The Pride of the Consumer Goods Industry: Innovation
Innovation has been a vastly underrated virtue of the consumer goods industry. In every facet of business, from new product development to the physical supply chain, and from mundane back-office processes to cutting-edge technology, we have led the world in innovation.
Unlike flashier businesses, we don’t get nearly the appreciation nor fanfare for how our innovations have improved the global quality of life; nonetheless, we should, all of us, be collectively proud.
It must seem odd to young employees at the Googles and Amazons of the world that the CPG Industry was once revered as “the place to be” for innovation.
Distinct cutting-edge cultures like Procter and Gamble’s renowned professionalism, “unofficial” dress code, and adherence to the one-page memo underscored a reputation for innovation and continuous improvement. It was not uncommon for professionals to stay with their companies their entire career and, in fact, my first CEO, John Smale, started as an intern in P&G’s mailroom.
We loved the companies we worked for and shared a slightly elitist pride. Many companies adhered to a “only promote from within” philosophy, and job security was considered a paramount ethic. The trust was that if you stayed and put your back into building the company, it would be there for you, even in lean times.
In those days, loyalty ran up the organization as well as down it, and you took pride not only in your small part of making the company great, but in the greatness of the company itself. You would either move up to the extent of your ability or, if desired, park yourself in a space to become a seasoned expert and help groom younger professionals with more aggressive ambitions.
Some of my early mentors were these “stationary colleagues” — ones who had hit their ceiling whether voluntarily or otherwise. These professionals contributed with dignity while enjoying a security that allowed them to provide for their families.
They shared invaluable knowledge and their reliability made excellence predictable. As mentors, they provided maturity, perspective, and standards, which provided a calming influence on excess and bad ideas. Even now, some of their single-sentence pearls of wisdom stick with me: “Protect your integrity as a sacred thing” and “Reduced costs are pure profit,” etc.
An Early Lesson in Innovation
Like many CPG professionals, I started my career at P&G. During the first formative decade of my career, P&G provided training in retail distribution, the paper industry, chemicals and the health and beauty category. Under watchful eyes, P&G allowed a naïve 20-something out of Notre Dame to negotiate shipping contracts with some of the shrewdest businessmen on the planet.
I learned demand and supply chain, rail, intermodal, truck and stevedore operations … and, in the early days of technology, learned how to digitize processes that had been paper-based for centuries. To this day, getting my offer letter from P&G marks one of the happiest days of my life and, in retrospect, the key determinant in how I conduct business.
In those days, P&G believed in training and grooming executives early based solely on merit. As one executive told me, “We’ll keep your feet on the ground by putting responsibility on your shoulders.”
The company’s culture demanded performance and there was a jovial competition among colleagues: Who can make the biggest improvement to the business? Who can save the most money? Who can drive the next big thing? The underlying cultural theme, however, was always innovation, and the future was as bright as you wanted to make it.
A perfect example of the culture of innovation comes from one of my early experiences. In 1988, I was 24 and promoted to a small field office in New Orleans (my now-adopted hometown) to manage inbound logistics for Folgers Coffee.
Strong Mentorship Breeds Strong Performance
The head of beverage distribution at P&G in those days was a wise, old bird named Joel Edinburg. In retrospect, Joel wasn’t that old, nor for that matter that high up in the organization given his tenure, but I was a bit in awe of Joel.
He acted like he owned the company, and people who spoke of him always did so with reverence. He held himself a bit like an old-school Mad Men executive — chain smoking and driving an Alfa Romeo. He always smiled while talking about tough and important subjects.
Joel hand-picked me from the “central distribution office” and flew me to New Orleans to my new 9th floor office, which faced East overlooking NOLA’s suburban swamps and bayous with the Folgers Coffee plant in the remote distance.
He asked, “Do you see the smoke coming out of the stacks at that plant?” I said yes.
“That means that they’re roasting coffee over there,” he added. Then he put his hand on my shoulder, smiled, and said, “If the smoke ever stops coming out of that stack and it’s your fault, jump out of this window before I get down here.”
He followed up by saying, “Oh, and your predecessor dropped the per-pound inbound distribution cost of green coffee by 12 cents over the past two years. I expect you to do better.”
With that, he left me there to figure out how to improve the system while ensuring that it never broke down. To my recollection, he never checked back in on how I was doing. He just left and expected great things.
Luckily for me, the team down there was excellent. My predecessor had indeed built a solid foundation; my immediate manager was intelligent and driven, and the two administrative women who did most of the inventory process work tolerated my early inexperience and my awkward adjustment to New Orleans. The Big Easy can be quite a culture shock for a greenhorn, single guy from the Midwest.
Although I was technically their boss and they weren’t management, these two women coached me into a sharp mindset to constantly improve. Any failure of mine was an embarrassment to them. These were two of the many stationary mentors who were P&G’s unsung backbone.
What I learned down in New Orleans very early in my career was that there was really only one way to drive big wins, especially in a stoic, mundane business that had been frozen in time like managing green coffee beans from source country to roaster: through innovation.
So how did our little four-person Folgers import office innovate in an age-old logistics process? Well in three years, we just completely changed the entire industry, that’s all.
Taking a Look at the Past
First, in 1989, we worked with the Kansas City Southern (KCS) Railroad to help underwrite a major track improvement to utilize double-stack technology to move beans from NOLA to the plant in Kansas City. To do this, several bridges that the trains ran under had to be elevated. This was a major undertaking and an investment that the KCS could not afford to make on its own.
Folgers certainly wasn’t going to invest in railroad infrastructure improvements, so we did the only thing, and the biggest thing, we could do; we committed long-term business. Instead of signing a one-year deal on rates, we signed a five-year deal, giving the KCS certain revenue streams and locking exclusive favorable rates for P&G once the doublestack rolled. KCS guaranteed P&G savings with high profitability by keeping rates at par for other freight and pocketing the doublestack savings. The world enjoyed an improved infrastructure along with cheaper Folgers on the shelves.
