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128-year-old spice company takes a fresh look at profits

Tone Brothers products have been pantry staples since 1873. In 1999, after over a century of building strong brands and establishing an outstanding culinary reputation, the company turned its focus to another important aspect of its business: profitability. (Case study)

Tone Brothers products have been pantry staples since 1873. In 1999, after over a century of building strong brands and establishing an outstanding culinary reputation, the company turned its focus to another important aspect of its business: profitability.

A new challenge for a seasoned company

A division of Australia-based Burns Philp, Tone Brothers manufacturers a wide array of spices, sauce mixes and cake decorations for home and food service use. The company operates the largest spice production facility in the world from its headquarters in Ankeny, Iowa and is home to a variety of well-known brands including Spice Islands, Durkee, French's seasonings, Trader's Choice, Tone's and DecACake. Tone's also produces and distributes a wide range of private-label products.

With its existing manual processes, Tone's could analyze basic sales figures, but for any information beyond that, it had to dip into data from its ERP system or simply make assumptions about costs. "Sometimes we'd just have to guess - 'freight costs were approximately X' - for example," recalls Julie Quass, director of Cost and Financial Reporting at Tone's. "Unfortunately, that meant answers to any given question might vary from analyst to analyst within our organization."

To address the problem, Tone's began a search for software to automate its analytical processes and provide more consistent, complete and accurate data. The search team knew that Silvon's Stratum product was in use by International Multifoods, another major food products manufacturer. And after a mid-winter trip to visit the International Multifoods facility in Minneapolis, the choice was final. Tone's began installation of the Stratum Sales Performance Management module (SPM) in early 2001 on the company's IBM AS/400 model 640 system.

SPM is the core component of the Silvon Stratum suite of business performance management applications and is designed specifically to help companies analyze and maximize customer and product profitability. The module includes five integrated applications: Sales Analysis, Open Order Analysis, Sales Planning, Sales Forecasting and Inventory Analysis.

The new Stratum information warehouse pulled approximately two years of prior history from the company's PRMS ERP system using Stratum's pre-built enterprise system connectors.

The ingredients of profitability

At Tone's, profit margins are influenced by a wide variety of factors. Stratum gives the company the ability to examine those factors from every angle - by customer, by product, by brand - so it can find the most practical ways to make improvements.

Getting control of contracts

Significant sales costs for Tone's are actually built into its more than a 1000 customer contracts. For example, it incurs slotting payments for in-store shelf space up-front, and it may provide rebates or other payments when a customer's sales reach a set volume. These costs can be significant and, more important, they vary from customer to customer. That makes determining bottom-line costs and profits for each customer a unique challenge.

Stratum has made the task much simpler for Tone's contract support staff. Now they can easily compare actuals to contracts and accurately calculate costs vs. profits by customer. Sales reps and brokers can then work with the customer to either adjust the product mix or, if necessary, renegotiate the contract.

Perfecting the product mix

Customer product mix is another key determinant of profitability. Tone's marketing staff uses Stratum to analyze margins as they roll out new products, to rationalize product SKUs and to manage SKU volumes (it currently has about 3,400).

Stratum is also helping the company identify where it can control production costs. For example, the company's R&D teams can examine product ingredient costs to determine where a grade change might be feasible - reducing production expenses without affecting quality or flavor.

"It's valuable simply to have everyone looking at the same data," says Quass. "At any time we can all sit down and look at who our top customers are - with everyone on the same page."

Effective brand management

Karen Labenz, marketing manager at Tone's, was one of the company's earliest Stratum trainees and uses the system daily to track product profit and sales data. "I'm still discovering new things to do with it. But already I can quickly get data I wouldn't even have tried to access before because it would have taken so long," says Labenz. "Now we can easily dig into things like who the ultimate ship-to customer is or what our sales were last year - just about any product dimension, and you can get in minutes. I also like that you can easily drop the data into Microsoft Excel and manipulate it any way you want."

Stratum is already helping Karen and her team make better brand management decisions. "Not long ago, we decided to move some products from our Tone's brand to our national and well-known Durkee label," she recalls. "There was some product duplication between the two brands, and using Stratum, we could quickly determine which of the overlapping products were going to which end customers; which were the most profitable; who's buying Tone's; who's buying Durkee, etc.

"With that information, it became clear which products we should discontinue and which customers we could shift over to a new brand. To be honest, I don't know how we would have pieced it all together without Stratum."

Process improvement

In addition to helping the company boost profitability, Stratum has proved to be a tool for process improvement. "One of our customers has us ship to a warehouse first and then to individual locations," Quass explains. "Tracking that process used to be a nightmare - we didn't always know where products were ending up. Stratum not only helps us track that system better, it's enabling us to rethink our entire business process."

A taste of what's to come

Tone's is continuing to add users and discover new capabilities within its Stratum SPM module. The company is also considering additional Stratum products as it begins building its next century of success.

Katy Couch is a Houston-based freelance writer.