• Sally Williams Fine Foods: Getting to Market Sally Williams’ Business Approach Sack believed that the company had to carve out a niche for itself. “You need to offer the public either what they haven’t been offered before or something special,” he said. 6 Sally Williams set out to produce something special. Product Wickham explained that nougat is a form of meringue: its basic ingredients being glucose, honey, sugar, beaten egg white and vanilla essence. Roasted nuts or fruit can be added in as optional extras at the end of the boiling process. The end result is a very sticky product which requires special handling right through the whole manufacturing process. It is open to contamination and temperature control is of the essence to prevent cross-infestation. “Insects like the taste of nougat. They can smell it through the packaging, bore through all the layers, start eating it, lay eggs and the whole life cycle begins. We control the environment within the factory. Our problem starts when our product gets out there,” she said. Apart from its secret recipe, Sally Williams nougat distinguished itself by seeking to use only the best ingredients, from the locally-sourced macadamia nuts and honey (the company was one of South Africa’s foremost users of honey, according to Sack 8 ) to the imported Belgian chocolate used in some of its product lines and the special wafer paper onto which the nougat was poured. Naturally, this pushed up the overall production costs and affected the selling price. The original product line consisted only of almond and macadamia nougat, but soon extended to include cashew and hazelnut nougat. Thereafter, a Belgian milk chocolate-coated and dark chocolate coated almond nougat was introduced, followed shortly afterwards by a nut-free nougat bar ‘enrobed’ in chocolate. By 2007 the product range had grown to include non-nougat products including four variants of Turkish delight, and medium- and dark-roasted ground coffee (see Exhibit 1). The company had also launched a co-branded ice-cream with Nestlé that contained tiny pieces of macadamia nougat and partnered with Thirsty Now Beverages to produce the Monteer Fine Liqueurs/Sally Williams Cream Liqueur. All Sally Williams nougat was individually wrapped (most of it in bite-size pieces) and then packaged in 1kg and 500g tubs; 160g and 125g packs; 110g bars; two-piece packs of 30g each; 200g and 210g gift boxes; and in three artistically designed 240g tins: the Friendship tin, the Christmas tin and the Valentine’s tin. The Turkish delight was packaged into 280g and 300g boxes, and the délicieux range in boxes of 50g. According to Wickham, the délicieux range and the 160g gift box were the best sellers. A few years previously Sally Williams had ventured into making Easter eggs with nougat centres, on behalf of CNA, a large South African book and stationery retailer. This venture survived some teething problems and continued for two years. Although Sally Williams would have liked to continue the line, they had to produce large quantities of other stock for Passover and therefore lacked the capacity to manufacture the Easter eggs. Clicks, another large chain specialising in pharmaceuticals and homeware, in turn, approached Sally Williams to supply them with nougat to be sold under its in-house brand name, D.licious. However, the company had declined an invitation from the successful food and clothing chain Woolworths in 2003 to make a Woolworths-branded nougat reasoning that it would much rather use the time to build the Sally Williams brand than risk being consumed by such a powerful brand. This decision was to backfire on the company with Woolworths refusing to stock Sally Williams nougat until 2008 when it started ordering Sally Williams nougat stock for Passover. One line which had not lived up to sales expectations was a coffee-flavoured nougat. The management team at the time reached the conclusion that “one either loved it or hated it” and discontinued the line. Price It was expected of a niche product manufactured from quality ingredients to be more expensive and Wickham said that the company was indeed proud to be slightly more expensive that its local competitors. That said, the company endeavoured to reach most LSM categories by having a range that started from the two-piece pack that retailed from around R6.00 to a gift box retailing for up to R95.00. The shops bought the nougat at a fixed price and marked it up according to their own criteria. Promotion In the early days, Williams marketed the product herself and took it to international trade shows. She was fortunate in that both she and her nougat received a lot of exposure in the media, with the result that the big supermarket chains, such as Pick 'n Pay, approached the company for listings and orders rather than the other way around. The Sally Williams policy was to not venture into above-the-line marketing. As Wickham said, the company would much rather spend time and resources on the smooth running of its distribution network and merchandising before expanding into above-the-line marketing. Occasionally, if products were moving too slowly, the company would consider a promotion of some sorts. However, it had found that in-store tastings and sampling, where the purchase decision was actually made, were the most effective. Place Research conducted by the company in 2003 indicated that female buyers outnumbered male buyers by far and that its smaller pieces were bought purely on impulse, while the packs were purchased as a small gift. 14 Moreover, the movement of stock was influenced by factors such as the weather, school holidays and even hormonal cycles in women. 