Successful feed companies in the future
Published: May 14, 2007
By: JIM HEDGES - Hubbard Feeds Inc. (Courtesy of Alltech Inc.)
Like everything else, the feed industry has changed. I cannot think of a lot that has not changed. Most of our people use notebook computers. The original ones were called portable computers and we joked that they should have been called 'luggable'. The early models were about the size of a small to mediumsized suitcase and were certainly not light weight. Wal-Mart has taken the place of Woolworth and KMart. They offer it all with one stop, from food to motor oil to clothes. They evolved with the times; and sell good products at very reasonable prices. Wal- Mart has excellent marketing and they recognize trends and change with the times and customer needs and wants.
The feed company that succeeds must be as innovative and market-driven as the computer industry and a Wal-Mart Superstore. I have always tried to pattern our work after the electronic industry. There are similarities, but the electronics companies have some advantages. A VCR 20 years ago retailed for approximately $780, while today the price is about $80 and quality is vastly improved. Research in food animal nutrition has always been driven toward maintaining performance while lowering costs. Unlike electronic companies, we cannot control the commodity market and therefore have less control over input costs, but we have made great strides.
Two examples of ways we have gained control over feed ingredients costs is with the enzyme phytase and through the use of synthetic amino acids. The January 1903 Feed Management magazine article on the Top Feed Manufacturers is quite enlightening (Table 1). In 2001 the magazine expanded the survey to include leading integrated poultry and livestock producers. In the 2002 edition of the article, only four of the top 10 feed manufacturers are actually feed companies. The top manufacturer is a conglomeration of what used to be three quite large individual feed companies, namely Land O' Lakes, Farmland Feed and Purina Mills.
How did this come to pass? In part it is due to traditional feed companies failing to supply what the customer wanted. My theory is that if the major feed companies had produced and marketed premixes when the market demanded the product, it would have been very difficult for the strictly premix companies to have developed and grown. The big traditional feed companies had the sales force, technical expertise and dealer network to fill the market need, but were afraid they would have several mills sitting idle. The moral of the story is you cannot make people buy what you want to sell.
At Wayne Feed when we finally introduced premix in the early 1980s, we actually increased market share by not only gaining customers with the premix, but by selling more concentrate as well. Without a premix, it was easy for the producer (potential customer) to dismiss a salesman. Once we had a premix to offer, many producers, when offered the option of either premix or concentrate from the same company changed back to a concentrate-feeding program since many of the producers in the early 1980s really were not big enough to conventionally use premix and soybean meal.
One very important point concerning the list of top feed manufacturers is that the ranking is based on production capacity, not actual production. In this ranking, the North American Animal Nutrition Companies (most of you know them as Akey) is ranked number 52. I dare say there are very few feed companies that feed more animals than this one. This suggests that bricks and mortar are not necessarily needed to sell and service a significant portion of the livestock industry.
Table 1. Leading commercial and integrated feed manufacturers1.
1Lobo, 2003
The 2003-04 Feedstuffs Reference Issue and Buyers Guide lists the top 10 feed manufacturers and is more pertinent for this paper (Table 2). Again, the ranking is based on manufacturing capacity, not sales. Ridley Inc. is ranked No. 9, but if this ranking was based on animals fed, there would be very few feed companies ahead of Ridley.
Table 2. Top US feed companies, based on manufacturing capacity, mid-20031.
1Feedstuffs 2003-2004 Reference Issue & Buyers Guide
2Includes Canadian feed tonnage
Premix companies hardly even make it into these rankings, but again if this were based on animals fed, several of these companies would be near the top. These rankings are interesting, but capacity has nothing to do with sales success. Actually in today's market it could be argued that milling capacity could be a negative for a feed company. It is extremely difficult to be cost competitive and profitable while maintaining a lot of mills operating at 25 to 50% capacity.
As a normal rule, feed manufacturers cannot make feed as cheaply as a large livestock producer. A livestock producer with a modern mill can make significantly more tons of feed per hour than a feed manufacturer. The livestock producer may have only 10-20 base formulas of meal feed made in 3-5 ton batches in bulk while the commercial feed company mill may have 200 formulas. Also, most feed companies are multi-species, which increases the complexity of production. Being multi-species not only affects the number of formulas, but can significantly affect sequencing and even the raw material inventory. For several years now Ridley has had a policy to not inventory any ruminant meat and bone meal or even plasma of ruminant origin. With these issues on ingredients, products, labor, taxes etc., the large commercial feed mill cannot compete on a price per ton basis with single species or a simple meal-producing mill.
Given these constraints, how can feed companies grow and be successful? Most feed companies are trying to grow by acquisition. Definitely this can accomplish the goal, but is not without risk. When a company that has been a competitor for years is purchased, differing company cultures usually clash. Hubbard has gained significant new business from the gridlock that can occur with these acquisition patterns in the marketplace. Slow decision-making and poor service while two companies decide who is in charge has enabled us to obtain huge volumes of business. One customer asked for a loan and he never received a response. He told me he could understand a 'no', but no response at all after being a customer for 7-8 years drove him away.
In another instance we gained 2000 tons of new business per month when one company bought another. Management, in many cases, does not seem to realize that change cannot be forced on people. If a customer, either a feed dealer or direct account, is forced to change their way of doing business, why not change completely to another company? These customers (dealers) perceived their original brand being de-emphasized and felt steamrolled into the new brand. On top of this were poor service and poor communication. The result was a change to a company that wanted their business and supported them. You can buy a company, its mills, trucks and offices, but its dealers and direct customers do not automatically follow. Companies spend a tremendous amount of time and money developing a company culture and image. It is neither easier nor a good idea to discard it without recognizing its value in the marketplace.
