Project leadership:

Questions

1. The Sally Williams Executive Team is faced with a strategic decision to outsource (source externally) or insource (build capability in-house) distribution in order to support their distribution centric strategy. Use the weighted scoring selection model (you may use hypothetical factors) to justify which option will optimally support their strategy. 2. Sally Williams does not currently have a project management office (or various titles used to describe a delivery office). How would you go about helping them set one up. 3. What characteristics would make the establishment of the PMO for the insource/outsource a project and why? 4. What are the project manager requirements that the Sally Williams Executive Team should use to select the project manager to successfully deliver the insource/outsource project? Justify the criteria used for project manager selection . 5. How would you recommend that the Sally Williams Executive Team design a Project Management Information System (PMIS) to facilitate communication and project reporting for the insource/outsource project

Business Case

Abstract

Dries Pretorius, national sales manager of Sally Williams Fine Foods, a small manufacturer of luxury nougat, was furious. It was May 2007, four years since Sally Williams had first appointed its distributor and the thermostat at the distributor's warehouse had failed. As a result, his product had spoiled and he had to recall almost all of it. This was not the first mistake the distributor had made and Pretorius knew he had to make a change.

Case

Dries Pretorius, national sales manager of Sally Williams Fine Foods, a small manufacturer of luxury nougat, was furious. It was May 2007, four years since Sally Williams had first appointed its distributor and the thermostat at the distributor's warehouse had failed. As a result, his product had spoiled and he had to recall almost all of it. This was not the first mistake the distributor had made and Pretorius knew he had to make a change. Should Sally Williams bring distribution back in-house or continue to outsource it, he wondered. And if the decision was to outsource, what should the company look for in a new distributor?

Competitive Environment

While there were about 21 different nougat brands in South Africa, the marketing manager of Sally Williams, Claire Wickham pointed out that they were not all considered to be competitors. She explained that there were two distinct lines of nougat: luxury brands targeted at the upper end of the market, and less pricey brands aimed at the lower end of the market.

Sally Williams positioned its nougat in the first category. There it competed against locally-manufactured brands such as Wedgewood and Coach House that posed more of a threat to Sally Williams than the imported lines did. 1 Wickham said that supermarket chains such as Checkers and Spar imported large quantities of nougat and other confectionery over the Christmas period. These came at a very low cost because they were sourced from countries such as Brazil where sugar was cheap. Although these brands catered for the lowerend of the market, they did present a challenge to Sally Williams because they created some price sensitivity in the market. The price of local sugar made it one of Sally Williams' most expensive ingredients. Wickham noted that the company had a constant battle to change the market perception of how quality nougat should actually look and taste.

She added that although imported confectionery brands such as Ferrero Rocher, Lindt and Toblerone did not offer a nougat line, these products provided serious indirect competition in the gifting category because they targeted a similar consumer.

The Sally Williams Story

The Sally Williams company was named after its founder, at the time well-known for her Johannesburg-based Sally Williams Cookery School. She and her family were nougat lovers and, in the mid-1990s while on a culinary tour abroad, she tasted a nougat in the souks of Marrakech, Morocco and took it to her two sons to try. They remarked that she could do much better so, once she got back to South Africa, she started experimenting in her kitchen. The results, however, were not to her liking, being either too soft, too chewy or too hard. So she shelved the idea for a while. Approximately one year later, while visiting a market in Hammamat, Tunisia, Williams tasted what she thought

Sally Williams Fine Foods: Getting to Market

was "the perfect nougat". 4 She insisted on meeting the maker and was taxied to his home where he was making the nougat in his garage. He would not sell his recipe to her, but eventually shared a few tips. This was a turning point for Williams and she started experimenting again in earnest when she returned home. This time, there was further impetus for her to get the recipe right. Callard and Bowser, a UK-based firm, had stopped producing the family's favourite brand of nougat. Williams was therefore aware that there was gap in the market for a top quality nougat.

Many batches later - her students acting as guinea pigs - Williams finally came up with a recipe that they all agreed was just right. One of her students was married to Mervyn Brittan who ran a chain of sweet stores, Brittan's Sweets. Once he had tasted her nougat, he placed an order immediately and referred her to two other companies, another sweet chain, Sweets from Heaven and the upmarket grocery store, Thrupps. Both placed orders straight away. The first order of 100 packets was sold out in two days and another order for 500 packets was placed.

Williams marketed her product herself, going from door to door offering tastings of her nougat and the orders started to roll in. Her manufacturing operation moved from her kitchen to the garage but this only helped for a couple of months. Within 18 months the company had to relocate to a factory and in early 2003 it moved into new 2 500 square metre premises that were custom-built for making nougat. It was also during this time that the company won gold medals for two of its flavours at the Great Taste Awards in the UK. This was regarded as quite an achievement for such a relatively unknown brand. 5 Williams retired in 2003, and sold her shares to her husband, Colin Williams and her son-in-law, Mark Sack. A couple of years later, Sack bought out the entire business.

