Trends-Sep 2009

Hormel Foods is adding a little zing to its U.S. product offering thanks to a joint venture with Herdez Del Fuerte, a Mexico City-based manufacturer and marketer of consumer-branded food and beverages. Together, they are launching a new brand, MegaMex Foods, to market Mexican foods in the United States.

MegaMex Foods, which is expected to debut in the fall of 2009, combines the indigenous Mexican food products and brands of Herdez Del Fuerte with the manufacturing and distribution clout of Hormel, the Austin, Minn., manufacturer and marketer of high-quality, brand name food and meat products such as Spam.

In order to provide focus to the business, MegaMex Foods will be a free-standing entity with an independent management team based in Chino, Calif. The venture is looking to optimize efficiencies by aggregating competencies such as manufacturing, research and development, and supply chain across both parent companies.

To get a better feel for the behind-the-scenes supply chain integration, Inbound Logistics posed some questions about the new initiative to Luis G. Marconi, joint venture manager and senior product marketing manager, and Thomas A. Klein, manager of logistics and customer service, Hormel Foods.

IL: Will you integrate the two companies’ supply chains?

MARCONI: Yes, we will merge the supply chains previously operated by Herdez Del Fuerte and its subsidiary, Authentic Specialty Foods (ASF), with the supply chain operated by Hormel and Herdez Del Fuerte. Our objective is to integrate ASF’s distribution center into the Hormel supply chain. This DC will be supported by Hormel’s warehouse control system as well as its order, logistics, and transportation systems.

An integration team comprised of members from ASF, Herdez Del Fuerte, and Hormel was assembled to ensure that supply chain integration occurs on time and with minimal disruption. This team is charged with developing best practices for all supply chain functions and determining which current practices will work best to support the new organization.

IL: What are the logistics hurdles in launching a new product line?

KLEIN: We really aren’t launching a new product line; we are building a better international supply chain by merging the independent pipelines operated by ASF/Del Fuerte and Herdez/Hormel. The new supply chain will be able to leverage the resulting MegaMex sales volumes with the national scale of the Hormel supply chain to provide cost efficiencies as well as increased service capabilities.

IL: Does this cross-border alliance create any other special challenges?

KLEIN: Good communication is key to ensuring that both companies are aware of each other’s business needs. You can never assume that the Mexican partner knows what the U.S. business needs. Good, open communication allows both companies to be alert to potential issues and work together to solve problems and take advantage of new growth opportunities.

One specific area that requires good communication is supporting proper Mexico/U.S. Customs and Food and Drug Administration clearance. Putting together a plan that ensures both parties are familiar with proper procedures necessary to move a “clean” import is absolutely critical. The extremely punitive penalties resulting from noncompliance make this an area for zero tolerance when it comes to communication issues.

IL: What best practices is Hormel sharing?

MARCONI: One example of a best practice that Hormel and ASF will be sharing is working together to determine the best process for communicating a sales forecast and production plan to the Herdez Del Fuerte planners in Mexico. Prior to the merging of the supply chains, ASF communicated its needs to Herdez Del Fuerte differently than Hormel Foods communicated theirs.

The integration is giving us the opportunity to review each company’s different processes and determine what worked and what didn’t work. We are using this knowledge to develop a new process for improving our communication.

Sea Change in Florida Port Security

Piloting a new precedent for securing U.S. ports, Port Everglades, the Port of Miami, and the Port of Palm Beach recently signed a memorandum of understanding to begin sharing information and accepting one background check for entry into all three seaports.

Under the agreement, port workers and truck drivers now need only one Florida criminal background check instead of multiple, duplicate checks to work at the three South Florida seaports—eliminating cost, time, and paperwork.

Prior to this agreement, workers had to pay for and complete a separate Florida criminal background check to gain entry at each seaport. Now, those who have a current and valid credential from any of the three facilities can obtain an access card to each port with the same background check.

“Even though each of our ports has a different access system, we have agreed to share a database verifying that an individual has passed a state-mandated background check and is eligible for port access according to state security standards,” says Manuel Almira, port director for the Port of Palm Beach.

While the Florida Legislature recently amended the state’s seaport security laws to establish a statewide port access eligibility reporting system that will allow for access to all Florida’s public seaports with a single background check, implementation of that system will take a few months. This reciprocity agreement will provide some relief to South Florida port workers until the system is in place.

T&L M&A Contraction

Merger and acquisition movement in the transportation and logistics (T&L) sector has plunged with the economy, according to PricewaterhouseCoopers’ recent Q2 2009 M&A analysis. At the current rate, the 31 deals announced thus far in 2009 with a value of $4.5 billion, places M&A activity 67 percent below 2008 figures—when 189 deals were announced with a total value of $96 billion.

While global deal activity reflects the current state of the economy, the importance of BRIC (Brazil, Russia, India and China) countries, particularly China and Russia, to the T&L deal market is increasing. During the first half of 2009, BRIC acquirers and targets accounted for 20 percent and 26 percent of the deals in the sector, respectively. This is up from 15 percent and 18 percent in 2008.

Additionally, Asia and Oceania contributed to the majority of transactions greater than $50 million at 39 percent, and accounted for approximately one-third of deals greater than $50 million.

“Given the current state of the economy and difficult access to capital, it is not unexpected that the volume and value of deal activity in the transportation and logistics sector has dropped in the first half of 2009 in comparison to 2008,” says Kenneth Evans, U.S. transportation and logistics leader for PricewaterhouseCoopers. “The BRIC nations, however, continue to show promise and growth.”

Interest in transportation and logistics targets has shifted among modes during 2009 compared with 2008. In particular, the relative interest in passenger air and trucking targets has increased significantly. Passenger air targets accounted for 30 percent of all deals in the first half of the year, up from 17 percent in 2008. Trucking targets also saw an increase, rising to 12 percent in the first half of the year from only five percent in 2008.