When the old Hubbard bought companies they made the transitions relatively successfully, keeping the original brands until time and market changes deemed it good management practice to bring the brands into the parent company. It is critical to understand that we can buy an employee's time; or a business; but simply 'buying' is not effective. Only voluntary actions, those which cannot be bought, are ultimately effective. Trust, for example, must be earned. You earn trust by consistently doing what is right for the long term, not just for the next quarter's results. Customers need time to adjust to the new company, because they make decisions for their own reasons, not ours. You grow the business by infusing capital and technically improving the products.
Making more than one brand of feed at the same plant admittedly causes some difficulties, but the dealers will be somewhat more tolerant as long as service is acceptable and feed quality is good. Brand names are important to dealers; and if you are to change the brand name, the dealer needs time to accept this change. The change can be made considerably less painful with effective training and product positioning. When Ridley bought the Wayne Feed brand we did not force the Wayne dealers to convert to the Hubbard brand immediately. We updated the products and said that as long as they sold the existing brands in good volume to keep on selling them. As dealers undergo more and more training sessions and have updated products to offer, they will change to new products without excess trauma. They must be confident the changes benefit the customer, not just the parent company.
While product brands are important to dealers and small to medium size producers, they are not the main issues with large producers. For all your customers, the products must meet a need either through technology advances or by providing something the customer cannot make himself. Unless your goal is toll milling, complete grow-finish or sow diets are not a growth option for most of today's feed companies. For this segment of the market, it is best to supply some type of premix and possibly ingredients. To prevent this from being a complete bid situation, you need excellent technical support and formulation help.
The diet density and feed budgets are a part of what the successful feed company must also supply. For the megaproducers, products are somewhat different for each customer depending on the customer's feed milling capabilities. We have customers who require a 10 lb/ton vitamin/trace mineral premix sent to some of their toll mills and a 60 lb/ton base mix for other mills. We have other customers with sophisticated mills that we supply with a 2 lb/ton vitamin/trace mineral premix. If a livestock producer has a $10 million feed mill, he will not be buying a 60 lb/ton base mix. There is room for both segments; you do what the customer needs and respect his milling capabilities.
One customer need that a feed company can meet is in supplying feed milling technology. Most producers need help in this area as well as in monitoring ingredient quality. They also need help in monitoring finished feed quality. There are a lot of large dealers or co-op mills that have tremendous grain handling capability and milling capacity, but do not have the nutrition technology that progressive pork producers need. This represents another market segment for the traditional feed company, but it differs in that these are not the same products the company supplied years ago. In these situations we supply the vitamin/trace mineral premix or base mix and do the finished diet formulation while the toll millers do the grinding, mixing and delivery.
The starter feed area is definitely an area where there is opportunity for differentiation from the competition. The early-stage complex diets are difficult to manufacture. In addition, most swine producers do not have storage capacity for all the ingredients needed for these feeds, and certainly do not possess the technology to make them.
Research
From a technical perspective, this is a key to a successful future. In the past, feeds and feed ingredients could be sold based on testimonials, but this approach no longer suffices. Statistically valid trials must be conducted in facilities and with genetics similar to those of your customers. We made mistakes years ago with facilities that were 'ideal' for research, but the results did not apply to the field. The data in Tables 3 and 4 show this very well. Notice the huge difference in feed intake between the two groups. Pigs housed in the commercial unit stocked at 45 pigs/pen consumed 5.1 lbs/day compared to 6.2 lbs/ day for the research facility pigs stocked at 10 pigs per pen.
Feed conversion is not greatly different, but the data for the research-stocked pigs indicated these pigs needed only 0.49% available lysine (the lowest level fed) and the commercial-stocked pigs need 0.65% available lysine! Our research facilities once had a limited number of pigs per pen. The performance of the pigs in these facilities was great, yet the salesmen and dealers complained the commercial hogs stalled out and did poorly in many cases. The diets were correct, but only under the circumstances in which they were fed.
Table 3. Research pens, 10 pigs/pen.
Campbell (1995)
Table 4. Commercial pens, 45 pigs/pen.
Campbell (1995)
Table 5 illustrates the importance of feed intake adjustments needed to ensure that pigs receive 20 g of lysine per day. This is an old concept, but many people do not understand it to this day. The data in Figure 1 show how adjusting the diet can alleviate part of the performance depression that can occur in restricted feed intake situations. The optimum lysine level for these finishing hogs when fed ad libitum is 0.61%. When the hogs are restricted to 85% of ad libitum intake, the optimum lysine level is 0.85% of the diet. A reduction to 85% of ad libitum is not an academic exercise. Our large customers running mills 20 hrs a day do not have to run that hard in July and August, when feed intake falls due to heat stress. Not all of the reduction in performance due to heat stress can be overcome, but it can be alleviated to some extent by diet manipulation.
Table 5. Effect of feed intake on daily lysine intake in finishing hogs.
Hedges (1994), unpublished
The reference data in Table 6 are accurate under the conditions in which the pigs were fed, but the diet densities recommended would probably not give optimum performance in a large commercial unit. The swine producer does not have the luxury of removing the pigs that are too big or too little; the producers feed all the pigs.
Early in my career the salesmen accused me of doing 'Ivory Tower' research. Actually, they were correct. There has always been a bit of disconnect between university recommendations and the feed industry. There is no need to have a big debate over this. I am not trying to criticize the excellent scientists that did this work, I just do not think you should rely on university tables for all nutrient recommendations. The point is, if you are to have industry-leading diets, you must develop them yourself. From my perspective, the role of the university is to do the basic work.