Sally Williams' Business Approach Sack believed that the company had to carve out a niche for itself. "You need to offer the public either what they haven't been offered before or something special," he said. 6 Sally Williams set out to produce something special. Product Wickham explained that nougat is a form of meringue: its basic ingredients being glucose, honey, sugar, beaten egg white and vanilla essence. Roasted nuts or fruit can be added in as optional extras at the end of the boiling process. The end result is a very sticky product which requires special handling right through the whole manufacturing process. It is open to contamination and temperature control is of the essence to prevent cross-infestation. "Insects like the taste of nougat. They can smell it through the packaging, bore through all the layers, start eating it, lay eggs and the whole life cycle begins. We control the environment within the factory. Our problem starts when our product gets out there," she said.

Apart from its secret recipe, Sally Williams nougat distinguished itself by seeking to use only the best ingredients, from the locally-sourced macadamia nuts and honey (the company was one of South Africa's foremost users of honey, according to Sack 8 ) to the imported Belgian chocolate used in some of its product lines and the special wafer paper onto which the nougat was poured. Naturally, this pushed up the overall production costs and affected the selling price. The original product line consisted only of almond and macadamia nougat, but soon extended to include cashew and hazelnut nougat. Thereafter, a Belgian milk chocolate-coated and dark chocolate coated almond nougat was introduced, followed shortly afterwards by a nut-free nougat bar 'enrobed' in chocolate. By 2007 the product range had grown to include non-nougat products including four variants of Turkish delight, and medium- and dark-roasted ground coffee (see Exhibit 1). The company had also launched a co-branded icecream with Nestl that contained tiny pieces of macadamia nougat and partnered with Thirsty Now Beverages to produce the Monteer Fine Liqueurs/Sally Williams Cream Liqueur.

All Sally Williams nougat was individually wrapped (most of it in bite-size pieces) and then packaged in 1kg and 500g tubs; 160g and 125g packs; 110g bars; two-piece packs of 30g each; 200g and 210g gift boxes; and in three artistically designed 240g tins: the Friendship tin, the Christmas tin and the Valentine's tin. The Turkish delight was packaged into 280g and 300g boxes, and the dlicieux range in boxes of 50g. According to Wickham, the dlicieux range and the 160g gift box were the best sellers.

A few years previously Sally Williams had ventured into making Easter eggs with nougat centres, on behalf of CNA, a large South African book and stationery retailer. This venture survived some teething problems and continued for two years. Although Sally Williams would have liked to continue the line, they had to produce large quantities of other stock for Passover and therefore lacked the capacity to manufacture the Easter eggs. Clicks, another large chain specialising in pharmaceuticals and homeware, in turn, approached Sally Williams to supply them with nougat to be sold under its in-house brand name, D.licious. However, the company had declined an invitation from the successful food and clothing chain Woolworths in 2003 to make a Woolworthsbranded nougat reasoning that it would much rather use the time to build the Sally Williams brand than risk being consumed by such a powerful brand. This decision was to backfire on the company with Woolworths refusing to stock Sally Williams nougat until 2008 when it started ordering Sally Williams nougat stock for Passover.

One line which had not lived up to sales expectations was a coffee-flavoured nougat. The management team at the time reached the conclusion that "one either loved it or hated it" and discontinued the line. 11 Price

It was expected of a niche product manufactured from quality ingredients to be more expensive and Wickham said that the company was indeed proud to be slightly more expensive that its local competitors. That said, the company endeavoured to reach most LSM categories by having a range that started from the two-piece pack that retailed from around R6.00 to a gift box retailing for up to R95.00. The shops bought the nougat at a fixed price and marked it up according to their own criteria.

Promotion

In the early days, Williams marketed the product herself and took it to international trade shows. She was fortunate in that both she and her nougat received a lot of exposure in the media, with the result that the big supermarket chains, such as Pick 'n Pay, approached the company for listings and orders rather than the other way around. The Sally Williams policy was to not venture into above-the-line marketing. a As Wickham said, the company would much rather spend time and resources on the smooth running of its distribution network and merchandising before expanding into above-the-line marketing. 13 Occasionally, if products were moving too slowly, the company would consider a promotion of some sorts. However, it had found that in-store tastings and sampling, where the purchase decision was actually made, were the most effective. Place Research conducted by the company in 2003 indicated that female buyers outnumbered male buyers by far and that its smaller pieces were bought purely on impulse, while the packs were purchased as a small gift. 14 Moreover, the movement of stock was influenced by factors such as the weather, school holidays and even hormonal cycles in women. 15 Therefore, with so many variables influencing a sale, it was crucial for stock to be available in the best possible position in the stores.

Sally Williams had one in-house sales agent who marketed directly to smaller outlets, such as gift shops, pharmacies and cafs in the northern and southern parts of Gauteng. For the rest, the company used a distribution company to sell and deliver its product to the large retail groups and other outlets country-wide. In short, this distribution process worked as follows: the retailers placed their orders via the distributor and the distributor then ordered the product from Sally Williams. To meet these orders, the company manufactured stock strictly according to Pretorius's predictions of what the weekly, monthly or fortnightly orders would be. These predictions were based on historical precedent.

