Logistics 411 Hickory Hill Case
HICKORY HILL SMOKED FOOD COMPANY
Background
Hickory Hill is a well-established smoked foods company specializing in smoked turkeys and has been selling its products throughout the northwestern part of the continental United States since 1967. Initially owned and operated by a German immigrant family, the key to the company's success lay in a secret smoking process native to Rhineland, Germany. By 1998, the firm owned 250 retail outlets in addition to 400 franchise arrangements. Though the company sold a variety of turkey products, its competitive strength lay in one particular type of smoked turkeys: Tender Most (2010 sales: $11,475,250). The 2011 sales were forecasted to have a 12% growth over the 2010 sales level.
The turkeys were supplied by Kentucky Meadow Turkeys, Inc. (KMT) a subsidiary of Hickory Hill. KMT cleaned and smoked the turkeys using a patented process, and provided the necessary industrial packaging for safe shipment to the retail outlets. Hickory Hill coordinated the remaining functions. The cured and packaged turkeys are sold to the retail outlets on a FOB destination basis. Approximately 50% of the sales revenue for Tender Most was attributable to direct variable costs; 75% of the direct variable costs were estimated to be actual turkey costs. These costing percentages were expected to hold for the next few years. Tender Most was sold to retail outlets for $6.35 per pound.
Products
The smoking process employed by KMT had some unique characteristics which clearly differentiated Hickory Hill’s products from those of its competitors. The Hickory Hill smoked turkeys could be refrigerated for up to 14 days without spoiling. Moreover, they remained fresh and edible for another seven days even without refrigeration. These features, however, did not permit the company to engage in forward buying since the freezer costs were relatively high. Consequently, the company did an internal purchase of the turkeys from KMT in simple
Background
Hickory Hill is a well-established smoked foods company specializing in smoked turkeys and has been selling its products throughout the northwestern part of the continental United States since 1967. Initially owned and operated by a German immigrant family, the key to the company's success lay in a secret smoking process native to Rhineland, Germany. By 1998, the firm owned 250 retail outlets in addition to 400 franchise arrangements. Though the company sold a variety of turkey products, its competitive strength lay in one particular type of smoked turkeys: Tender Most (2010 sales: $11,475,250). The 2011 sales were forecasted to have a 12% growth over the 2010 sales level.
The turkeys were supplied by Kentucky Meadow Turkeys, Inc. (KMT) a subsidiary of Hickory Hill. KMT cleaned and smoked the turkeys using a patented process, and provided the necessary industrial packaging for safe shipment to the retail outlets. Hickory Hill coordinated the remaining functions. The cured and packaged turkeys are sold to the retail outlets on a FOB destination basis. Approximately 50% of the sales revenue for Tender Most was attributable to direct variable costs; 75% of the direct variable costs were estimated to be actual turkey costs. These costing percentages were expected to hold for the next few years. Tender Most was sold to retail outlets for $6.35 per pound.
Products
The smoking process employed by KMT had some unique characteristics which clearly differentiated Hickory Hill’s products from those of its competitors. The Hickory Hill smoked turkeys could be refrigerated for up to 14 days without spoiling. Moreover, they remained fresh and edible for another seven days even without refrigeration. These features, however, did not permit the company to engage in forward buying since the freezer costs were relatively high. Consequently, the company did an internal purchase of the turkeys from KMT in simple