Pick a category and a leading processor in it -- say, canned soup. The leading company probably offers a dozen or two of varieties of soup, produced around the clock, 365 days a year on near-continuous lines.
Now consider the task of a private-label company trying to help its retail chain customers keep pace with as many varieties of soup. In fact, consider all of those varieties with numerous formulations. Think about that for another 15 shelf stable categories – from hot oatmeal and powdered beverage mixes to macaroni and cheese or salsa -- and numerous dry grocery products in between. Then take into account a multitude of customer labels, and you quickly arrive at the thousands and thousands of stock keeping units (SKUs) manufactured by TreeHouse Foods and its Bay Valley Foods operating subsidiary.
Private label manufacturers clearly live by different rules than the typical branded food marketer. But in some ways, its 19 plants are "aren't much different from any other company's plants with regard to the basic fundamentals," says Harry Walsh, president of Bay Valley Foods and senior vice president of corporate parent TreeHouse Foods. The principles of food safety, operational efficiency, sales and distribution are well understood and apply to all food plants.
But there are some differences that distinguish Bay Valley from national brand processors. For starters, Walsh notes, the "operational focus is on providing support and development of our customers' brands rather than our own brands."
Brand marketers have significantly fewer formulas and SKUs to manage, giving them a great advantage in productivity and cost per unit. However, they must spend "enormous amounts of money" to support their branded goods, which helps in leveling the landscape with private labelers, Walsh says.
It's still a major challenge for a large private labeler to remain flexible enough to meet customer requirements while at the same time remaining a low-cost producer. But Walsh says the company "prides itself in trying to get very close" to big-brand levels of efficiency.
If flexibility is a critical challenge, meeting that challenge has become a "key competitive differentiator," says George Jurkovich, Bay Valley's senior vice president of operations. The company benchmarks its operational performance against the big-brand marketers, from capital spending down to production line changeover speed.
"Operationally, we compare ourselves to the branded players, but we need to make certain we have the ability to do several changeovers and start-ups a day," Jurkovich says.
This is true in processing and even more critical in packaging and labeling, where the company's competence "probably represents the biggest differentiator between us and the branded players. They may run high-speed, high-volume lines, but they are less flexible. Unlike them, we have learned to be both high-speed and flexible."
"Harry and George have done a phenomenal job of establishing best practices across our 19 facilities," says Sharon Flanagan, senior vice president of strategy for TreeHouse corporate. She explains this has been key to the company's growth from its roots as a collection of a few small companies.
Best practices, including selected lean manufacturing practices such as quick-changeover workshops, have proliferated as the company seeks to raise the bar "head and shoulders above the typical private-label manufacturer," she says.
Flanagan speaks from experience. Before joining TreeHouse, she consulted Fortune 100 companies as a partner with consulting firm McKinsey & Co.'s consumer packaged goods and retail practices, and before that she worked in marketing for General Mills.
"Our scale enables us to deliver category management, procurement, innovation and other skills that help us operate as a low-cost producer and a better marketing partner for our customers," she says.
Along with flexibility, Flanagan sees food safety and low-cost manufacturing as a trinity to success. For example, TreeHouse is able to invest in vision and X-ray systems that enhance safety, quality and efficiency. Fundamental goals set by corporate are reinforced by a tag-team tour every new year by Walsh and Jurkovich. The two tour each plant to re-establish goals and targets in areas such as:
- People and system effectiveness, such as worker safety and accident audits, absenteeism and units per man-hour.
- Food safety and quality, including quality assurance and control, first-pass quality measures and compliance to standards and regulations.
- Production efficiency (line efficiencies, ingredient yields, schedule attainment, asset utilization, capacity and changeovers).
- Production effectiveness, with measures from overall capacity to line efficiency, changeover improvements, ingredient yields; schedule attainment and asset utilization.
Just as Jurkovich notes how the company compares its operational performance to the top-tier branded food plants, TreeHouse holds Bay Valley to the same standard. For example, in tracking asset utilization, Flanagan says the company benchmarks its return on capital investments against those of publicly traded, branded food manufacturers. Her analyses include category-by-category comparisons of economic value added (net operating profit after taxes minus cost of capital), "which, when you think about the number of changeovers and complexity we have to deal with, is a pretty challenging target to aim for," she says.