I have formulated swine diets for 25 years using digestible amino acid values and I did not generate any of the values I used. All the digestible amino acid data was generated by university research; which we applied and made practical. We use the enzyme phytase, the efficacy data on which was generated by the universities in their facilities with graduate students available. The feed industry nutritionist should be able to take this basic work and figure out how it can be applied in the commercial world. The vast majority of our research is conducted in barns with 1000 or more pigs, in industry standard pen sizes. This allows the pigs to experience the same space, social and ventilation factors they would encounter in normal commercial units. These facilities are all commercial facilities with modifications for weighing both feed and pigs accurately.
Figure 1. Ad libitum vs restricted feeding: effect on required dietary lysine concentrations (adapted from Coma et al., 1995).
Table 6. Suggested dietary amino acid and protein allowances for swine fed corn-soybean meal diets at various bodyweights1.
Click here to see a larger image
1Bodyweights are listed in pounds. The suggested protein and amino acid allowances assume that corn-soybean meal diets are fed, and that the diets contain 1,560 and 1,500 kcal/lb DE and ME, respectively. Ideal ratios (relative to lysine) were used in calculating amino acid requirements for market pigs considered to be of high-lean genetics.
2Developing boars should receive 0.90 and 0.75% lysine during the grower and finisher phases, respectively. Specific requirements for the mature boar have not been established. A diet that is adequate for the gestating gilt should be adequate for the mature boar.
3A minimum of 28 days lactation is assumed.
4These allowances were determined with fortified corn-soybean meal diets. Substitution of other grains for corn or other protein sources for soybean meal should be made on a digestible amino acid basis.
5Cystine can supply up to 50% of the requirement for sulfur amino acids. Thus, the values given here represent a Met + Cys allowance.
6Dietary arginine is not essential for gestation.
7Tyrosine can satisfy 50% of the need for total aromatic amino acids (phenylalanine + tyrosine).
8These levels of crude protein in a corn-soybean meal diet will generally meet the amino acid requirments, although some supplemental lysine may be needed.
Source: Baker et al., 2003.
We have a 1000-head capacity research nursery that is a contract barn for a large producer. This barn has pen scales, six feed tanks instead of one and a Mosdal feed cart with built in scales. The pigs are weaned at approximately 20 days of age and transported 12 to 15 hrs to this nursery. When the pigs arrive they are weighed and allotted to treatments, without an adjustment period. The diets are formulated to meet the nutritional needs of pigs housed at 22-25 pigs per pen. The data in Table 7 show the performance difference that can be obtained with different starter feed formulations. The university diet is much simpler and represents the optimum formulation for a university nursery with 10 pigs/pen. The other feed companys' diets were probably also developed in small pen nurseries.
These trials are more for inhouse benchmarking of performance versus the competition than for selling. They are not great sales tools; producers' interest might be aroused, but normally they do their own tests. In another example Table 8 shows what complex diets do for uniformity of gain. Very healthy pigs with minimal stress can grow quite well with less complex diets, except this is not the normal situation in the commercial world.
The grow-finish research barns are actually commercial 1000 or 1200-head barns modified with scales for weighing the hogs and equipment to measure feed intake. Depending on the facility, the hogs are housed 20 to 32 pigs/pen with normally 7.5 ft2/hog. All dietary treatments are replicated 6 to 8 times. A couple of these barns have dual water lines for studying water treatments as well. In total, Ridley has two 1000-head conventional nurseries for research and three wean-to-finish barns of 1000 head each. Two are for demonstration work and one is equipped for multiple treatments and multiple replications. Ridley also has three conventional 1000 head growfinish buildings and two 1200-head barns. All of these are equipped for multiple treatment, multiple replication trials. Ridley conducts 75-80 trials per year. These normally are nutrition trials, but we also conduct trials involving management issues.
Table 7. Starter diet comparison report sheet from a contract nursery.
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Customer service
Exceptional customer service is essential for a successful company. Most traditional feed companies have always been only one step away from the end user. Selling direct is different. Dealers buffer the company from the end user. Animals eat 24/7. I know from personal experience that plants and order desk personnel do not always understand urgency. In fairness to the plant personnel, some of our plants are nearly at maximum capacity and it can be quite a juggling act to get all the feed out on time. The time frame is shortened without the dealer's inventory serving as a buffer between you and the end user. Dealers have a business history and a brand they have promoted, and tend to have a higher tolerance of 'average' service than a direct account. In many cases a direct account communicates personally with the order staff and there is no buffer. Your order staff must be trained to deal with direct customers in a knowledgeable, courteous and efficient manner.
Ridley has been adjusting to this change, although there is still room for improvement, as at every company. It seems obvious, but orders must be ready when the customer expects them. Pellets must be excellent and not 10% fines. With many big systems, the pellets are handled several times. If the customer is large enough to have his own pellet mill, you had better deliver significantly better pellet quality than he can make.
The successful feed company must have excellent production people and truck drivers. As a technical salesman it is much easier to sell feed from a plant you know will make the feed correctly. It is one thing to design or formulate a feed on paper, but it must be mixed properly. A mistake with a 5 lb/ton premix is a big mistake, because it will be multiplied many, many times. Proper quality assurance is critical; particularly when the customer must perceive that your service is better than the competitor's.
Researchers Keiningham and Vaura (2001) discuss customer satisfaction in terms of delighted customers rather than just merely satisfied customers. A review of this book suggests that anywhere from 60 to 85% of customers who switched firms would have been classified as satisfied by generally accepted market research measurement tools. The successful organization needs to dramatically increase positive customer experience, virtually eliminate the negatives and drive customers to new levels of repeat purchasing, loyalty and sheer delight. I have often said if we could make excellent pellets, deliver them on time, put them in the correct bin every time, we could not make all the feed we could sell. You do not lose customers, you drive them off. When was the last time you complained about great service?
Table 8. Determining the differences in nursery feeding programs (Location: Contract nursery).
