Food Processing – Energy Efficiency

December 6, 2013 3:04 pm
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Historically, energy efficiency hasn’t been taken seriously in the food processing sector and we’ve seen many companies where we can make a ten per cent saving without really trying too hard. If you do try hard, you can reasonably expect to save up to a quarter of your energy spend and like any saving, this goes straight to the bottom line.

Treat energy like a raw material. Imagine finding ten per cent of your raw material on the floor of your factory. You probably wouldn’t be best pleased, and would do something about it, so why not apply the same to energy?

While processors understand the unit cost of raw materials in great detail, how many know the cost of a kilowatt hour of energy, and know where it is being used?

What can be done?

There are two approaches covering what we call hard and soft processes. The hard elements are what most people will turn to when thinking about making their facilities more efficient: insulation, light motion sensors and other bits of energy saving kit. However, it’s in the soft management changes where real savings can be made.

We often find that the responsibility for energy sits in the engineering budget. The problem with this is that the engineer is not in control of usage. By shifting the management of energy budgets to the users’ departments and including it in the user managers’ budget, you will very quickly find you’ve developed a ‘switch off’ culture which results in lower usage. A small investment in strategically placed sub meters will pay back very quickly.

If your operation has a high energy demand and you operate multiple sites, make sure you pool your overall requirement to give yourself more negotiating muscle with suppliers. By being creative in your approach you can improve unit costs and by mapping your high- demand phases to periods when you are on a lower tariff, significant cost savings can be made. Check that you are on the most suitable tariff. Are you paying for maximum demand capacity you are not using?

You should always consider energy costs when buying new equipment in order to get an accurate measure of the full lifecycle, this is often overlooked. The cheapest item of new equipment usually costs you more in the long run.

Another area where savings can be made is through good maintenance. The next time you enter a quiet factory and you hear the hiss from a compressed air line remember that the air escaping from a 3mm hole in a compressed air line will cost you £700 per year.

 

David Barlow, Project Director at specialist food sector management consultant, Coriolis.



Mastering the data challenge: Why good data is essential for an effective food Supply Chain

December 6, 2013 3:03 pm
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Many managers are happy living with inaccurate or superceded data. For some it provides a great way to hide performance issues; whether in production, the supply chain or sales & marketing. In other instances senior managers give thanks for data inaccuracy as, despite all odds, it doesn’t just hide issues but actually makes them look good. For weak managers, accurate data is something to be avoided at all costs.

All of our data is grossly inaccurate … but I need data in order to manage.

When it comes to the supply chain, accurate data is as important to the food and beverage industry as any other sector. The idea that it matters less because the demands are often more immediate and erratic is, in fact, quite opposite to the truth, and for many businesses it is the key to unlocking greater success.

Despite this, our experience across many clients indicates that supply chain data accuracy is generally poor, and that planning and production activities are, as a result, seriously flawed.

If I concentrate hard enough and pretend that the data is good, everything will be fine.

As an illustration of the consequences of poor data integrity, let’s look at the experience of one of our Dairy industry clients.

Good standards or not, planning were still expected to live up to their name and create a plan. In theory a challenging, cost effective and realistic plan. However, with incorrect OEE assumptions built into the model, and little understanding of the extent to which OEE varied, multiple issues were inevitable.

The errors in the planning standards and the assumption that planned efficiencies reflected actual performance rather than just an average resulted in the need for frequent plan changes. At first sight this may not seem to be too much of a problem, but the constant firefighting prevented management from focusing on improving performance and added significantly to the cost of achieving service.

Mountains of data, get over it.

Big data is here to stay. In the food and beverage industry data is expanding fast as more sources (sauces?) are used to make decisions, especially around operations. From internal master data to social media feeds to syndicated or Point of Sale (POS) data, organisations need to capture it and turn it into information.

As much as external sources of data are important for the decion making process, most organisations fail even earlier, they fail on their own master data. They miss the point that operations cannot function effectively without master data management.

Master your data, don’t let it master you.

Master data is the critical, underlying data that feed the applications and processes that drive a business. Yet many food and beverage organisations fail to understand what their master data really is. Without this understanding it is impossible to create a process to manage it.