15 Therefore, with so many variables influencing a sale, it was crucial for stock to be available in the best possible position in the stores. Sally Williams had one in-house sales agent who marketed directly to smaller outlets, such as gift shops, pharmacies and cafés in the northern and southern parts of Gauteng. For the rest, the company used a distribution company to sell and deliver its product to the large retail groups and other outlets country-wide. In short, this distribution process worked as follows: the retailers placed their orders via the distributor and the distributor then ordered the product from Sally Williams. To meet these orders, the company manufactured stock strictly according to Pretorius’s predictions of what the weekly, monthly or fortnightly orders would be. These predictions were based on historical precedent. By 2007, 65% of the company’s nougat was sold on the local market, in supermarket chains, pharmacies, fruit and vegetable shops, sweet shops and smaller novelty shops. Some hotels even purchased the product as a bedtime treat for their guests. The remaining 35% was exported to Australia, Canada, the USA, the UK, Mauritius, Portugal, the United Arab Emirates and New Zealand. Because the product was kosher, it received great support from Jewish people both locally and abroad. Countries such as Canada and the USA had large Jewish communities 17 and each year the company had to produce large quantities of special stock for Passover to cater for the export and local markets. Distribution Challenges Despite the company’s steady growth under its current distributor, which specialised in the distribution of exclusive grocery brands, Pretorius was getting increasingly concerned about a number of things. The incorrect placement of product in stores, for example, which he had picked up during his regular spot checks, was a major concern. Grocery retail chains allocated all food items to specific categories. Confectionery was one of 15 subdivisions under the umbrella term of groceries. In turn, confectionery was subdivided into categories such as chocolate slabs, imports, novelty, nougat, boils, softs and glucose. Deciding where to place Sally Williams nougat was not that clear-cut, however, because although it was a nougat, it was also a novelty. The company wanted its product to be perceived as a gift, which meant it also had to be categorised with the imports so that it could be placed in the gifting section. Shelf space was negotiated according to ‘right of sale’. This meant that the product selling the most units per week was given the best space. This created a challenge for Sally Williams. As a niche product, turnover of its product was lower than that of other product ranges. Moreover, some merchandisers would deliberately rearrange products by, for example, hiding their opposition’s products beneath unrelated products. This meant that space that was rightfully negotiated could disappear if the sales representatives did not check the shelves on a daily basis. Another concern was that the current distributor incentivised its sales representatives when they exceeded an overall monthly sales target irrespective of which products were sold. Consequently, the sales people concentrated on easy-to-sell items such as washing powder, for example, to the detriment of Sally Williams. Overall, it seemed to Pretorius as if proper supervision was severely lacking. Further research revealed that the distributor used a roving merchandising system which meant that its sales representatives did not call on every store every day. Moreover, the distributor concentrated on exclusive brands only, therefore delivery was limited to specific regions and stores. This meant Sally Williams nougat that was suitable for the lower LSM market did not reach its target. Even more challenging was the communication between the two companies. It had become increasingly difficult to obtain electronic sales figures from the distributor. Of particular importance were the ‘hit rate’ reports that indicated sales per store, because these statistics could show up potential problems very early in the process. “If I have a problem today I want a resolution by the end of today. We require at the very least a sales representative call cycle (where they called and on which days), as well as a delivery call cycle and a hit-rate report,” Pretorius explained. The final, but gravest, concern was the distributor’s poor cold chain management. In order to maintain the cold chain b from the factory to the distributor’s warehouse, orders were loaded into a hired cooling truck which maintained a temperature of around 16 degrees Celsius. This temperature had to be maintained at the distributor’s warehouse and during delivery. There had been sporadic incidents before, but now, in May 2007, the almost complete recall of its products because of a broken thermostat in the distributor’s warehouse sealed the fate of the current distributor. Pretorius knew that the company had to look for an alternative distribution option. Food Distribution in South Africa. The food distribution industry in South Africa was highly competitive and faced a multitude of challenges of its own. Distributors continuously had to optimize their operations so as to reduce costs, by automating processes, specialising in particular types of product or outsourcing certain aspects of the distribution process. Distributors had to adhere to very strict health and safety regulations pertaining to the distribution and warehousing of foods. They also had to follow the guidelines of the manufacturers, each of which had their own requirements for handling and storing their products. Some of the larger groups distributed a variety of goods, but specialised within the group to adhere to the respective rules and regulations. The industry could roughly be subdivided into companies that specialised in the distribution of groceries (with sub-categories