Click here to see a larger image
FC = Feed company
anumber of pigs that died in a given rep and treatment
bweighted average, the number of times a diet was ranked 1,2, etc. in ADG. HFI five times had best gain, three times second best, one time third, and one time fourth: 5x1+3x2+1x4=15; the lower the number the better.
Management
In the almost thirty years I have been in the feed industry I have worked for about 10 feed division managers. An excellent head of a feed division grows the business, a mediocre one does not hurt the business and a bad one destroys the business. The absolute key element needed for a successful business is people. Without excellent people you have a mediocre or failing company.
The mistake I have seen most often is too much management. The really good salesmen are independent thinkers and do not function well in a rigid structure. In today's business climate with declining margins, the successful company must have mainly Indians and very few Chiefs. If you are not selling or supporting customers, there is no need for you. Anyone that has contact in any way with customers needs to have good people skills. Customers have enough options to easily avoid buying from people they perceive as difficult. Very little in the company is necessary until something is sold.
When I hire a PhD for my group I ask them if they can sell. If they cannot sell, I do not hire them. The PhD nutritionist is a technical salesman in today's business environment. We have accounts where the only person involved is the technical person and the order desk personnel at the plant. This is partly because the traditional sales force does not have the confidence to call on anyone with 20,000 sows or more. A good account manager can be helpful. They can play a key role in customer support, helping with communicating and listening to the customers needs, concerns and correcting problems. The feed industry used to give away a lot of caps and jackets; and while this is not a big deal with large customers, a shooting outing or fishing trip can be a great rapport builder. People buy from people. It is still a people business whether the customer has 100 sows or 100,000 sows.
Management's role is to be a leader, a point that seems obvious but is often missed. You do not have to like the feed division general manager, but it is important people respect him. The head person needs to receive and respect feedback from the people doing the selling. He also needs to get out and work with enough customers to know the market needs. The big companies that have failed basically ignored the market and tried to keep on doing what had made them successful. The successful company will have focused, energetic and creative people who can sell without two or three layers of people to tell them what to do. Feed companies used to have huge bureaucracies, but they can no longer afford them. In today's business environment the big don't eat the small; the fast eat the slow.
The ideal feed company division head would have the following characteristics:
Be a leader. People are good followers if they have someone they respect to follow. My brother has a saying "you can lead me a long way but you are not gong to push me very far". In my career I have had leaders that tried to motivate by intimidation and it did not work well. To be a good leader you have to listen, support and encourage your people. Get them the tools they need and stay out of the way. Too many general managers overrate themselves; they cannot make the company successful by themselves, without good people they will fail. Poor leaders cannot attract good people.
Listen to your people. I have a fair reputation of being a good product developer, but it has not been hard. The customer will tell you what he needs, you must listen and act. The employees are management's customers. It is so obvious that I guess it is hard for management to see at times, but all they need to do is listen to the people that are in front of the customers and actually making sales. Having said this, one of the mistakes feed companies make is giving salesmen credit and commission for a huge sale they did not make simply because it is geographically in their territory. Just because the animals are in a salesman's territory does not mean he should get credit, but many times sales managers want to protect their salesmen. We cannot afford this anymore. Territory selling is changing to customer selling, and in some cases, team selling.
Trust your people. Management must accept that they have employees that want to grow the business just as much as they do; and management should listen and act when these employees request people or equipment to grow the business.
Be customer friendly. If in doubt, do what is right for the customer and then work hard to make it right for the company.
Be able to meet with customers and earn their respect.
Be innovative, be able to think outside the box. It seems most feed companies think the only way to grow is by acquiring another feed company. What is wrong with staffing up and attacking the market with excellent people? Very few feed companies are operating their mills at full capacity. If you cannot grow your existing business, what makes you think you can operate an even larger business?
Do not be afraid to invest capital to grow the business. Possibly dedicated feed mills for each species group is the way to go. With a special purpose mill things can be accomplished from a production standpoint that are not possible in a full line plant.
Conclusions
I think the feed company that really succeeds in the future will have to quit thinking like this is still 1985. The feed business has changed, but I am not convinced the management at most feed companies realize this - or if they have, they do not know what to do about it. You will need specialists, not generalists. I have never understood the logic of trying to get salesmen to be good at all species. Actually, they are not and they gravitate to the species they are most comfortable with and the one they think they can be the most successful at. The operations are bigger, fewer salesmen may be needed but these individuals need to be of higher quality and be more highly educated.
One thing that has not changed is you have to call on people to sell. A lot of salesmen drive by larger operations because they are not confident enough to call on them. This cannot be tolerated if you plan to succeed. Excellent research, product quality (both the formula and the production of it), superior service, and acceptable pricing are all tablestakes. Some company is going to supply the nutrition to the livestock industry; and I think it will be a feed company. I do not think that ingredient companies, amino acid, vitamin or dical suppliers, etc. have the technical expertise or service capability to meet livestock producer needs.
It will be quite interesting 15 years from now to see how the feed industry looks. One area of concern is where are we going to get trained technical people? The old power house universities that produced a lot of good research and trained students in the past have dwindled to a very few. If we can get good people, I think most of the good applied research of the future will be through alliances between the successful feed company and their customers. The large customer and the feed company need to form such alliances. Our customers are not just those we sell to and profit from. They are partners; and need to be thought of as such. It is far too difficult to earn the trust and respect of an account on any other basis. The feed company's objective is to help make the customer profitable. If the customer fails, the feed company fails also.
Most of this may just seem common sense; but knowing and doing are two different things. The feed business is really quite simple; and maybe that is the problem.
References
The feed company that succeeds must be as innovative and market-driven as the computer industry and a Wal-Mart Superstore. I have always tried to pattern our work after the electronic industry. There are similarities, but the electronics companies have some advantages. A VCR 20 years ago retailed for approximately $780, while today the price is about $80 and quality is vastly improved. Research in food animal nutrition has always been driven toward maintaining performance while lowering costs. Unlike electronic companies, we cannot control the commodity market and therefore have less control over input costs, but we have made great strides.
