Case Analysis: Boston Creamery, Inc.

Introduction: Boston Creamery is actually one of the divisions of a larger group that specializes in the Food Industry, and Boston Creamery specializes in low-end traditional activity (ice cream). Boston Creamery is a Profit Strategic Business Unit (SBU). They recently installed a new Financial Planning and Control System, and the forecast for 1973 was different from the actual results of operations. This was the first year when they could compare the forecast to the actual operating results. They need to make a forecast for 1974 that will be closer to the actual results. I. Industry Analysis and the Firm’s Strategies: 1.1 Porter’s Five Forces: Supplier Power: The two primary suppliers of key inputs are dairies that produce milk and companies that sell sugar in bulk quantities. There are many suppliers, to it is not easy for suppliers to drive up prices. These two key inputs are not unique products, so their strength and control over Boston Creamery is low, and there is little cost of switching from one to another. Boston Creamery does not have a great need for suppliers' help, and the company has many supplier choices. The major factor is national prices for milk and world prices for sugar. Buyer Power: Ice cream is a generic product, which can be made by many different companies with the same quality, the same ingredients and the same packaging. Thus, buyers have power to choose brands. This is why Boston creamery has chosen to compete on the basis of price. There is little or no cost for each individual buyer to switch from Boston Creamery products to those of someone else. On the other hand, the company does not have to deal with few powerful buyers, so the retail stores that sell to the individual buyers they are not able to dictate terms to Boston Creamery. Competitive Rivalry: The market for ice cream is mature, with companies competing for share of a market that is not growing. Thus, there are many competitors, and they offer equally attractive products, so Boston Creamery has little power in the situation. If suppliers and buyers don’t get a good deal from Boston Creamery, they’ll go elsewhere. On the other hand, companies like Ben & Jerry and Hagen Dazs have built their own niche markets for specialty and premium ice cream products, where they do something that nobody else can do, so they have tremendous bargaining strength. They set much higher prices for their patented recipes of premium and specialty ice cream, compared to the generic flavors and styles of Boston Creamery. Threat of Substitution: There are many substitutes for the ice cream products that Boston Creamery produces and markets. It is not unique. This weakens the

company’s bargaining power. Not only do other companies make ice cream, but the recipes are mostly openly known and not a secret formula, and not a patented process. In addition, there are frozen ices and frozen yogurt that can replace ice cream as a treat or dessert. In fact, many people regard frozen yogurt as better for their health, compared to ice cream. Thus, consumers have many choices and this dilutes the bargaining power of Boston Creamery. Threat of New Entry: The ability of people to enter this market is high. It costs little in time or money to enter the market and compete effectively. On the other hand, there are economies of scale in place which make it more costly to produce smaller quantities of the product. However, there is little protection for key technologies, so new competitors can quickly enter the market and weaken Boston Creamery’s position. There are no strong and durable barriers to entry, so it is difficult to preserve a favorable position and take fair advantage of it. An example of new entry is Cold Stone Creamery, which took advantage of the “Starbucks effect” with their personalized choice where customers could choose a combination from more than 12 ice cream flavors and any combination of 38 mix-in ingredients. at an upscale store where customers waited in long lines to pay high prices. This super premium chain of ice cream stores created a new market niche for old product in a new type of distribution. The marketing was also a major factor in their success. “Super-premium mix-in chains such as Cold Stone Creamery and Marble Slab Creamery (No. 91 on Entrepreneur's list) are hot even as overall ice cream store sales remain flat at $9 billion a year. Accelerating store rollouts, exasperatingly long customer lines and ambitious global expansion plans all signal they are taking business away from the chocolate- and vanilla-variety shops” (Hirschfeld). 1.2 Evaluation of the Generic Strategies Chosen by the Firm Boston Creamery has chosen to compete on price, but the company ended up with a much higher price than planned, due to cost overruns. These overruns were primarily due to costs of production, with a great share of those costs coming from salaries to production workers. In spite of these problems, Peterson and Roberts believe that they had a good year with increased profits due to increased sales. Only the Controller, Vance, can see that profits are lower. 1.2.1 Jim Peterson says that the initial report from Frank Roberts looks good, but he wants him to break it down and highlight the areas that need to be corrected, as well as those things that went well. 1.2.2 A personal conflict is developing within the management team. Frank Roberts thinks that Jack Vance goes overboard with the technical aspects of accounting

