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Litehouse Foods: Is Glass at Breaking Point?: 1 Samuel Barclay, Alex Davidson 1108598, 1108203
Litehouse Foods: Is Glass at Breaking Point?: 1 Samuel Barclay, Alex Davidson 1108598, 1108203
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We believe that these recommendations will allow Litehouse to continue to grow globally,
while still retaining profit and customer value. These recommendations are in line with the businesses
core principles and will give Litehouse increased future flexibility.
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Contents:
Introduction:...............................................................................................................................1
Situational Analysis....................................................................................................................1
Major Markets........................................................................................................................1
Refrigerated Salad Dressing Products....................................................................................2
Refrigerated Salad Dressing Life Cycle.................................................................................2
Implications on Supply Chain Design....................................................................................3
The Refrigerated Salad Dressing Industry.................................................................................4
Bargaining Power of Buyers...................................................................................................5
Bargaining Power of Suppliers...............................................................................................5
New Entrants..........................................................................................................................5
Substitutes...............................................................................................................................5
Rivalry....................................................................................................................................6
How the PLC and Industry Analysis Influence the decision......................................................6
Supply Chain Mapping..............................................................................................................7
General Supply Chain Information:.......................................................................................7
Supply Chain Map..................................................................................................................7
Inbound operations.............................................................................................................8
Outbound operations..........................................................................................................8
Supply Chain Strategy and Value Propositions..........................................................................9
Strategy...................................................................................................................................9
Value.......................................................................................................................................9
Conclusion................................................................................................................................10
Recommendations....................................................................................................................10
References................................................................................................................................12
Appendix 1...............................................................................................................................14
Appendix 2...............................................................................................................................15
Appendix 3...............................................................................................................................16
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Introduction:
Litehouse Foods (Litehouse), the American Company best known for its premium refrigerated
salad dressings, is facing a dilemma, glass or plastic. After its aggressive growth strategy in 2010, the
company has reduced its short-term profitability and is now short on cash. Two competitors recently
switched to plastic jars and, as a result, now have a 15% price advantage over Litehouse. Litehouses
larger value-packs changed to plastic containers only a few years ago. Its smaller, 13oz glass jars,
central to the brands identity, are now being pressured towards the same fate (Lawrence, Mishra &
Pengilly, 2014).
According to Lawrence et al. (2014) and Grant (2004), it all started in 1958 with a single
recipe from Washington chef, Ed Hawkins Sr. His creamy blue cheese dressing became a favourite at
his Hope, Idaho restaurant. It was so popular that he and his sons decided to start their own
refrigerated dressing business in 1963 (Lawrence et al., 2014; Grant, 2004). In 1997, Litehouse
merged with Chadalee Farms, a Michigan-based food service company with a strong foundation in the
Midwest markets of the United States of America (U.S.). Today, Litehouse produce not only a variety
of different dressings, but also dips, sauces, marinades, cheeses, herbs and apple cider (Litehouse,
n.d.c). However, its refrigerated salad dressings are what customers love the most. This is perhaps
unsurprising, given that it won dressing of the year in 2009, 2011 and 2012 (Lawrence et al., 2014).
Litehouse employs over 500 staff across three U.S. production facilities in Sandpoint, Idaho,
Lowell, Michigan, and Hurricane, Utah (Sandpoint Videos, 2011; Lawrence et al., 2014). Company
headquarters are located at the Sandpoint facility. Litehouse is currently 70% owned by the Hawkins
brothers and Wendall Christoff (ex-owner of Chadelee Farms), and employees own the remaining
30%. Current CEO and president, Jim Frank, has consistently led the company through double figure
sales growth since 2010 when he was appointed.
Business development manager Doug Hawkins Jr. (Grandson of Ed Hawkins Sr.) needs to
provide the executive team with an analysis and recommendation as to the appropriate decision
between glass and plastic. The following report discusses the companys situation, industry and
supply chain. Through this information Kinetrix will be able to provide comprehensive
recommendations to Litehouse that will enable them to make the appropriate decision between glass
and plastic.
Situational Analysis
Major Markets
Litehouses refrigerated salad dressings target the well-educated, middle-upper class
consumer looking for healthy, quality products that are good for the environment. The dressings are
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New Entrants
The threat of new entrants is small. The automated machinery, numerous flavours and
ingredients, quick delivery time and need to produce in large volumes to attain economies of scale
makes the whole process very costly and complicated for a new entrant. In addition, securing
distribution channels will be difficult due to limited shelf-space. Developing unique product flavours
that capture the attention of customers loyal to competitor brands that have been around for decades
also presents a problem. All these challenges make it very difficult to enter the market. Only entrants
with highly differentiated dressings and access to capital and distribution channels will succeed,
assuming they attain sufficient customer demand.
