Tooning it UP
March 1, 2004
Tooning it UP
by DAN MALOVANY
Poore Brothers not only has the ability to innovate, but also the capacity to grow. The company produces about $20 million worth of potato chips annually at its 60,000-sq.-ft. Goodyear, Ariz., plant, which is at about 50% capacity. The 140,000-sq.-ft. Bluffton plant, where T.G.I. Friday's and Crunch Toons are made, is only at about 40-45% capacity. Together, those plants can generate anywhere from $125 to $150 million in annual sales, depending on the product mix.
Normally, such capacity rates would cause a chief executive to panic, especially if the company had built the plant from scratch. However, Poore Brothers purchased the Bluffton operation as part of its $12 million acquisition in 1999 of Wabash Foods.
At that time, the former Keebler plant had about $12 million in revenue. This year, the plant is producing approximately $50 million in product. The expansion in volume has led the company to lease a 100,000-sq.-ft. warehouse just a few miles from the operation to absorb the additional distribution requirements.
As sales of its national brands continue to increase, more volume is being driven through the facility. This improves plant efficiency and generates a greater amount of revenue that can be applied to improving its cash flow, enhancing its bottom line or reducing its debt, notes Eric Kufel, Poore Brothers' president and CEO.
In fact, since purchasing Wabash Foods, Poore Brothers has reduced its long-term debt (LTD) from $10.7 million in December 1999 to $3.1 million in December 2003. During the same period, the company has gone from being highly leveraged to marginally leveraged. Overall, it slashed its 95% LTD-to-equity ratio in 1999 to only 13% last year. Kufel is obviously pleased with the company's performance over the last five years.
"Our greatly improved balance sheet comes from superior execution of working capital management," Kufel says. "We have a culture that focuses on continuous improvement every year."
Poore Brothers executes by combining discipline with innovation. While it's been slashing its debt, the snack producer continues to invest in its operations. For instance, by bringing in supply chain experts and partnering with Oracle, the Redwood Shores, Calif.-based software giant, Poore Brothers has been able to better manage its finances. Since 1999, it's reduced its outstanding account receivables from 50 days to 30 days on average. During the same period, inventory turns have doubled. The one-two combination frees up working capital so that it can further invest in its operations and launch new brands, and it's done both.
"When you don't optimize your inventory levels, you waste working capital that you could have spent on other things within the company," explains E. Brian Foster, plant manager of the Bluffton facility.
For Poore Brothers, big things are coming in little packages. Over the last 18 months, the company has invested hundreds of thousands of dollars in its Bluffton plant. Part of the investment has been on proprietary technology that allows it to produce the character-shaped Crunch Toons. Poore Brothers also acquired new high-speed packaging systems that provided the much-needed capacity to meet the burgeoning demand for its T.G.I. Friday's in the vend arena. That's where it has become the third best-selling item behind Frito-Lay's Doritos and Keebler's Cheez-It snack crackers, according to the National Automatic Merchandisers Association, which represents the vending machine industry.
Along with four other packaging systems that produce 120 bags a minute, the new equipment has allowed Poore Brothers to enter the C-store channel with its signature T.G.I. Friday's products in a single-serve format.
"Until we installed the high-speed packaging equipment, we didn't have the capabilities to launch it into the C-stores," Kufel says. "We simply didn't have sufficient small bag packaging capacity, especially with how our vending business was growing. We had to make the investments in the middle of last year for high-speed packaging for C-stores."
Last year, the Bluffton plant cranked out about 100 million single-serve bags of products. As vending machine sales increase and the company expands further into the C-store channel, the plant can ratchet up production still more by replacing its oldest packaging machines with state-of-the-art equipment that's much faster. In fact, the newest systems are three times faster than the oldest ones, which filled about only 50 bags a minute and were decommissioned last year.
Foster stresses that the capital expenditures are focused not on increasing capacity, but rather on improving efficiencies. By packaging more bags a minute, the plant utilizes its production line to a greater extent.
"We have the ability to grow our gross revenues upwards without significant capital investment," Foster says.
Moreover, the new packaging systems reduced film loss and increased labor efficiencies. Because T.G.I. Friday's and Crunch Toons snacks have a 100-day shelf life, which is much longer than the industry standard, the packages need a surlin barrier on the inside that makes them more expensive than conventional films.
"If this is not one of the most automated packaging rooms in the industry, I have not seen it yet," Foster says.
Foster likes to call Poore Brothers the "biggest small company that you never heard of," mainly because the small-cap company with $66.4 million in sales operates much like businesses that are three, five or even 10 times its size.
In addition to a senior management team who have cut their teeth working for Coca-Cola, Dial and other large companies, the snack producer has installed systems that quantify a wide range of performance-based business metrics designed to improve results and quality.
"In order to empower our employees, we share performance information with them," Foster says. "People then know when the company is having a good day versus a bad day."
