March 26, 2009 The Chicken Comes First

Volume 5 | Issue 1

Itabom’s founder and President, Pedro Luiz Poli, talks to Lee Weingast about how he restructured and revitalized itabom, a Brazilian poultry

Can tiny amounts like one cent and one gram make a difference? They sure did for Itabom, a Brazilian poultry company. Since its founding in 1986, the business had experienced a number of ups and downs. While it got off to a healthy start selling chicken in a major agricultural region in the state of São Paulo, over the years the company has ridden out bumps in the road such as excess supply in the market, a stint of poor management and the outbreak of the bird flu.

This windy road finally led Itabom’s founder and President Pedro Luiz Poli to revamp his company. In 1995, Poli decided that in order to be competitive, the business would need to function on a more professional basis and so he took the company by the reigns and began to revive and restructure. Some of the changes included hiring experienced professionals to fill management positions. The strategies Poli instituted in the overhaul were doubtlessly successful. The proof is in the numbers: in 1995, Itabom’s plant was processing 1,500 chickens per hour. Nowadays 19,000 chickens pass through the plant every hour.

First Poli had to increase volume to cover fixed costs. He decided that a focus on increased efficiency in all aspects of the company would be the key. He tells the story: “We had an important meeting with employees at the beginning [of the overhaul process]. They were worried about the business closing down. I told them the problem was very small: It’s just about one cent and one gram.” Of course the employees responded with disbelief and wonder. What? How? Poli explained, “If we can earn one more cent in all our transactions and if we can produce one more gram with each item, and waste one gram less in our trimming, we can save the business.” He proposed a goal of spending a cent less on every purchase, earning a cent more on all sales, producing a gram more in processing and wasting a gram less in trimming. He assured them, “If we don’t do this, we’ll be in trouble.” One cent and one gram sound like insignificant amounts but Poli reasoned that if the company were to save one cent on every kilo of corn purchased, on an order of 36,000 kilos, the amount currently used by Itabom in a day, it would make a real difference. Extend this reasoning – and practice – to the purchase of all supplies, chicks, etc. and the results are certainly noteworthy.

A WIDE CLIENT BASE BRINGS SECURITY
Itabom’s products – chicken parts, chicken sausages and chicken hot dogs – are sold in stores small and large, throughout Brazil. In São Paulo, Itabom’s home state, clients are small- and medium-sized supermarkets and Itabom oversees both sales and delivery. Sales in this state account for approximately 80 percent of total sales, with the rest concentrated in the north of Brazil. Outside its home state, largescale distributors handle sales and delivery. A large distribution system makes the company less vulnerable to non-payment, a common problem in Brazil. Itabom management is considering getting Itabom products in stores outside Brazil’s borders. Poli clarifies, “Depending on how the current crisis plays out we may begin exporting next year [in 2009].” The Itabom brand is already known overseas thanks to its debut at a trade fair in Paris.

Itabom’s chickens are raised by local farmers with whom the company has rural partnerships. Chicks, feed and technical and veterinary assistance are supplied by Itabom to its 323 partner farmers, are located within 80 kilometers of the company’s headquarters. Beginning in 2009, the company will raise its own chicks. Further evidence of Itabom’s motivation for improvement and growth is the current hatchery project. The hatchery now under construction will be the first in the country to use a one-stage incubation process for poultry. As a quality control measure, eggs from each farm will be kept separately, allowing for total product traceability from feed to laying to hatching.

SMART GROWTH IN THE FUTURE
Poli says that Itabom’s management takes a long-term outlook on the future and that they do not act on impulse. The company is especially focused on investing in improving quality. Poli boasts, “We are very well-respected in the market for excellent service, punctuality, trustworthiness. A business needs all these aspects to be successful. At this point, Itabom’s facilities would permit doubling production with one shift but Poli says, “We are planning on increasing the number of shifts to two- and a-half shifts as some other companies in the sector have done. We’ve always grown with our ‘feet on the ground,’ investing carefully to protect ourselves from the impact of crises. We are open to major investments, joint ventures, and will always strive to become more professional.”

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