Substitutes
Substitute products are products that perform a similar function, but are not considered to be
in the same product category (Ahlstrom & Bruton, 2010). Substitutes for this category include shelf
Samuel Barclay, Alex Davidson
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Rivalry
According to Ahlstrom and Bruton (2010), the key factor that reduces rivalry among
competing firms is differentiation. Litehouse only has three significant competitors in this market, in
the U.S., Maries and Marzetti, and in Canada, Renes (Lawrence et al., 2014). All three differentiate
their dressings as premium, healthier products similarly to Litehouse. However, they do have small
differences. Maries claim to capture a unique homemade flavour, Marzetti emphasizes that it is
gluten-free, and Renes focuses on social and environmental responsibility (Maries, 2015; Marzetti,
2015). Although there is some differentiation, the lack of competing firms makes rivalry a moderately
strong force.
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Inbound operations
Of the inbound materials, the glass jars are the only products Litehouse accept ownership of
prior to its arrival at the factory door (Lawrence, 2014). Although this is only a minor detail, it has a
significant impact on the supply chain and inventory levels. The jars are purchased from a supplier in
Taiwan then shipped to the American port of Seattle, where Litehouse or third party haulers pick them
up. The acceptance of ownership means that Litehouse is liable for damage during the five and a half
hour trip to Sandpoint. While this may seem insignificant it is actually very important and potentially
costly. Glass is brittle and fragile (compared to plastic) and more prone to breakage (0.25% of jars
break on average for Litehouse), which creates unnecessary waste. Another downside of receiving the
jars at the port was that Litehouses refrigerated trucks might need to carry them. Litehouse use a
mixture of self-hauling and contractors (they also contract their fleet out), but the use of refrigerated
trucks to carry glass may save costs but also reduce profits.
Plastic containers would have a huge impact on the inbound logistics. The first key impact is
that Litehouse could receive the product at the factory, limiting liability and reducing transport costs,
as returning trucks can be used to carry other goods. If plastic is sourced within the U.S., the distance
travelled would be significantly less than the glass from Taiwan.
Inbound produce and ingredients are signed in and allocated codes upon arrival, using the
ROSS system. This allows Litehouse to fully track and monitor ingredients movements through the
system (CDC Software, 2006). The ingredients become property of Litehouse once it is signed in.
Therefore, all transport and security is the responsibility of the provider, limiting the risk to Litehouse.
Outbound operations
Once the finished product is ready for transport it is loaded into a refrigerated truck, owned
either by Litehouse or a contractor. Litehouse operates three main facilities all with varying levels of
distribution to the areas of North America. This is visible on Appendix 2 & 3.
In this process glass has a noticeable impact. Glass jars are heavier and require more space
(mostly because of the increased weight pushing haulers to regulation weight limits sooner), this
limiting the amount of product per truck. In contrast, plastic containers would allow for increased
truckloads as well as lower associated costs (fuel and tyre wear). Glass also continues to carry the
higher breakage costs over plastic.
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Value
In addition to the earlier discussion on what customers value, another value added dimension
of the Litehouse supply chain is its technology management. Litehouse was an early adaptor to ROSS
and other integrated operations software developments. This allows Litehouse to track every item in
the system all the way through to the end consumer. When a product enters the system all its
information is entered and that information follows the item all the way to the store shelf. This adds
value to consumers because it allows them to feel safe when consuming the product. In the past, food
supply chains have been heavily impacted by contamination at the early stages of production.
However, with this system Litehouse can recall only the products affected with minimal disruption.
The supply chains micro-agility is also a key value adding competitive dimension. The
diversity of the Litehouse product range gives the supply chain the ability to react to internal issues
with speed. Another factor that helps this is that the company is employee owned. This means that the
organisation has the ability to meet staff and shareholder needs at the same time. This ownership also
gives managers a better overall perspective when reacting to near term changes. This adds value
because it speeds the decision making process affecting both costs and revenue.