Master data

Fig. 1

Figure 1.0 highlights the types of data that exist in many organisations and their underlying links to business management. These are just the tip of the iceberg for food and beverage manufacturers and there are many other data elements used to underpin the wider organisation:

  • Supply centric data: material information, BOM, vendor information, material costs, lead times, units of measure, commodity groups, …
  • Business centric data: seasonal indices, forecast generation parameters, time horizons, product shelf life, product parameters, warehouse locations, logistics costs, logistics network information, …

Getting good and accurate supply centric data is an essential first step for many businesses as it leads to more accurate planning. However, without correct business and customer cetric data, plans can still be meaningless.

As a recent Aberdeen Research report highlights, 50% of poor business decisions are the result of weaknesses in the quality of data. With supply and business centric data being critical to operations, inconsistencies lead to a high proportion of decisions being made counter to the long term interests of the business.

If, for example, your business centric forecasting data is incorrect (incorrect forecast model parameters, data structures & linkages, e.t.c.) the impact on decisions relating to inventory, production and procurement will be significant, as will be the effect on customer service.

Get it right the first time.

Our experience in the food industry has shown time and again that there are key focus areas (as highlighted in figure 2.0) which need to be addressed for enabling effective MDM.

Master Data 2

Fig. 2

Step 1 – Master data creation: Make sure processes are in place to capture the right data at the right level. Assign responsibility for specific data generation, i.e. planning creates certain elements of the material master whilst technical define the BOM

Step 2 – Master data management: Ensure there is a process for maintaining the existing data structures. It is all very well to assign roles and responsibilities for master data creation, but it will soon be of little value if it isn’t maintained.

Step 3 – Information Systems: This is not the information itself but the underlying systems for data capture and storage. Data capture is only as good as the systems used to collect and store the information. Excel is not a database and many organisations use it as one. Invest the time and effort to have the right systems to support your data.

Step 4 – Advice, Training & Support: Everyone thinks MDM is simple and it is. However, without the proper training and support, this simplicity will not result in integrity. Every food arganisation requires a MDM support programme.

Step 5 – Performance metrics: Of all areas MDM is the one that tends to lack appropriate metrics. Performance metrics such as no. of SKUs with incomplete data, number of inaccurate BOMs are examples of common metrics for best-in-class MDM. Organisations need to implement the appropriate metrics and monitor them to close data accuracy gaps.

The decisions are in the data.

Master Data is a key asset for a food organisation. Its effective management ensures painless accurate reporting, regulatory compliance and the ability to make effective fact based decisions; especially in operations.

It also makes running an organisation much more efficient (more effort spent on delivering business objectives rather than data cleansing and analysis) and responsive to changing market conditions, improving the organisation’s competitive advantage..

Although it is simple, effective MDM is a big step change for the food and beverage industry. Getting it right will revolutionise the way your supply chain operates and prepare you for the future.

 

Written by Sam Rabi, Coriolis Supply Chain Principal

Operational Strategy

December 6, 2013 2:56 pm
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Operational Strategy sounds like a contradiction in terms. Operations, after all, is about the day to day creation and delivery of products and services. Yet businesses constantly change. New lines or factories are built and old factories closed or are consolidated. Therefore somebody somewhere is pulling the strings and that surely must be in line with an Operational Strategy?

Very few people we talk to who head up Operations believe they have a robust Operational Strategy in place. In fact, several believe there is a gap between Operations and the business strategy.

The economic downturn has driven businesses to take a good look at themselves. In 2009, the hatches were battened down and survival was the driver. Over the last 12 months we have seen clients realise that survival is not a long term strategy, but neither is short term intervention. The smart clients are thinking longer term. We have seen increased enquiries into Coriolis from clients wanting to understand the levers they can pull to unlock bottom line value in the next three years suggesting most of the low hanging fruit has gone.

There are five key stages in developing your Operational Strategy.

Stage 1 – Generate powerful business information

We see the following six types as critical to developing and implementing a robust and successful strategy:

1. Business Strategy / Market Analysis – Thinking Big

2. Capabilities, capacities, constraints and criticalities

3. True Margin and contribution analysis by product

4. R&D and available or potential technological developments

5. Overhead analysis, allocation and cost drivers

6. SWOT analysis of your operations

Stage 2 – Translate the Business Strategy into operational requirements

The Board will have developed five or six strategic priorities to deliver the vision, such as “Focus on Brand”. Additionally they will have identified the must do activities to support these (often commercially driven) such as “Launch new product X”. They should also identify their value proposition, as this drives your value chain.