Two examples of ways we have gained control over feed ingredients costs is with the enzyme phytase and through the use of synthetic amino acids. The January 1903 Feed Management magazine article on the Top Feed Manufacturers is quite enlightening (Table 1). In 2001 the magazine expanded the survey to include leading integrated poultry and livestock producers. In the 2002 edition of the article, only four of the top 10 feed manufacturers are actually feed companies. The top manufacturer is a conglomeration of what used to be three quite large individual feed companies, namely Land O' Lakes, Farmland Feed and Purina Mills.
How did this come to pass? In part it is due to traditional feed companies failing to supply what the customer wanted. My theory is that if the major feed companies had produced and marketed premixes when the market demanded the product, it would have been very difficult for the strictly premix companies to have developed and grown. The big traditional feed companies had the sales force, technical expertise and dealer network to fill the market need, but were afraid they would have several mills sitting idle. The moral of the story is you cannot make people buy what you want to sell.
At Wayne Feed when we finally introduced premix in the early 1980s, we actually increased market share by not only gaining customers with the premix, but by selling more concentrate as well. Without a premix, it was easy for the producer (potential customer) to dismiss a salesman. Once we had a premix to offer, many producers, when offered the option of either premix or concentrate from the same company changed back to a concentrate-feeding program since many of the producers in the early 1980s really were not big enough to conventionally use premix and soybean meal.
One very important point concerning the list of top feed manufacturers is that the ranking is based on production capacity, not actual production. In this ranking, the North American Animal Nutrition Companies (most of you know them as Akey) is ranked number 52. I dare say there are very few feed companies that feed more animals than this one. This suggests that bricks and mortar are not necessarily needed to sell and service a significant portion of the livestock industry.
Table 1. Leading commercial and integrated feed manufacturers1.
1Lobo, 2003
The 2003-04 Feedstuffs Reference Issue and Buyers Guide lists the top 10 feed manufacturers and is more pertinent for this paper (Table 2). Again, the ranking is based on manufacturing capacity, not sales. Ridley Inc. is ranked No. 9, but if this ranking was based on animals fed, there would be very few feed companies ahead of Ridley.
Table 2. Top US feed companies, based on manufacturing capacity, mid-20031.
1Feedstuffs 2003-2004 Reference Issue & Buyers Guide
2Includes Canadian feed tonnage
Premix companies hardly even make it into these rankings, but again if this were based on animals fed, several of these companies would be near the top. These rankings are interesting, but capacity has nothing to do with sales success. Actually in today's market it could be argued that milling capacity could be a negative for a feed company. It is extremely difficult to be cost competitive and profitable while maintaining a lot of mills operating at 25 to 50% capacity.
As a normal rule, feed manufacturers cannot make feed as cheaply as a large livestock producer. A livestock producer with a modern mill can make significantly more tons of feed per hour than a feed manufacturer. The livestock producer may have only 10-20 base formulas of meal feed made in 3-5 ton batches in bulk while the commercial feed company mill may have 200 formulas. Also, most feed companies are multi-species, which increases the complexity of production. Being multi-species not only affects the number of formulas, but can significantly affect sequencing and even the raw material inventory. For several years now Ridley has had a policy to not inventory any ruminant meat and bone meal or even plasma of ruminant origin. With these issues on ingredients, products, labor, taxes etc., the large commercial feed mill cannot compete on a price per ton basis with single species or a simple meal-producing mill.
Given these constraints, how can feed companies grow and be successful? Most feed companies are trying to grow by acquisition. Definitely this can accomplish the goal, but is not without risk. When a company that has been a competitor for years is purchased, differing company cultures usually clash. Hubbard has gained significant new business from the gridlock that can occur with these acquisition patterns in the marketplace. Slow decision-making and poor service while two companies decide who is in charge has enabled us to obtain huge volumes of business. One customer asked for a loan and he never received a response. He told me he could understand a 'no', but no response at all after being a customer for 7-8 years drove him away.
In another instance we gained 2000 tons of new business per month when one company bought another. Management, in many cases, does not seem to realize that change cannot be forced on people. If a customer, either a feed dealer or direct account, is forced to change their way of doing business, why not change completely to another company? These customers (dealers) perceived their original brand being de-emphasized and felt steamrolled into the new brand. On top of this were poor service and poor communication. The result was a change to a company that wanted their business and supported them. You can buy a company, its mills, trucks and offices, but its dealers and direct customers do not automatically follow. Companies spend a tremendous amount of time and money developing a company culture and image. It is neither easier nor a good idea to discard it without recognizing its value in the marketplace.
When the old Hubbard bought companies they made the transitions relatively successfully, keeping the original brands until time and market changes deemed it good management practice to bring the brands into the parent company. It is critical to understand that we can buy an employee's time; or a business; but simply 'buying' is not effective. Only voluntary actions, those which cannot be bought, are ultimately effective. Trust, for example, must be earned. You earn trust by consistently doing what is right for the long term, not just for the next quarter's results. Customers need time to adjust to the new company, because they make decisions for their own reasons, not ours. You grow the business by infusing capital and technically improving the products.
Making more than one brand of feed at the same plant admittedly causes some difficulties, but the dealers will be somewhat more tolerant as long as service is acceptable and feed quality is good. Brand names are important to dealers; and if you are to change the brand name, the dealer needs time to accept this change. The change can be made considerably less painful with effective training and product positioning. When Ridley bought the Wayne Feed brand we did not force the Wayne dealers to convert to the Hubbard brand immediately. We updated the products and said that as long as they sold the existing brands in good volume to keep on selling them. As dealers undergo more and more training sessions and have updated products to offer, they will change to new products without excess trauma. They must be confident the changes benefit the customer, not just the parent company.