problems. Jim Peterson asked for a non-technical presentation. On the other hand, Jack Vance believes that Frank Roberts is ignoring the problems in order to make himself look good. 1.2.3 The managers are not working well together. They are each fighting to defend their own position, and failing to look at the factors that will contribute to the company’s success and profitability. II. Issues at Hand 2.1 The Case describes a conflict within Boston Creamery’s management team, which is based upon their disagreement over the variance analysis.. They need to learn the major reasons for the favorable operating income variance of $71,700. They also need to develop tools for budgeting that will be more accurate with regard to sales forecasts, as well as costs and prices for the ice cream products that are marketed by Boston Creamery. 2.2 The favorable variance of operating income was due to the larger size of the overall market, plus the higher prices charged for the product, compared to the forecast. It was not due to increased market share. 2.2.1 The favorable variance of operating income does not translate into higher profits for Boston Creamery. In fact, the actual income from operations was only $717,100, compared to the budgeted $763,100 for actual sales, even though sales were much higher and the price was higher than the forecast. 2.2.2 The variance is actually due to the volume of production, the volume of sales and the higher price, and it was not calculated correctly. They based the variance on the budget forecast of production and sales, but they should base it upon the actual production and sales. 2.2.3 They actually had an unfavorable manufacturing variance. The variance is negative, when you look at the profits from actual sales and production, instead of the budgeted sales and production in the forecast. 2.2.4 Jim Peterson wants Frank Roberts to ask for help from the Controller, John Vance, to make the variance report. But Peterson does not like to use information from an accountant. He believes that it will be boring. Roberts only asked Vance for written materials dealing with mix variances and volume variances. 2.2.5

Jack Vance produced figures showing that the variances were a big problem that affected the profitability of the company. In fact, he states that the variances are actually negative, not positive. 2.2.6 They also need to look at the profit contribution of each flavor, package and size of ice cream that they produce and sell. In Exhibit A, Jack Vance shows that the two gallon size in a paper carton makes the smallest profit contribution of only 26.5 cents per gallon. The one gallon size of premium ice cream makes the highest profit contribution of 72.5 cents per gallon. The one gallon size of regular ice cream in a paper carton has a profit contribution of 34 cents per gallon, and the one gallon size of regular ice cream in a plastic carton has a profit contribution of 30.5 cents per gallon. 2.3 These management members must learn to work as a team. They should not be fighting each other. They need to build a team that is based on “feeling part of something larger than yourself. It has a lot to do with your understanding of the mission or objectives of your organization” (Heathfield). Each manager should contribute to the overall success of the organization by working with other members of the organization to produce results. Each one has a specific job function and belongs to a specific department, but they all must work with other organization members to accomplish the overall objectives of the firm. 2.3.1 The team is geared to more than just one specific goal. In other words, the performance of the new Financial Planning and Control System is not the only goal of teamwork. They need to operate as a team for the larger picture of the continuing overall success of the company. Conclusion The management needs to examine many factors in their operations, as well as in the new Financial Planning and Control System. For example, they need to look at their product mix and see if they can make some changes that will make it more profitable. If the two gallon size is making very small profit contributions, then maybe they should stop producing and selling that size. They also need to work together as a team, to avoid personal conflict and work together toward the goals and mission of the company. They have not defined their goals clearly. The performance metric is simply being used to measure the financial results, and management does not even agree on what those results mean. III. Current Control Systems at Boston Creamery, Inc. 3.1 The company had installed a new financial planning and control system. They made their budget for 1973 in October of 1972, so they had to use the estimated final earnings for 1972, when they made their forecast for

1973. Peterson felt that they could bring in more formal forecasting techniques and concepts to refine the system in later years. These changes are not just refinements. They are necessary to make accurate calculations of the profitability of the company’s operations. 3.2 The forecast of variable operating costs was much lower than the actual costs, which resulted in a higher cost of production, and therefore a higher consumer price than planned for the products. They underestimated the size of the total market, which resulted in underestimating the sales for Boston Creamery. In addition, they underestimated the costs of production. Moreover, they failed to compare the actual results of operations every month, so they did not discover the difference between the forecast and the actual volume until the spring.

