How Rich Products went global

When Rich Products began expanding overseas, it found that the secret of success was establishing the right mix of corporate control and local management.

By James A Cooke -- Logistics Management, 9/1/1998

Jack Ampuja, vice president of logistics and purchasing for Rich Products Inc., recalls that he was taken aback by the question. What, the division head for India wanted to know, would distribution expenses be as a percentage of sales in that country? Rich's was planning to sell product in India for the first time, and the division manager needed to get an idea of costs.

To answer that question, Ampuja began asking about the transportation and warehousing operation planned for India. What he learned was often surprising. For example, the plant would be based in Pune, some 120 miles outside of Mumbai (formerly Bombay). But it took trucks six or more hours to navigate that stretch of two-lane road from the factory to the port because when cattle crossed the road or a bus stopped to let off passengers, all vehicles would stop and wait.

In addition, the warehouse in India was unlike any in the United States, Ampuja learned. There was no power equipment because labor was so cheap and plentiful. But loads were only stacked two meters high so a laborer could move product easily.

Then the truth dawned on Ampuja. "We can't take any of our North American learning and apply it," he realized. "It's a completely different picture." Logistics managers working in the United States take for granted superhighways and reefer cars. But companies doing business overseas face language, cultural, and time barriers besides a distinct set of foreign rules for packaging and transporting products.

Despite the obstacles, Rich Products has successfully expanded its distribution network in the past decade and set up a far-flung global supply chain. The company attributes its success to a two-pronged strategy: Although it maintains a corporate international logistics department in its Buffalo, N.Y., headquarters to provide negotiating leverage and strategic expertise, it has left the day-to-day control of distribution in the hands of local country managers.

Ventures Abroad

A family-owned business, Rich Products Inc. reported more than $1.1 billion in revenue from sales in some 50 countries last year. The company is the largest U.S. supplier of frozen bread dough to in-store bakeries and food services. It also produces non-dairy products like dessert toppings and creamers such as Coffee Rich, and its Georgia-based subsidiary, SeaPAK, processes more frozen shrimp than any other U.S. concern.

Although it has operated north of the U.S. border in Canada since the early '60s, Rich Products didn't expand aggressively overseas until the early '90s. Ampuja reports that Rich's looked to international markets as the optimum way to grow its business. "Like most food companies, we didn't see much growth opportunity in North America because consumption is directly related to population increase," says Ampuja, who joined Rich Products in 1990. "To grow here, you have to take business away from somebody else."

But foreign countries offered an untapped market with strong growth potential. Rich's discovered that, although dairy-product concerns were well-established abroad, its non-dairy products were unheard of in many countries. On top of that, many cultures were interested in alternatives to traditional dairy products.

The company usually tries to gain a foothold in a foreign market by selling exported products before establishing a plant there. That's exactly what it did when it moved into Mexico in late 1990. After it generated sufficient sales for its non-dairy products, Rich's bought a manufacturing facility in that country in 1994. "We have to have acceptance of our brands and ways to move the products," says Ampuja. "Once we have built up a critical mass, then we do manufacturing locally."

Rich Products used the same strategy to tap the European market. First, it began shipping product made in the United States to develop a market in England. When it had built up sufficient sales volume, it turned over operations to a couple of co-packers in the United Kingdom: Just Ripe in England and Flemming in Scotland. Each co-packer handles a separate product line.

Under the program, the co-packer piggybacks on Rich's existing arrangements with suppliers to obtain ingredients in an effort to duplicate the products' taste and appearance. Unless it receives corporate approval to do otherwise, the co-packer will use the same formula used in the United States to produce all products. It then packages the goods for sale throughout Europe. Just this year, after adding additional co-packers in Belgium, Holland, and Italy, Rich's opened another warehouse in Rotterdam with Frigoscandia, a major third-party logistics provider, for quicker access to other European countries than the existing warehouse in England could provide.

When it expanded to the Indian market in 1995, however, Rich Products tried a different tactic: The company struck up a partnership with India's largest ice-cream vendor, Kwality Foods in Pune. Rich's provides the technology to Kwality Foods to make non-dairy consumer goods. The Indian company, in turn, provides plants and an established distribution system. "A joint venture allows a company to know the culture and work through its partner's infrastructure," says Ampuja.

