American Food and Grains: Commodity and Ingredient Procurement

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American Food and Grains: Commodity and Ingredient Procurement Background
The company was founded in 1969 as a flour milling company, after some diversifications the company has today three major groups: Consumer foods, Agricultural foods and Restaurants. Quality
The company’s most important measure of performance is the food safety and quality. They use a broader concept of quality: Quality of people, products and performance. Quality is a big issue for the company. Quality sector: QA (Quality Assurance).

Procurement
Procurement has five areas: commodities, ingredients, capital goods, packaging and MRO (maintenance, repairs and operating parts). The major area is commodities, followed by ingredients, creating the C&I department. Buying the commodities involves two sets of activities. Hedging in the commodities market and working with the commodities suppliers. Before 1972, quality was not a concern for Procurement. The mission was get the lowest prices in the supplies and let quality with the QA. In 1974 they hired Carl Reichers to be the risk manager. He created a Commodity Analysis department to analyze and predict the market trends. In 1978 he hired Leah King for the department, because her experience and market knowledge. In 1978 the company hired Stuart Erikson, to be the director of the C&I department. He changed the low-cost and risk-management orientation of the firm to a focus on supplier relationship, quality and total value orientation. Erikson had a good relationship not only with buyers and vendors, but also with marketing and R&D. Sometimes Reichers didn’t agree with Erickson, he thought Erickson was getting too close to the suppliers. Tom Hill, from R&D, started helping to build the link between R&D and Procurement, using monthly “R&D updates”, that helped the link with QA as well. Bill Nesbit is the vice president for R&D, and he wanted to take this information exchange even further. He wanted to share more information with his suppliers. In 1979 the company acquired the VanWyck, a packer for frozen and canned vegetables. It resulted in a reorganization. The purchase department was split into two departments: Corporate Procurement (working with major commodities, with high risk). Erikson stayed in this department. And Consumer Procurement (working with ingredients, packaging, capital goods and MRO). A new office was created: the Office of Operations and Technology. It was directed by Bill Nesbit, and it covers R&D, engineering, manufacturing, QA, product safety and distribution. Erikson now is the vice president for Procurement, still reporting to Reichers, but with a dotted-line responsibility to Nesbit. Leah King is now in Erikson’s old position, as director of C&I. The Procurement department has a monthly report summarizing how it performed relative to plan and to the markets. Procurement Relationships

Procurement interacts with R&D, vendors, QA and business units. * R&D and vendors
R&D worked for the business units. The role is to keep the business strong and identify opportunities for growth. The company tended to choose vendors based on scientists and technical representatives, and they tended to choose those ones they had good experiences in the past. They didn’t have any way to pay attention in non technical areas like: quality, on time delivery, if the product worked well in the line. And those were the main complains from the buyers. Who made the contact between vendors/R&D and coordinated the suppliers, and the alternate supplier approvals, was Hill. R&D usually wanted to have the alternative suppliers approved. R&D worked close to QA.

* Quality Assurance
QA coordinated: writing specifications, vendor plants inspection, company’s plants auditions, materials compliance and budget. The day-to-day responsibilities were: quality of the final product, raw materials and in-process goods; sanitation and food safety....
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