3.3

3.3.1 The company lacks a clearly defined strategy, clearly defined goals and clearly defined measures of operating results. 3.3.2 The forecast budget was based upon estimates of the operating results of the previous year. No goals were set for the current year. 3.3.2 Boston creamery’s management does not seem to have clear goals or to understand what they need to measure with their new Financial Planning and Control System. The goal of such a system is to provide information on selected measures of financial performance in order to assess the financial condition and operating performance of the company. 3.3.4 There are many metrics to choose from, but it seems that Boston creamery is only using the net operating revenues ratio. It tells them whether the firm’s operating activities resulted in a net deficit or surplus for the year. They could also choose the return on net assets ratio, but they did not do that. It would tell them whether the firm is doing better this year than it did n=in previous years. The case also does not examine the debt burden, or the viability of the firm. Recommendations The marketing team needs to find better ways to forecast sales and operating costs. They also need to calculate the actual variance based upon the actual level of production. The forecast of fixed operating costs was based upon the forecast level of production, but the analysis of actual results should be based upon the actual level of production.

They also need to monitor the business activities regularly, and make monthly comparisons of the results to the forecast. In addition, they need to set strategic goals and then use the new MCS to measure how well they achieve those goals. Moreover, they need to consumer non-financial factors, such as customer satisfaction, efficiency of the manufacturing processes, and so forth. IV. Critical Evaluation of the Management Control Systems at Boston Creamery, Inc. 4.1 Evaluation of the Boston Creamery’s Choices of the Types of MCS Management needs to determine which costs can be controlled and which costs cannot be controlled. For example, the variable costs of cartons depend upon the volume produced and can be controlled by controlling the level of production.. The variable costs of sugar and milk might not be subject to control by Boston Creamery if the suppliers raise the prices, but they can get lower prices per unit when they buy in higher volume to supply increased production. The fixed costs of sales salaries could be controlled by increasing or decreasing the size of the sales force. The fixed costs of depreciation of the plant equipment is extremely fixed and is not likely to change with increased or decreased volume of production. They need to explore economies of scale, engineering processes, product mix, and so forth. 4.1.2 “Fine Tuning” the New Financial Planning and Control System The expectation by Jim Peterson that they could add in the formal sales forecasting techniques and concepts later has resulted in a forecast that is wrong, and a budget that does not match the real situation. Moreover, since they did not monitor that firm’s activities every month, and they did not compare those figures to the budget every month, they did not realize that they had a big problem until the spring. 4.1.3 Financial Performance Metrics “Traditional financial performance metrics provide information about a firm's past results, but are not well-suited for predicting future performance or for implementing and controlling the firm's strategic plan. By analyzing perspectives other than the financial one, managers can better translate the organization's strategy into actionable objectives and better measure how well the strategic plan is executing” (“The Balanced Scorecard”). 4.1.4

The case does not address the compensation system or the distribution system. Those would be major factors in assessing the possibility of cutting costs, streamlining processes and so forth. Unfortunately, they cannot be specifically addressed without information that is not discussed in the case. It would be especially important to know about the compensation system, since the biggest cost overruns were in the production salaries. Conclusion Management needs to break down the different areas of the performance metric to determine which costs can be controlled, as well as the actual results of operations. They also need to take more than one perspective, not only the financial point of view, but also other factors that affect the operations and profitability of the company. When planning their strategy, they need to consider four areas: financial performance, internal processes, customers, and learning and growth. Each one of these four areas has objectives, measures, targets and initiatives. Management needs to balance all four of these areas by defining and using the objectives, measures, targets and initiatives.     Strategic objectives - what the strategy is to achieve in that perspective. Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target. (“The Balanced Score Card”) 4.2 Consistency of the Performance Metric They used the same general approach for both the variable product standard costs and for fixed costs. They had to adjust the budget in spring of 1973 when it became obvious that sales would be much higher than the forecast. They had to adjust costs as well as sales in their forecast. 4.2.1 Each member of management draws a different conclusion from the performance metric. Jim Peterson sees record high sales for ice cream. Frank Roberts sees increased profitability for the company. Jack Vance sees a reduction of profits on each unit of ice cream sold. Thus, each manager has a different picture of the operating results, based up on the same performance metric. 4.2.2 The objectives of the new performance metric were not clearly defined. If the firm seeks growth, the measure will be revenue growth. If the firm seeks