The company's move into South Africa came two years later, in 1997. Once again, Rich Products entered into a joint venture, this time with a company called Hot Bake. The partner operates a plant that makes frozen dough in Ophirton, a suburb of Johannesburg.

Just this past year, the company received permission from the Chinese government to start a 100-percent-owned subsidiary in China. It's now one of a handful of U.S. companies that owns a business in China. Rich Products currently is building a factory in the suburbs of Shanghai to manufacture its non-dairy products.

International Expertise

Back in 1992, when Rich Products began its expansion abroad, Ampuja established an international distribution group within the logistics department. Though initially only one person was assigned to that group, today the group has grown to six professionals, a number of whom speak a foreign language. Because each person in the group is assigned to a specific geographic region such as the Middle East or Southeast Asia, he or she gets to know the customers, carriers, and forwarders for that region.

The international group selects the carriers and forwarders who handle the physical movement of the ingredients and products for the worldwide supply chain. One member of the group, for example, spends his time on ocean-freight issues such as carrier selection, rate negotiation, claims issues, and service analysis. Today, Rich's deals with 20 major ocean carriers. "As to ocean carriers, our philosophy there as elsewhere in logistics is to leverage our volume with as few players as practical," says Ampuja. "We have even had instances where we have gone into markets where no existing ocean tariff covered our products."

That group also works closely with the various worldwide divisions, venture partners, and co-packers. Members of the international group, for instance, may assist in training and selecting the various country managers.

Although the group encourages the local affiliates to take advantage of existing relationships with carriers and third-party logistics providers, it leaves the internal distribution to the managers in each country. "It's impossible to manage the local distribution from some point in the United States," Ampuja says.

Ampuja believes his company has adopted the right approach in giving each country affiliate control over its warehousing and transportation. "It's more difficult to do it from here," he says of corporate control over a far-flung supply chain. "We're not aware of all the local nuances and service nuances."

Cultural Differences

Such nuances can take the form of a country's individual shipping regulations or cultural practices. For instance, when Rich Products moved into Mexico, it discovered that the warehouse operations normally cease work at 2 p.m. It had to find a volunteer to come in and load a truck to move product from the plant to its market. "The culture and systems are so different," Ampuja says. "Everything you've learned here you have to apply in a different way. "

Ampuja notes that distribution within a foreign country often depends upon relationships between the warehouse operator and the transportation company or between the customs broker and the local government officials. In Mexico, when Rich's was looking for longhaul carriers, its consultant advised the company to contact a tire recapper for a list of candidates. The recapper knew which of its trucking customers operated longhaul fleets. "You don't have a Chamber of Commerce," he says. "So much depends on family relationships and word of mouth."

In fact, the international group in the states provides more of a consultative role for its local operations. "We have sent people [from Buffalo] into Mexico, the United Kingdom, and other places to provide help on how to forecast demand, watch inventory levels, and document inventory gains and losses," says Ampuja. "For us to do it from here is a difficult proposition because of time, language, and cultural differences. I've even had staff members travel to Southeast Asia to work on problems like transporting frozen food from Thailand to Malaysia when no reliable distribution system existed between the two countries."

The international group does benchmark distribution practices in foreign countries. In fact, Ampuja says that overseas distribution costs for frozen foods typically are double or triple U.S. costs because refrigerated transportation and warehousing are so energy-intensive. In many parts of the world there are fewer, less-sophisticated suppliers of these services. As a result, while in the United States, frozen-foods distribution costs average 10 percent of sales; in a country like South Africa, that cost typically runs over 20 percent.

Creating a Pattern

In establishing a global supply chain, the most difficult part is making the initial foray into a country's market, says Ampuja. Because each country has its own transportation network, laws, and ways of doing business, establishing a distribution operation takes work each time. "The startup phase is the most difficult," he reports. "Once you establish a pattern, you know what to expect. It's repetition that brings the ease."

That's why Ampuja says it's critical to have local distribution personnel working in any given country. "It makes all the difference in the world to have contacts who speak the local language," he says. "To do it from the United States, you run into language and time barriers. You have to have someone looking out for your welfare on the other end."

Editor's note: To read previous articles in the Supply-Chain Management Report series, launched in January 1998, visit Logistics' Web site (www.logisticsmgmt.com).