Oliver Wight Americas Helps Marzetti and Lancaster Colony Corp. Adapt to Change with IBP
Integrated Business Planning enables companies such as Marzetti change course as needed — while staying true to their values.
Marzetti has survived — and thrived — through the ups and downs of the food industry for more than 120 years. The maker of salad dressings and dips has done so by making well-thought-out changes when needed.
It was time for another change when Dave Ciesinski took the helm as CEO of Marzetti’s parent company, Lancaster Colony Corp.
By 2017, consumers had begun to re-evaluate the foods they were eating. They scrutinized packaging labels to select products with healthy ingredients at reasonable prices. New, healthier brands emerged as market-share leaders. Traditional brands that had not significantly changed ingredients over the decades languished on grocery shelves.
In his previous job as division president for a major food manufacturer, Ciesinski knew what it took to adapt to shifts in consumer preferences. He and other Lancaster Colony leaders recognized that Marzetti’s product innovation could not proceed at a sedate pace. They also knew that capital investments had to be better managed and timed to grow the business.
In that previous job, Ciesinski had also experienced first-hand how Integrated Business Planning (IBP) is the linchpin that enables companies to change course as needed — all while staying true to their values and mission. One of Ciesinski’s first actions as Lancaster Colony’s CEO was to implement IBP at Marzetti, with the help of Oliver Wight Americas.
Needed: Explicit Clarity from the Top
Change is never easy, whether a company is an industry leader, struggling for survival, or somewhere in between. Successful change is nearly impossible when business leaders are not united and working together.
One benefit of an effective IBP process is the way senior leaders work together to execute the company goals and strategies. IBP is a decision-making process to keep company plans and strategy in alignment. The portfolio, demand, supply and resulting financial plans are reviewed and updated every month. Senior leaders agree upon a single operating plan over at least a 24-month rolling horizon. They also accept accountability for executing that plan.
For IBP to be effective, it takes strong executive leadership in each pillar of the business: product management, demand, supply and finance. “You have to have pillar leaders who are knowledgeable in their areas and are open to change,” observes Juliann Forcina, Marzetti’s director of integrated business development. Forcina recalls that Ciesinski made it “explicitly clear” to his direct reports that IBP was the way the business would operate. This direction, in turn, was communicated by the pillar leaders to their team members.
“The biggest thing my team members know is that IBP is a priority for me and the CEO,” Marzetti’s Chief Supply Officer David Nagle says. “This is something we are going to do and need to do.”
Today, Marzetti’s leaders believe their IBP process is effective, as evidenced by receiving Oliver Wight’s Class A certification of the process. They also acknowledge it was worth the effort to change the way the business is managed. Business leaders cite an improved innovation process and product rollouts as among the most significant benefits.
In addition to strong leadership and communication, Marzetti’s leaders found education and training could not be over-emphasized. People involved in IBP needed to know how IBP works, the roles and accountabilities required in IBP and the way that decisions are made. Marzetti’s leaders also found that education and training needed to be ongoing.
Achieved: Improved Business Performance
The business results achieved thus far by Marzetti have improved the financial condition of Lancaster Colony. Through Q2 of FY2020, the company credited IBP for an increase of $24 million in sales revenue. Raw material and packaging inventory as a percentage of cost of goods sold was cut by more than $900,000.
With better-aligned plans, expedited shipping was reduced by more than $900,000, and unplanned internal transfer costs were reduced by $100,000. In all, total cost savings exceed $6.8 million, while sales revenue attributed to improvements brought by IBP increased $24 million.
The output from the IBP process is regularly shared with the Lancaster Colony board to demonstrate the current state of the business and the underlying need to keep up with growth opportunities, Ciesinski states. “It would have been difficult to justify significant investments in growth without the back up of IBP data,” he says.
“It helps inform me of the risks and opportunities in the business. It’s how we make sure we’re being responsive to customers and driving growth in revenue and profits.”