While product brands are important to dealers and small to medium size producers, they are not the main issues with large producers. For all your customers, the products must meet a need either through technology advances or by providing something the customer cannot make himself. Unless your goal is toll milling, complete grow-finish or sow diets are not a growth option for most of today's feed companies. For this segment of the market, it is best to supply some type of premix and possibly ingredients. To prevent this from being a complete bid situation, you need excellent technical support and formulation help.
The diet density and feed budgets are a part of what the successful feed company must also supply. For the megaproducers, products are somewhat different for each customer depending on the customer's feed milling capabilities. We have customers who require a 10 lb/ton vitamin/trace mineral premix sent to some of their toll mills and a 60 lb/ton base mix for other mills. We have other customers with sophisticated mills that we supply with a 2 lb/ton vitamin/trace mineral premix. If a livestock producer has a $10 million feed mill, he will not be buying a 60 lb/ton base mix. There is room for both segments; you do what the customer needs and respect his milling capabilities.
One customer need that a feed company can meet is in supplying feed milling technology. Most producers need help in this area as well as in monitoring ingredient quality. They also need help in monitoring finished feed quality. There are a lot of large dealers or co-op mills that have tremendous grain handling capability and milling capacity, but do not have the nutrition technology that progressive pork producers need. This represents another market segment for the traditional feed company, but it differs in that these are not the same products the company supplied years ago. In these situations we supply the vitamin/trace mineral premix or base mix and do the finished diet formulation while the toll millers do the grinding, mixing and delivery.
The starter feed area is definitely an area where there is opportunity for differentiation from the competition. The early-stage complex diets are difficult to manufacture. In addition, most swine producers do not have storage capacity for all the ingredients needed for these feeds, and certainly do not possess the technology to make them.
Research
From a technical perspective, this is a key to a successful future. In the past, feeds and feed ingredients could be sold based on testimonials, but this approach no longer suffices. Statistically valid trials must be conducted in facilities and with genetics similar to those of your customers. We made mistakes years ago with facilities that were 'ideal' for research, but the results did not apply to the field. The data in Tables 3 and 4 show this very well. Notice the huge difference in feed intake between the two groups. Pigs housed in the commercial unit stocked at 45 pigs/pen consumed 5.1 lbs/day compared to 6.2 lbs/ day for the research facility pigs stocked at 10 pigs per pen.
Feed conversion is not greatly different, but the data for the research-stocked pigs indicated these pigs needed only 0.49% available lysine (the lowest level fed) and the commercial-stocked pigs need 0.65% available lysine! Our research facilities once had a limited number of pigs per pen. The performance of the pigs in these facilities was great, yet the salesmen and dealers complained the commercial hogs stalled out and did poorly in many cases. The diets were correct, but only under the circumstances in which they were fed.
Table 3. Research pens, 10 pigs/pen.
Campbell (1995)
Table 4. Commercial pens, 45 pigs/pen.
Campbell (1995)
Table 5 illustrates the importance of feed intake adjustments needed to ensure that pigs receive 20 g of lysine per day. This is an old concept, but many people do not understand it to this day. The data in Figure 1 show how adjusting the diet can alleviate part of the performance depression that can occur in restricted feed intake situations. The optimum lysine level for these finishing hogs when fed ad libitum is 0.61%. When the hogs are restricted to 85% of ad libitum intake, the optimum lysine level is 0.85% of the diet. A reduction to 85% of ad libitum is not an academic exercise. Our large customers running mills 20 hrs a day do not have to run that hard in July and August, when feed intake falls due to heat stress. Not all of the reduction in performance due to heat stress can be overcome, but it can be alleviated to some extent by diet manipulation.
Table 5. Effect of feed intake on daily lysine intake in finishing hogs.
Hedges (1994), unpublished
The reference data in Table 6 are accurate under the conditions in which the pigs were fed, but the diet densities recommended would probably not give optimum performance in a large commercial unit. The swine producer does not have the luxury of removing the pigs that are too big or too little; the producers feed all the pigs.
Early in my career the salesmen accused me of doing 'Ivory Tower' research. Actually, they were correct. There has always been a bit of disconnect between university recommendations and the feed industry. There is no need to have a big debate over this. I am not trying to criticize the excellent scientists that did this work, I just do not think you should rely on university tables for all nutrient recommendations. The point is, if you are to have industry-leading diets, you must develop them yourself. From my perspective, the role of the university is to do the basic work.
I have formulated swine diets for 25 years using digestible amino acid values and I did not generate any of the values I used. All the digestible amino acid data was generated by university research; which we applied and made practical. We use the enzyme phytase, the efficacy data on which was generated by the universities in their facilities with graduate students available. The feed industry nutritionist should be able to take this basic work and figure out how it can be applied in the commercial world. The vast majority of our research is conducted in barns with 1000 or more pigs, in industry standard pen sizes. This allows the pigs to experience the same space, social and ventilation factors they would encounter in normal commercial units. These facilities are all commercial facilities with modifications for weighing both feed and pigs accurately.
Figure 1. Ad libitum vs restricted feeding: effect on required dietary lysine concentrations (adapted from Coma et al., 1995).
Table 6. Suggested dietary amino acid and protein allowances for swine fed corn-soybean meal diets at various bodyweights1.
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1Bodyweights are listed in pounds. The suggested protein and amino acid allowances assume that corn-soybean meal diets are fed, and that the diets contain 1,560 and 1,500 kcal/lb DE and ME, respectively. Ideal ratios (relative to lysine) were used in calculating amino acid requirements for market pigs considered to be of high-lean genetics.