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Conclusion
Since its humble beginnings, Litehouse Foods has consistently produced dressings that
consumers love. Through its dedication to quality and taste, Litehouse has become a leader in the
industry. However, Litehouse are now faced with a decision that will impact this position, for better or
worse. For this reason, it needs to be carefully considered with respect to the product life cycle, the
industrys forces, and the supply chain and its strategy.
In the past, Litehouse has used carefully selected product and market modifications in line
with growing market trends and demands to increase the revival stages that sustain its growth.
Integrated relationships with key suppliers and retailers (through Litehouses Ross systems) enhance
the effectiveness and responsiveness of such changes. Any modifications must always link to the
customer, given their strength in the industry. Buyers want products that meet or exceed their
understanding of value. We have also discussed the importance of risks, relationships, technology, and
the logistic postponement strategy to Litehouses supply chain.
Together, this analysis has provided Kinetrix with comprehensive recommendations that will
allow Litehouse to make effective decisions that improve short-term profitability and the supply
chains overall competitiveness.
Recommendations
Kinetrix believe that Litehouse should continue to produce these particular dressings in glass
jars that are one ounce smaller. The decision to stick with glass is based on the fact that a greater
degree of customer value resides with product quality over product costs. Two-thirds of the cost
savings associated with this decision are from the smaller 12oz size. These cost savings come from
fewer ingredients and better capacity utilisation on trucks and shelves. The trend towards diets and
smaller serving sizes also make this smaller jar a positive change that matches demand. Overall, this
will allow Litehouse to increase its short-term profitability and funds, and narrow the price advantage
between it and its competitors without destroying significant customer value.
However, the decision between glass and plastic arose because of short-term profitability and
cash concerns. Therefore, Kinetrix has also looked at other areas of the supply chain to improve this.
Looking at the market trends, Litehouse should continue with culturally inspired dressings, like its
OPA Greek Yoghurt Dressings. The expected surge in Latin American and Mexican flavours should
spur new product innovation in this direction. Also, as consumers look for greater convenience foods,
Litehouse should continue to establish relationships with healthy fast food chains, as these are
expected to grow. Organic and gluten-free dressings are also another growing trend that should be
considered more seriously if Litehouse wants to continue to meet the demands of its target market.
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References
CDC Software. (2006). Litehouse Foods Tunes Operations for Optimal Customer Service with CDC
Softwares Ross Enterprise Performance Management Solution. Retrieved from
http://www.cdcsoftware.com/en/About-Us/News-and-Events/Press-Releases/2006/20061030Litehouse-Foods-Tunes-Operations
Early, E, Holcomb, R, Willoughby, C, & J, Brooks. (n.d.). A Market Evaluation of Salad Dressings.
Available from http://fapc.biz/files/factsheets/
Fawcett, S, Ellram, L, & Ogden, J. (2007). Supply Chain Management: From Vision to
Implementation. Pearson Hall. U.S: New Jersey
Grant, T. (2004). Litehouse Inc. The International Directory of Company Histories (Vol.60).
Pensylvania: St. James Press.
Guilfoil, M. (2012, March 11). Litehouse Foods expands from humble beginnings. SpokesmanReview. Retrieved from http://www.spokesman.com/stories/2012/mar/11/all-dressed-up/
Keller, R. (n.d.). Winning and Losing: The Story of One Carb Plus. Available from
http://www.rodkeller.com/brandingconcepts/id22.html
Lawrence, J., Mishra, A., & Pengilly, M. (2014). Litehouse Foods: The Glass Dilema. Case Research
Journal, 32 (2). NA0288
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Novicevic, Buckley & Harvey. (2000). The Changing Role of Managers within the Supply
Chain Networks: Theory and Practical Implications. American Journal of Business,
15(2).
Pagh, J. D., & Cooper, M. (1998). Supply Chain Postponement and Speculation Strategies:
How to choose the right strategy. Journal of Business Logistics, 19(2), 13.
Sandpoint Videos. (2011, June 21). Doug Hawkins Litehouse Foods [Video file]. Video
posted to https://www.youtube.com/watch?v=6UKb35zrbUo
Transparency Market Research. (2006). Salad Dressings And Mayonnaise Market Global Industry
Analysis, Size, Share, Growth, Trends, And Forecast, 2013 2019. Retrieved from
http://www.transparencymarketresearch.com/salad-dressings-mayonnaise-market.html
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Appendix 1
Revival Stage 1
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1994
Years
Appendix 2
Litehouse Domestic Supply Chain Map
Appendix 3
Litehouse International Supply Chain Map
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