profitability, the measure will be return on equity. If the firm seeks cost leadership, the measure will be unit cost. 4.2.3 The ice cream market is not in the growth stage. It is in the mature stage, so revenue growth is not the goal, unless the firm can achieve it by gaining more share of a stable market that is not growing. They already have about half of the market in their region. 4.2.4 However, Boston Creamery was measuring market share compared to their competitors. This has been the standard way to measure market share, but it is not clear how they measure it. Are they “talking about dollar market share, our share of the revenue from the industry, and someone else might be talking about unit market share, our share of the units being sold” (Reibstein). Moreover, are they looking at the ice cream market, or the market for all frozen desserts, or some other market? It is not clearly defined. 4.2.5 Boston Creamery is competing on the basis of price, so they are probably seeing the company as being in the sustain stage, where the goal is increased profitability. Thus, it is not yet in the harvest stage, where the goal would be to increase cash flow and reduce capital requirements. 4.2.4 However, the management was wrong when they thought that the market was mature. Their increased sales actually came from growth in the overall market, not from increased share of the stable market. Conclusion The performance metric needs to be improved. It needs to reflect the source of the positive variance, including sales volume and price, as well as the negative effects of costs. 4.3 Critical Evaluation of the Performance Metric The performance metric has not led to understanding of the operating results. It has given each manager a different view of the results, leading to conflict among management. 4.3.1 Management needs to determine the marginal contribution of each product by determining the fixed and variable costs, and then use the sales forecast to arrive at a total marginal contribution by month. Profit variance should be calculated

monthly. In addition, the variance should be calculated upon the basis of actual volume, not the forecast. 4.3.2 Jack Vance shows the figures in Exhibit A, that the profitability of the ice cream sales was actually lower per unit, compared to the previous year. 4.3.3 For example, in January 520,000 gallons of ice cream, but they based the analysis on the forecast of only 495,000 gallons. The revenues for January area actually $28,875 under the forecast for the actual sales. The earnings statement, which is Exhibit C in the Appendix to the Case, shows that the actual manufacturing costs were $593,287 compared to the budgeted costs of only $570,537. Thus, the variance due to operations was a negative $22,750. The actual operating profit was only $92,383 compared to the budgeted $115,133. Thus, the negative variance due to volume and mix was a negative $6,125. Adding the two variances gives the total negative variance of $28,875. Conclusion Management did not see the variance until the spring, three months into the year. They should calculate the variance very month and make decisions accordingly. Also, management needs to improve the way they use their new Financial Planning and Control System. They also need to base their analysis on the actual volume of production and sales. V. Teamwork at Boston Creamery 5.1 The team members do not seem to clearly understand the expectations. Teamwork depends upon clear expectations. Perhaps Jim Peterson has not clearly communicated his expectations for the team’s performance and expected outcomes. They are in a personal conflict and they do not seem to understand why they are working together, or purpose that the company has to support the team with resources of people, time and money. The work of the team needs to “receive sufficient emphasis as a priority in terms of the time, discussion, attention and interest directed its way by executive leaders” (Heathfield). The context of the work seems to be unclear. Roberts thinks that the accounting data from the Controller will be boring, while Vance thinks that Roberts is only trying to make himself look good by leaving out the accounting data. They do not seem to understand how their teamwork will help the organization achieve its business goals. They do not seem to understand where their work fits in the total context of Boston Creamery’s goals, principles, vision and values. Another important factor in teamwork is commitment. The managers do not seem to have the desire to participate on a team. They seem to feel

5.2

5.3

that their own specific tasks are more important than the company’s mission or the goals of the team. They do not seem to be committed to accomplishing the team mission and expected outcomes. They seem to be defensive about their own areas of expertise, and not viewing this task of evaluating the MCS as an exciting challenge or an opportunity to work together as a team. 5.4 It is also very important to match each manager[s strengths and skills to his or her job and the tasks that are assigned to the manager (Robbins). In this case, it seems that Jim Peterson should not ask Roberts to analyze the new Financial Planning and Control System, or the profitability of the operations during the past year. These are accounting tasks. Vance is the Controller, so he should be doing the analysis. After Vance presents the results from the accounting point of view, then Roberts and other managers should be asked to present their reports. They need to understand what the problem is with the profitability, and that is an accounting task. The accountant should do it. However, all of this information is important to all of the management team, including the marketing manager and the CEO. They all need to know “what each of these measures mean, how to collect each of these measures, and how to apply the knowledge that you gain by having these measures” (Reibstein).