Most ecosystem partners give lip service to “partnership” but few do it. Vendors treat clients as ATM machines to be emptied; buyers treat vendors as hired hands to be discarded on convenience. Win-lose is the mantra.
When two companies honestly and openly want to forge true partnerships, ingenuity and innovation explode, leading to exponential win-wins! Co-investment can yield great things not achievable in any other environment.
Second, in the early 1990s, our little office completely altered the way coffee moved across the world — completely and for the entire industry.
A Case Study in Innovation
How did we do this? Let’s start with a little history of pre-1990's coffee logistics:
For eons, raw coffee beans, or green coffee, had been shipped across the world to the United States in burlap bags weighing up to 250 pounds. The Port of New Orleans had, for the past century, been the largest port of entry for green coffee. After coffee, New Orleans’ second largest import for years was burlap. Pallets of green coffee in burlap bags would arrive from the source country in containers and sometimes “Break Bulk,” which meant stacked in the ship’s hold without being palletized. They would then be stacked on pallets in New Orleans.
After clearing customs and FDA, the containers of palletized coffee in burlap bags would be transported to warehouses, unloaded via fork lift, and eventually reloaded in blend combinations to the plants for staging and roasting. Laborers with huge metal hand-hooks (making them look like sweaty human raptors) would grab, sling, and stack bags manually to finally get them open at the roasters.
Three things stand out:
1. Moving green coffee was back-breaking, tedious, time consuming work which created a great deal of shrinkage from lost beans.
2. An inventory bottleneck existed where the blending of the multitude of graded beans took place (i.e., at the roaster).
3. This bottleneck required excess inventory because each separate coffee grade had to be buffered to account for unforeseen issues that could shut down roasting operations.
The second two points, of course, being classic examples of Goldratt’s theory of supply chain constraints.
The change that our little Folgers office ushered in (with a key warehouse partner, Port Cargo) was to transform the old Public Grain Elevator complex at the Port of New Orleans, which was scheduled for demolition from a modern-day industrial ruin into the world’s largest, most modern, bulk green coffee blending site in the world. This also made the Port of New Orleans the first port in the United States to move to “depalletizing/deburlapping” inbound green coffee, thereby allowing for more coffee per container via vacuum bag liners.
How did we conceptualize such a complex and monumental change in the industry? Well, the grain elevator complex was actually the second complex in the port to be demolished — the first being done in 1990 to make way for new warehouses and wharfs under construction as part of the port's $200 million capital improvement plan.
We were enjoying a “demo-watch” party on the roof of Port Cargo’s nearby warehouse to see the first silos come down, but when the initial explosives went off, the silos still stood. As the storm of displaced pigeons dispersed across the horizon, it dawned on us that “wow, these grain silos are magnificent — there has to be a use for them!”
The germination of that idea with Port Cargo grew into a series of brainstorming sessions, cost analysis, and negotiations to build support for a stay of execution on the second silo complex. Over the next few years, and as the idea became more of a reality, politics and Folgers personnel changes eventually resulted in a new company being formed — Silocaf New Orleans, Inc. — which was charged with leasing the remaining 3.2-acre silo complex.
Officially, Silocaf was created and owned by an Italy-based conglomerate, Pacorini Finanziaria SpA, which operated smaller-scale silo operations in Trieste. But Silocaf essentially existed only because it was sponsored by Folgers. Our newly converted leadership was hungry enough to try the concept but, unfortunately in my view, too risk averse to go with Port Cargo, which had the initial idea but no experience in bulk silo renovation or operation.
In any case, Silocaf spent over $15 million to sanitize and renovate the New Orleans complex for bulk-handling of coffee.
Once the silo plan was set, Folgers converted inbound operations at source country to load and ship coffee in 20-foot long synthetic-lined containers that dumped up to 20 tons of coffee beans into hoppers inside the silos in a single, automatic pneumatic process that eliminated the back-breaking labor.
The silos held 42,000 short tons of beans segregated by quality, type, and grade in over 200 individual bins within the silos. Besides maximizing handling efficiency, the bulk coffee shrinkage issue was eliminated, and bean quality even improved as the burlap transport made coffee susceptible to temperature and humidity damage.
By blending coffee at the silos instead of at the plant, excessive safety inventories of each grade were drastically reduced taking millions of dollars of inventory out the pipeline. Now entire blends were shipped to the plants, not separate ingredient beans to be blended.
Only Folgers could have been the catalyst for this massive transformation because it imported over half of all the green coffee through the port. That was the advantage we used to innovate. By being the first to move source country suppliers to bulk, by being first to lock in manufacturing for reusable container liners, by cornering the market on tank trucks and railcars for domestic transportation, and outfitting our plants for bulk processing, P&G enjoyed a major first-mover cost advantage over every rival for years.
A Phoenix Rising From the Ashes
The moral of the story is this: You are never too small to make monumental positive change through innovation. Our little office came up with a transformative idea while literally being dive-bombed by displaced pigeons. Out of the ashes of one destroyed export grain silo came a conceptual phoenix to completely transform the coffee industry.
In the end, on top of the immense self-satisfaction of being a small part of one of CPG’s great innovations, the smoke never stopped coming out of the plant stack, the per pound cost of coffee indeed dropped, and I didn’t have to jump out of the window.
Every morning as I sip my cup of java, I smile thinking about how this industry innovates and how proud I am to be a part of it.
Werner Graf is the Chief Customer Officer of Visionet and a member of the CGT/RIS Executive Council. Visionet specializes in IT and digital innovation.
