Performance NOW: Engagement Results

Client:

Harvest Manor Farms

Size:

$175 million

Industry:

Food (snack & nut)

Expertise:

Performance Improvement & Pricing Management

Assignment:

MainStream Management (“MainStream”) was engaged by the parent company of Harvest Manor Farms (“Harvest Manor”), a multibillion dollar holding company, to assess the company’s manufacturing facility and implement financial and performance improvement initiatives. Harvest Manor, a $175 million private label snack and nut company, had a strong presence across retail and food service channels. The focus of MainStream’s engagement was to improve performance, manage pricing, raise quality levels, and improve yield. A secondary goal was to stabilize production so that additional products could be produced in a common facility and be offered to new and existing customers.

When MainStream began the engagement, nut commodity prices were experiencing wild fluctuations which threatened both supply and margin. Harvest Manors’ clients were demanding pricing and supply guarantees that would stay constant for at least 12 months. At the same time, Harvest Manors’ suppliers were canceling supply contracts. When a customer did agreed to an increased price they would often delay implementation by 90 days which had a negative impact on margins.

These pricing issues led to reduced margins which resulted in significant pressure from the parent company to the management team. Company executives were expected to not only maintain margins, but to generate improvements. Within the company there were intense struggles. The sales department sought to maintain the existing margins and were certain if a price increase was established that they would suffer not only the loss of business, but also the loss of high performing sales personnel.

Actions:

To begin the process of managing pricing MainStream changed the pricing process. This included making the major components of the pricing mix visible to all of the constituents and then began to work with the management and sales team to think differently about how they priced their products. The volumes in this business were such that one cent per pound equated to hundreds of thousands of dollars in profit. As the engagement progressed, and the mixture of science and art came together, the company began to experience stability in the relationship of their costs and pricing. Little by little they began to claw back margin, all the while increasing market share.

To address the performance issues the company’s operations personnel were assessed. The existing operations management team had a blend of extremely capable and equally ineffective members. Ineffective personnel were quickly replaced, while support was provided to those on the team who were very capable. In addition, a reduction of temporary labor was initiated by converting qualified temps to permanent workers. A complete overhaul of the Maintenance department, including the Manager and Supervisor, was undertaken. Inventory controls, which historically had suffered poor results, were restructured and new processes were implemented that included changes in Receiving, Shipping, QA, & Production. These changes had a positive impact resulting in faster turns and a reduction in losses due to spoilage. Additionally, cost savings projects were assigned and driven by MainStream.

Results:

The pricing management initiatives were a key contributor in doubling the company’s operating margin and increasing revenue, resulting growth that was 45% higher than the industry average. As a result, the owners were able to monetize their investment and achieved an increase nearing ten-fold the offer they received prior to MainStream’s engagement.

The workforce responded positively to the operations improvement initiatives in large part due to their participation in the changed work processes. Production records were posted and the teams were rewarded based on company results. Incentives such as a company picnic, turkeys given away at Thanksgiving, monthly birthday cakes, and safety bingo were also put in place to build loyalty and moral.

The operations cost saving initiatives implemented by MainStream generated over $1.6 million in annual savings by reducing peanut oil waste, and reducing outbound freight costs by 22%. In addition, workers compensation claims were reduced by 83% resulting in an annual savings of $275k. Product quality also dramatically increased reflected by the fact customer complaints fell by 66%, and product liability complaints dropped by 64%. Yield improvements were obtained by improving measurement standards, repairing or replacing scales, and improving controls on fill rates.

In addition to the pricing management and operations cost savings initiatives, MainStream implemented a facility wide security program resulting in improvements in manpower efficiencies, inventory control, and material variances, as well as decreasing the threat of product tampering. In a parallel effort, the production facility was cleaned up and a customer visitation program was initiated strengthening existing relationships and resulted in new business with Wal*Mart, Dollar General, and Safeway. Workforce morale improved in the facility and productivity improvement permitted the plant to move from a 24/7 to a 24/5 schedule. After the initial year of the engagement, company profits grew by 20% and the following year profits more than doubled the initial year profitability.