5.5

5.6

General Conclusion The budget is the key planning toolbox of the business manager. An effective budget must be a plan that is timely and measurable. Its dual purpose is a planning tool and monitoring tool. Poor budgeting can demotivate its users and readers. In addition to being an effective cash measurement tool of every business decision and transaction, the budget can also serve as an early warning indicator and guide to liquidity. Preparing a budget requires the clear identification of all business costs and revenues for the specified period. The timing of these revenues and costs is also essential. The for each period of time has to be determined. The business needs to know how to respond to the short and long term results of operations. The MCS should look at the budgeted costs and revenues for actual volume, not for the projected volume. The failure to do this makes the variance appear to be positive, when it is actually negative. This means that the analysis is failing to show management that costs need to be controlled. Overall, the new Financial Planning and Control System at Boston Creamery needs to be used properly, based on actual volume of production and sales. More importantly, they need to build a management team that works together without personal conflict over business matters.

Finally, they need to measure other factors besides financial performance. For example, what do customers want in terms of new products, on time delivery and so forth, in addition to price. How can the internal processes be improved in terms of not only cost, but also cycle time, yield, design productivity, engineering efficiency and manufacturing excellence. What can the company learn in terms of manufacturing, product focus and management competence (“The Balanced Scorecard”). The company needs to achieve strategic alignment. Boson Creamery has enjoyed growth in sales but has suffered decreased profitability. They need to define their performance metric in terms of strategic goals, but their goals first need to be clearly defined. Then they need to assign values to the strategic goals and measure those targets. Boston Creamery has not examined ways to increase their market share. They have not looked at customer satisfaction. They simply continue producing and marketing and distributing the same products by the same methods, while companies like Ben & Jerry, Hagen Dazs and Cold Stone Creamery enjoy success and growth by introducing new products, distribution centers and methods, and marketing images that have built market niches that are in the growth stage. Boston creamery remains in the mature stage by doing nothing to change their position. If the strategy is not changed, then Boston creamery’s best means of increasing profitability is to cut costs. Thus, they need to achieve economies of scale and to cut the costs of production salaries. Dave Reibstein wrote a book about metrics for “marketing managers is because all the time we are working with all the sets of metrics and more. . . And we need to make sure that we have a good understanding of these measures that we're gathering, including some of the flaws in how they might be measured, and some of the alternate interpretations. The reason it's relevant for others in the organization who aren't even in marketing is because we may find marketing says something about what our market share is, or what our margins are, and we're communicating in those marketing terms that we need to make sure we understand what it is that is really being said about the status of the firm.” Boston Creamery’s management does not seem to understand what the metrics are saying about their firm. Reibstein also tells us: Both marketing managers and CEOs should be looking at these metrics, and the reason is because we're making budget allocation decisions, and the question is, are our decisions really working? So, for example, last week in class, I had the president of Diageo marketing in my class. He has a marketing budget of in excess of $2.2 billion. He would like to know, as I spend this money, is it really

deriving anything for me? Are people aware of all the different brands that I have, and I want to follow it all the way through the pipeline of going from awareness down to consideration to preference and gaining distribution and trial and purchase. Where I am in the status of all that? Ultimately, I want to know that when I spend $2.2 billion, that there's some return that I'm getting for that. Clearly, that the head of marketing is concerned about, am I spending wisely around alternative considerations, and certainly the CEO would like to know, I put this $2.2 billion plus over here, should I have been spending it somewhere else in the organization? So it's important for both.