of its own such as high-end groceries), delicatessen foods, cold storage goods (sub-divided further into dairy and frozen goods), dry foods (such as pet foods) and confectionery. Apart from maintaining the cold chain, the companies specialising in cold storage products had the additional challenge of turnaround time, which meant that these products had to be delivered within a certain time. Distributors might deliver to some or all of four categories of store: forecourt or convenience stores; delicatessens; greengrocers; and retailers (comprising retail and wholesale chains). A distributor generally operated on a delivery lead time of three days, but kept at least four to six weeks’ worth of inventory in its warehouse. This was to accommodate the large retailers that operated on a just-in-time principle by only keeping two weeks’ worth of inventory at any given time in their stores. Once the stock was delivered to the retailers’ warehouse, the merchandising agents were responsible for packing the stock in the warehouse and onto the shelves in the shop. The distributor’s own sales representatives, or alternatively, the merchandisers at store level, were also responsible for ‘returns’ (the removal of old stock that had reached its shelf life expiry date or faulty stock). In some instances the distributor would also be responsible for the incineration of expired stock. Conclusion. Pretorius weighed up his options: to bring the distribution in-house or to outsource it. If the choice was to outsource, what criteria should the company look for in a distributor and what could he put in place to manage the relationship effectively? The Sally Williams management team was meeting the next day and he wanted to have some concrete recommendations ready. Exam Questions 1. The Sally Williams Executive Team is faced with a strategic decision to outsource (source externally) or insource (build capability in-house) distribution in order to support their distribution centric strategy. Use the weighted scoring selection model (you may use hypothetical factors) to justify which option will optimally support their strategy. [25 marks] 2. Sally Williams does not currently have a project management office (or various titles used to describe a delivery office). How would you go about helping them set one up. [15 marks] 3. What characteristics would make the establishment of the PMO for the insource/outsource a project and why? [10 marks] 4. What are the project manager requirements that the Sally Williams Executive Team should use to select the project manager to successfully deliver the insource/outsource project? Justify the criteria used for project manager selection [25 marks] 5. How would you recommend that the Sally Williams Executive Team design a Project Management Information System (PMIS) to facilitate communication and project reporting for the insource/outsource project [25 marks]

• Sally Williams Fine Foods: Getting to Market Sally Williams’ Business Approach Sack believed that the company had to carve out a niche for itself. “You need to offer the public either what they haven’t been offered before or something special,” he said. 6 Sally Williams set out to produce something special. Product Wickham explained that nougat is a form of meringue: its basic ingredients being glucose, honey, sugar, beaten egg white and vanilla essence. Roasted nuts or fruit can be added in as optional extras at the end of the boiling process. The end result is a very sticky product which requires special handling right through the whole manufacturing process. It is open to contamination and temperature control is of the essence to prevent cross-infestation. “Insects like the taste of nougat. They can smell it through the packaging, bore through all the layers, start eating it, lay eggs and the whole life cycle begins. We control the environment within the factory. Our problem starts when our product gets out there,” she said. Apart from its secret recipe, Sally Williams nougat distinguished itself by seeking to use only the best ingredients, from the locally-sourced macadamia nuts and honey (the company was one of South Africa’s foremost users of honey, according to Sack 8 ) to the imported Belgian chocolate used in some of its product lines and the special wafer paper onto which the nougat was poured. Naturally, this pushed up the overall production costs and affected the selling price. The original product line consisted only of almond and macadamia nougat, but soon extended to include cashew and hazelnut nougat. Thereafter, a Belgian milk chocolate-coated and dark chocolate coated almond nougat was introduced, followed shortly afterwards by a nut-free nougat bar ‘enrobed’ in chocolate. By 2007 the product range had grown to include non-nougat products including four variants of Turkish delight, and medium- and dark-roasted ground coffee (see Exhibit 1). The company had also launched a co-branded ice-cream with Nestlé that contained tiny pieces of macadamia nougat and partnered with Thirsty Now Beverages to produce the Monteer Fine Liqueurs/Sally Williams Cream Liqueur. All Sally Williams nougat was individually wrapped (most of it in bite-size pieces) and then packaged in 1kg and 500g tubs; 160g and 125g packs; 110g bars; two-piece packs of 30g each; 200g and 210g gift boxes; and in three artistically designed 240g tins: the Friendship tin, the Christmas tin and the Valentine’s tin. The Turkish delight was packaged into 280g and 300g boxes, and the délicieux range in boxes of 50g. According to Wickham, the délicieux range and the 160g gift box were the best sellers. A few years previously Sally Williams had ventured into making Easter eggs with nougat centres, on behalf of CNA, a large South African book and stationery retailer. This venture survived some teething