And On the 47th Day, This Chicken Went to MarketBy Deborah Gage | Posted 2002-07-10 Print
The Springdale, Ark., food giant produces more than 146 million pounds of chicken per week and it's looking to electronic exchanges to get more efficient—and gain understanding of the products people want to eat.
Tyson back then was 11 years away from even incorporating his company, Tyson Feed and Hatchery, which would supply chicken feed and Tyson-bred chickens to markets throughout the South and Midwest. But today, those tasty morsels that come either breaded or glazed and carry names like Tyson's Pride and Spicy Hot W.W. Flyers, are only a fraction of Tyson products.
Indeed, when that grandson, also named John, acquired a company called IBP in a court-ordered takeover last September, he became CEO of the largest meat producer in the world, with annual sales of beef, pork and chicken exceeding $20 billion. The latest Tyson must now integrate IBP into the chicken empire built over the last 50 years by his father Don, who created a company that controls every aspect of chicken production and whose accomplishments include the development of a special breed of big-breasted chicken to supply McDonald's with Chicken McNuggets.
The production of pork and especially beef may prove hard to automate. But Tyson has been at the forefront of using science and technology to satisfy the ever-changing appetites of meat eaters—who crave items like Buttermilk Battered Drummies and Honey Stung Wings.
"We change the flavors based on today's marketplace," says Lela Tripp, Tyson's director of customer service. "Now people like sauces. Ten years ago it was hot wings."
Its own secret sauce: "vertical integration." Tyson does everything from hatch eggs to supply growers with chicks and feed, to package chicken parts for foodservice operators in ready-to-eat forms like Wings and Drummies. Now it is looking for ways to include foodservice operators and retail grocers in that integration, feeding data from their sales right back into the hatching, growing and packaging operation. Among its initiatives: support of electronic marketplaces such as the EFS Network, Inc. and iTrade Network, even though many other industries began giving up on such exchanges two years ago.
A lot is at stake. Each week, Tyson produces an average of 146.43 million pounds of ready-to-cook chicken, according to the U.S. Poultry & Egg Association—more than double the output of its closest competitor, Gold Kist Inc., and enough to fill the Empire State Building several times over. More critically, notes Zack Rinat, founder of the South San Francisco software vendor Model N, this is an industry where companies keep trying to increase, rather than decrease, the variety of products they sell.
"In every other industry people have economies of scale," he says. "In this industry you strive for diversity. Think about the unique experiences of restaurants—it's about creating an eating experience."
Wings and Drummies are considered value-added, rather than commodity products. In 2001, Tyson's Food Service division, which produces them, accounted for nearly half of the company's $10.8 billion in yearly sales. Tyson's customers are restaurants, hospitals, schools, and other organizations that serve Tyson Chicken Chunks or Breaded Tastybasted Chicken in countless guises. Another third of Tyson's sales last year went through its retail division, which sells fresh and frozen meats to food chains like Wal-Mart and to club stores like Sam's and Costco.
Tyson chicken wends its way to our stomachs through a complex supply chain where profits can be 1% of sales or less, among the lowest in business.
Tyson may take the same essential product and sell it to distributors under several different brands and in several different packages. Brokers, who function as Tyson's sales and marketing arm, may call on large distributors on Tyson's behalf. Redistributors like Dot Foods may aggregate purchases from Tyson and resell them to smaller distributors, passing on savings gained from buying in bulk.
Tyson dictates to distributors how much stock to keep on hand and may ask some, like BiRite Foodservice, to reserve space in warehouses for new products being tested.
Along the way Tyson has to track each product. It has to ensure that every Honey Stung Wing reaches the intended customer on time and intact, even if the warehouse address is mistranslated, an identification number doesn't match the one assigned by the distributor, or the price is misstated. And the possibility for error increases since each distribution partner has its own computer systems and, somewhere along the line, data is transcribed manually in 90% of orders. Tyson's VP of information systems, Gary Cooper, figures that handling all orders electronically, with no keying or re-keying of data, would save Tyson millions of dollars a year.
So it is not surprising that the company has been at the forefront of efficiency in turning raw material into finished product. Today, a Tyson chicken goes from egg to drumstick in as little as 8 weeks. In grandfather John's day, that process took more than 16 weeks. At slaughter, the chicken still weighed about 40% less than its modern descendant, despite consuming twice the amount of feed or more.
Now Tyson is turning to the Internet to increase the speed of getting that Drummie onto the dinner table. In 2000, when venture capitalists were still throwing millions of dollars at Internet startups, Tyson feared losing chicken business to upstarts such as FoodUSA.com, a now defunct online exchange that had raised $3 million from venture capitalists in Madison, Wis., and generated $500,000 in revenue in two months. So Tyson invested in two online marketplaces: EFS Network and Provision X.
Two years later, Tyson is sticking by at least one digital network. But that effort has proven as fraught as driving truckloads of live chickens from Arkansas to Chicago.
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