Q&A: Chiquita's CEO on Business Forecasting

By Baselinemag  |  Posted 2006-07-13 Email Print this article Print
 
 
 
 
 
 
 

Fernando Aguirre explains the importance of accurate forecasting in a business with perishable products and the banana producer's hopes for radio frequency ID.

It's a tough time to be in the banana game.

Fernando Aguirre, who spent 23 years as a manager at Procter & Gamble, knew he had a challenge when he became chief executive officer of Chiquita Brands International in January 2004. The fruit producer had emerged from Chapter 11 bankruptcy in 2002, but was facing steep tariff hikes on Latin American bananas by the European Union—Chiquita's primary market.

To cut Chiquita's dependence on a single commodity, Aguirre led the acquisition last year of Fresh Express for $855 million. The company, a leading producer of packaged salad greens, helped Cincinnati-based Chiquita boost its 2005 net income by 137% over the previous year, on total sales of $3.9 billion.

The Fresh Express acquisition was "critical," Aguirre says, because otherwise "we would be very, very dependent on selling bananas to Europe in ways that would have made the situation even worse."

But many investors are bearish on Chiquita's future. In January, the EU more than doubled tariffs on Latin American bananas and eliminated previously applied quotas. European shipments fell 8.5% in the first three months of the year compared with the same period in 2005; in May, the company's stock hit a two-year low. Mother Nature hasn't exactly helped: Last year, Chiquita reported more than $28 million in increased costs or losses from tropical storms, including Hurricane Katrina.

"We recognized that this year was going to be a transition year," Aguirre says.

Aguirre, 48, recently spoke with news editor Todd Spangler about the importance of accurate forecasting in a business with perishable products, the Fresh Express deal and the company's plans for radio frequency ID.

What are the most important pieces of information you need to run the company?

Forecasting. That is probably one of the key items we use, and it is one that helps us provide speed, helps us provide accuracy, helps us provide the data we need to make decisions. So, that's No. 1. We produce somewhere around 30% of our bananas on our own farms, and we buy about 70% from associate farms. Both of them use a lot of technology [including Chiquita's enterprise resource planning system from JD Edwards, now part of Oracle] to help us accurately know our volumes, our inventories, our harvest times.

Then, the other one that's very, very critical is to make sure we have the right and accurate internal evaluation of our costs. This is a business that is a low-margin business; this is a business that requires significant infrastructure. We own some of our ships [12 refrigerated vessels], we own some farms, and we own a lot of our ripening rooms. So, a business that starts with a seed that's planted and ends with fruit that is delivered to a grocery store is quite complex.

You said forecasting is No. 1. But there are limits to the visibility you can get, right?

This is a volatile business. This is a business that depends largely on the human element: that we farm correctly, that we harvest the fruit correctly. And then we also, unfortunately, are affected by outside events, particularly weather events. So, we may have done everything perfectly—then a storm hits us. That, as you know, is very difficult to predict.

You suffered losses from Hurricane Katrina and other storms last year.

We got hurt by five or six storms last year. Hurricane Katrina literally wiped out some of our Gulfport [Miss.] shipping operations. Some of our farms were flooded in Central America. That creates a significant amount of volatility. While we try to have the best forecast in place, it requires a heck of a lot of flexibility to give us a chance to adapt. For example, in the case of Gulfport, we had to go out and use three other ports to get the fruit into the country and in a way in which we tried not to lose any fruit. We lost a few containers, but luckily our people were able to manage it in a way in which one of our ships was coming in behind the storm.

What are the challenges of integrating Fresh Express with regard to information technology?

I see it as mostly making sure we can leverage our scale, and making sure we have the opportunities to use as much as we possibly can to make the systems all standardized. But it's a fine balance between localizing—and keeping what you need to keep local—and standardizing or globalizing what you can. That's an interesting balance we need to achieve from the integration.

The key pieces, of course, are economies of scale—buying PCs and servers for both businesses. That's the easier part. The harder part is making sure the ERP [enterprise resource planning] systems and forecasting happen at the same time and the same speed. We still have two different ERP systems. Chiquita uses JD Edwards, and Fresh Express uses [SSA Global's] PRMS.

The Fresh Express deal was financed largely by $775 million in loans. That tripled Chiquita's long-term debt. What metrics and what software did you use to decide that the transaction made sense?

You're really getting very specific. We did a heck of a lot of forecasting and a heck of a lot of data analysis. I cannot tell you exactly what software we used, but it was a very sophisticated transaction. [We had to] make sure we could grow, make sure we could reduce our debt ratio in the next three years.

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