To accomplish this level of trust-building requires the full engagement of the senior leadership team. “The management business review is one of the most valued activities for me,” explains Tom Pigott, chief financial officer Lancaster Colony. “In 90 minutes each month, we gain insights on the business challenges. We get visibility of gaps and how to close them. It helps inform me of the risks and opportunities in the business. It’s how we make sure we’re being responsive to customers and driving growth in revenue and profits.”
Ciesinski likens the change in how the business is managed to flying an airplane. Before IBP, it was like flying with only visual flight rules. Actions were based simply on what could be seen directly ahead. “IBP provides the gauges to ‘fly’ in all sorts of conditions, when weather is nice or not nice,” Ciesinski says.
By looking ahead over a 24-month rolling horizon, Marzetti re-assesses the assumptions about the business for each month in that two-year period. As conditions change internally and externally, the leadership team agrees on the best way to alter course so that the “destination” of sales and financial growth is achieved.
Update: How IBP Helped Marzetti in 2020
Conditions swiftly changed for Marzetti — and the entire world — with the pandemic. Fortunately, the Marzetti team had already developed the skill of planning based on assumptions and was comfortable not knowing everything about the impact of the virus. When more was learned about the conditions, the assumptions driving scenarios and plans were updated, and the needed decisions were made.
The impact of the virus on demand and Marzetti’s supply capability was discussed as a risk early during the initial outbreak in China. Alternative scenarios were developed to address the possible need for sourcing ingredients outside of China.
Other scenarios addressed how demand could change. Indeed, unprecedented shifts in demand occurred. Marzetti’s foodservice business drastically declined with the closing of restaurants. The retail business grew significantly with more people buying their products through grocery stores.
As Steve Hill, vice president of R&D and quality, observed prior to the pandemic, “We can obviously have problems in the business. But with the adherence to the IBP process, we can work through those problems and have a clear view of what’s going on in the business.”
By adhering to IBP, Marzetti and Lancaster Colony will be equally well-positioned to respond — and continue to drive growth — when the pandemic ends. “The IBP process is extremely well engrained in our culture; it will evolve and continue to improve,” CFO Pigott says. “It is a most critical process to help drive our long-term goals and aspirations.”
More about Class A and IBP
Marzetti earned a Class A certification for its Integrated Business Planning (IBP) process. Class A certification is based on the process meeting or exceeding the standards defined for IBP in The Oliver Wight Class A Standard for Business Excellence.
Companies that operate to Class A standards are typically top performers in their industries. The standards were established in the 1970s and are periodically updated as the bar for expected standards of performance are raised in industry. Only proven, practical solutions that produce results become standards.
Integrated Business Planning is a decision-making process to align strategy, portfolio, demand, supply and resulting financials through a focused and exception-driven monthly re-planning process. The result is a single operating plan, over a 24-plus-month rolling horizon, to which the senior executives hold themselves and their teams accountable for achieving. Done well, it is the formal way that the business is managed, and strategy is connected to execution.
“IBP is mostly about the four- to 24-month planning horizon,” summarizes David Nagle, chief supply officer for Marzetti. “Don’t bring in short-term issues [because] t’s not meant to be a problem-solving session in the Management Business Review; it’s meant to be a decision-making session.”
The Role of Oliver Wight
Oliver Wight, led by principal Tom Strohl, provided education, coaching and mentoring to help Marzetti implement Integrated Business Planning.
Strohl and other Oliver Wight principals observed the early review meetings during each monthly cycle of IBP. They provided feedback and guidance on areas to focus on improvement during each cycle.
Oliver Wight also diagnosed new issues that emerged. The consultants were quick to point out areas that needed to improve and how to get over the next hurdle, according to Sam Woods, supply leader and master supply planner.
Oliver Wight’s involvement in early stages of implementation helped make Marzetti a more efficient company, says Steve Hill, Marzetti’s vice president of R&D and quality.