Overall, the snack producer is flexible in that its systems can handle an EDI order from Wal-Mart or Target just as easily as a fax, call or e-mail to its Goodyear office. All orders are entered into the Oracle ERP system, which helps create the production schedule. Usually, Poore Brothers has a two-week lead-time for most orders.
Moreover, many easy-to-assemble pallet displays are custom-designed for its retail customers. Many of the multi-colored cases have the Crunch Toons logo on them or the signature T.G.I. Friday's colors.
At the store, retailers simply need to place the pallets on the floor and pull out the perforated cases to create a special display.
Because the specialty snack manufacturer produces so many special displays, all product is hand-packed. While it's labor intensive, the company can provide custom displays that differentiate it from the competition. In addition, the hand-loading allows employees to provide additional quality control at the back-end of the process.
Intensely Different Production
To streamline production, Poore Brothers has freed up space at the Bluffton facility. In addition to expanding its warehouse operations into a nearby facility, it also removed old pretzel equipment from when the plant was built some 40 years ago. Pretzels, Foster notes, are "obviously not one of our core competencies." As a result, the plant is strictly a production facility with plenty of room to grow.
While producing Crunch Toons required a capital expenditure in proprietary technology, the new products are made on the lines that had already been in the plant for years and were being used to crank out T.G.I. Friday's potato skins.
"Crunch Toons was not that big of a change from what we're doing here," Foster notes. "We have proprietary new equipment that we use to make the product, but the process is relatively similar. The biggest investment had been in packaging and in the savings of labor and film."
However, because the Crunch Toons are lighter and more delicate than the thicker T.G.I. Friday's potato skins, getting the appropriate texture and shape was tricky during the start up stages. After extensive testing, Poore Brothers developed a product that scored high with consumers.
Currently, 150 associates work at the Bluffton facility on three shifts, five days a week. Preventive maintenance and extensive sanitation is done on weekends.
During SF&WB's recent visit, the plant, which houses three production lines, was cranking out Taz-shaped, nacho cheese-flavored Crunch Toons snacks and T.G.I. Friday's potato skins. Production began with bulk ingredients, such as potato flakes, being automatically loaded into a blender while minor ingredients are added by hand. Crunch Toons uses a proprietary dual-sheeting process that's similar to that used for producing T.G.I. Friday's Potato Skins. While the potato skins require a dark and light sheet to be put on top of each other to give the product the look of an actual appetizer, Crunch Toons require only two lighter-colored sheets. Foster says the front-end controls are extremely detailed to get the proper texture and flavor of the products.
After sheeting, cutting and makeup, the little products pass through an oven and fryer on each line before they enter a new oil spray seasoner with a loss-in-weight feeder. The new seasoner, says Foster, first weighs the product coming in and automatically adjusts the amount of oil and seasoning based on the amount of product. With older seasoners, the snacks during the first few minutes of the run have to be tossed because there is too much oil and seasoning and not enough product. The newer seasoners can be programmed with a variety of parameters to ensure a more consistent run from the moment the line is started up.
"The reason we made changes on that system is that consumers in the focus groups prefer a consistent seasoning," Foster says. "It's not about saving ingredients. It's not about ROI [return on investment]. It's about making a product that consumers prefer over another."
After seasoning, the product cools in a temperature- and humidity-controlled packaging building.
"We have temperature and humidity controls in the front end for operator comfort and in the packaging room for product integrity," Foster says. "Salty snacks are like sponges. If you expose them to moisture, they lose their crunch and get chewy. It's just like when you leave a bag of chips open on a hot, muggy day. The products just suck up that moisture."
After cooling, the seasoned snacks travel up an elevator conveyor to a variety of vibratory conveyors that feed the packaging systems. After the products enter the scales, an exact amount of product is dropped into the bags and sealed. Poore Brothers uses traditional flex bags that employ fill/form/seal technology. In addition, the company packages its snacks in stand-up, resealable pouches.
After metal detection, the packages are hand loaded into cases and manually palletized prior to being shipped out of the plant to the nearby warehouse.
To improve production efficiencies, Foster is working on a number of programs to document production at the plant. The company is writing new job descriptions, which will not only clarify existing responsibilities, but also reduce the learning curve for new associates.
In addition, Foster is upgrading its operators' technical skills, especially on maintenance and PLC systems, through outside training.
In the coming year in which Poore Brothers plans to test two or three new product concepts, Foster knows that more changes lie ahead, but he's not worried about that.
"We recognize our role in the industry as an innovator," he says. "We serve those segments of the market that our competitors don't serve, or they under-serve. As a result, we have to be fast, nimble and agile. We recognize we're a customer service company. We're not just a manufacturing company. We produce what our customers want, and what the consumers want."
Of course, that's something Poore Brothers needs to do if it's to remain an "intensely different" company.