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Supply Chain Management of Itoham Foods Inc.

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Netra Shetty
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Supply Chain Management of Itoham Foods Inc. - January 11th, 2011

Japanese company Itoham Foods Inc. produces and markets fresh meat and processed meat and sausage products. The company also manufactures and distributes other food products, including edible oils, dairy products, wine, and frozen foods. Itoham has subsidiaries in the United States as well as Europe and Australia and has ventures in biotechnology and restaurant services.

Shaky Beginnings: 1920s-40s

Denzo Ito established meat-processing firm Ito Processed Food Company in Osaka, Japan, in 1928. Two years later this company went bankrupt in response to the worldwide Depression, but it was re-formed in 1932 as Ito Meat Processing Company, in Kobe, Japan. A year later the company first marketed what was called the Pole Wiener, a sausage wrapped in cellophane, a popular base from which the company's product line was to grow in later years.

In 1943 Ito Meat's factory was closed as a result of the emergency conditions brought about by World War II, but Ito Meat's investors were quick to reestablish their company soon after the war. In 1946, the factory in Kobe returned to production, this time as the Ito Food Processing Company. Pressed ham, or yose ham, was one of the first products on-line at the Kobe factory. Two years later, the company was reorganized again as the Ito Ham Company Limited, with 3 million in capital.

Growth and Joint Ventures: 1950s-80s

In 1957 Ito Ham Company developed a method of producing hams and sausages that used mutton as well as pork, which was still scarce in Japan. Finding this method a worthwhile money-saver, the company imported 3,000 tons of mutton that year. The company also expanded its production capacity, building a plant in Tokyo in 1959 and one in Nishinomiya the next year.

The business was renamed Ito Ham Provisions Company, Limited, in 1961, and its stock was listed for the first time on the Tokyo and Osaka stock exchanges. The following year Ito Ham built another plant, in Toyohashi. By 1965 Ito Ham was attracting foreign interest. Three years later Ito Ham launched its first ship, to import raw materials from Australia and New Zealand. In 1967 the company opened yet another plant, this time in Kyushu, and began to produce dairy products, its first nonmeat food products.

Several foreign delegations visited Ito Ham's plants throughout Japan. These included economic delegations from New Zealand, Great Britain, Denmark, Australia, and China. In 1973, Ito Ham began business relations with the United States as the exclusive distributor of Armour Food Company's products in Japan. Then, in 1974, Ito Ham acquired Cariani Sausage Company, a sausage maker in San Francisco, California.

Nine years later Ito Ham was again involved with an American company, this time in a joint endeavor with the Carnation Company. In March 1983 Ito Ham and Carnation agreed to jointly produce cooking oils, chilled foods, sauces and seasoning, milk products, and soft drinks through a venture called Ito Carnation Company. This plan gave Carnation the footing in Japanese manufacturing that it had been seeking and expanded Ito Ham's product range at a time when meat consumption in Japan was slowing.

In September 1985 Ito Ham entered into an agreement with a French cheese company, Fromageries Bel. Ito Ham agreed to sell three of Bel's natural cheeses in supermarkets throughout Japan, promising initial sales of at least 600 million. The companies agreed that when sales of the cheeses exceeded 2 billion, Ito Ham would begin to produce the cheese in Japan using Bel's production technology.

Ito Ham again dealt with French food manufacturers in May 1984, this time hammering out an agreement with Tour d'Argent, a prestigious French restaurant. According to the agreement Ito Ham would distribute the restaurant's specialty food products like tea, coffee, and mustard in department stores and boutiques around Japan.

To ensure long-term growth and stability, Ito Ham decided to develop its interest in biotechnology. In August 1984 it announced plans to commercialize its method of extracting valuable chemical elements from pig blood, particularly an amino acid used for flavoring. The company began building a new laboratory for this and other biotechnical research in December 1988, and it was during this period that the name Itoham Foods Inc. was adopted.

Diversification and New Challenges: 1990s-2000s

Itoham Foods entered the 1990s in a strong position as a leading meat processor and an increasingly integrated food business. Kenichi Ito, Itoham's president, cited Japan's abundant food supply and the resulting stiff competition in the domestic food market as two of the difficult conditions Itoham faced. A third and more threatening difficult condition Itoham would battle was the deep recession the Japanese economy suffered throughout the 1990s.

As consumers tightened their wallets, Itoham sought to maximize market share and cut expenses by introducing a number of new products, including Houjyun ham products in 1991, Arabiki Frank wieners in 1993, and Alt Bayern wieners in 1998. At the same time, Itoham dropped unprofitable product lines and focused on core products. In the late 1990s the company implemented ambitious plans to reduce its product lineup in its Ham and Sausage Division by half, from about 1,500 items in the spring of 1999 to 750 by the end of 2000. Itoham also made efforts to accommodate consumer preferences by introducing lower-priced products in the Fresh Meat Division and moving away from expensive, luxury items. In addition, to elevate sales more efficiently, Itoham chose to focus on corporate, large-volume clients, such as major supermarket chains.

The company's efforts to streamline its product offerings and increase sales paid off by the end of the decade. Itoham's net sales for the fiscal year ending March 31, 2000, reached 470 billion, with net income at 6.3 billion, a significant increase over the 2.4 billion reported the previous year and higher than net income reported through the 1990s. Itoham's net income hit a low of 973 million in fiscal 1997.