References Heathfield, Susan M. “Twelve Tips for Team Building: How to Build Successful Work Teams.” Your Guide to Human Resources. http://humanresources.about.com/od/involvementteams/a/twelve_tip_team.htm Hirschfeld, Bob. “What’s Hot in ice Cream?” Retail Traffic. Sept. 24, 2007. Reibstein, Dave. Interview. Wharton Journal. Marketing Metrics and Financial Performance. Published: April 26, 2006 in Knowledge@Wharton. Robbins, Steven. “Build Your Management Team.” http://www.entrepreneur.com/growyourbusiness/howtoguides/article83618.html “The Balanced Scorecard.” Net MBA. http://www.netmba.com/

Appendix Definitions

Ice Cream Decoded
• •

• • • • •

Super-Premium Ice Cream has very low air and high fat content, and uses only the highest quality ingredients. Ice Cream is a frozen dessert product containing at least 10 percent milkfat and at least 20 percent total milk solids, safe and suitable sweetener and optional stabilizing flavoring and dairy-derived ingredients. Reduced Fat Ice Cream is made with 24 percent less fat than ice cream. Light or Lite Ice Cream is made with 50 percent less fat or 1/3 fewer calories than ice cream, provided that, in the case of calorie reduction, less than 50 percent of the calories are derived from fat. Low-fat Ice Cream contains no more than 3 grams of fat per serving. Nonfat/Fat-Free Ice Cream contains less than 0.5 grams of fat per serving. No Sugar Added Ice Cream may contain artificial sweeteners, but is not sweetened with added sugar. Sorbet is a frozen dessert similar to an ice. It is a nondairy product. Frozen Yogurt is a frozen dessert similar to nonfat/low-fat ice cream; mixes containing cultured skim milk and live active cultures. The fat content is less than 4 percent. Source: Cold Stone Creamery Industry Overview (Hirschfeld)

BACKGROUNDER Media Contacts: Miranda Robertson Marti Pupillo 202/737-IDFA JULY IS NATIONAL ICE CREAM MONTH In 1984, President Ronald Reagan designated July as National Ice Cream Month and the third Sunday of the month as National Ice Cream Day. He recognized ice cream as a fun and nutritious food that is enjoyed by a full 90% of the nation's population. In the proclamation, President Reagan called for all people of the United States to observe these events with "appropriate ceremonies and activities." The International Ice Cream Association (IICA) encourages retailers and consumers to celebrate July as National Ice Cream Month. In 2007, National Ice Cream Day will be Sunday, July 15. The U.S. ice cream industry generates more than $21 billion in annual sales and provides jobs for thousands of citizens. About 9% of all the milk produced by U.S. dairy farmers is used to produce ice cream, contributing significantly to the economic well-being of the nation's dairy industry. Founded in 1900, IICA is the trade association for manufacturers and distributors of ice cream and other frozen dessert products. The association's activities range from legislative and regulatory advocacy to market research, education and training. Its 80 member companies manufacture and distribute an estimated 85% of the ice cream and frozen dessert products consumed in the United States. IICA, as a constituent organization of the International Dairy Foods Association, can be found online at http://www.idfa.org/. ###

United States Frozen Dairy Products The United States is responsible for developing the frozen dairy dessert industry into what it is today, and consumers worldwide recognize this level of innovation and quality. Cutting-edge technological achievements in the areas of ingredients, manufacturing equipment and packaging have enabled U.S. processors to develop a frozen dairy dessert for every consumer's nutritional needs and taste preferences. As global demand increases for consistent, high quality frozen dairy products, the U.S. frozen dairy dessert industry is well positioned to meet the challenge. Why Buy U.S. Frozen Dairy Products? World's largest frozen dairy products producer Approximately 40% of the world's frozen dairy desserts (5.8 billion liters)* are manufactured at more than 450 U.S. ice cream plants, making the United States the largest country producing ice cream and related products in the world. From 1994 to 2004, U.S. frozen dairy dessert production increased an average of 8%, an increase of close to 56 million liters per year. The U.S. frozen dairy products industry is capable of unrestrained growth to meet global demands, thanks to:
• • •

the largest milk supply in the world, an abundance of land and, investments in research and development.

A wide variety of choices U.S. producers export a wide variety of ice cream styles, including:
• • •

"super premium" products, made with a high butterfat content, nonfat, low-fat or light products, and sugar-free premium novelties and desserts.