problems and continued for two years. Although Sally Williams would have liked to continue the line, they had to produce large quantities of other stock for Passover and therefore lacked the capacity to manufacture the Easter eggs. Clicks, another large chain specialising in pharmaceuticals and homeware, in turn, approached Sally Williams to supply them with nougat to be sold under its in-house brand name, D.licious. However, the company had declined an invitation from the successful food and clothing chain Woolworths in 2003 to make a Woolworths-branded nougat reasoning that it would much rather use the time to build the Sally Williams brand than risk being consumed by such a powerful brand. This decision was to backfire on the company with Woolworths refusing to stock Sally Williams nougat until 2008 when it started ordering Sally Williams nougat stock for Passover. One line which had not lived up to sales expectations was a coffee-flavoured nougat. The management team at the time reached the conclusion that “one either loved it or hated it” and discontinued the line. Price It was expected of a niche product manufactured from quality ingredients to be more expensive and Wickham said that the company was indeed proud to be slightly more expensive that its local competitors. That said, the company endeavoured to reach most LSM categories by having a range that started from the two-piece pack that retailed from around R6.00 to a gift box retailing for up to R95.00. The shops bought the nougat at a fixed price and marked it up according to their own criteria. Promotion In the early days, Williams marketed the product herself and took it to international trade shows. She was fortunate in that both she and her nougat received a lot of exposure in the media, with the result that the big supermarket chains, such as Pick 'n Pay, approached the company for listings and orders rather than the other way around. The Sally Williams policy was to not venture into above-the-line marketing. As Wickham said, the company would much rather spend time and resources on the smooth running of its distribution network and merchandising before expanding into above-the-line marketing. Occasionally, if products were moving too slowly, the company would consider a promotion of some sorts. However, it had found that in-store tastings and sampling, where the purchase decision was actually made, were the most effective. Place Research conducted by the company in 2003 indicated that female buyers outnumbered male buyers by far and that its smaller pieces were bought purely on impulse, while the packs were purchased as a small gift. 14 Moreover, the movement of stock was influenced by factors such as the weather, school holidays and even hormonal cycles in women. 15 Therefore, with so many variables influencing a sale, it was crucial for stock to be available in the best possible position in the stores. Sally Williams had one in-house sales agent who marketed directly to smaller outlets, such as gift shops, pharmacies and cafés in the northern and southern parts of Gauteng. For the rest, the company used a distribution company to sell and deliver its product to the large retail groups and other outlets country-wide. In short, this distribution process worked as follows: the retailers placed their orders via the distributor and the distributor then ordered the product from Sally Williams. To meet these orders, the company manufactured stock strictly according to Pretorius’s predictions of what the weekly, monthly or fortnightly orders would be. These predictions were based on historical precedent. By 2007, 65% of the company’s nougat was sold on the local market, in supermarket chains, pharmacies, fruit and vegetable shops, sweet shops and smaller novelty shops. Some hotels even purchased the product as a bedtime treat for their guests. The remaining 35% was exported to Australia, Canada, the USA, the UK, Mauritius, Portugal, the United Arab Emirates and New Zealand. Because the product was kosher, it received great support from Jewish people both locally and abroad. Countries such as Canada and the USA had large Jewish communities 17 and each year the company had to produce large quantities of special stock for Passover to cater for the export and local markets. Distribution Challenges Despite the company’s steady growth under its current distributor, which specialised in the distribution of exclusive grocery brands, Pretorius was getting increasingly concerned about a number of things. The incorrect placement of product in stores, for example, which he had picked up during his regular spot checks, was a major concern. Grocery retail chains allocated all food items to specific categories. Confectionery was one of 15 subdivisions under the umbrella term of groceries. In turn, confectionery was subdivided into categories such as chocolate slabs, imports, novelty, nougat, boils, softs and glucose. Deciding where to place Sally Williams nougat was not that clear-cut, however, because although it was a nougat, it was also a novelty. The company wanted its product to be perceived as a gift, which meant it also had to be categorised with the imports so that it could be placed in the gifting section. Shelf space was negotiated according to ‘right of sale’. This meant that the product selling the most units per week was given the best space. This created a challenge for Sally Williams. As a niche product, turnover of its product was lower than that of other product ranges. Moreover, some merchandisers would deliberately rearrange products by, for example, hiding their opposition’s products beneath unrelated products. This meant that space that was rightfully negotiated could disappear if the sales representatives did not check the shelves on a daily basis. Another concern