Consulting for the food and beverage industry requires an in-depth understanding of consumers' habits and needs. But even so, it's hard to predict the next big thing, says Stephen Brant, Hitachi Consulting's managing vice president for the firm's food and beverage/consumer product goods practice. Brant recently shared some insights into this universal industry with Consulting. Consulting: How do you advise a company going through a crisis like a recall? How do you prepare for them for potential ones?
Brant: Market events like product launches, brand promotions [and] pricing changes [can be controlled], but there are also a lot of uncontrolled ones, whether that's contamination and disease or a natural disaster. Any of these things are accentuated now by the fact that these companies have global supply chains.
[These companies] have to have that capability to respond and make decisions very quickly and very accurately. So what's that decision response accuracy look like, and then what's the range of asset responses they have available to them [(e.g. transportation, inventory, sourcing alternatives, their manufacturing distribution network, their product design and formulation capabilities)]? When you combine the range of asset responses that you have and your decision capability in terms of accuracy and speed, that really tells you how you'll be able to deal with the unexpected. I shouldn't say unexpected; it's uncontrolled. You should expect these things to happen, but you can't control when they happen.
So, for example, [in terms of] contamination and disease, obviously the classic event was back in the early 1980s with Johnson & Johnson and Extra Strength Tylenol—that's the one that everyone points to, but even here recently in the middle '90s, E. coli struck Odwalla apple juice, and its stock price plummeted about 34 percent. They quickly changed their entire manufacturing process, and within just a few months of the outbreak, they had in place what outside experts described as the most comprehensive quality control and safety system in the fresh-juice industry. Not only did they make the decision quickly, but they had the capability to respond asset wise to fix the problem.
Yet here in early 2007, salmonella contaminated Peter Pan peanut butter. It took them months to figure this out, and seven months after the event they are just now getting the peanut butter back on the shelves, and they've lost significant market share. They didn't make a fast decision. They did not have the asset response mechanism to be able to get back in the game. Two different examples—one who was prepared and one who wasn't prepared for these kinds of things.
Consulting: How does Hitachi's market response strategy work?
Brant: In looking at the marketplace, it's pretty evident to us that to be successful particularly as a consumer goods company, you have to have a very market responsive mentality. It's no longer good enough to simply run operationally efficient, you have to be ready for all these kinds of changes. Things are happening so quickly. Customer affinity is changing so rapidly. Things come out of nowhere and last; things come out of nowhere and fade. So all those kind of changes on the market side—let alone changes that can affect your supply chain—mean that you have to be market responsive. It's not good enough to wait and see, you have to plan for it; you have to have mechanisms in place to be responsive.
Consulting: If a company is going to go wrong large-scale, where is it most likely to do so?
Brant: Oh that's a tough one. I'm not sure there's any one answer to that.
Consulting: What are some of the big pitfalls then?
Brant: The first one is on the whole product innovation front. What I like to tell my clients is that, particularly in the food and beverage space, but to a certain extent this applies outside of that as well, if you're not fresh, healthy and convenient, if you're not at least two of those three, you're out of business. The second is, as we've been talking about, is the response of asset management. And then lastly is what we call revenue management. The game has changed so rapidly. It's been more art that science. And on top of that is Sarbanes-Oxley. If the controls and processes aren't in place, then the auditors are going to call you on it. And so it's a CFO issue as well as a sales and marketing issue.
Consulting: What is your biggest challenge in working with companies in this space?
Brant: I think it's the fact that the challenge is pretty daunting. For companies who've stayed abreast, this is a matter of taking what they've already been doing to the next level. But for many companies, they never really truly were able to get all of the improvements in their business over the last 10 years that were touted in the press. They never [got] their operations lead out [or] their core technologies integrated; they never really did understand and get a handle around their trade spend and pricing. So they're now having to attack everything simultaneously, and it's very, very difficult to do that as opposed to being able to take a certain [element] to the next level. So when we work with a client, one of our biggest challenges we have is helping them pick out: Where's the leverage? Where's the first place to start? Where can I really make the biggest difference in the shortest period of time? Because you can't take on everything at once. It just doesn't work that way.
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