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THE ORGANIZATION AND OPERATION OF A FOOD

COMPANY3144

Steven S Seideman

Extension Food Processing Specialist

Cooperative Extension Service

The University of Arkansas

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The Organization and Operation of a Food Company

• The purpose of this series is to explain the basic organization of a food company and how they operate internally to give you the foods you enjoy everyday.

• Although we will present an organizational structure that is very formal, companies differed greatly in structure but all are derived to cover the basic functions.

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Why Have an Organizational Structure?

• In this highly specialized culture, many departments have to work together to come across in a unified manner to procure raw materials, manufacture, market, sell and distribute their products.

• Each of the above functions (procurement, manufacturing etc) along with other functions must each be good at what they do and are managed independently but serve the company’s overall mission.

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What is the Purpose of a Company?

• According to the Harvard School of Business, “The purpose of a company is to get and keep a customer”.

• The purpose is not to make a profit although it is implied that if you lose money, you will not be in business very long and will not be able to keep the customer.

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A Word About Profit

• A number of people think that companies make a lot of profit, which in general is not necessarily true.

• They believe this because they hear or see the gross sales numbers. This is not profit but the value of the products that they sell.

• If you believe companies make a lot of profit, buy their stock because profit is generally returned to the stockholders in the form of dividends or it is reinvested in the company which means the stock price should go up.

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Organizational Structure

• The purpose of an organizational structure is to organize the outcome of the major functions of company.

• It is generally believed that a manager can only effectively manage 4-7 people depending on what is being managed and how good the manager is. Therefore, a President cannot effectively manager all functions of a food company. To understand the idea behind organizational structures, let’s first go through a basic Army organizational structure,

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The Army Organizational Structure

E xe cu tive O ff ice r

P e rson n e lG -1 /S -1

In te llig en ceG -2 /S -2

T h e F ig h tin g u n its

O p e ra tio nsG -3 /S -3

L o g is ticsG -4 /S -4

C iv il A ffa irsG -5 /S -5

C o m m a n d er

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The Army’s Organizational Structure

• Note that any basic Army unit whether it be company, battalion or brigade has this same basic organizational structure.

• It has a leader (Commander) and his backup (Executive Officer).

• It covers the basic functions needed to carry out the mission (Personnel, Intelligence, Operations, Logistics and Civil Affairs).

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What if a Food Company was Organized like the Army?

See the next organizational Structure

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If a Food Company was Organized like the Army

V P -H u m a n R eso u rces V P -M arke ting V P -S a les V P -O p e ra tio ns V P -C u sto m e r S e rv ice

P re sid e n t

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Food Company Organized like Army

• Note that the functions would line up fairly well.

• BUT the major functions of a food company are not the same in real life because the mission is different. The mission of the Army is to impose their will upon the enemy. In food companies, the mission is to get and keep a customer.

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The Theoretical Structure of a Food Company

• The next slide will show a basic, theoretical structure of a food company.

• Since food companies differ widely in size, products and ways in which they”go to market”, organizational structures will differ greatly but this structure does point out the major functions common to almost all food companies.

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Typical Organization of a Food Company

V P -Fin a n ce & A cco un ting V P - M arke ting V P -S a les V P -M a n u fa c tu rin g /P ro d uc tion

P re sid e n t

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The Basic Structure

• Note that finance, marketing, sales and manufacturing are all covered.

• These are the corner stones of any food company and must be carried out for the company to function.

• Let’s now discuss each of these major functions in greater detail and then go through the less major but important other functions.

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Food Company Functions

• Major Functions

*Finance & Accounting

*Marketing

*Sales

*Manufacturing/ Production

• Minor Functions

*Product Management

*Customer Service

*Research & Development

*Quality Control

*Human Resources

*Purchasing

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MAJOR FUNCTIONS

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Finance & Accounting

• Finance & Accounting is very important.• Track sales, issue reports on sales, production

costs, control capital for expansion etc.• Most company presidents came out of finance and

accounting. In most companies, the VP of Finance & Accounting is the successor to the president.

• They understand the financial community, the principles of accounting and how the stock market works which is what the owners (shareholders) are most concerned about.

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Marketing

• Most major food companies spend millions per year on marketing.