As Itoham entered the new millennium, the company anticipated it would continue to face new demands, primarily increased competition and a weak market for meat consumption as a result of the poor economy. In addition, perpetually changing trends in consumer spending and strides toward globalization presented challenges. In order to best prepare itself Itoham adopted a three-year Medium-term Management Plan in April 2001. The strategy was to concentrate on core products, reduce costs by increasing efficiency and phasing out unprofitable operations, restructure and consolidate the supply and sales system, and increase marketing efforts.

Unfortunately for Itoham, an unexpected problem arose in the fall of 2001 with the first case in Japan of bovine spongiform encephalopathy (BSE), commonly referred to as mad cow disease. Although the tainted beef was not from Itoham, overall beef sales throughout the nation plummeted as consumers boycotted beef. Itoham's sales sagged, and for the fiscal year ending March 31, 2002, the company posted net sales of 465 billion, down from 475 billion the previous fiscal year. Itoham also posted a net loss of 707 million, a significant change from fiscal 2000's net income of 6.3 billion and even fiscal 2001's net income of 1.7 billion.

Problems within the meat industry continued through the following year, but they worked to Itoham's advantage. Two of Itoham's competitors, industry leader Nippon Meat Packers Inc. and Snow Brand Food Co., which ranked fifth in 2001, were guilty of mislabeling imported beef as domestic in 2002. The scandal resulted in the liquidation of Snow Brand and a boycott of Nippon Meat products by a number of supermarket chains. The boycott led Nippon Meat's ham and sausage sales to drop nearly 30 percent. Taking advantage of the absence of Nippon Meat products, Itoham stepped up production by nearly 30 percent. Itoham's efforts helped reverse fiscal 2002's net loss, and the company posted a net income of 312 million in fiscal 2003 on sales of 473,891 million. Although Nippon Meat managed to remain the industry leader with 21.6 percent of the ham and sausage market, Itoham succeeded in upping its market share 1.7 points to 20.4 percent.

Masami Ito became Itoham's new president on October 1, 2002, and Kenichi Ito remained with Itoham as chairman. The company continued to streamline production while also concentrating on diversification and innovation. To that end Itoham formed Ito Life Science Co., Ltd., a new subsidiary that would consolidate the company's pharmaceutical operations, in May 2003. Itoham planned to transfer the operations of its Health Science Division as well as U.S.-based subsidiary American Peptide Co., Inc., to Itoham Life Science.

In the summer of 2003 Itoham formed a partnership with Jiangsu Yurun Food Industry Group Co. and Mitsui & Co., Ltd. and began producing and selling ham and sausages in China, thus becoming the first Japanese company to manufacture and sell meat products in Beijing and other major metropolitan areas in China.

Sales of fresh meat and other meat products appeared to be on an upward trend in 2003, but the growth was slow and the market still relatively stagnant. Although Itoham's net sales for the interim period from April 1, 2003 to September 30, 2003, reached 239 billion, up from 229 billion for the same period in 2002, net income dropped, from 308 million in 2002 to 242 million. The company revised its earnings forecasts downward for fiscal 2004 but remained confident that its commitment to providing safe and innovative products to the public, coupled with its vigilance in emphasizing efficiency, would lead Itoham to great financial success and stability in years to come.

Principal Subsidiaries: Sankyo Meat Co., Ltd.; Rockdale Beef Pty. Ltd. (Australia); Five Star Beef Ltd. (New Zealand); Tohoku Fresh Pack Co., Ltd.; Kanto Fresh Pack Co., Ltd.; Chubu Fresh Pack Co., Ltd.; Kansai Fresh Pack Co., Ltd.; Kyushu Fresh Pack Co., Ltd.; Okinawa Fresh Pack Co., Ltd.; Itoham Kanto Meat Sales Inc.; Itoham Chubu Meat Sales Inc.; Itoham Kansai Meat Sales Inc.; Itoham Kyushu Meat Sales Inc.; Itoham Foods (Australia) Pty. Ltd.; Itoham Daily Inc.; Itoham Shokuhin Inc.; HW Delicatessen Inc.; Asakusa Ham Inc.; Ito Cariani Sausage Company, Inc. (U.S.A.); Itoham Kanto Sales Inc.; Itoham Chubu Sales Inc.; Itoham Kansai Sales Inc.; Itoham Food Solutions Co., Ltd.; Okinawa Itoham Inc.; Kikusui Inc.; Dairyu Inc.; Ito Fresh Salad Co., Ltd; World Kitchen Co., Ltd.; IH Food Service Co., Ltd.; Hong Kong Garden Co., Ltd.; Hoei Bussan Co., Ltd.; American Peptide Company, Inc. (U.S.A.); Daily Distribution Co., Ltd.; IH Distribution Services Co., Ltd.; Itoham Distribution Co., Ltd.; S.A.R.L. Domaine de la Lauzade Kinu-Ito (France); Toei Techno Services Inc.; Itoham Marketing Institute Co., Ltd.; Ito Life Science Co., Ltd.

Principal Competitors: Nippon Meat Packers Inc.; Marudai Food Co.; Prima Meat Packers.
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