Notes from a food and drink manufacturing round table hosted by Anglia Business Solutions...
On Wednesday 25th June, senior executives from some of the UK’s leading food manufacturing organisations took part in a round table debate. The focus was on how a food and beverage organisation can ensure profitability. This is against a background where margins are being driven down, regulatory compliance is becoming ever more stringent and quality control and traceability requirements are paramount. The participants included Bakkavor, Deloitte, Diageo, Elisabeth The Chef, Ferndale Foods, Fresh Produce Consortium, Montana Bakery, Reynolds Catering Supplies, Vitacress and Wealmoor.
The session was facilitated by David Hurley, Managing Director of Anglia Business Solutions. Peter Thornton, Chief Executive Officer of Noble Foods and Mike Dudbridge, Industry Expert from the University of Lincoln were guest presenters.
Event facilitator, David Hurley began the discussion by asking attendees what they would like to take away from the session. The responses included the following:
- Cost saving ideas
- Cost control solutions
- Business process solutions
- Identify industry solutions
- Improved understanding of supply chain dynamics
- Perspectives on industry verticals
- Knowledge that other companies are in similar positions
- Confirmation the food industry is under as much pressure as most industries
David commented on the objectives by explaining Anglia’s minvolvement in the deployment of business solutions for the food industry. He explained that the challenges outlined were common across many sectors. Many issues stemmed from the lack of visibility of product as it moved through the supply chain. He highlighted the production area in particular where value was added and costs incurred. Here the combination of batch oriented legacy systems and paper based processes make it difficult to measure accurate costs and therefore profitability. This was anathema to those companies operating in low margin fast moving consumer products such as the food sector.
David then introduced the first guest speaker, Peter Thornton, the Chief Executive Officer of Noble Foods.
Peter Thornton, Insight into Noble Foods
Peter provided the delegates with a brief profile of Noble Foods. With a turnover of £600 million, Noble Foods are the largest egg producers in Europe. They are farmers and producers with 35-40 farms. Noble Foods provide major retail multiples and food production companies such as Helmans Mayonnaise.
The egg industry has always been challenging, particularly within the last 18 months. As consumer trading is down quality, cost and service has become more important than ever to major retailers in fresh food. Purchase of organic eggs has dropped by 30-40% as consumers want value for money. Retailers’ prices are under increasing pressure in the battle for customer loyalty. This is generating significant margin challenges for suppliers down the line. In addition, Noble Foods have recently had letters from three
major customers wishing to impose delayed payment terms.
Today’s environment, solutions and innovation
Peter then stressed the importance of positioning your company to deal with today’s environment and outlined how a strong supply chain can greatly assist. Four key elements are vital for a healthy supply chain:
1. Be efficient with time, people and materials
2. Employ and nurture quality people by identifying areas of strengths & weaknesses
3. Add value by identifying where savings can be made
4. Innovate: For example, Noble Foods created a new eggs range called Happy Eggs, showing there are still opportunities to be had!
60% of an egg’s cost is feed. The cost of eggs fluctuates with one good year in three bad years. When the cost of an egg goes up, the benefit is greater. This is when efficiency is crucial. It provides the opportunity to re-invest in the business and attack the low hanging fruit of inefficient practices.
Peter explained how Noble Foods grade, pack and deliver 72 million eggs a week from 1,000 producer hubs and nine packing centres involving a complex supply chain. Noble
Foods have improved efficiency by consolidating packaging centres. They have also introduced the practise of double utilising vehicles. This means that drivers collect ungraded eggs from producers on the return journey from retail deliveries. This has helped to reduce both costs and the company’s carbon footprint.
On the IT front, Noble is working with Anglia on the deployment of a highly automated Enterprise Resource Planning (ERP) system. This is to replace the existing legacy systems that have been in use for many years within the business.
The objectives of the project include:
- Better quality management information
- Improve management of raw material
- The elimination of islands of data
- Improved efficiency as the system is extended across the organisation.
In his closing comments, Peter stressed the need to attract more high quality people to work in the industry.
David then thanked Peter for his valuable contribution and insight into Noble Foods.
He then introduced the second guest speaker, Mike Dudbridge, an Industry Expert from the University of Lincoln.
Mike Dudbridge, Industry Expert, University of Lincoln
Mike explained how manufacturing and control is conducted at the University of Lincoln which is home to the Specialist Food Manufacturing Centre. They develop expertise in food for manufacturing and focus on building students technical training. The centre holds a ready meal production line to train their students.
Issues within food manufacturing
Mike moved on to the industry issues he has observed through working with the 2,000 food industry students at the centre. A key concern is that of recruitment. The industry can be seen as undesirable from a career perspective. Potential recruits are deterred by long hours and poor controls over labour, material and waste. On managing costs, he observed that many companies adopt short interval controls but felt that many supervisors lack the necessary information to ensure profitable production.
He cited one instance involving a pizza production unit. The budget for cheese for one particular production run was £120,000. However, poor raw material controls meant that
a further £20,000 worth of material was used. This resulted in a loss for the manufacturer. In addition, complaints were received by the retailer from repeat purchasers of the product as they felt that it was now an inferior product.
Mike recommended a number of measures where changes can produce improvements in productivity and therefore profitability. They include the following:
- Audit production headcount regularly particularly where contract labour is involved
- Ensure that the exact amount of raw materials required to produce a fixed amount of finished product is known. Measure the resulting output to ensure compliance
- Invest in personnel training aimed at improving productivity
- Regularly question existing operating methodology and compare against best industry practice
- Review current IT systems to ensure that they still meet the needs of the business
Mike concluded that in his experience, fully integrated successfully deployed ERP systems had made a significant contribution to the profitability of many food organisations. They had helped to manage raw materials and labour costs while improving customer satisfaction.
David thanked Mike for his interesting insight into the Food Manufacturing industry and opened up the table for discussion. The following topics were debated:
There was general consensus that the current demands made by customers for high quality goods at reduced prices are going to continue. This is unlikely to change even when economic conditions improve.
The requirement for product traceability throughout the entire supply chain is likely to become more stringent in future.
Standardised procedures can help to manage remote locations provided that they have the flexibility to reflect local culture and business conditions.
Retailers are generally poor at forecasting and are largely ignored when planning how to meet demand.
Approximately 60% of food goes through the supermarkets where margins are tight. The other 40% represents some niche opportunities where margins are under less pressure. However, they are difficult to find.
The current economic environment represents an opportunity to acquire market share for reasonable outlays.
- Islands of data are a barrier to profitable growth
- Many business systems produce large volumes of data but little useful management information
- Good people can make average systems work: Poor quality people can kill good systems.
- Fully integrated real time systems can aid profitability by dynamically managing all aspects of the supply chain
- Ignore change management at your peril during implementation.
David summarised by thanking the guest speakers Peter Thornton and Mike Dudbridge for their excellent presentations that primed the debate. He also thanked the delegates for their attendance and contribution to a most informative event. The delegates agreed to keep in touch by having their e-mail contact details circulated. The meeting closed at 10.30 AM.