The president and CEO of Sunny Delight Beverages Co. saw the cost of his raw materials spike precipitously with no sign of ever coming back down. Packaging costs went up, diesel fuel doubled in price almost overnight giving his transportation costs a jolt, and he had a customer base that had seen virtually no price increases for his products in 10 years.
Hurricanes on the Gulf Coast caused the price of orange juice one of Sunny Delight’s primary ingredients and fuel and materials costs for its packaging to follow a sharp upward curve.
For Sunny Delight and Cyr, it was somewhat of a wake-up call and a time to embrace a new way of looking at how the company would need to operate in the future or perish.
Perhaps the most important realization for Cyr was that the days of price stability were gone. If Sunny Delight was going to keep its prices stable in the consumer market, hold onto its core customers and remain competitive, it was going to have to find new ways to control costs in a much more volatile environment.
“I think the first step was to accept that the new reality was here, and that it was permanent, as opposed to a temporary phenomenon,” Cyr says. “So for us, it was when you get to the point that you have a new reality, that oil is $65 a barrel on an ongoing basis and it’s never going to return to $30 a barrel. You could no longer assume that you were going to have relatively constant costs on an ongoing basis.”
Declaring war on costs
Cyr knew that he had to attack costs, and in a way that would not simply allow Sunny Delight to weather the immediate crisis, but that would be sustainable for the long term.
So Cyr became an expert in some critical cost areas, like resin. Resin is used in plastic bottle production, and its price rose dramatically as crude oil prices spiked.
“I ended up making myself an expert in resin cost tracking,” Cyr says. “Why is the CEO spending a lot of time tracking the price of resin and making predictions about where the price of resin is going to go, based on the cost of natural gas, the cost of ethylene and all kinds of things?
“The reality was that was an area where we had just been accepting the prices at the end of the month that were reported by the industry trackers and not having any foresight. It was always a look back and next month the cost could go up 12 cents. We didn’t have any idea what it was going to be, and that was inadequate. So I made myself an expert on resin pricing.”
For Cyr, the self-education accomplished two things: It gave him an intimate knowledge of the market for a critical commodity and an insight into how that level of familiarity can be of value in other areas when it comes to making decisions.
“As a result of that, I set the standard for what I expected from our purchasing folks in their management and predictions on resin pricing,” Cyr says. “Once we got to a level of competence that I felt matched our needs for business decision-making, then I pulled back, and the purchasing organization completely manages that process. But we needed a step change there because we were very vulnerable on resin pricing.”
Cyr hasn’t stopped there. The lessons of the hazards of price fluctuation taught him that he needs to be constantly vigilant. For instance, surging demand for ethanol has put upward pressure on corn prices and, in turn, on another commodity that Sunny Delight uses extensively.
“What’s the big bear this year might not be the big bear next year,” Cyr says. “A year ago, I didn’t know a lot about corn pricing. I now know a lot about corn pricing and demand for corn and ethanol, and how that whole matrix works so that I can be effective about making decisions about how we formulate products, when we use alternate sweeteners, when we have to take pricing based on the cost of corn, and how far out we should lock in our corn prices.”
Fielding a winning team
Even the best coach can’t win without good players, and good players are vital to winning games.
“One of the lessons that we learned in running this company is probably the most important thing the CEO does is put the winning team on the field,” Cyr says. “That means doing a good job of signing up the talent you have on the field and making sure you know what they’re good at, and then making sure that they play to their strengths. One of the things that I think too many people have done is spend their time trying to fix the weaknesses through their opportunity areas rather than leveraging their strengths. My focus has been that if somebody is good at something, I have them do that over and over again to the benefit of the company and, hopefully, play the game in a way that the weakness is not exposed. That’s my mission, that’s my job, to find out where the strengths are and leverage them as much as I can.”
But while he sees value in keeping players in slots where they perform exceptionally well, he’s not averse to changing the chairs around when it means a more effective lineup. Cyr has strengthened the team by viewing individuals in the organization not in terms of their titles and responsibilities, but in the context of their competencies.
