What went wrong with the FBO tannery?

Fact: the tannery did not fail! What went wrong with the tannery is that the tannery was part of a meat-packing plant that failed. When the source of all management, resources, raw materials and finance failed, the tannery collapsed too! The problem was that FBO's original vision included 'vertical integration' which meant having partner-investors who were also clients, buying the products of FBO. But they only found one such partner, Safeway, who owned only 15% of FBO. So FBO found themselves liable to the dictates of financiers and bankers who ensured that FBO operational executives were meat and cattlemen with other ideas on how a packing plant should be run. Four months after 'start-up', Safeway noted that a $50 million operating loss had already accumulated in the first few months. Their contract with FBO had agreed to 'collar' payments to limit FBO's start-up losses to $50 per carcase and to compensate FBO for losses above $50 (losses actually averaged $100 up to $150). Safeway withdrew their cooperation and custom after becoming convinced that the situation could not improve. Up to that point Safeway had been buying up to 51% of the meat product. The other side of FBO agreements set the price FBO had to pay the ranchers - a 'cost-plus' - for special cattle husbandry but Safeway paid FBO for the meat at a price below market level - according to Ronnie Green, vice-president cattle operations. Yet FBO were also restricted from finding other outlets which might pay better prices. As a result of continuing losses, 'collar' payments were withheld at the end of 2001 and Safeway ended up in a dispute, owing FBO an additional $12.1 million for just four months (March through June). Why the losses? For FBO, Year 2001 could have been Friday 13 for 365 days with BSE, foot and mouth, embargoes on meat imports, not only in Europe, but also in Japan, Australia and Asia, with direct impact on the meat market in USA. And then there was September 11 - just one month after start-up. FBO still had to contract deliveries of cattle in January/February for slaughter in August - but it seems there was no contingency clause in case of adverse market conditions. USDA reported that live cattle prices dropped from $78 per 100lb in early 2001 to $62 later in the year. So as the market price of meat fell, the cattle price paid to the ranchers remained at the same high level. Add to that the many inefficiencies highlighted in the Buccino Report (including the transport costs of the excessive distances the cattle were trucked, the cost of a head office and staff ten hours away in the suburbs of Denver) it leaves little to wonder about that losses averaged close to $100 per carcase, peaking at $150. But an event took place on November 6, 2001, which has had little public attention and which could have had a significant influence on finally tipping the fate of the FBO project. On that day, a key element of the 'on-the-carcase' de-hairing system - namely, the chemical plant designed to recover and recycle the de-hairing medium, sodium sulfide - suffered an explosion. It is speculated that a static electric discharge ignited a mix of hydrogen-sulfide gas and oxygen inside the reactor used for the recovery. It was not until February 14, 2002, that de-hairing and tanning operations could resume. Just two weeks later, on March 4, 2002, Chapter 11 was declared. A condition of the bankruptcy protection and the additional $18.5 million funding was that New York 'turn-around' specialists, Buccino & Associates, would audit the entire operation, to see if there was any hope of saving FBO. After four weeks, Buccino concluded that unless Safeway was willing to pay 7 cents per lb extra for the meat and unless many re-organisational steps were implemented, a turnaround would be unlikely. In the end, Safeway refused to pay more for the beef. Chapter 7 (bankruptcy and liquidation) was declared on August 2, 2001. Obviously, the basic cause did not lie within the tannery; but in the author's opinion operating the combination of modern industrial systems and automated technologies clearly had overwhelmed the tannery management. Regrettably, despite early requests, the construction and project managers could not be persuaded to provide the resources and organisation to have the tannery operational several months prior to starting up the kill-floor. The intention was to use regular chilled raw hides sourced from the market. This would have familiarised management and trained operators in the various systems and machine operations and put the team in a better position to cope, once the de-haired hide production came on line. Similarly, resources were not provided to carry out essential bulk proving trials for the critical 'de-hair' process on actual carcases in full-scale spray-chambers. So there was no opportunity to train and familiarise management with this chemically simple, yet functionally complex process. Data on chemical mass balances could not be confirmed and the spray de-hair technology could not be optimised prior to installing the actual equipment and