With market volatility up, Marcucci monitors purchasing more closely
May 31, 2012
by Josh Sosland
Over the past few years, attendance at the Sosland Publishing Co. Purchasing Seminar has broadened among baking companies to include not only purchasing executives, but other members of top management, including growing numbers of chief executive officers, chief financial officers and chief operating officers.
An understanding why the titles of those in attendance has diversified may be gained in the evolving role in purchasing over the last 20 years of Lawrence L. Marcucci, president of Alpha Baking Co., Chicago. After largely turning over responsibility in the 1990s to William E. Harp, director of purchasing at Alpha, Mr. Marcucci’s role in purchasing at Alpha Baking has expanded again over the last several years, or since ingredient markets abruptly turned more volatile.
“With the market swings, I was doing some second guessing,” Mr. Marcucci said. “I’m always a much better flour buyer in hindsight than in foresight. It isn’t fair after the fact for me to say, ‘You should have waited.’”
While still leaning heavily on Mr. Harp, Mr. Marcucci said he has the responsibility to sign off on major decisions.
“We have weekly meetings to discuss ingredient buying,” he said. “I ask his opinion, and we kick around things he’s read. He may say, ‘This is a time to book the basis or millfeed.’ Ultimately, I will say, ‘Go ahead and cover it.’ He proposes and then executes the strategy.
“As an owner of an intermediate sized business, I felt as though one of the owners should take responsibility for those weighty decisions. Mike voted it was me.”
“Mike” is Michael L. Marcucci, chairman and chief executive officer of Alpha Baking, Larry Marcucci’s cousin and business partner for 33 years. They started the business a year after Larry Marcucci graduated from the University of Illinois with a bachelor’s degree in business administration.
“In 1977, Mike and I were working for Gonnella Baking, our family business,” Mr. Marcucci said. “We just felt we had an opportunity
to do something different.”
Getting started in Detroit
While the partners’ roots were in Chicago, the cousins began their business in Detroit, purchasing a small variety bread baker there. Originally Rinna Brothers, the Marcuccis renamed it Marc Baking Inc., a diminutive of their last name. Later, they bought Eagle in Detroit and renamed the entire business Marc Eagle.
“We had ventured out on our own in the Detroit area, but in 1979, when Mary Ann Baking in Chicago went bankrupt, we had an opportunity to come in and run Mary Ann,” Mr. Marcucci said. “Our bank was Mary Ann, and they told us if we liked running it, we would have a chance to purchase it.”
Over the years Mike Marcucci has been in charge of sales and finance while Larry said he mostly has been on the operations side of the business.
For Larry, heightened oversight of purchasing in recent years represented a return to an area of responsibility that had been his for 20 years.
“Until 1997, I handled as part of my duties in operations all the purchasing,” he said. “I would direct people, telling people ‘Here’s the contract order, use your flour appropriately.’”
Today, Alpha operates four baking plants dotted around Lake Michigan. Two are in Chicago, one is in Manitowoc, Wis., 170 miles to the north of the windy city, and the last is in La Porte, Ind., about 70 miles to the east.
While most of the company’s fresh baking business is in the Chicago area, a large proportion is in the surrounding region, with customers as far as Bismarck, N.D. The company’s main distribution area for fresh routes is centered in areas around Madison, Wis.; central Illinois (Springfield area); Indianapolis; and southwestern Michigan with a large proportion of business in the metropolitan Chicago area. Through distributors, the company serves southeastern Michigan.
Food service, including quick-service restaurants, continues to account for a large proportion of Alpha’s business, including fresh bagels, bread, ciabata, french rolls, hamburger and hot dog buns, specialty rolls and various whole grain products. A similar product line is shipped frozen to food service customers. To the retail market, Alpha sells bread, buns and french as well as specialty rolls.
The company’s brands include Mary Ann, Kreamo and S. Rosen.
Through its frozen food service distribution, Alpha ships frozen baked foods all over the United States and even into Mexico.
Each of the four plants operated by Alpha bakes a different roster of products.
“We almost run this like it’s one bakery with a large footprint,” Mr. Marcucci said. “Each plant
specializes. There is some crossover, with some plants acting as backup. One Chicago plant is almost 100% hot dog buns and bagels. The other bakes pan bread, hamburger buns, french rolls and variety buns (e.g., footlongs). Manitowoc specializes in variety bread with a co-pack roll line. We also bake our organic products there. La Porte has a high speed hamburger line and bakes variety bread and hearth bread. We have another line there that does some variety buns.”
