Learning from the Apprentice 4: How companies Make (and lose) Bread.

One of the issues that came across to me as I watched the last series of The Apprentice is that understanding how companies make and lose money is a key business skill. It’s a good lens through which to think about what actually happens in your own organisation. In my view once you know how your company makes and loses money you can have a great handle on how you can help deliver for the business.

Let’s go back to bakeries and Melissa’s mistake with the bread rolls.  Bakeries make money by shaping dough into dough so to speak. They do this like all FMCG business by ensuring that they can either produce in volume and capture small margins or make niche products and capture bigger ones. Like chocolate manufacturers they can have big production runs and have economies of scale, where it costs less the more of something you make. Volume products are cheaper to produce and in a food manufacturing FMCG business they can be largely automated with a bit of manual oversight. The real cost will be in the marketing and distribution which again will need to be driven down because of the relatively thin margins from commodity products. Niche products usually require more labour. Think about how you help in terms of your interventions as an HR specialist in Learning and talent development. It might well be that in a volume production environment getting a more efficient and productive maintenance team to keep the machines running and a better organised lorry fleet is the key.

You also can push profits by marketing more widely. I have noticed chocolate at the department store where I buy shirts. Not just where I buy papers and pens.  Yes impulse buying!  The breeze block bars of chocolate represent long production runs using cocoa, sugar and all the other lovely ingredients in a bar of chocolate efficiently. If you have to buy them by the boatload  and they are perishable or expensive to store, you might as well use them. If the staff remember to ask you if you want a bar for a quid, then WH Smith is quid’s in as their recent profits show.  

Losing money is also an issue because in any business it’s always a risk and a balance. Our bread company will first and foremost be concerned to ensure  that its high volume low margin production is as flawlessly efficient as possible, and that the loaves get delivered to supermarkets as quickly as possible. Downtime and poor quality are the twin enemies of volume production. If they are making more niche products in smaller batches making too many at the wrong time can spell disaster.  Our bakery company will be very concerned with their operating costs, maybe having a key unit cost like the cost/margin per batch. They will also be paranoid about the price of inputs like flour sugar, salt yeast and that lovely unknown ingredient they put in tiger loaves. That means they will keep an eye on global commodity prices which can put the cost of inputs up massively as none of us want to pay more. The cost of moving stuff is also critical. Many FMCG companies for example are being hammered by the cost of fuel, which adds to the price of the product.  Supermarkets are very good at keeping food costs down for consumers and that means that food producers need to work to their very strict cost/quality deadlines/ I am sure we have all seen the Eddie Stobart programme where a vanload of biscuits or chickens gets rejected because the lorry is late, or a spot check on quality fails.  Labour costs are also critical as we will find out next time. Meanwhile have a think about how your company makes and loses money.