Defining the essential parts of a business core often leads to a series of fine distinctions. As the Premium Standard Farms facility in Clinton, North Carolina, began to outgrow its facility, managers were faced with deciding how transportation fit into the core business, which is a vertically integrated pork producer.
Premium Standard Farms operates from corporate headquarters in Kansas City, Missouri, and claims to be the second largest vertically integrated pork producer in the US, following Smithfield Packing. Founded in 1988, the company says it is involved in pork production from farm to fork, running pig nurseries and farms, hauling livestock to processing plants, and delivering finished product to wholesale and retail distributors as well as other processors. Consumer sales at retail account for about half the business with the other half coming from other processors such as Oscar Mayer and Sara Lee. Total annual sales have been as high as $675 million in recent years.
The product line includes fresh pork in the form of boxed bone-in and boneless loins, tenderloins, hams, picnics, butts and ribs as well as marinated fresh pork and bacon, smoked hams, and sausage for the retail market and meat distributors. PSF sells fresh bulk bone-in and boneless hams, picnics, butts, bellies, trimmings, variety meats, and other products to customers who process the pork into other products. Products for foodservice distribution include fresh and frozen bone-in or boneless loins, ribs, butts, and processed smoked meats. The company also sells fresh pork and frozen offal in the export market.
The vast majority of production by Premium Standard Farms is for domestic consumption. However, the company has a small, but growing, export business with about 7% of total sales shipped to Japan in the form of fresh pork from the North Carolina plant.
Premium Standard Farms expanded substantially in late 2000 with the acquisition of Lundy Packing Company in Clinton, North Carolina. In addition to its farming operations in Missouri, North Carolina, and Texas, the company operates two processing plants. The plant in North Carolina was recently expanded to 800,000 sq ft, giving it the capacity to process 10,000 hogs a day by a staff of 1,200 workers. The Missouri plant employs 950 workers who process up to 7,100 hogs daily. Each of the two processing plants sources hogs from company growing operations. The Missouri plant receives 99% of its hogs from company production, while the North Carolina plant receives 71% of its hogs from within PSF. Total capacity of the two processing plants exceeds 4.5 million hogs per year. Production from the Milan plant is all fresh or frozen pork, while the Clinton plant has the capability to produce smoked and other processed meats.
Essentially the two plants each serve half the country with Milan distributing in the western states and Clinton providing product for customers east of the Mississippi River. Both plants are in rural areas close to production facilities with easy access to feed grains. Milan, Missouri, is in the central part of the state and less than 50 miles south of the Iowa border. Clinton is in southeastern North Carolina on the coastal plain east of Fayetteville and north of Wilmington. The Texas operations, near Dalhart in the Northern Panhandle, are for breeding and growing hogs only, with the entire production sold to third party processors.
Widely separated hog production
PSF operations are spread across a wide geographical area for a number of reasons. Access to low-cost feed grains for growing hogs is one reason, but maintenance of animal health is just as important. The risk of disease transmission is greatly reduced by the separation of the production facilities. In addition, the company maintains a strict restricted access policy with personnel required to shower upon entry and again upon exit from facilities. Typically, managers from one unit do not visit other units and are required to observe a mandatory 24- to 96-hour layover period if entry to a unit other than the assigned one is necessary.
It was the recent expansion of the Clinton processing plant that required PSF to define those parts of the business it deemed vital. Every part of the operation needed expansion, but the company did not want to commit resources to a non-revenue producing function that it viewed as outside its business core. The need for expansion pushed PSF into deciding what parts of its transportation operations supported the core business and what parts could be turned over to outside vendors.
“We wanted to focus on our core business and leave maintaining trucks to an expert,” says Jere Null, vice-president and general manager in Clinton. “We were running our garage and needed to expand it, but we didn't have the space. Our processing plant was literally bumping up against our garage. Putting capital into a non-core part of our business didn't make sense.”
The need to upgrade and expand the shop led PSF to look at transportation functions as separate parts of the business, splitting the distribution portion of fleet operations away from the maintenance portion. “From a customer service standpoint, we didn't want to contract our trucking operations out to a third party carrier,” Null says. “We wanted a fleet of trucks with our name and signage that our customers would recognize.”
