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Production Capabilities and Limitations

Posted: October 9, 2007

Updated: October 21, 2007

Not Paying Enough Attention by Chris McCrory, Lead Strategist

When I first started studying marketing as an undergrad at Loyola University, the focus was on the 4Ps—product, price, place and promotion.  From a pure marketing perspective, that is sufficient.  When you start talking about managing a brand, however, these marketing basics play a small, albeit important, role.  Brand management is about creating value in the brand itself, which comes from the 4Ps mentioned above and, by my count, 14 other factors. One most often overlooked is production.

Look to the events of the past year in the food industry alone.  ConAgra had to shut down a plant in Georgia and completely retool it after a leaky roof and faulty sprinkler system led to a salmonella breakout in its Peter Pan brand of peanut butter.  The reported cost is over $140 million, including $55 million in lost sales.  It share prices dropped $1.72, or 7%, before leveling out and resume steady growth.  With nearly 500 million shares outstanding, that equated to almost $840 million in value.

Earthbound Farms then had its own battle with contaminated spinach that killed three people and made 200 more sick.  The event caused Earthbound Farms to institute what they claim is an unparalleled food safety program that now adds as many as 12 or more hours to the production process.

Campbell’s Soup recalled over 72,000 cans of soup after hard plastic pieces found inside injured three people and proved a choking hazard.  Campbell’s stock price dropped about 2% by the following Monday.  That is a loss in value of $265 million.  Even with a small bounce-back the next day, the loss still approached $154 million.

And Topps Meat Company opted to close its doors on October 5 after 67 years of operation following the second largest beef recall in history.  The 21.7 million pounds of ground beef involved rivaled the company’s annual production.  The culprit: E.coli and, many believe, insufficient safety measures.  Faced with not only the expense of the recall but also the costs involved with ensuring food safety, Topps made the economic decision to fold its operations.

There are at least a dozen items to consider with respect to production, all of which will impact the value of your brand:

  1. Who has control of your production?
  2. Do you have the appropriate quality assurance or quality control program in place?
  3. What are your production capabilities and limitations?
  4. Is your production operation safe?
  5. What is your production audit and inspection schedule?
  6. What does your production audit and inspection procedure entail?
  7. What about for your components?
  8. How much finished goods inventory do you have to hold because of your production?
  9. Again, what about your components?
  10. What opportunities do you have to reduce costs, increase efficiencies or both?
  11. What capital investments can/must you make in your production for the expected level of quality?
  12. What changes can you make to improve your production capabilities?

Let Chris know what you think. E-mail him at chris.mccrory@kennen-bmc.com.

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