Small Is Big

Baby-food maker Milnot/Beech-Nut keeps up with the industry's big boys by holding down trade-spending costs. Second in a series of articles on usin...
Marie LeoneMay 18, 2004

“Small is big here.” That catchphrase, for Beech-Nut baby food, applies to more than tiny taste buds and strained peas, according to Alain Souligny, chief financial officer of Beech-Nut parent Milnot Holding Corp.

“As a small company, we try very hard to stay ahead of changes in the marketplace, so that we can use [the head start] as a competitive edge,” asserts Souligny. And Milnot/Beech-Nut — a privately held St. Louis company whose 2003 revenues totaled $175 million — needs every edge it can get; its competitors include $25 billion Novartis, makers of Gerber baby food, and $71 billion Nestle, which manufactures Carnation evaporated milk.

One way Milnot/Beech-Nut keeps ahead of the competition is by using technology to improve the order-to-cash cycle. Not only do those improvements support accounts receivable, says Souligny, but they also help alleviate the endemic industry problems related to trade spending — the costs that manufacturers incur when they rebate retailers for product promotions.

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“Short pays” are one such problem. Retailers who know they’re due a rebate from a manufacturer will push through an unauthorized invoice reduction — a short pay — rather than wait for the reimbursement. Without proper communication between the two parties, the manufacturer can be stuck with numerous partially paid invoices that must be manually reconciled by its accounts receivable department.

Automation would go a long way to solve the problem, if only the industry could agree on a single communication conduit. Wal-Mart, for example, demands that Milnot/Beech-Nut use electronic supply-chain technology from A2 Automation; US Food Service requires that the company use technology from EFS Network; and other customers insist on a direct connection by electronic data interchange (EDI).

Until that (far-off) day when communication systems are standardized, says Souligny, Milnot/Beech Nut’s strategy is to get its own house in order by removing surprises from the order, invoice, and trade-spending processes — what he calls “the perfect order.” That means having enough product to fill each order completely; making shipments and deliveries on time; invoicing accurately; following through with timely receivables collection and posting; and eliminating customer disputes and unexpected deductions.

Milnot/Beech-Nut’s tactical response was to improve the efficiency of back-office operations and trade-spending planning, and to build a data warehouse that would enable the company to measure profitability at the customer and product level.

In 1998 Milnot/Beech-Nut began an enterprise-resource-planning (ERP) project based on a Ross iRenaissance enterprise system. Although Souligny believes that the project could have been completed within 18 months, a failed merger attempt with H.J. Heinz Co. that dragged on from 1999 through 2000 stalled the implementation. The company completely replaced its legacy system only this year.

This year Milnot/Beech-Nut completed the transition from its legacy enterprise system to iRenaissance enterprise-resource-planning (ERP) software from Ross Systems Inc. Data from the Ross system is extracted, standardized, and sent to the company’s home-grown executive information system, which aggregates sales and operational data, including the coveted customer-profitability/product-profitability metrics.

Ed Roe, director of information systems, is in the process of outsourcing all EDI communications to Transcentric, so sales director Tim McCreery and corporate controller Connie Huck can focus on trade-spending issues. McCreery and Huck’s finance/operations team has partnered with Minneapolis-based Gelco Trade Management Group to develop a deduction management system.

Although the team continues to work with Gelco to tweak the software, Milnot/Beech-Nut executives say that the Web-based application is already slashing the administrative costs of processing customer deductions. In addition, McCreery and Huck are setting up a feed of syndicated industry data into the trade management system so they’ll be able to calculate the return on investment of individual trade programs.

In recent years Milnot/Beech-Nut has pumped $500,000 annually into hardware and software purchases, says Souligny, and the smart application of IT dollars has helped the company’s information systems remain sleek. Roe runs the department with just one other employee, and the company’s total annual MIS budget is less than 1 percent of sales..

Souligny points out that the net effect of the order-to-cash process improvements — including reductions in headcount and trade spending, as well as improved cash collection — have almost offset the cost of running Milnot’s corporate finance department.

In the past year, he adds, trade-spending costs for the company’s Beech-Nut brand were reduced by 3.8 percent &mdash a $4.2 million saving — while the brand grew market share by one percentage point. Increased control over trade-promotion spending reduced month-end customer deductions by $1.5 million compared with the previous year. Souligny also confirms improved invoice accuracy, but he’ll need more historical data to quantify the improvement.

Souligny says that the company still needs to work on its customer scorecard — a ranking Milnot/Beech-Nut’s top 25 customers by sales. “The scorecard is the ultimate test” for the order-to-cash cycle, he notes, because executives can easily drill down to the root causes of difficulties with order completion, on-time shipments, sales increases, or profit contributions.

Milnot/Beech-Nut’s investments in the order-to-cash cycle have an eye on that not-so-distant future when “manufacturers will be fully responsible for managing their inventory” at the retail level, according to Souligny. Someday soon, he believes, his customer reps will automatically know when a grocery store is low on, say, jars of banana supreme, and ship out just the right amount the next hour.

Improving Milnot/Beech-Nut’s order-to-cash cycle is just the beginning, adds the finance chief. Souligny says he’s glad to be at a smaller outfit where IT projects can be fast-tracked and management doesn’t get caught up in big-company politics. It seems “small is big” for Souligny, too.