“One of the things we’ve done is we’ve made our organization very fluid,” Cyr says. “People all have the same titles and responsibilities, but we view every person as having a broad range of skill sets, not as a title or job description. If their skills are best used in working on a different project than what they’re working on, then we sit down with them and talk with them about what the benefit would be in terms of broadening the skill set by working in a different area. They’re usually fired up about it, and they move on.”
For example, one of the tactics the company decided to use was to preserve its traditional price points by revamping its packaging. The manager who ran Sunny Delight’s price-point management initiative is the same person who manages its logistics.
“Typically, a logistics guy would not be involved in the development of a new package and the manufacturing start-up of it and the selling with our customers, but we needed to get that initiative into the market in a short amount of time,” Cyr says.
In another case, Cyr took a process Sunny Delight used in one part of its operations and applied it to another, again using a manager from another functional area to lead the effort because of his set of competencies.
“We took the lean (manufacturing) tools, and while we’ve been using them in our manufacturing operations for quite some time, we turned them loose on our back office operations,” Cyr said. “In fact, we brought in one of our plant engineers and had him lead a kaizen, a process that you use in lean manufacturing, and had him lead it on our back office trade spending program ... and we found tremendous opportunities to cut our costs by having those tools applied to a back office operation. We applied it to legal costs, we did it on marketing costs.
“We attacked every single process we had, and the amount of money that fell out of that process was tremendous, and that was a real breakthrough for us.”
Engaging the work force
Cyr found that communicating with employees was a critical factor in making the adjustments to the new reality because everyone had to work together to change the company.
At the beginning of each year, Cyr and his team put together the company’s goals for the year in very simple terms. As the company headed into 2006, for instance, the goals were to drive the top line, fix the bottom line and generate cash.
“Those sound simple and obvious, but it was the simple and obvious that made it powerful with our employees. And as a result of that, the employees knew what they needed to work on,” Cyr says.
Regular meetings keep the employees abreast of the progress against the goals.
“We have monthly town-hall meetings with our employees, where we gather them all around, report the results of the business for the last month, key strategic initiatives and then field questions,” Cyr says. “It gives the employees a real good sense of reality; how are things working, what’s not working. It gives them a chance to learn about what their peers are doing, and when you give a consistent message from the beginning of the year to the end of the year and you measure yourself against it, people can do amazing things.”
In a monthly letter to employees, Cyr reiterates Sunny Delight’s results for the month and highlights specific accomplishments against the goals that have been outlined.
Cyr also finds that spontaneously celebrating successes along the way keeps the enthusiasm level high and provides instant rewards and gratification for individuals and the team.
“We have a variety of ways, but we have a bell that we call the victory bell, and it’s mounted in our offices here and anybody can decide to ring the bell,” Cyr says. “When they have a significant win, they ring the bell. No matter where you are in the offices, you stop what you’re doing. If you’re on the phone, you put the telephone down and tell somebody you’ll be back in a minute and you walk out, and the person who rang the bell, usually in three to four sentences or less, explains to everybody what the big win was, and we all clap for them. So it’s an opportunity for people to celebrate what they think is important and for all of us to recognize and acknowledge it.”
All the strategic moves have paid off for the company. Its earnings for 2006 were double what they were in 2005 for the $400 million company.
Cyr says the CEO’s most important function in a situation where fundamental change in the way the company does business, or in any crisis situation for that matter, is to set the tone for the organization.
“Setting the tone in this case was accepting the reality, setting the targets, and then communicating to people that we’re all in this together and that we’re going to find the solutions to do it,” Cyr says. “If you do that, I think people will give you their best, give you their best ideas, give you their best effort and, at the end of the day, as you celebrate the successes as they come along, people feel like they’ve all been in the same boat and rowing in the same direction.”
HOW TO REACH: Sunny Delight Beverages Co., www.sunnyd.com