2Developing boars should receive 0.90 and 0.75% lysine during the grower and finisher phases, respectively. Specific requirements for the mature boar have not been established. A diet that is adequate for the gestating gilt should be adequate for the mature boar.
3A minimum of 28 days lactation is assumed.
4These allowances were determined with fortified corn-soybean meal diets. Substitution of other grains for corn or other protein sources for soybean meal should be made on a digestible amino acid basis.
5Cystine can supply up to 50% of the requirement for sulfur amino acids. Thus, the values given here represent a Met + Cys allowance.
6Dietary arginine is not essential for gestation.
7Tyrosine can satisfy 50% of the need for total aromatic amino acids (phenylalanine + tyrosine).
8These levels of crude protein in a corn-soybean meal diet will generally meet the amino acid requirments, although some supplemental lysine may be needed.
Source: Baker et al., 2003.
We have a 1000-head capacity research nursery that is a contract barn for a large producer. This barn has pen scales, six feed tanks instead of one and a Mosdal feed cart with built in scales. The pigs are weaned at approximately 20 days of age and transported 12 to 15 hrs to this nursery. When the pigs arrive they are weighed and allotted to treatments, without an adjustment period. The diets are formulated to meet the nutritional needs of pigs housed at 22-25 pigs per pen. The data in Table 7 show the performance difference that can be obtained with different starter feed formulations. The university diet is much simpler and represents the optimum formulation for a university nursery with 10 pigs/pen. The other feed companys' diets were probably also developed in small pen nurseries.
These trials are more for inhouse benchmarking of performance versus the competition than for selling. They are not great sales tools; producers' interest might be aroused, but normally they do their own tests. In another example Table 8 shows what complex diets do for uniformity of gain. Very healthy pigs with minimal stress can grow quite well with less complex diets, except this is not the normal situation in the commercial world.
The grow-finish research barns are actually commercial 1000 or 1200-head barns modified with scales for weighing the hogs and equipment to measure feed intake. Depending on the facility, the hogs are housed 20 to 32 pigs/pen with normally 7.5 ft2/hog. All dietary treatments are replicated 6 to 8 times. A couple of these barns have dual water lines for studying water treatments as well. In total, Ridley has two 1000-head conventional nurseries for research and three wean-to-finish barns of 1000 head each. Two are for demonstration work and one is equipped for multiple treatments and multiple replications. Ridley also has three conventional 1000 head growfinish buildings and two 1200-head barns. All of these are equipped for multiple treatment, multiple replication trials. Ridley conducts 75-80 trials per year. These normally are nutrition trials, but we also conduct trials involving management issues.
Table 7. Starter diet comparison report sheet from a contract nursery.
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Customer service
Exceptional customer service is essential for a successful company. Most traditional feed companies have always been only one step away from the end user. Selling direct is different. Dealers buffer the company from the end user. Animals eat 24/7. I know from personal experience that plants and order desk personnel do not always understand urgency. In fairness to the plant personnel, some of our plants are nearly at maximum capacity and it can be quite a juggling act to get all the feed out on time. The time frame is shortened without the dealer's inventory serving as a buffer between you and the end user. Dealers have a business history and a brand they have promoted, and tend to have a higher tolerance of 'average' service than a direct account. In many cases a direct account communicates personally with the order staff and there is no buffer. Your order staff must be trained to deal with direct customers in a knowledgeable, courteous and efficient manner.
Ridley has been adjusting to this change, although there is still room for improvement, as at every company. It seems obvious, but orders must be ready when the customer expects them. Pellets must be excellent and not 10% fines. With many big systems, the pellets are handled several times. If the customer is large enough to have his own pellet mill, you had better deliver significantly better pellet quality than he can make.
The successful feed company must have excellent production people and truck drivers. As a technical salesman it is much easier to sell feed from a plant you know will make the feed correctly. It is one thing to design or formulate a feed on paper, but it must be mixed properly. A mistake with a 5 lb/ton premix is a big mistake, because it will be multiplied many, many times. Proper quality assurance is critical; particularly when the customer must perceive that your service is better than the competitor's.
Researchers Keiningham and Vaura (2001) discuss customer satisfaction in terms of delighted customers rather than just merely satisfied customers. A review of this book suggests that anywhere from 60 to 85% of customers who switched firms would have been classified as satisfied by generally accepted market research measurement tools. The successful organization needs to dramatically increase positive customer experience, virtually eliminate the negatives and drive customers to new levels of repeat purchasing, loyalty and sheer delight. I have often said if we could make excellent pellets, deliver them on time, put them in the correct bin every time, we could not make all the feed we could sell. You do not lose customers, you drive them off. When was the last time you complained about great service?
Table 8. Determining the differences in nursery feeding programs (Location: Contract nursery).
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FC = Feed company
anumber of pigs that died in a given rep and treatment
bweighted average, the number of times a diet was ranked 1,2, etc. in ADG. HFI five times had best gain, three times second best, one time third, and one time fourth: 5x1+3x2+1x4=15; the lower the number the better.
Management
In the almost thirty years I have been in the feed industry I have worked for about 10 feed division managers. An excellent head of a feed division grows the business, a mediocre one does not hurt the business and a bad one destroys the business. The absolute key element needed for a successful business is people. Without excellent people you have a mediocre or failing company.
The mistake I have seen most often is too much management. The really good salesmen are independent thinkers and do not function well in a rigid structure. In today's business climate with declining margins, the successful company must have mainly Indians and very few Chiefs. If you are not selling or supporting customers, there is no need for you. Anyone that has contact in any way with customers needs to have good people skills. Customers have enough options to easily avoid buying from people they perceive as difficult. Very little in the company is necessary until something is sold.