Using this and the powerful information collated you can identify your own key activities that support the strategic priorities and business vision. For instance, do you have the capacity or capability to deliver “New product X”, if not, what do you need to do? A key activity may be “Recruit a process development team” or ”Increase capacity by 10%”.

Once all this information is in place we can start to understand what the future could look like. It is likely an operational strategy will not have one route, but scenarios and responses to potential deviations and the relationships between paths chosen must be understood and communicated to all. A “Vision” is often used to do this.

Stage 3 – Find hidden value and opportunity to give you the advantage

We have identified four example areas where businesses can get ahead:

Design to Manufacture

Operational people are not known for their product innovation, but yet they are known for their process improvements and innovations. When you look at it, they are one of the same! Involving operational teams early in the NPD process can add a new spin on innovation and ensures products can be manufactured.

Does your test kitchen replicate the manufacturing environment? Or do you have a “Pilot Plant”? The ability to ensure products are designed for manufacture will dramatically improve your costing process, product launches and bottom line.

Capital Investment

You do not need to be the most invested business to be the best, but you do need to invest smart. Are you sitting with equipment on your balance sheet that you do not use? Having a roadmap and end goal in place ensures you evaluate your investments against this.

Paybacks may be within 2 years, yet depreciation charges are for 10 years. We see businesses far too often purchase a future bottleneck. So, consider the User Requirement Specification (URS) based on your future vision, evaluate the extra cost of flexibility and capability vs. replacement cost in the future. Recognising your decision now could prohibit investment in year 5.

Collaboration

Benchmark and sharing sites best practices optimises your manufacturing facilities and capabilities. Sites work in isolation focusing on their individual operating models. Moving volume, equipment or people between sites may not benefit one site, but if they benefit the total group profitability then it is the right move. Do your sites discuss this at an operational detail level? A good S&OP process can facilitate this.

Establishing “Centres of Excellence” for product/process types can add real value and enhance both performance and customer experience. Remember other sites can still hold sprint capacity and performance improvements can be shared.

Operations Roadmaps

Having a vision that your operations team understands ensures your teams are pulling in the same direction. Communicate this to the entire business, but remember, clear messages need to be tailored to the audience. Establish the true potential capability of your business and ensure this is over communicated. Commercial teams will start to understand your core competencies and will see or develop a pathway to growth.

If your core competencies lie in a dying market, you can plot a diversification strategy now. Too many times businesses fall into diversification and then fail because they rushed or just did not have the capability to do it.

Stage 4 – Don’t fix everything

Strategies can easily become wish lists where every possible improvement is included. Brainstorm ideas together and generate the perfect world. Work back from this to the “Must Do’s” that support the delivery of your strategic priorities. Resources are finite and that means it is important to consider what you will not do. Small nice to haves should not be lost, they just do not need to be in your strategy.

Stage 5 – Stand by your strategy but not to the death

Investing the time with your team each year will payback. You need to realise the factory does not fall over when you go on holiday, and the same goes when you take a day or two out to think about strategy. It is not an easy activity and sometimes you will think it’s a slow process. Align your people to a core set of deliverables, which will support a “high- performing and functioning team”.

The strategy should not be used to validate decisions as a prescriptive roadmap. It is claimed that 80% of strategies fail – we believe it is often because they were too detailed and something changed early that invalidated them. It is the framework that you should communicate. By allowing your team to assess whether activities and opportunities are aligned to the strategy, decisions can then be made on resource allocation.

A strategy can only fail from the top down. Below this it is the delivery that will be the failure. If the strategy really is not working, do not just change the operational focus, instead challenge back to the root cause. Recognise the market place changes and strategies must be live and responsive to the external world. Walk away and reconsider.

 

Written by Paul Eastwood, Director

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Ethical Trade – Improvement over audit

December 6, 2013 2:54 pm
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“Insanity: doing the same thing over and over again and expecting different results” is a quote often attributed to Albert Einstein in 1925, yet here we are in 2013 and insanity seems a fitting description for supply chains reliance on ethical auditing as a conduit for improvement.

Audit is still the favoured choice of measuring ethical standards and it provides a snap shot of conditions; however audit alone is not a tool for improvement. Suppliers spend a great deal of resource and effort on re-auditing and expect it to be the golden key to unlocking more business but audit without improvement is a wasted opportunity.