By 2007, 65% of the company's nougat was sold on the local market, in supermarket chains, pharmacies, fruit and vegetable shops, sweet shops and smaller novelty shops. Some hotels even purchased the product as a bedtime treat for their guests. The remaining 35% was exported to Australia, Canada, the USA, the UK, Mauritius, Portugal, the United Arab Emirates and New Zealand.

Because the product was kosher, it received great support from Jewish people both locally and abroad. Countries such as Canada and the USA had large Jewish communities 17 and each year the company had to produce large quantities of special stock for Passover to cater for the export and local markets.

Distribution Challenges

Despite the company's steady growth under its current distributor, which specialised in the distribution of exclusive grocery brands, Pretorius was getting increasingly concerned about a number of things. The incorrect placement of product in stores, for example, which he had picked up during his regular spot checks, was a major concern.

Grocery retail chains allocated all food items to specific categories. Confectionery was one of 15 subdivisions under the umbrella term of groceries. In turn, confectionery was subdivided into categories such as chocolate slabs, imports, novelty, nougat, boils, softs and glucose. Deciding where to place Sally Williams nougat was not that clear-cut, however, because although it was a nougat, it was also a novelty. The company wanted its product to be perceived as a gift, which meant it also had to be categorised with the imports so that it could be placed in the gifting section.

Shelf space was negotiated according to 'right of sale'. This meant that the product selling the most units per week was given the best space. This created a challenge for Sally Williams. As a niche product, turnover of its product was lower than that of other product ranges. Moreover, some merchandisers would deliberately rearrange products by, for example, hiding their opposition's products beneath unrelated products. This meant that space that was rightfully negotiated could disappear if the sales representatives did not check the shelves on a daily basis.

Another concern was that the current distributor incentivized its sales representatives when they exceeded an overall monthly sales target irrespective of which products were sold. Consequently, the sales people concentrated on easy-to-sell items such as washing powder, for example, to the detriment of Sally Williams. Overall, it seemed to Pretorius as if proper supervision was severely lacking. Further research revealed that the distributor used a roving merchandising system which meant that its sales representatives did not call on every store every day. Moreover, the distributor concentrated on exclusive brands only, therefore delivery was limited to specific regions and stores. This meant Sally Williams nougat that was suitable for the lower LSM market did not reach its target. Even more challenging was the communication between the two companies. It had become increasingly difficult to obtain electronic sales figures from the distributor. Of particular importance were the 'hit rate' reports that indicated sales per store, because these statistics could show up potential problems very early in the process. "If I have a problem today I want a resolution by the end of today. We require at the very least a sales representative call cycle (where they called and on which days), as well as a delivery call cycle and a hit-rate report," Pretorius explained. The final, but gravest, concern was the distributor's poor cold chain management. In order to maintain the cold chain b from the factory to the distributor's warehouse, orders were loaded into a hired cooling truck which maintained a temperature of around 16 degrees Celsius. This temperature had to be maintained at the distributor's warehouse and during delivery. There had been sporadic incidents before, but now, in May 2007, the almost complete recall of its products because of a broken thermostat in the distributor's warehouse sealed the fate of the current distributor. Pretorius knew that the company had to look for an alternative distribution option.

Food Distribution in South Africa

The food distribution industry in South Africa was highly competitive and faced a multitude of challenges of its own. Distributors continuously had to optimize their operations so as to reduce costs, by automating processes, specializing in particular types of product or outsourcing certain aspects of the distribution process.

Distributors had to adhere to very strict health and safety regulations pertaining to the distribution and warehousing of foods. They also had to follow the guidelines of the manufacturers, each of which had their own requirements for handling and storing their products. Some of the larger groups distributed a variety of goods, but specialized within the group to adhere to the respective rules and regulations.

The industry could roughly be subdivided into companies that specialized in the distribution of groceries (with sub-categories of its own such as high-end groceries), delicatessen foods, cold storage goods (sub-divided further into dairy and frozen goods), dry foods (such as pet foods) and confectionery. Apart from maintaining the cold chain, the companies specializing in cold storage products had the additional challenge of turnaround time, which meant that these products had to be delivered within a certain time.

Distributors might deliver to some or all of four categories of store: forecourt or convenience stores; delicatessens; greengrocers; and retailers (comprising retail and wholesale chains).

A distributor generally operated on a delivery lead time of three days, but kept at least four to six weeks' worth of inventory in its warehouse. This was to accommodate the large retailers that operated on a just-in-time principle by only keeping two weeks' worth of inventory at any given time in their stores. Once the stock was delivered to the retailers' warehouse, the merchandising agents were responsible for packing the stock in the warehouse and onto the shelves in the shop.

The distributor's own sales representatives, or alternatively, the merchandisers at store level, were also responsible for 'returns' (the removal of old stock that had reached its shelf life expiry date or faulty stock). In some instances the distributor would also be responsible for the incineration of expired stock.

Conclusion Pretorius weighed up his options: to bring the distribution in-house or to outsource it. If the choice was to outsource, what criteria should the company look for in a distributor and what could he put in place to manage the relationship effectively? The Sally Williams management team was meeting the next day and he wanted to have some concrete recommendations ready.