When I hire a PhD for my group I ask them if they can sell. If they cannot sell, I do not hire them. The PhD nutritionist is a technical salesman in today's business environment. We have accounts where the only person involved is the technical person and the order desk personnel at the plant. This is partly because the traditional sales force does not have the confidence to call on anyone with 20,000 sows or more. A good account manager can be helpful. They can play a key role in customer support, helping with communicating and listening to the customers needs, concerns and correcting problems. The feed industry used to give away a lot of caps and jackets; and while this is not a big deal with large customers, a shooting outing or fishing trip can be a great rapport builder. People buy from people. It is still a people business whether the customer has 100 sows or 100,000 sows.
Management's role is to be a leader, a point that seems obvious but is often missed. You do not have to like the feed division general manager, but it is important people respect him. The head person needs to receive and respect feedback from the people doing the selling. He also needs to get out and work with enough customers to know the market needs. The big companies that have failed basically ignored the market and tried to keep on doing what had made them successful. The successful company will have focused, energetic and creative people who can sell without two or three layers of people to tell them what to do. Feed companies used to have huge bureaucracies, but they can no longer afford them. In today's business environment the big don't eat the small; the fast eat the slow.
The ideal feed company division head would have the following characteristics:
Be a leader. People are good followers if they have someone they respect to follow. My brother has a saying "you can lead me a long way but you are not gong to push me very far". In my career I have had leaders that tried to motivate by intimidation and it did not work well. To be a good leader you have to listen, support and encourage your people. Get them the tools they need and stay out of the way. Too many general managers overrate themselves; they cannot make the company successful by themselves, without good people they will fail. Poor leaders cannot attract good people.
Listen to your people. I have a fair reputation of being a good product developer, but it has not been hard. The customer will tell you what he needs, you must listen and act. The employees are management's customers. It is so obvious that I guess it is hard for management to see at times, but all they need to do is listen to the people that are in front of the customers and actually making sales. Having said this, one of the mistakes feed companies make is giving salesmen credit and commission for a huge sale they did not make simply because it is geographically in their territory. Just because the animals are in a salesman's territory does not mean he should get credit, but many times sales managers want to protect their salesmen. We cannot afford this anymore. Territory selling is changing to customer selling, and in some cases, team selling.
Trust your people. Management must accept that they have employees that want to grow the business just as much as they do; and management should listen and act when these employees request people or equipment to grow the business.
Be customer friendly. If in doubt, do what is right for the customer and then work hard to make it right for the company.
Be able to meet with customers and earn their respect.
Be innovative, be able to think outside the box. It seems most feed companies think the only way to grow is by acquiring another feed company. What is wrong with staffing up and attacking the market with excellent people? Very few feed companies are operating their mills at full capacity. If you cannot grow your existing business, what makes you think you can operate an even larger business?
Do not be afraid to invest capital to grow the business. Possibly dedicated feed mills for each species group is the way to go. With a special purpose mill things can be accomplished from a production standpoint that are not possible in a full line plant.
Conclusions
I think the feed company that really succeeds in the future will have to quit thinking like this is still 1985. The feed business has changed, but I am not convinced the management at most feed companies realize this - or if they have, they do not know what to do about it. You will need specialists, not generalists. I have never understood the logic of trying to get salesmen to be good at all species. Actually, they are not and they gravitate to the species they are most comfortable with and the one they think they can be the most successful at. The operations are bigger, fewer salesmen may be needed but these individuals need to be of higher quality and be more highly educated.
One thing that has not changed is you have to call on people to sell. A lot of salesmen drive by larger operations because they are not confident enough to call on them. This cannot be tolerated if you plan to succeed. Excellent research, product quality (both the formula and the production of it), superior service, and acceptable pricing are all tablestakes. Some company is going to supply the nutrition to the livestock industry; and I think it will be a feed company. I do not think that ingredient companies, amino acid, vitamin or dical suppliers, etc. have the technical expertise or service capability to meet livestock producer needs.
It will be quite interesting 15 years from now to see how the feed industry looks. One area of concern is where are we going to get trained technical people? The old power house universities that produced a lot of good research and trained students in the past have dwindled to a very few. If we can get good people, I think most of the good applied research of the future will be through alliances between the successful feed company and their customers. The large customer and the feed company need to form such alliances. Our customers are not just those we sell to and profit from. They are partners; and need to be thought of as such. It is far too difficult to earn the trust and respect of an account on any other basis. The feed company's objective is to help make the customer profitable. If the customer fails, the feed company fails also.
Most of this may just seem common sense; but knowing and doing are two different things. The feed business is really quite simple; and maybe that is the problem.
References
Anon, 2003. Feed marketing and distribution. Feedstuffs, September 17, 2003, p. 4.
Baker, O.H., R.A. Easter, G.R. Hollis and M. Ellis. 2003. Swine health & nutrition, dietary nutrient allowances for swine, Feedstuffs, September 17, 2003, pp. 24-29.
Campbell, R. 1995. New technologies for the pig industry. Jefo Nutrition Inc. Pre-Conference Symposium, May 18. pp. 18-31.
Coma, J. Carrion and D.R. Zimmerman. 1995. Effect of feed intake on the lysine requirement of pigs at two stages of growth. Iowa State University, 1994 Swine Research Report, January 1995, pp. 49-52.
Keiningham, T.L. and T. Vaura. 2001. The Customer Delight Principle: Exceeding Customer's Expectations for Bottom-Line Success. McGraw- Hill Trade.
Lobo, P. 2003. Top feed manufacturers improved insight, Feed Management, January, Vol. 4, Number 1, p. 6.
Author: JIM HEDGES
Hubbard Feeds Inc., Mankato, Minnesota, USA
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Prinzvet Livestock Consult
18 de noviembre de 2009
this is an excellent write up
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30 de diciembre de 2008
Ok. That's Good.
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