When Michael Murdock became president of Chilay Foods in La Puente a year and a half ago, the food manufacturing company was faced with the problem of growing its business without raising consumer prices. Murdock spoke with Alexa Apallas about his efforts to make the business more efficient while keeping prices competitive.
We manufacture salsa under the Rojos brand name. Consumers today are reluctant to face price increases, but we’ve been hit really hard by several factors. Because of El Ni & #324;o, we’ve seen prices for our raw materials increase dramatically. That’s been disastrous for us. Our labor costs have gone up because of the increase in minimum wage. Say I have an employee who’s worked here for 10 years and he makes $6 an hour. Now I hire someone new and because of the new minimum wage, he makes $5.75. I didn’t want to penalize workers who had been here for a long time, so I elevated everyone’s pay. All hourly rates increased.
Finally, marketing our product has become more expensive. So we’ve had to become more efficient internally in order to avoid passing on higher prices to the customer. There have been a lot of little things we’ve done. We haven’t made any quantum leaps. Instead, there are constant incremental changes.
Our total labor consists of productive work plus unproductive work. We’ve tried to eliminate as much unproductive work as possible. For example, we lose two hours of production time every day because of set-up, sanitization and wash-down of the equipment. In order to have longer production runs, we’ve switched from five eight-hour days to four 10-hour days. That way, we gain two hours of pure production time.
It’s been hard on our employees the difference between an eight-hour day and a 10-hour day is brutal. We have 25 employees and they’ve all been ready to work harder and smarter. We always see a spike in business in the summer, so they’ve put in a lot of overtime, too. But to be candid, I sat down and explained the necessity of overtime to everyone, and they supported it. We need to increase our business now so that we can automate some of the production in the fall. That will make it easier on our workforce.
We want to be growth-oriented because when we grow, we experience greater efficiency in production. We’re in a very competitive market, so marketing the product is our second-biggest expense. It seems to be a trend marketing costs keep going up. We’re very aggressive in marketing our product, but at the same time, we have to be more judicious in how we spend our money so that we keep costs down as much as possible. All of our changes seem to have worked. Despite the higher expenses that we’ve faced, there have been no price increases for our consumers.