simpler for both the customers and the shops because it won't require follow-up phone calls. "A file goes out and customers receive the orders the way they want them," Radford says.

Today, shop employees receiving customer orders via fax may misread part of the order, or make mistakes while keying the data into Krispy Kreme's information system. Electronic orders will eliminate the human risk factor.

Better-quality data "will save both time and effort from a manufacturing perspective at the shop level," Radford says. It will also help ensure that shops make the right amount of product to meet current demand.

Krispy Kreme won't take a powder when it comes to future EDI projects. "We'll continue to leverage EDI Integrator in new ways," Radford says.

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