As an Ethical Trading Manager for a global retail organisation and previously an ethical auditor, I have worked in the ethical trade arena for over 12 years. Whilst I have seen an increase in interest in ethical trading from consumers and an increased awareness of the ethical trade agenda by suppliers, what I haven’t seen is a proportionate increase in efforts from suppliers to address the underlying issues, through improvement measures.

What I have often witnessed is suppliers expending serious time, effort and money, avoiding applying improvement measures, despite the benefits that improvement can bring. If only suppliers would apply this level of energy to improvement I’m sure they would begin to reap the benefits.

Clearly there are exceptions to what I mention above but on the whole I am disappointed by the response from global supply chains to the proven benefits in investing in people and management systems.

Investment in improvement, whether it is HR, Health and Safety or systems management provides benefits not just for workers but for businesses as well, which has been shown through initiatives, such as the DFID funded RAGS BBW project. For example, improving communication and relations with works can boost morale, aid worker retention and can lead to improved efficiency. This form of improvement is not necessarily costly either which can, in some cases, be a barrier to implementing improvement.

I am not suggesting that there isn’t a place for audit, as used properly it can provide valuable information and help inform buying decisions. But what we currently face is a complacent attitude to improving ethical standards because to do so requires thought and action.

What we need to do is embrace improvement and focus on how we can build efficient and profitable businesses that make a positive difference to workers lives. I hope that we can move away from constant re-auditing and toward improvement. If the argument above is not compelling enough, what will be?

Supply Chain Planning: Does inventory support or weigh down your business?

December 6, 2013 2:53 pm
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Working capital is under pressure everywhere, and for businesses where inventory represents a significant investment it is essential to work at the lowest level of stock commensurate with customer service and cost targets.

In food manufacturing, inventory strategies are frequently based on experience rather than science, and Supply chain staff often have only a basic understanding of the concepts involved; enough to pass muster when asked a few basic questions, but not enough properly to optimise the balance between customer service, obsolescence, waste, changeover frequency and warehousing costs (especially external)

Forecast accuracy impact on working capital.

One of the key drivers of inventory in many businesses is “safety” stock. Safety or buffer stock is the level kept of an item to ensure we service a customer if demand is unexpectedly high, or we are let down by suppliers. It is often based on a rule of thumb such as fixed period of time (e.g. 2 weeks). Doing it this way is expensive and ineffective. The first question that should be answered is, where to keep it? For example, should it be in WIP, Finished goods or both? If both, how do I calculate the quantities at each stage? Even after this has been agreed the correct safety stock can only be set when you know the likely forecast error and supply stability for each item over its lead time. This means collecting and analysing historic data, allowing for factors such as promotions and seasonality.

For most manufacturers customer service targets are non-negotiable. As a result the poor safety stock strategies result in excessive inventory, obsolescence, disposals and the poor operating efficiencies that result from ever changing production schedules. The focus for all food manufacturers must be good forecasting linked to a robust safety stock strategy.

Case study – Organix

Organix, the baby food producer was struggling with service. “We were shorting retailers, even though we had plenty of stock in the warehouse”. To be exact, Organix had 6 weeks of cover. After implementing a more appropriate forecasting methodology, measurement system and safety stock policy it was found that an average of only 3 weeks of cover met the required service levels.

Poor old Operations

Operations are probably unhappy with the number of changeovers currently carried out, as they are a burden on performance. However, the benefits of increasing them are significant. If the business can double the number of changeovers then the batch sizes will halve and the finished goods safety stock can go down by 30%. This will also reduce the cost of storage and obsolescence, at least for your own finished goods.

The right way

The following steps, properly carried out, will enable a business to define the optimum strategy:

1. Identify the appropriate stock holding points for the different inventory categories

2. Define the required inventory management and demand planning processes

3. Measure forecast accuracy and carry out an inventory segmentation analysis

4. Determine the type of safety and optimal stock models to use based on product profiles

5. Check and adjust your forecast models to ensure they suit your product profiles

6. Review segmentation and inventory policies on a regular basis and adjust as

required

Inventory management in the food industry needs to be undertaken constantly and rigorously. Having the right systems, tools and processes not only allows effective policy setting but also enables a business to control all the critical variables. It helps keep pressure where it belongs, on the competition.

 

Written by John Fenton, Associate Director and Sam Rabi, Supply Chain Principal

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