Cost Saving Ideas for Food Companies in the Current Economic Environment

//Cost Saving Ideas for Food Companies in the Current Economic Environment

Jonathan C. Daiker, CFO, CPA

If you produce products for the retail or wholesale food industry, maintaining your
profitability the past year has been challenging. The commodity markets have been
vacillating severely, making it difficult to maintain price levels that yield a consistent
profit margin. Several areas that need to be managed closely are:

  • Procurement and Input Costs—A huge opportunity area for improving
    profitability. Alignment of procurement commitment and production is critical.
    Tracking the markets and getting out in front of commodity price increases are
    also extremely important to maintain your price without impacting your
    profitability. If you’re reacting to, rather than foreseeing price change then in all
    likelihood your margins are taking a hit.
  • Pricing and Marketing Programs—Here, again, alignment is key. If price
    increases are introduced and proper controls are not in place to monitor trade
    spend and marketing programs to minimize sales give backs, then price increases
    are likely to be given back to the customer. The sale person, in many instances, is
    the customer’s friend not the company’s.
  • Factory Rationalization/Harmonization—Companies with multiple factory
    locations are often slow to recognize the importance of establishing and getting
    the most out of best practices. Documenting procedures of your best factory and
    pushing them down to your under-performing operations are a good start. Even
    when differences in equipment and layout are considered, it often comes down to
    attitude as the reason one plant performs better than the others. Getting to the
    underlying reason for the attitude difference can lead to inexpensive ways to
    improve performance.
  • Distribution/Supply Chain Dynamics—Implementation of best practices in this
    area can offer huge opportunities in cost containment/reduction. The closer you
    get to the customer, the easier it is to say “money is no object”. We’ll do anything
    to get the product to our customer faster! However, the fastest does not have to be
    the most expensive. Discipline is a significant aspect of delivery systems, and
    often times, it is lacking or overlooked. Procedures need to be documented and
    followed. Minimizing costs is the objective, but keep in mind you are not going to
    cost reduce yourself to a sustainable, growth oriented business. Cost reduction can
    only contribute so much profitability.
  • SKU Proliferation—An area often overlooked in an attempt to keep the customer
    “happy” that can result in costs that far outweigh the benefits. A fresh look at the
    product portfolio from time to time is a necessity. Representatives of marketing,
    manufacturing and finance should be involved in the process in order to get a
    clear view of the costs and rewards of maintaining a product.
  • Strategy and Earnings Consistency—Earnings consistency is sustained by
    controlling the opportunity areas above together with a good strategic plan. You
    always need to have a vision where your market is going and be moving with or
    slightly ahead of your competition or you will end up with excess inventories and
    significant costs associated with catching up.
  • Running a successful business means you take the time to learn about every detail
    surrounding the operation of your business. Although successfully managing the areas of
    opportunity detailed in this article is critical in a tight economy, you should not overlook
    the benefit of establishing a methodology and routine that brings continual consistency to
    the operation of your business. Once you have this in place, you move from the
    reactionary mode to the planned mode and you become the competition that everyone is
    chasing.

Jonathan Daiker is a Partner at The Interlochen Group, a CFO Services firm based in
Atlanta, that is focused on improving the financial and operating performance of
middle-market firms.

jdaiker@new.interlochengroup.com

www.interlochengroup.com

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