National Foods Inc - Dilemma

Introduction

It was early afternoon Friday and Roger Abbott, Director of Logistics for the Canadian division of Natural Foods Inc. (NFI) had just returned from the monthly management meeting and luncheon. after reviewing his telephone and e-mail correspondences decided to set aside the rest of the day to map out a plan for re-organization of the Canadian distribution system, something he had been formulating for some time, but it had recently moved to priority status after today's meeting with the senior management team where it was announced that NFI needed was launching a 5 year program to improve efficiency and effectiveness of the organization. All areas and departments in the organization were to examine and present ways to achieve this.

Natural Foods Inc.

Natural Foods was a global manufacturer of pre-packaged cereal and other grain related products under the "Naturally Good" brand which were produced in numerous plants throughout the world including a plant in southern Ontario. Established over 100 years ago in the Midwest United States to provide nutritional products to growing families, starting with a single product, the company now a 14 billion dollar company operates under four divisions and company continues to research and develop additional grain related products. The four divisions are:

Convenience Breakfast Foods (5.2 billion)

Snack Foods (6.8 billion)

Specialty Foods (1.2 billion)

Frozen Foods (1 billion)

The sales distribution for the NFI products was varied, with the discount retailers like Walmart and Target accounting for over twenty five percent of the sales, grocery chains accounting for another forty five percent of sales. The balance was distributed through various other channels such as food service, grocery distributors, agents etc.

The company markets products under over twenty different product banners, and produces over 200 different items in these banners and divisions. Not all the products were produced by each plant, and not all products were available in the Canadian marketplace. Currently the company sell products in over 150 countries around the globe. NFI employed over 30,000 people worldwide.

NFI has over 35,000,000 square feet of office, manufacturing and distribution space worldwide, with some facilities being created/constructed for specific manufacturing requirements. NFI as a general rule owns all the facilities included in this 35,000,000 million square feet, however they do lease warehousing and distribution facilities in the various countries they operate in.

In North America, the company (including subsidiaries) operate plants in California, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Nebraska, New Jersey, North Carolina, Ohio, Ontario, Pennsylvania, Tennessee, Utah, and Washington.

Outside North America, the company (including subsidiaries) had additional manufacturing locations, some with warehousing facilities in Australia, Belgium, Brazil, Colombia, Ecuador, Egypt, Germany, Great Britain, India, Japan, Mexico, Poland, Russia, South Africa, South Korea, Spain, Thailand and Venezuela.

The entire organization worldwide utilizes the corporate Enterprise Resource Planning (ERP) System.

Since the beginning of the company, it has been concerned with nutrition and promoted the nutritional value of its products, as well as working with grain producers to improve the quality of their crops. They were also involved with providing nutrition to the military during both the first and second World Wars, while also providing its products to the food service industry, particularly hotels and restaurants. Natural Foods was a leader in nutritional advancements and had nutritionists on staff to ensure that the products they were providing were as nutritional sound as they claimed.

They were also committed to assisting those less fortunate and created a philanthropic organization as the company grew and prospered. These beliefs are as sound today as they were when they were implemented. In addition to the philanthropic assistance, the company realized that it was also important to pay attention to the well-being of employees, so Natural Foods instituted plans to assist in the care of workers children and created innovative scheduling and pay levels to ensure employee's basic needs were taken care of.

Natural Foods was also an innovator in promoting their pre-packaged cereals and other products by offering prizes in the packages as well as opportunities for children and families to obtain additional items through the collection of points and coupons that could be redeemed.

Corporately, NFI had a set of values that they ran their business by, these included -

We act with integrity and show respect

We are all accountable

We are passionate about our business, our brands and our food

We have the humility and hunger to learn

We strive for simplicity

We love success.

These values were important to the organization and had helped them grow into the company they are today. In addition, the company had a strong belief in sustainability, as outlined in this brief statement: As a company, and as individuals, we are passionate about enriching and delighting the world through foods and brands that matter. We care passionately about how our foods are grown and produced.

