Food Production Efficiency and Productivity Key to Long-Term Growth
What are the most significant challenges that food processors and manufacturers face now?
Steve Buchanan: It's well known that margins in grocery stores and supermarkets are lower than in almost any other industry, so increases or decreases in production costs cannot be reflected in end-product price without the danger of losing shelf space, location, or even possibly an entire account. Production efficiency becomes more important than in nearly any other industry.
Even so, aggressively pushing productivity in order to lower costs is an extremely risky proposition because you cannot compromise food safety. That threat is always in the background: one misstep and any gains you made in productivity may be wiped out many times by fines, legal liability, and lowered demand. There's a fine line you cannot cross under any circumstances. Manufacturers and processors know that it only takes one incident to incur increased scrutiny from the USDA and the public. Companies must be sure they are ready to withstand such scrutiny at a moment's notice.
Are most companies prepared to withstand that kind of scrutiny?
Steve Buchanan: Most well managed food processors are positioned to withstand the kind of scrutiny that may be directed at them during an incident. The biggest management challenge related to safety is that sometimes you may have management preaching a strict philosophy of food safety, yet their simultaneous push on productivity creates confusion on the line. Too often there is a tendency to inadvertently sacrifice food safety and employee confidence in the name of productivity at the supervisory level.
Regarding productivity and efficiency at the plant level: How do companies promote efficiency while managing risk, whether due to food safety or other issues?
Steve Buchanan: Labor is a very minor element in food cost. The main driver of productivity within food processing or food manufacturing is typically OEE (Overall Equipment Effectiveness). Other than mechanical downtime, the major factor that drives poor OEE is downtime attributable to sanitation and product changeover. Changeovers can be extremely costly, often involving disassembling the entire production line, sanitizing, maybe even cleaning in place -- all of which takes a very long time. This reduces the OEE or increases the cost of manufacturing the product. To reduce the number of changeovers, companies typically want lines dedicated to run just one product, or the long runs of one product, to reduce the number of changeovers.
Of course there are many managerial tools and techniques to improve the effectiveness of changeovers and to ensure you are running at the maximum rate for each product. That is where the expertise of Maine Pointe comes into play.
Wouldn't the logical step be to invest capital into dedicated equipment?
Steve Buchanan: It would, but capital is often difficult to come by and changes in consumer demand can very quickly make the assumptions in the cost benefit analysis moot. The market is continually demanding more product variations in packaging size, flavorings, and content. Health trends are also a significant factor.
Consider the edible oils industry. Years ago there was a push to reduce products with saturated fat and the market responded, often with significant capital investment. In many cases, the saturated fat was reduced or eliminated with the introduction of trans fats. Now, the push is on to eliminate trans fats. Some municipalities have even required restaurant chains to eliminate them. Ironically, one way to eliminate them is saturation. A number of years ago there was a push to eliminate the use of tropical oils, namely palm oil, from popcorn made in movie theaters. Palm oil is now in great demand as a replacement for oils with trans fats. This market shift has rendered obsolete much of the capital investment made years ago.