CASESTUDY:AS PART OF a major restructuring to take account of the economic downturn, Food Chill is reviewing all aspects of its business. This €35 million turnover Irish food distribution and processing company employs 135 people across the State with a central depot near Longford.
The firm has grown over the last 10 years through amalgamating with four smaller firms. It now has a small export arm with an established presence in the UK. Most recently it successfully dipped its toe into the Canary Islands market to bring the "full Irish" range of breakfast meats to the expat community there.
Food Chill offers premium chilled food products in areas such as speciality meats and has enjoyed healthy margins up to now. But times are changing. There has been a marked decline in retail spending in Ireland. Competition has become more intense with the expansion of the large European discount chains across the country and Food Chill has found itself under ever mounting pressure from its traditional retail customers to cut its prices. This has hit both sales and margins. Food Chill was forced to make 30 staff redundant after Christmas.
Entering the Canary Islands market was a gamble that required a significant time and financial commitment by the company at the outset. However, its careful nurturing of local distributors paid off and up to now Food Chill's managing director Oliver O'Reilly was quietly optimistic about the scale of the contribution expanding into the mainland Spanish market could make to overall sales and profits. What he hadn't fully anticipated though was the level of personal investment in terms of travel and late-night calls that expanding into this market would take.
O'Reilly believes that the positive experience in Spain could mark a turning point for the company. He believes there is almost certainly similar potential in the Algarve region of Portugal and the company has already begun initial market soundings. O'Reilly's view is that replicating the Spanish success in Portugal would help lift his company into the big time. At least that was his dream.
Now, however, he is finding it hard to see how he can keep meeting the costs of maintaining and developing overseas markets. Maintaining the level of personal contact with a wider group of retail partners in Portugal as well as a potential network in Spain is not an option. O'Reilly is also conscious that if he expands into mainland Spain and Portugal he needs to maximise the expertise built up by his Irish-based sales and marketing team in a more effective manner than having them spend time on the ground. Pulling out of the Canary Islands and dropping the plans for a roll-out into Spain and Portugal would save money initially, but in the medium to longer term, this would push up unit costs, which is the last thing Food Chill needs right now.
The picture in the UK is equally challenging. If the company is to survive there it is going to have to find a strategy to cope with the price competition being encountered due to the weakness of sterling. O'Reilly realises that in the face of reducing revenues, he needs urgently to address his business costs to maintain his margins.
Reducing costs to date has meant reducing headcount; however, Food Chill is now operating at the minimum level of regional support required to maintain a UK presence. Implementing a more effective communications method to ensure the sales teams are in constant contact with the head office has been on the "to do" list for some time, but now this is an area that needs urgent resolution.
On top of this O'Reilly has another problem keeping him awake at night. He has grown Food Chill over many years and has an intimate understanding of most areas of the business. However, he knows that now more than ever timely and accurate information is crucial to the decision-making process for the immediate running of the business and for future planning. While he has little affinity with IT, he is painfully aware that the company has inherited an amalgamation of systems, each providing information on different areas. Many of these are niche solutions, tailored to meet the needs of the business at the time they were adopted. Most of them work quite well but cannot easily be integrated into a single system which would give the truly up-to-the-minute and comprehensive management information he so desperately needs.
In addition, he shares the frustration of many in the organisation who are using unfamiliar systems that require continual re-training and frequent IT support.
All the systems are operated on a variety of servers located in head office. They are slow, often give problems, and the costs of maintaining them seem to keep rising - even though everyone tells him the cost of computing is supposed to be coming down.
O'Reilly did sit down with the IT manager early last year to discuss his concerns and to try to develop a blueprint for where they should go next in terms of IT. He said he wanted technology that was easy to use, accurate, secure, and cheaper to run. And most of all he wanted an IT strategy that was directly linked to his business needs rather than running in parallel.
That was the brief, but as far as he can tell there have been a lot of promises and very little progress. The IT manager believes that as a priority there needs to be integration of the various legacy systems, as the cost of maintaining and supporting a range of niche solutions is no longer viable.
This would, of course, require some development of the various components to ensure they were integrated properly and a fairly substantial upfront investment. But, the IT manager says reassuringly, this would meet all the company's requirements and would ultimately help to streamline operations and cut costs.
O'Reilly was not at all happy at the prospect of a major investment at this time but decided that, if the plan got the green light from his long-term director of finance Tom O'Neill, he would be prepared to give it full consideration. He went to discuss the investment with O'Neill but found that his finance director was deeply unimpressed by the IT manager's proposal.
O'Neill's view is that, given current economic conditions, the company simply could not afford the investment required.
What is needed, he says, is a more tactical "sticking plaster" approach. He wants senior decision makers in the company to identify the items of data about which they are most unhappy and for a patch to be applied to them.
The problem may actually not be systems as much as what is being fed into them, he argues, and no amount of IT investment will sort that out. He believes that part of the reliability problem is simply a lack of computing power and that, if cash flow and space costs were not such a concern at the moment, the whole system could be beefed up at relatively little cost by adding additional hardware.
Most importantly and persuasively, he argues that the company simply does not have the time and the money for all of this right now.
O'Reilly's head is spinning from the arguments and counter-arguments. He has his optimistic and youthful IT manager telling him one thing and his more worldly wise finance director (who always seemed to have a good grasp of IT), telling him something quite different. O'Reilly really needs someone to help him see the wood for the trees. And quickly.
Which IT solution should Food Chill adopt? Read the expert advice, next story.
