Under pressure - will the food industry crack?

Published:  14 October, 2014

Jonathan Wilkins, marketing manager at European Automation, explains how food and beverage manufacturers can remain productive in the context of increasing raw material prices, energy prices and pressure from retailers.

Every sixteenth of a second, a Twinkie is born. It costs approximately $0.0536 to make and sells for $0.25 to $0.60. This minute detail from the food and beverage industry is indicative of how dynamic the sector is. In recent years, manufacturers around the world have been under growing pressure to increase production, while minimising costs as much as possible.

According to the 2013 food statistics pocketbook, food prices in the UK have risen in real terms by twelve per cent since 2007, following a long period during which they fell. This price increase is emulated internationally and is partly associated with the increasing costs of raw materials and energy. It also reflects the pressure giant retailers have been exercising on food and beverage manufacturers to provide cheaper end products.

Between a rock and a hard place

This situation leaves manufacturers stuck between a rock and a hard place – they need to comply with retailer demands and respond to particularly precarious customer preferences, while also finding a way to reduce production expenses and not pass cost increases on to customers.

In a recent industry survey, 83% of the food and beverage manufacturers that responded expressed concerns that pricing pressure from retailers was threatening the quality of own-label products. 74% further estimated that this pressure was threatening to cut into new product development budgets. As in any other industry, lack of research and development limits innovation, which in turn, reduces investment, growth and profit. While the food and beverage industry is one of the only ones that will definitely not die out – we all have to eat, don’t we? – its potential would be significantly limited should investment in innovation decrease.

How do you reduce costs?

Moving manufacturing operations to a cheaper territory stopped being a viable solution long ago. Cheap labour isn’t strategic in the long run and most industries have already turned their backs on this option.

Another way of protecting manufacturers’ interests would be to impose legal restrictions that ensure key obligations for retailers. One example would be guaranteeing that retailers give reasonable notice to change supply arrangements, that they deal fairly and lawfully and don’t constrain manufacturers to obtain goods, services or property from a preferred third party.

When these codes exist, they are often limited by the free market and competition law, which means that reducing manufacturing costs needs to come from somewhere else.

Think ‘lean’

The fastest and most efficient way to reduce costs is by designing and managing a manufacturing process that results in the lowest possible unit cost. This means taking a good look at your operations and identifying how they can be improved. If you work in the industry, you probably know that many production lines today operate at less than 60%, which means there is considerable room for improvement.

Identifying planned losses (cleaning, preventative maintenance or decreasing product demand), operational losses (changeovers, stoppages or shortages) and quality losses (scrap products or defective materials) is the first step in making manufacturing lean.

The next step is using existing real-time data collection from the process equipment to improve Overall Equipment Effectiveness (OEE). Intelligent automation solutions help minimise process variability and maximise asset use and productive capacity.

Become flexible

A flexible manufacturing line allows companies to match their products to ever-changing consumer behaviours, which is essential in the food and beverage industry.

Batch automation allows the manufacturing of certain products in determinate batches, rather than in a continuous production process. Batch operations in the food and beverage industry include mixing, blending, mashing and fermenting, while continuous operations refer to baking, forming and pasteurisation.

A flexible production line guarantees consistent product quality for all batches, allows a more dynamic product offer and ensures efficient use of the shop floor.

Manage breakdowns

Breakdowns are inevitable, but the way they are managed can make or break a business. Lean manufacturing principles state that when a breakdown occurs, the first step is to try all the options that don’t incur additional costs. Whether it’s a simple case of “turn-it-of-and-on-again”, checking the system for blockages or performing an emergency maintenance check you should use your internal resources first.

If the breakdown is due to faulty equipment, it’s likely that you’ll be able to resolve the situation by getting the part repaired or just purchasing a spare industrial automation component.

Busting the myth

One of the myths surrounding the food and beverage industry is that it’s an out of date and old fashioned sector, which doesn’t offer exciting professional prospects. Much like the infinite shelf life of the common Twinkie, this myth has no basis in reality.

The challenges and external pressures the food and beverage industry is faced with make the rhythm of innovation particularly swift. At European Automation we have definitely sensed a shift towards intelligent automation, reflected in the purchases our clients make. Our food and beverage clients have started purchasing newer generations of PLCs, HMIs, digital sensors and transmitters.

This means that despite being under pressure, the food and beverage sectors is still a leader in innovation and has great potential for growth.

For further information please visit: www.euautomation.com

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