Ending the Internal "Price War"
F&B Manufacturing & Retail Group
Food Manufacturing & Retail
3 Months
Confidential
Ending the Internal “Price War”: How Correcting Transfer Pricing & Incentives Unlocked Hidden Profits in Both Factory and Retail
Client Profile
Industry: Integrated Food Manufacturing (Central Kitchen) & Retail Chain Structure: Centralized production facility supplying multiple self-owned outlets.
Key Struggles: Artificial profitability in manufacturing, margin erosion in retail, toxic “blame culture,” and low workforce productivity due to overtime dependency.
The Challenge: A House Divided
Before MMC’s intervention, the company was profitable on paper, but the owner felt trapped in a constant mediation battle between his two business units. The organization was paralyzed by three systemic issues:
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Distorted Transfer Pricing & The “Scapegoat” Effect: The Central Kitchen (Factory) was charging Retail outlets inflated prices to cover its own operational inefficiencies. This created “fake” factory profits while retail outlets seemingly bled, using high supply costs as an excuse for poor performance.
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The “Milk the Clock” Culture: The compensation structure inadvertently punished efficiency. Employees relied heavily on Overtime (OT) pay, creating a perverse incentive to work slowly during regular hours to trigger OT rates, resulting in sluggish production and soaring labor costs.
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Management Blind Spots: The owner couldn’t see the true unit economics. Financial data was clouded by internal transfer pricing, making it impossible to identify which products or outlets were actually bleeding cash.
The Solution: The MMC Profit Budgeting System
MMC Profit Budgeting System
We implemented the MMC Profit Budgeting System to dismantle internal silos and align the entire organization around true value creation.
We stopped the Factory from dictating prices. We implemented a Market-Based Transfer Pricing policy:
- The Factory must supply goods to Retail at rates comparable to external third-party suppliers.
- Impact: This stripped away the Factory’s safety net. If they couldn’t produce at market rates, it exposed their inefficiency (wastage, workflow, procurement), forcing them to fix the root cause rather than passing the cost downstream.
The Results: From Conflict to Synchronization
Within one quarter of implementation, the dynamic of the company shifted from internal conflict to synchronized execution:
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Operational Truth: The Factory identified and fixed three major wastage points that were previously hidden by high transfer prices. Production costs dropped by 18%.
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Retail Revival: Store Managers, no longer able to blame the factory, shifted focus to upselling high-margin add-ons, boosting Store Net Profit margins by 8%.
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Labor Efficiency: Overtime costs plummeted, yet average employee take-home pay increased due to the new performance bonuses. The company achieved higher output with fewer total man-hours.
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Unified Culture: The “us vs. them” mentality vanished. Both sides realized they were fighting for the same pool of profit.
Voice of the Customer
For years, my Retail team blamed the Factory for being expensive, and the Factory blamed Retail for not selling enough. I was stuck in the middle. MMC came in and clarified the numbers. By fixing the transfer price and the incentives, the arguments stopped. Now, the Factory focuses on efficiency, Retail focuses on sales strategy, and I finally have peace of mind.
Owner
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