By Sladjan Radic, VP & Partner of Carpedia International and Jacques Gauthier, EVP & Partner of Carpedia International
After years of escalating prices, food manufacturers are now grappling with compressed margins and shrinking demand. With no clear insight into who benefits or when conditions will improve, how do we navigate the uncertainty at hand?
Recent reports show inflation beginning to cool but manufacturers continue to experience intense pressure. The lingering impact of past price increases continue to pose significant challenges for both businesses and consumers.
The all-food Consumer Price Index (CPI) rose by 25.0% between 2019 and 2023. Today, prices remain high, labor costs continue to rise, and volatile forces such as weather patterns, labor shortages, and geopolitical unrest are impacting supplies across the globe. Business leaders must confront the current reality, accepting that we don’t know when, or if, market volatility will subside. They must optimize their businesses to be as profitable as possible now.
Those with clear visibility into operational optimization opportunities will be positioned to thrive in this turbulent market. In our experience working with food manufacturers, we have observed clear patterns across every link in the supply chain.
Three key steps have emerged as critical to optimizing a food production business.
1. Develop the right high-level strategy
First, develop your strategy and determine what your core objective will be. Determine at a high level whether your focus will be on revenue, cost, or capital. Then create numbers-based targets, such as achieving a productivity goal or reducing scrap. This plan should be formulated with all levels of your organization, and managers must ensure that everyone is aligned with the plan.
One opportunity to consider in this climate is network consolidation. Many organizations expand their geographic footprint during favorable economic times. The efficiency, sustainability, and profitability of each location must be re-examined through the lens of the current climate.
Key questions that leaders should ask:
- Where can we consolidate production into fewer facilities and a smaller footprint?
- Is there an opportunity to manage labor costs through shared work or reduced downtime between locations?
- Can processes be standardized and best practices be shared more effectively?
- Do managers have a clear understanding of potential variances from plan?
Lean manufacturing principles are crucial to this process. Spend time digging into your operation and understanding what optimized standards and best practices you can roll out across your entire network. Focus on the key areas — ones that will have the biggest impact on your organization. This is not necessarily your biggest revenue area, as there might be other areas which have greater opportunity to be more profitable.
Ensure that your warehousing practices are consistent, and that you have a clear understanding of your inventory. Automation tools such as digital scanning systems can reduce the need for warehousing staff and improve accuracy when implemented properly.
Once your strategy is formulated, with all key stakeholders on board, you’ll need to roll it out to your organization. Unfortunately, many great ideas and well-planned internal initiatives grind to a halt before they even get off the ground, leading us to the second phase of your transformation for the new world.
2. Create a project management office (PMO)
PMO’s have become more commonplace in recent years, and we have seen in various businesses just how crucial they are to the successful implementation of change initiatives. Particularly in large organizations, there needs to be someone (or a team) who has all the pieces, sees the various interdependencies, and can ensure that everyone is held accountable to deadlines and responsibilities.
The benefit of a project management office, especially when the right person is helming the initiative, cannot be overstated. The PMO team should meet with all key stakeholders and provide a report to the executive team on a weekly basis, keeping them informed of any initiatives which are behind schedule or at risk of falling behind schedule. Executives should take action as needed to ensure that things stay on track. This is particularly important if there are cross-functional dependencies, where a delay in one initiative could cause a chain reaction. The PMO is essential to maintaining project momentum.
For example, something that might seem as simple as moving inventory to an automated scanning system could have a large number of actions and dependencies that could stretch across various departments, such as IT warehousing, shipping and receiving, sales, and more.
Key questions that leaders should ask:
- Has IT set up the system properly to ensure that the scanning systems integrate with other systems?
- Has production set up all their SKU’s in the new system?
- Have the scanning systems been adequately tested?
- Does the sales department have the correct visibility to current inventory levels of completed products?
- Does shipping and receiving have the right training and tools to transition into a new method of inputting and removing items from inventory?
- Will the transition from the old to new system be done all at once or in stages, and how do we make sure that business isn’t impacted during the transition period?
These are all questions that need to be answered in a clear plan and managed from the start to the finish, which would all fall under the responsibility of the PMO. Without a proper PMO, the success or failure of these initiatives is often based on luck rather than a formal plan.
3. Optimize throughput
Once the overarching strategy is determined and a PMO is established, we can turn to the ground level operations. Companies often underestimate how much additional throughput can be generated with existing resources. Through the course of thousands of consulting projects, we have learned that almost any manufacturing line can increase its throughput by at least 15%, and many can gain even more.
This can be accomplished through process optimizations (small changes at a large volume that translate to big improvements); management training that provides frameworks that allow managers to assign targets, follow up, and resolve problems as they arise; and ensuring that targets and goals are aligned from the ground floor to the executive suite, and they are clearly visible and regularly reviewed.
Key questions that leaders should ask:
- Am I consistently delivering on time and in full?
- Do my frontline leaders have the ability to make important business decisions based on the training they received?
- Is there unplanned downtime in my operations?
- Are yield rates in the acceptable range?
- Are there any quality issues?
As smaller initiatives are rolled out, they should also be rolled into the PMO to keep them on target alongside the larger initiatives.
It is paramount for organizations to find ways to optimize and to get as much profit as they can from the businesses in the current economic environment. The opportunity almost certainly exists to create an organization which is set up for success now, and in the future.
It’s just a matter of finding it and executing it effectively.