• Work on how to increase sales.• Some companies are market driven-marketing decides

what to sell and sales sells it.• Work on advertising, coupons, fact sheets, promotions

etc.• Very creative group.• In some companies, marketing people are product

managers-manage the category line. P&L responsibility.

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Sales• The “front line troops”. The purpose of a business is to get

and keep a customer.• Work to get increased sales of what production can make.• Often organized in retail, food service and international

sales groups.• Often work as sales representatives, assisting customer to

increase sales.• Some companies are sales driven. Marketing works to help

sales. • Large account representatives work with major retailers,

brokers and restaurants.

22Photo courtesy of University of Nebraska

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Manufacturing/ Production

• Make the finished product from raw materials to the quantity requested by sales.

• Follow specifications.• Many plants may have 25-500 SKUs• Spend capital to decrease production costs. • Plants are very expensive-often run 2 shifts per day.• The “hidden heroes” of most food companies.• Broken down into departments such as HR, packaging,

maintenance, QA/QC, safety, distribution/ warehouse, etc

24Photo courtesy of USDA

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Photo courtesy of USDA

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Photo courtesy USDA

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Minor Functions

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Product Managers

• Some companies have product managers who are responsible to manage a product line. Some companies use marketing to perform this function. They are also responsible for inventory control, price points, etc

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Customer Service

• Talks to customers and handles complaints.

• May actually take orders from customers when sales are true sales representatives.

• May report to sales or marketing.

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Research & Development

• Work with sales and marketing on new products and line extensions.

• May work with manufacturing on new equipment and technology transfer.

• May report to marketing, manufacturing or sales.• Increased role lately as large customers want to

talk to technologists. Work closely with sales.• In high tech industries, R&D may be higher in the

structure ( e.g. the computer industry).

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Quality Control

• Usually reports to plant manager in manufacturing.• Inspects incoming raw materials, conducts

inspections while product being made such as temperature measurements and operational sanitation and inspects finished products.

• Cannot inspect in product quality. Must be manufactured in.

• New important role in food safety.• Usually has chemical and microbiological

laboratories.

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Photo courtesy of USDA

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Human Resources

• Provide for the human resources needed to run manufacturing.

• Usually reports to the plant manager.

• Recruits, interviews perspective employees, does payroll, sets up educational classes, files and audits evaluations, works in matters of lawsuits etc.

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Purchasing/ Procurement

• Buys raw materials and ingredients for production.

• Must coordinate purchasing with production plans to manufacture.

• Usually part of manufacturing.• Now practicing “just in time delivery”• Movement to “strategic purchasing”. One

supplier for several plants.

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Food Companies Differ

• Food companies differ widely in size, product line and personality/ culture.

• No set organizational structure but the functions are all there in some form or another.

• Some companies are privately held (owned by individuals) and some are publically traded (on the stock market).

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Personality/Culture

• Like people, companies have personalities.• These personalities are a culture adapted by upper

management as to what they value and believe in. The President usually dictates culture.

• They can be sales, marketing, technology or production driven/ oriented depending on the product line and how management wants to “go to market”.

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Personality/Culture

• Part of the personality/culture of a company is understanding it’s priorities.

• The overall goals are 1)” to get and keep a customer” followed by 2) “building shareholder wealth”.

• Building shareholder wealth means that the company is increasing in dividends paid out to shareholders or the increase in the value of the stock on the stock market. To increase shareholder wealth, we have to prioritize what we think will improve the companies performance.

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Performance Criteria

1)Increase Market Share - new products, advertising, etc. Things we do to increase sales volume.

2)Food Safety-may not increase shareholder wealth but a major recall can certainly kill it.

3)Quality-Adherence to a specification.4)Yield-Important to high raw material items like meat versus flour.5)Labor- Things such as automation, cost savings projects, etc

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Conclusions• The purpose of a company is to get and keep a

customer.• Food processing companies are organized in a way

to maximize the performance of the basic functions of accounting, marketing, sales and manufacturing.

• The minor functions such as product management, customer service, research and development, QA/QC, human resources and purchasing/procurement are incorporated into the organizational structure based on the company’s culture, personalities and goals.