start of the kill on August 9, 2001. Likewise, the essential sulfide-regeneration plant, which later exploded, went from drawing-board to industrial installation without off-site pre-testing under working conditions. As a result, 'start-up' of the de-hair system and sulfide regeneration resembled a huge, hectic experiment, with attendant risks from the poisonous sulfide. There were several accidents and personnel were exposed to toxic sulfide. Anyone who has read the official report will be left in no doubt that the failure of the project had nothing to do with leather technology but much to do with meat packer management, finances and organisation - or lack of them. The report catalogues a list of management failures: 'Key functional areas headed by people untrained for their tasks; in finance, with one exception, the entire managerial staff is inexperienced and inattentive to detail and not always accurate; few financial controls apparent; no audited statements prepared since December 2000 - B&A analysis had to be prepared from data supplied by FBO; poor co-ordination among senior staff; poor communication between departments; no sense of urgency within the senior staff; CEO not located at the principal facility; executive group's lack of experience; isolation of certain key managers at Parker (the head office).' It goes on and on … The Buccino Consultants couldn't be expected to be experts in tanning and, working with data received, they calculated that the de-hair process added $3 to the cost of every carcase! For the forecast production of 420,000 cattle per year, that would have been $1.26 million every year - a questionable conclusion! Details of breakdowns, accidents and the sporadic production of de-haired hides are absent in their report. They do not acknowledge that the system was being judged on the basis of only 5,000-6,000 carcases, the total number of carcases (as reported by Ronnie Green) de-haired before the plant closed, less than 3% of planned capacity. Buccino also concluded that the de-hairing process was not regularly used at FBO due to FBO's inability to sell chromed hides in the current market! Had they been half as good as the cattle promised in the business plan, there was every indication the wet-blue would have sold at premium prices. The market feedback - especially following the IULTCS presentation in Cape Town 'Engineering the Square Cow' by Crowther and Bailey - was extremely enthusiastic, and endorsed the concepts and vision of Dr Bowling and the original FBO. There is a need for a fresh approach. In reality, difficulties in selling wet-blue were not a part of the problem. Nevertheless, in the sporadic production runs which were made in the first couple of months, particularly in the period when close supervision was possible, a 'proof of concept' for the tannery was achieved. 5,000-6000 hides were processed, which did give tannery staff on-the-job practice of fleshing, raw-splitting and tanning. The SCADA automation and distributed plc-control was beginning to prove itself, and the Cangilone drums provided rapid chemical penetration, protecting the grain of the hides with their gentle movement. There were other benefits, particularly area gain, which were never exploited. Editor's note: That the project failed is both a tragedy for the leather industry and a huge step backwards for the meat industry! I believe that, one day, only the strictest of hygienic methods and the most humane slaughtering conditions will be tolerated. And the meat and the hides will be the better for it. If only the implementation had been of the same high standard as the original vision. In a future article, Crowther gives his recommendations on how such a project should be implemented, to ensure a profitable outcome. John Crowther, of Swystem Logic GmbH in Switzerland, was hired in 1998 by the originator of the FBO concept, Dr Rod Bowling, formerly of Texas A&M University and Montfort. Given the unorthodox starting point, taking the hair off the just-stunned animal, heart still beating, Crowther's task was to design a modern, super-clean and efficient wet-blue tannery, which would wring the maximum benefits out of a process that starts with a hair-less raw-hide and employs the most modern, proven technology. Crowther sourced the equipment, co-ordinated delivery from mainly EU-machine suppliers, and provided the 'Systems Analysis' and 'Functional Specification' for the US-supplied ICON PLC-SCADA automation. He organised testing of the 'de-hairing' process (based on the 'Darmstadt process') at Dr David Bailey's USDA Wyndmoor PA labs (see following article), which proved the concept workable. There he also developed a 'Provisional Formula' - the beamhouse and tanning processes to optimise use of the Olcina 'Cangilone' drums, and to maximise economic benefits from the unique raw-split hides. Crowther was on-site with the project in Arkansas City until three months after 'start-up', so who better to answer the question: 'What really went wrong?' Crowther can be contacted at swystem@bluewin.ch or visit his website is at [http://www.swystemlogic.com]