Increasing the Profitability of AgriTechnology's EverRipe Tomatoes
Ramon Espinoza, Vice President
Prepared by Task Force Members
Almost 20 percent of the EverRipe tomato crop was unmarketable due to damage sustained during packaging and distribution. This resulted in an estimated loss in profits of $1.2 million. AgriTechnology could increase the percentage of marketable crop and increase profits by upgrading its packaging plants, constructing distribution centers, purchasing trucking facilities, and automating delivery services. Costs for implementing these improvements would be approximately $7.2 million. The company should be able to recoup that investment within four years.
This report presents our findings on how to improve the profitability of the EverRipe tomato crop. First, we describe how part of the crop was unmarketable due to loss during packaging and distribution. Then, we recommend improvements to the current packaging and distribution process that will reduce damage to future crops. Finally, we project costs for implementing these changes.
Loss of Profits for 1998
Although these tomatoes are genetically engineered to remain ripe for longer periods of time, they're more easily bruised than conventional tomatoes. AgriTechnology reports indicate that 18.7 percent of this year's crop was unmarketable due to damage sustained during packaging and distribution. This resulted in an estimated loss for AgriTechnology of $1.2 million. We could increase the percentage of marketable fruit by reducing the number of times the fruit are handled and by decreasing storage time.
Improving the Profitability of Future Crops
We could improve the profitability of future EverRipe crops by upgrading our packaging plants, reducing our distribution time, and accelerating our delivery methods.
Upgrading Packaging Plants
Currently, the tomatoes are picked and shipped to nearby packaging plants where they are hand-sorted, placed on a conveyer, and routed to the packaging machines. Packaged tomatoes are then put in corrugated cartons, placed in a chute, and sent to the loading area below. At the loading area, the cartons are stacked on pallets that are loaded on trucks and shipped to produce warehouses. The EverRipe tomatoes are handled an average of 4.3 times during the packaging and loading process. By upgrading the packaging plants to include new "soft touch" technology, which uses optical sensors to sort the tomatoes, and by reorganizing the plants so that packaging, stacking, and shipping operations are on the same level, we could reduce by one-half, the number of times the tomatoes are handled.
Improving Distribution Methods
After the pallets are transported to the produce warehouses, they are stored in refrigerated rooms until the warehouses arrange with local trucking companies to ship the tomatoes to buyers. Currently, the tomatoes average 8.4 days in the warehouses and 3.2 days in shipping. We could eliminate lengthy storage by building our own distribution centers near the packaging plants, purchasing our own shipping lines, and automating our distribution system. By automating our distribution system, we could create a continuous-flow system where the tomatoes are shipped to our distribution centers, unloaded from inbound trucks, and moved across the dock to an outgoing distribution truck without having to be stored. By purchasing our own trucking system, we would also decrease shipping costs and reduce shipping time by at least 1.5 days.
We also need to improve our delivery process. Currently, the drivers spend 20 percent of their time verifying orders and checking invoices. By distributing and shipping our own produce, we could submit computerized shipment notices in advance. Then AgriTechnology drivers would use handheld computers to automatically update produce orders and verify invoices. We estimate that we can decrease delivery time by 15 percent as a result of automating our delivery system.
Cost of the Improvements
We estimate that these improvements would require an investment of approximately $7.2 million. Although this represents a major capital investment, the money would be recouped by an increase in marketable fruit. Competition among biotechnology companies is expected to increase dramatically in the next few years; therefore, it is imperative that we implement these improvements to increase our profitability and remain competitive.