Asked how he made purchasing decisions before Mr. Harp joined the company, Mr. Marcucci offered a candid response.
“Probably not as well as I should,” he said. “I wasn’t as thorough in researching vendors as Bill is able to do. I would spend some of my time purchasing. I probably relied on suppliers more than I should have. Instead of switching from time to time, we probably stayed with vendors when I should have made a change. At the time, we couldn’t afford to devote more people to purchasing. When you’re a small operation, you have to do several different things.
“Purchasing wasn’t nearly as complicated in our early years. Now we have nearly 2,500 different s.k.u.s (stock-keeping units). The complexity alone is so much greater. Today, we have 45-50 sizes of corrugated boxes for our products.”
As the company’s product line has expanded, the approach to purchasing has become more involved as well.
“Bill and I share a screen with the most updated prices on the futures market,” he said. “Before 1997, I probably just did flat flour price purchasing. Somewhere after that we gravitated toward component purchasing. We use Bob Bresnahan as a consultant. Bill has helped us take a more active approach to purchasing on soybean oil, corn and energy. We hedge electricity and natural gas and are looking at diesel as a hedging opportunity.”
Mr. Marcucci said the company has opened options accounts but has found their usefulness to be limited in the current market environment.
“The problem was that when futures became so volatile, the options became very expensive,” he said.
While providing consistent quality is crucial for Alpha suppliers, Mr. Marcucci said the company does not want a revolving door of bargain basement suppliers.
“Once we find good consistent suppliers, we give them the benefit of the doubt,” he said. “We don’t constantly bring in competitors. I don’t want to be the customer with the lowest margin to the vendor. As soon as they find someone else willing to pay more, we’re gone.”
For a number of reasons, Mr. Harp said the quality of ingredients and service from suppliers has improved over the years.
“For one thing, there are fewer and fewer of us,” he said. “So to keep us, they need to toe the line.”
Mr. Marcucci said flour yields, and ash, has climbed steadily over the years but agreed that consistency has been good.
“The vendors who are left are top quality people,” he said.
Mr. Harp, who was featured in a 2001 purchasing profile from Milling & Baking News, said Alpha has explored tweaking formulations in response to market swings and higher prices.
“We were doing a test this week,” he said. “We were sent a car with hard winter for testing. You have to keep trying different options.”
Describing how the purchasing department works at Alpha, Mr. Marcucci said the weekly meeting includes himself, Mr. Harp and a third member of the staff, Erica King-Wilkins, purchasing manager.
“Bill runs the department and I oversee it,” Mr. Marcucci said. “We go over things we’re working on. Bill updates me on prices. Bill and Erica do a great job.”
Also involved in purchasing are four coordinators and buyers, one at each of the plants, Mr. Harp said.
“They order to cover day-to-day needs, keep track of inventories, reorder based on contracts, and make sure what we order is actually delivered,” he said.
With ingredient costs rising sharply in recent years, Mr. Harp said Alpha has scavenged for ways to reduce costs. One approach has been for trucks delivering Alpha products to various Midwest locations to bring smaller ingredients back to the plants.
Backhauls as attractive opportunity
“We’ve really made a big time effort to do this with vendors in the Midwest,” he said. “We’ll arrange a backhaul as a way to generate cost savings. We are monitoring the progress we are making with this.”
In the interview of Mr. Harp in 2001, he expressed optimism about the future of organic baked foods given the great growth of the previous several years. In the years since, the growth has slowed considerably, he said.
“We still have organic products, but there was a crash with the recession of 2008-09,” he said. “With the recession, when people really got hurt, there was a lot of unemployment. People were saying, ‘Organics are great, but I need to feed my family.’”
Against the backdrop of tough economic times, Mr. Marcucci said dollar stores have been an area of great opportunity for Alpha Baking.
“They seem to be doing very well,” he said. “We continue to see inroads by big warehouse chains and mass merchandisers. We are participating in this sector. We see real weakness in a lot of restaurants. Some are doing very well, but others are doing terribly. When someone decides they want to go out to eat, they need to see they are getting a good meal for what they pay.”