The obvious choice combining an end to maintenance while keeping the company fleet seemed to be leasing. Null says PSF talked with several of the large national leasing firms before making its decision. One of the requirements for a deal with any leasing company was a maintenance facility at the processing plant. In the end, PSF selected Cooper Kenworth and Cooper Leasing in Raleigh, North Carolina.
All the leasing firms agreed to build a shop adjacent to the processing plant. However, Cooper proposed the most creative solution as a way to hold down costs for PSF. Cooper had a facility 21 miles north of the PSF plant in Newton Grove, North Carolina. That shop was in need of replacement; so Cooper proposed building a dual-purpose facility in Clinton to serve both PSF and Cooper Kenworth and Leasing. The new shop would include work bays for PSF equipment held on lease from PacLease and additional bays for other customers of Cooper Kenworth. In return for the partially dedicated facility in Clinton, PSF agreed to a longer-than-average lease term. Tractors operated by driving teams will remain on lease for four years, while those assigned to solo drivers will carry a seven-year lease. The longer lease coupled with use of the shop for other customers allowed Cooper to negotiate a financial package favorable to both parties.
Shop opened November 2002
The new shop opened in November 2002 and has 30,000 sq ft of work and sales space with four work bays and a wash bay on one end for maintenance of leased equipment. Cooper Leasing has six other leasing clients in the Clinton area in addition to Premium Standard Farms. The other end has three bays dedicated to Cooper Kenworth. The center of the building holds a 12,000 sq ft parts room and offices as well as a dispatch office and driver's lounge for Premium Standard Farms. The leasing end of the shop is open for two shifts a day Monday through Saturday and for one shift on Sundays, a day of heavy dispatch operations at PSF.
In keeping with the strict controls against disease transmission at Premium Standard Farms, the new building has a fence running down the middle to separate the Cooper Leasing work areas from the Cooper Kenworth work areas. If equipment from other livestock companies needs service, it is handled on the Kenworth end of the building as a precaution against contaminating equipment from Premium Standard Farms. In addition, Premium Standard Farms equipment is parked on the Cooper property in a fenced, secure area.
The distribution fleet consists of 50 tractors and 80 trailers, with 31 of the tractors assigned to teams of drivers. Those 31 tractors are Kenworth T800s with 72-inch AeroCab dual bunk sleepers. Another part of the fleet is made up of T800 daycabs for delivery to receivers closer to Clinton. All the equipment is powered by Caterpillar C15 engines rated at 475 horsepower. Transmissions are Eaton Fuller FRO-16210C Roadrangers, and drive axles are Dana Spicer DSP-40 tandems with a 3.55:1 final drive ratio.
It takes 80 drivers to staff the fleet. With teams, PSF can make overnight delivery to most customers in its trade area. Most runs last 28 to 35 hours, depending on the number of stops and the waiting time to unload at receivers. Loads range from full truckloads for large customers to as many as four stops per load for smaller receivers.
The distribution trailer fleet is a mix of refrigerated vans from Great Dane and Utility. Great Dane Classic refrigerated trailers comprise the majority of the fleet. These 60 trailers are 53 ft long and are cooled by Thermo King SB-III refrigeration units. For delivery in New York City and other congested urban areas, Premium Standard Farms also leases 20 Utility 2000R 48/102 refrigerated vans equipped with Carrier Transicold Ultra refrigeration units.
Like any agricultural operation, PSF also dedicates fleet equipment to farming operations. In this case, part of the fleet delivers feed to farms. Another part of the fleet is used to transport animals from farms to the processing plant. In all the delivery and agricultural fleets total 6.2 million miles a year. Obviously, the teams delivering finished product log the most miles, averaging 170,000 miles per tractor per year.
In addition to its customer service aspects, PSF aims to make the fleet pay for itself. Nearly every outbound route includes a backhaul. Inbound freight is destined for third party receivers in North Carolina as well as the PSF plant.