was that the current distributor incentivised its sales representatives when they exceeded an overall monthly sales target irrespective of which products were sold. Consequently, the sales people concentrated on easy-to-sell items such as washing powder, for example, to the detriment of Sally Williams. Overall, it seemed to Pretorius as if proper supervision was severely lacking. Further research revealed that the distributor used a roving merchandising system which meant that its sales representatives did not call on every store every day. Moreover, the distributor concentrated on exclusive brands only, therefore delivery was limited to specific regions and stores. This meant Sally Williams nougat that was suitable for the lower LSM market did not reach its target. Even more challenging was the communication between the two companies. It had become increasingly difficult to obtain electronic sales figures from the distributor. Of particular importance were the ‘hit rate’ reports that indicated sales per store, because these statistics could show up potential problems very early in the process. “If I have a problem today I want a resolution by the end of today. We require at the very least a sales representative call cycle (where they called and on which days), as well as a delivery call cycle and a hit-rate report,” Pretorius explained. The final, but gravest, concern was the distributor’s poor cold chain management. In order to maintain the cold chain b from the factory to the distributor’s warehouse, orders were loaded into a hired cooling truck which maintained a temperature of around 16 degrees Celsius. This temperature had to be maintained at the distributor’s warehouse and during delivery. There had been sporadic incidents before, but now, in May 2007, the almost complete recall of its products because of a broken thermostat in the distributor’s warehouse sealed the fate of the current distributor. Pretorius knew that the company had to look for an alternative distribution option. Food Distribution in South Africa. The food distribution industry in South Africa was highly competitive and faced a multitude of challenges of its own. Distributors continuously had to optimize their operations so as to reduce costs, by automating processes, specialising in particular types of product or outsourcing certain aspects of the distribution process. Distributors had to adhere to very strict health and safety regulations pertaining to the distribution and warehousing of foods. They also had to follow the guidelines of the manufacturers, each of which had their own requirements for handling and storing their products. Some of the larger groups distributed a variety of goods, but specialised within the group to adhere to the respective rules and regulations. The industry could roughly be subdivided into companies that specialised in the distribution of groceries (with sub-categories of its own such as high-end groceries), delicatessen foods, cold storage goods (sub-divided further into dairy and frozen goods), dry foods (such as pet foods) and confectionery. Apart from maintaining the cold chain, the companies specialising in cold storage products had the additional challenge of turnaround time, which meant that these products had to be delivered within a certain time. Distributors might deliver to some or all of four categories of store: forecourt or convenience stores; delicatessens; greengrocers; and retailers (comprising retail and wholesale chains). A distributor generally operated on a delivery lead time of three days, but kept at least four to six weeks’ worth of inventory in its warehouse. This was to accommodate the large retailers that operated on a just-in-time principle by only keeping two weeks’ worth of inventory at any given time in their stores. Once the stock was delivered to the retailers’ warehouse, the merchandising agents were responsible for packing the stock in the warehouse and onto the shelves in the shop. The distributor’s own sales representatives, or alternatively, the merchandisers at store level, were also responsible for ‘returns’ (the removal of old stock that had reached its shelf life expiry date or faulty stock). In some instances the distributor would also be responsible for the incineration of expired stock. Conclusion. Pretorius weighed up his options: to bring the distribution in-house or to outsource it. If the choice was to outsource, what criteria should the company look for in a distributor and what could he put in place to manage the relationship effectively? The Sally Williams management team was meeting the next day and he wanted to have some concrete recommendations ready. Exam Questions 1. The Sally Williams Executive Team is faced with a strategic decision to outsource (source externally) or insource (build capability in-house) distribution in order to support their distribution centric strategy. Use the weighted scoring selection model (you may use hypothetical factors) to justify which option will optimally support their strategy. [25 marks] 2. Sally Williams does not currently have a project management office (or various titles used to describe a delivery office). How would you go about helping them set one up. [15 marks] 3. What characteristics would make the establishment of the PMO for the insource/outsource a project and why? [10 marks] 4. What are the project manager requirements that the Sally Williams Executive Team should use to select the project manager to successfully deliver the insource/outsource project? Justify the criteria used for project manager selection [25 marks] 5. How would you recommend that the Sally Williams Executive Team design a Project Management Information System (PMIS) to facilitate communication and project reporting for the insource/outsource project [25 marks]