Huntsman Alumni Magazine Spring 2012

Spring 2012

The All-American Maverick

John R. Miller Recalls His Stepping Stones of Analytical Rigor and His Mentoring by Stephen R. Covey.

By Christine Arrington

He was about nine years old when he started working at the E.A. Miller meatpacking plant in Hyrum, Utah. John R. Miller essentially grew up on the slaughterhouse floor of this relatively small, regional meatpacking company that was started in 1936 by his grandfather, E.A. Miller. One of John’s earliest memories is of sweeping sawdust off the floors of the refrigerated coolers.

Some 17 years later in 1977, when John was 26 years old, a small plane crashed taking the lives of seven E.A. Miller employees, including John’s eldest cousin, Ernest, whose father, E.A. Miller, Jr., (known just as “Junior”) ran the company. Having recognized the rare steel in John’s character, Junior began to prepare John to manage the family business.

It was not long before John realized the business was in dire straits. It had little cash, and its customer base was shrinking. The giant multinational companies from the Midwest — Cargill, ConAgra, Swift, and IBP (Iowa Beef Processors) — were on the rise.

Long gone were the hundreds of smaller slaughterhouses that sent beef carcasses directly to stores where butchers cut up the meat for customers. And gone was the memory that Henry Ford had based his assembly line innovation on the meatpacking processing line.

As the “David” facing several looming “Goliaths”, the E.A. Miller business had no choice, John decided, but to inaugurate a “battle royale” for its survival. Annual revenue was about $90 million in 1977 when John began his search for the strongest analytical stepping stones that could drive the company’s growth.

John had just graduated from Utah State and had continued to work in the family business, so when he was promoted, he already knew that Iowa Beef Processors was the most efficient, effective operator in the business. He began to study its operation very closely. He even strolled into one of its open plants in Iowa in the middle of the night to see how the plant was laid out. Having grown up in the business, he knew exactly what he was looking at — a superior operation.

It was not long before he approached Stephen R. Covey, now the Jon M. Huntsman Presidential Professor of Leadership, to help him shape a leadership team, a cohesive business culture, and an incentive system for motivating and retaining management employees. He engaged Dr. Covey regularly over the years that followed and considers him one of the most important mentors in his life. He expresses tremendous admiration for Dr. Covey and his powerful, ethical approach to business.

Analytical Epiphany # 1

Days Sales Outstanding

After his trip to IBP in Iowa, John lit upon his first analytical stepping stone, in accounts receivable — days sales outstanding.

A public document showed that IBP collected the money owed to it within 13 days, on average. The E.A. Miller business, John learned, was letting accounts receivable go uncollected for more than 26 days on average. John turned his attention to speeding up that process, simply making it more efficient and chasing down the amounts owed through a well-defined multistep process. This helped secure the additional working capital needed for upgrading the plant to match the efficiency of IBP.

Relying on this and a number of other measures, the business grew from $90 million in revenue to $1.2 billion in less than a decade. Cargill and ConAgra got into a bidding war to buy the E.A. Miller business, for which ConAgra ultimately paid $33 million in 1987.

John then headed up ConAgra’s Armour Foods, a billion dollar consumer-branded food company with a $50 million annual marketing budget, until 1991 when he left to start National Beef.

Analytical Epiphany #2

$50 More Per Head for Genetically Superior Animals

John knew that the traditional entrenched system of rancher-to-feedlot-to-meatpacker had effectively and inexplicably blocked the ranchers from receiving a higher price for superior animals. Rather, the feedlots had enough power to slam the prices down to a very narrow range, leaving the ranchers little incentive to raise superior animals.

John broke down that roadblock, first by partnering “back down the line” with the U.S. Premium Beef Co-op of 600 ranchers in 26 states. He contracted with these ranchers to pay them more for genetically superior animals. The USDA has only four main grades of beef, for example, measuring only marbling (intramuscular fat), not tenderness — which depends on genetics, weaning weight, and feed. Eventually John was able to pay producers an average of $50 more per head for raising the more valuable genetic strains of cattle.

Analytical Epiphany #3

20% More Profit for Branded Beef

Perhaps John’s most important analytical epiphany was that “branded,” differentiated, genetically higher- quality beef could bring a premium price in the marketplace. Other producers had tried to achieve that, but none had succeeded on any sizeable scale — not Cargill, not ConAgra, and not IBP.

He recognized that the “Certified Black Angus” beef of the Angus Cattlemen’s Association was the only widely recognized beef brand in the United States. Building on that knowledge, he registered the “Certified Black Angus” brand and created 12 different value-added brands of his own, from “Black Canyon Select Angus” to “Naturewell Natural Beef.” His “Farmland Black Angus” branded beef sells for 6 or 7 cents more per pound than generic beef, and produces a profit 20 percent higher than non-branded beef. That 20 percent higher margin made a huge difference in what had been a purely commodity business.

Analytical Epiphany #4

Profit Per Animal Processed

Finally, John pushed for a very high percentage of “plant capacity utilization,” and he lowered the business’s operating costs in an effort to match its much larger competitors. These steps resulted in National Beef ’s achieving the most important metric of all — a higher profit-per-animal-processed than any other beef processor.

From 1997 on, National Beef has not been matched on a profit-per-animal basis, and every quarter thereafter it took market share away from its giant competitors — Cargill, Tyson (including Iowa Beef Processors), and JBS (the Brazilian-owned behemoth that bought Swift in 2007). The company now ships within the United States and to 60 countries around the world, six days a week. It is a top supplier to Wal-Mart and the number one supplier in Japan.

John stepped down from running National Beef in 2009, moving on to its board of directors until Lucadia bought the company in December 2011. The company’s 2011 revenue was $6 billion, with net income of $250 million. In his lifetime John went from overseeing the processing of some 50,000 cattle per year to nearly 4 million, and during those years he and his partners essentially reinvented the industry.

Recently John has been devoting much of his energy to the Mitt Romney Presidential Campaign, acting as National Finance Co-Chair. He also continues to direct his large real estate holdings.