NFI has taken bold steps throughout their history to become a transparent and responsible corporate citizen, in all the countries they operate. These included such initiatives as:

Reduction of waste materials in packaging

Introducing "fresh keep" packaging

Support local growers through grants and introduction of new ideas for crop improvement

Conservation of natural resources in all countries in which they operate, by working with suppliers

Support growth of minority producers and retailers

Support international climate initiatives

The Canadian Operations

Natural Foods plant in Canada, the first outside of the United States produced products originally for the growing Canadian market as well as for export to countries accessible only to member countries of the British Commonwealth. This allowed the Canadian division to grow and opened the idea for Natural Foods to open additional plants in other parts of the world, particularly British Commonwealth countries.

Natural Foods had distribution agreements with all the major retailers of cereal products across the country and also distributed product to distributors specializing in the smaller convenience and local grocery stores that wanted to sell the Natural foods brands. This arrangement seemed to be working well, but as Abbott was considering his plan to improve efficiency and effectiveness he wondered if there was a better method of achieving the market reach for its brands.

They have a number of distribution centres in their supply chain and in Canada have a centralized facility in the Greater Toronto, which receives stores and distributes products from the Ontario plant and others in the system. Some of the Natural Food plants specialize in specific cereals and supply the world market for the company, which includes shipping products to the Canadian Distribution Centre. They also ship from the Ontario plant products to other distribution centres worldwide. Not all the products manufactured by NFI are available in Canada.

The company was structured like many manufacturing businesses, with traditional departments such as

Accounting

Administration

Human Resources

Marketing

Materials Management

Procurement

Production

Transportation

Abbott as Director of Logistics was responsible for the Procurement, Transportation, Materials Management/Inventory and Production operations of the Canadian division. He also was a member of the senior management team in Canada and as such was responsible for the budgetary needs of his operating areas. Abbott worked closely with Human Resources and Accounting to ensure that costs were contained and within budget every year.

The functional areas of the Canadian division were responsible for the sourcing and procurement of raw materials, packaging and all non-production related materials used by the organization. They had contracts for many of the products purchased, but due to the nature of the market for grains, they negotiated yearly with local providers for these commodities. Transportation was all out-sourced as it a number of years ago determined not to be a core competency, and all the contracts although administered by the Procurement group, were handled by the Transportation group within the portfolio.

Production was a highly structured group and used extensively the information provided by the Head Office in the US as well as market information form the Canadian Marketing department to forecast and schedule production of the various products manufactured in Canada.

The Materials management/Inventory group probably had the most difficult component of the portfolio, as the needed to be conscience of the needs of production regarding having raw materials available, which had been a minor issue over the past few years due to poor growing seasons locally and the trend towards utilization of the imported products. Storage space within the plant was at a premium, and the inventory manager had been pressuring Roger Abbott to outsourced storage for imported products, which was being met with resistance, as Roger was very budget conscience.

The good news was that the various functional areas worked well together, yes they had their differences, but they worked well together to ensure that the needs of all areas were met and the customers were getting product as required. This was becoming more complex in today's changing Supply Chain environment and the pressure being applied by the customers to reduce their own inventories.

As he began to consider what areas of his responsibility should be examined he decided to generate a list of things that this portfolio was responsible for, so he could present it to the management team that reported to him. He quickly realized that there were many things to review and consider, including the delivery schedules, distribution channels and inventory requirements for the imported products, inventory overall, procurement capabilities etc.

As he was considering all the things, he was interrupted by a recent graduate of a Supply Chain program from the local college, who was providing him with information regarding a major customer that Roger had asked for. He remembered that NFI had hired a recent graduate from the Supply Chain program at the local college, which he thought would be a good opportunity for the new employee to assist him in putting together the potential areas to review, and also to provide suggestions at some of the changes in the profession that might be applicable.

Roger decided to talk to the student's supervisor to request that the student be assigned to Roger for the duration of this efficiency and effectiveness review. He then started to think about what he wanted the student to look at and compile information on. Roger also felt that this would be an ideal opportunity for the student to make a report and possibly a presentation to the management team under his responsibility.

Assignment:

Take on the role of the student and develop a draft report with justification that is to be presented to Roger Abbott to use as his report and presentation to the senior management team at the next monthly management meeting, focusing on how the Logistics portfolio was going to improve efficiency and therefore be more effective.

a. Create the formal report

b. Use a set of slides outlining your recommendations.