Flavors range from traditional favorites such as vanilla, chocolate and strawberry to unique ones such as toasted almond or green tea. Typical container sizes of ice cream and frozen yogurt include 170 ml cups, pints, gallons, half liters, liters and other large containers for retail and foodservice sales. In addition, dozens of types of frozen novelties are exported throughout the world. State-of-the-art production facilities The U.S. frozen dairy dessert industry continuously makes large investments in technologically-advanced manufacturing and packaging equipment, enabling the United States to be the largest and most efficient producer of ice cream and related products.

The U.S. frozen dairy dessert industry is the world's most efficient producer of ice cream and related products, with efficiencies improving annually. In the past ten years, the U.S. industry has practically doubled its frozen dairy dessert output per plant. Continued investment and greater efficiencies will mean increased frozen dairy dessert production in the future. Top-quality raw materials U.S. ice creams are made with a careful selection of quality ingredients. Manufacturers use only the highest quality milk, fresh cream, nonfat milk solids, and whey protein concentrates, in the production of ice cream and related products. Many processors are committed to all-natural labels and use only premium ingredients and flavorings to produce the finest quality ice creams in the world. The fat and sugar replacers that are used in the production of nonfat, nosugar-added and other healthy frozen desserts are all approved by the Food and Drug Administration (FDA). Suppliers of inclusion ingredients, such as confectionery pieces, chips, fruit chunks, variegates and nuts, use only the finest ingredients. Product development innovation The U.S. frozen dairy dessert industry is globally recognized for establishing the industry as we know it today. U.S. processors have embraced ingredient technology, especially in the area of fat replacement, and produce the highest quality, low-fat, nonfat and sugar-free frozen dairy desserts in the world. The United States is also a world leader in ice cream novelty innovation. Technical advancements in processing equipment make it possible to manufacture any shape, size and flavor of novelty. The U.S. market is well positioned to manufacture products that meet the most current consumer trends. Creative packaging and merchandising U.S. frozen dairy dessert manufacturers not only show off their creativity in the flavors of ice cream they produce, but also in the packaging. This includes inner protective seals on bulk packages, as well as tamper-evident seals. These features are important in export markets. Bulk packages come round or square, made from paperboard or plastic, resealable or not. Cones, sticks and sandwiches come in many sizes and shapes, in single or multi-pack containers and boxed or sleeved. In addition, upgraded paper, plastic and film carry bolder colors and more detailed graphics, stir up interest among consumers, and consequently increase frozen dairy dessert sales. Many manufacturers customdesign packages for export markets. Strict sanitary and quality standards The U.S. frozen dairy dessert industry adheres to strict production practices, resulting in one of the safest, highest quality ice cream and related product lines in the world. All products are tested and evaluated at every stage of production to ensure that they not only meet U.S. government standards, but also the expectations of the consumer. Screening is in place to monitor product

composition and to detect any foreign objects such as metal shavings. U.S. manufacturers employ strict warehouse, transportation and distribution guidelines, ensuring that only the highest quality product reaches consumers' freezers. This includes maintaining steady product temperatures, sufficient circulation of refrigerated air and proper stock control and rotation using the firstin, first-out inventory management approach. Premium products Air is whipped into the product resulting in overrun, an increase in volume. The percentage overrun is carefully controlled to yield quality products with optimum body and texture. U.S. federal standards limit the amount of air by specifying that a liter of ice cream must weigh at least 0.54 kilograms. U.S. ice creams typically do not contain over 100% overrun. Regular to premium ice cream generally has 80-100% overrun, super premium ice cream often has 20-50%. A growing export-oriented industry Exports of U.S. ice cream and related products have expanded in the western hemisphere. In 2004, U.S. frozen dairy dessert export volume reached 9,752 mt in Mexico and 2,590 mt in the Caribbean, an increase of 93% and 19% respectively from 2000. Flexibility in production With unrestrained capacity for growth, the largest milk supply in the world, continued investments and an increasingly international focus on exporting, the U.S. frozen dairy desserts industry can respond quickly to market demand and consumer trends. Many U.S. manufacturers also offer custom processing and packaging. Flexibility in production and the ability to respond to customers' needs, quickly, are important features of U.S. exporters. * Latest data available: 2001. U.S. Dairy Export Council - 2101 Wilson Blvd. Suite 400 - Arlington, VA 222013061 USA Phone USA: 703.528.3049 - Fax USA: 703.528.3705 Copyright © 1996-2006 by U.S. Dairy Export Council. All Rights Reserved.

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