The Pride of the Industry: Innovation

The Pride of the Industry: Innovation

First, in 1989, we worked with the Kansas City Southern (KCS) Railroad to help underwrite a major track improvement to utilize double-stack technology to move beans from NOLA to the plant in Kansas City. To do this, several bridges that the trains ran under had to be elevated. This was a major undertaking and an investment that the KCS could not afford to make on its own. 

Folgers certainly wasn’t going to invest in railroad infrastructure improvements, so we did the only thing, and the biggest thing, we could do; we committed long-term business. Instead of signing a one-year deal on rates, we signed a five-year deal, giving the KCS certain revenue streams and locking exclusive favorable rates for P&G once the doublestack rolled. KCS guaranteed P&G savings with high profitability by keeping rates at par for other freight and pocketing the doublestack savings. The world enjoyed an improved infrastructure along with cheaper Folgers on the shelves.   

Most ecosystem partners give lip service to “partnership” but few do it. Vendors treat clients as ATM machines to be emptied; buyers treat vendors as hired hands to be discarded on convenience. Win-lose is the mantra. 

When two companies honestly and openly want to forge true partnerships, ingenuity and innovation explode, leading to exponential win-wins! Co-investment can yield great things not achievable in any other environment.  

Second, in the early 1990s, our little office completely altered the way coffee moved across the world — completely and for the entire industry

A Case Study in Innovation

How did we do this? Let’s start with a little history of pre-1990’s coffee logistics: 

For eons, raw coffee beans, or green coffee, had been shipped across the world to the United States in burlap bags weighing up to 250 pounds. The Port of New Orleans had, for the past century, been the largest port of entry for green coffee. After coffee, New Orleans’ second largest import for years was burlap. Pallets of green coffee in burlap bags would arrive from the source country in containers and sometimes “Break Bulk,” which meant stacked in the ship’s hold without being palletized. They would then be stacked on pallets in New Orleans. 

After clearing customs and FDA, the containers of palletized coffee in burlap bags would be transported to warehouses, unloaded via fork lift, and eventually reloaded in blend combinations to the plants for staging and roasting. Laborers with huge metal hand-hooks (making them look like sweaty human raptors) would grab, sling, and stack bags manually to finally get them open at the roasters.

Three things stand out:

1. Moving green coffee was back-breaking, tedious, time consuming work which created a great deal of shrinkage from lost beans.

2. An inventory bottleneck existed where the blending of the multitude of graded beans took place (i.e., at the roaster).

3. This bottleneck required excess inventory because each separate coffee grade had to be buffered to account for unforeseen issues that could shut down roasting operations. 

The second two points, of course, being classic examples of Goldratt’s theory of supply chain constraints.

The change that our little Folgers office ushered in (with a key warehouse partner, Port Cargo) was to transform the old Public Grain Elevator complex at the Port of New Orleans, which was scheduled for demolition from a modern-day industrial ruin into the world’s largest, most modern, bulk green coffee blending site in the world. This also made the Port of New Orleans the first port in the United States to move to “depalletizing/deburlapping” inbound green coffee, thereby allowing for more coffee per container via vacuum bag liners.  

How did we conceptualize such a complex and monumental change in the industry? Well, the grain elevator complex was actually the second complex in the port to be demolished — the first being done in 1990 to make way for new warehouses and wharfs under construction as part of the port’s $200 million capital improvement plan.  

We were enjoying a “demo-watch” party on the roof of Port Cargo’s nearby warehouse to see the first silos come down, but when the initial explosives went off, the silos still stood. As the storm of displaced pigeons dispersed across the horizon, it dawned on us that “wow, these grain silos are magnificent — there has to be a use for them!”

The germination of that idea with Port Cargo grew into a series of brainstorming sessions, cost analysis, and negotiations to build support for a stay of execution on the second silo complex.   Over the next few years, and as the idea became more of a reality, politics and Folgers personnel changes eventually resulted in a new company being formed — Silocaf New Orleans, Inc. — which was charged with leasing the remaining 3.2-acre silo complex.  

Officially, Silocaf was created and owned by an Italy-based conglomerate, Pacorini Finanziaria SpA, which operated smaller-scale silo operations in Trieste. But Silocaf essentially existed only because it was sponsored by Folgers. Our newly converted leadership was hungry enough to try the concept but, unfortunately in my view, too risk averse to go with Port Cargo, which had the initial idea but no experience in bulk silo renovation or operation.  

In any case, Silocaf spent over $15 million to sanitize and renovate the New Orleans complex for bulk-handling of coffee.

Once the silo plan was set, Folgers converted inbound operations at source country to load and ship coffee in 20-foot long synthetic-lined containers that dumped up to 20 tons of coffee beans into hoppers inside the silos in a single, automatic pneumatic process that eliminated the back-breaking labor. 

The silos held 42,000 short tons of beans segregated by quality, type, and grade in over 200 individual bins within the silos. Besides maximizing handling efficiency, the bulk coffee shrinkage issue was eliminated, and bean quality even improved as the burlap transport made coffee susceptible to temperature and humidity damage.  

By blending coffee at the silos instead of at the plant, excessive safety inventories of each grade were drastically reduced taking millions of dollars of inventory out the pipeline. Now entire blends were shipped to the plants, not separate ingredient beans to be blended.

Only Folgers could have been the catalyst for this massive transformation because it imported over half of all the green coffee through the port. That was the advantage we used to innovate. By being the first to move source country suppliers to bulk, by being first to lock in manufacturing for reusable container liners, by cornering the market on tank trucks and railcars for domestic transportation, and outfitting our plants for bulk processing, P&G enjoyed a major first-mover cost advantage over every rival for years.