Diversification – friend or foe

May 22, 2014 11:45 am
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Businesses are always looking for the next new product, innovation or investment.  Diversification is a path frequently considered, by applying experience and expertise in a new way.  There is no doubt that diversification is the life blood of successful companies; Richard Branson and Virgin frequently apply learnings across sectors with great success.

Yet how do businesses decide in which direction to diversify? Could making sweets be a more appropriate diversification for a pharmaceutical tablets manufacture than making bottled medicine? This article will challenge the rational thinking and propose new ways of thinking about diversification.

In the food industry, too often businesses diversify based on the customer without any brand loyalty; based on competitor activity without any real expertise; by process without real capability; or by the perceived market segments without true categorisation.

Follow your competitors only if your strategy is to be part of the herd.

Many companies look to the crowd for the answers to diversification.  A high percentage of fresh produce businesses have considered fruit as a logical diversification; most ambient cake manufacturers have tried fresh cream based products; and the majority of pie factories find themselves dabbling in most of the savoury pastry or hot pocket market.

Perhaps some really did think about it, but did the rest just follow?

The most appropriate diversification is not necessarily the most obvious one.

Fresh Produce is seasonal, often labour intensive; it involves the processing of raw material and then assembly into a package. That sounds just like fruit… or does it?

  • Fruit may have to be sourced from the other side of the world with new suppliers.  Seasons vary by fruit, not country; and containers take months to arrive. What do you do if the stock is low quality?  Unlike lettuce, you cannot send it back and buy new stock within hours.
  • When the stock does arrive it goes through very different intake checks, then it needs to be stored at different temperatures to other products. This often requires complicated stock systems; not to mention that FIFO may not be appropriate due to ripening processes.
  • The manufacturing peaks are the same, and the factory although at capacity in the summer is at 60% all year round.
  • Customers and buying teams are different, twice the audits and twice the customers.

Now you sit back and ask is fruit really the same as produce?

Each business must think differently about diversification; although the principles below should give you some food for thought.

Identify your strengths and make the right strategic decision about where to diversify.

For most manufacturing businesses what makes them money is likely to be something within the end to end process from sourcing new ingredients to selling the finished product.

If you cannot take advantage of your skillset in the new environment then it is unlikely to be the right move.

Example:

  • A high volume, low cost ready meal manufacturer decides to produce a high end handmade product. Their core strengths are purchasing and automation. It may possibly work, but the new product needs high quality ingredients in low volumes – the purchasing team may struggle to deliver this without increased resources. The operations team are engineering focused – now they have a blue belt with 24 operators to manage (is the canteen big enough?).

Would soup be more aligned to this model?

It might not look like your product, it might not sell like your product but it is much closer to your product than you think.

Going back to produce for a minute…

  • What are the highest cost elements in a sandwich? Protein and prepared produce.
  • What type of line are they produced on? Blue belts, the same as salads.
  • What is the shelf life and distribution chain the same as? Fresh Produce.
  • What do I eat for lunch? Salad or a sandwich!

The difference is two new components – ‘Bread and butter to a salad business’.

Think about why you want to diversify not ‘how’ or ‘what’ to do…Counter seasonal, same supply chain, scale of purchasing, simplified raw materials, equipment utilisation, distribution gains, customer satisfaction, establish a new market.

Consider integrating up, down or across the supply chain…. If you make pies, could you diversify to fruit pies? Or stews? If you make chicken ready meals could you process chicken or make frozen meals? If you pack apples could you slice and dice them, or even make puree? Diversify in a direction where your skill sets and the financial returns make sense.

If you are going to take a leap into the unknown, you must recognise that the economic model may be different.

As you make your plan, keep in mind that you may be starting a whole new business. Richard Branson’s biggest mistake was trying to take on Coca Cola; Virgin had no advantage over Coca Cola in that sector, the rest is history.

Australian Dairy Industry creating solutions in a shrinking world

May 20, 2014 10:14 am
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Earlier this month the Australian dairy industry passed an important milestone. On May 6th 4500 bottles of fresh milk were loaded on a cargo plane at Sydney’s international airport and flown to Shanghai, China. To save you looking this up on Google Earth this is 4900 miles and the flight takes 10 hours 15 mins.  This is the first commercial shipment of fresh milk direct from Australia to China and it hit the shelves of supermarkets 7 days after production.

The flight time from Sydney to Shanghai, China is 10 hours 15 minutes.  London to Beijing also takes 10 hours 15 minutes by plane.

This export has begun as a result of emerging demand from high net worth Chinese parents and grandparents who are concerned at the safety and purity of the milk their children consume. Importantly they are also willing to pay the £4 – £5 (A$7 – A$9) per litre that the milk will cost. Compare this to the A$1 per litre that milk is currently retailing for in Australian Supermarkets.

The Australian food and drink manufacturing industry has started to come under pressures from retailers in a similar way to that consistently experienced by UK companies over the last 20 years. The 2 major Australian supermarkets; Coles and Woolworths have both been recruiting from their UK counterparts and lessons have been learnt fast.

This combination of domestic retailer pressure and emerging new markets provided the stimulus for this industry to push the boundaries and find solutions to problems that had previously been considered insurmountable. A key feature of this was a deal between Chinese and Australian officials that allowed for both country’s six-day milk testing, quarantine and quality assurance protocols to be carried out simultaneously. This avoided delaying the milk for a total of 12 days on both sides of the plane trip before it could be sold to Chinese consumers.  This delay when combined with other essential elements of the supply chain had previously put the milk beyond its shelf life.

The introduction of “$ Dollar per litre milk” was one of the opening salvoes in the emerging Australian supermarket price wars. This equates roughly to 55 pence per litre in UK currency. All major UK supermarkets are currently selling 4 pints of milk for £1 which is only 44 pence per litre.

Is this something for the UK food industry to think about?  After all; the flight time from London to Beijing is also 10 hours 15 mins.

Mark Dudley

 

Scope Control Saves Time and Money

May 13, 2014 12:02 pm
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How many of your projects run significantly over budget or fail? Can you blame that failure on lack of scope control?

Project scope can be described as the work that needs to be accomplished to deliver a product, service, or result with the specified features and functions.  Projects create changes in organisations and are constantly evolving by their very nature.  Changes in project scope can be business or technically driven and will almost always affect time or cost, or both.

Unfortunately all too often changes are managed badly and result in additional cost, the later in the project this occurs, the greater the impact.  If the process is carefully controlled and documented with the appropriate level of authorisation, extra costs can be avoided and the right decisions can be made earlier.  Information flow is vital and stakeholders should be communicated with effectively and according to their relationship to that aspect of the project.  The RACI (responsible, accountable, consulted, informed) matrix is a useful tool to be sure that the right stakeholders are engaged in the decision making process, whilst avoiding the hold-ups associated with unnecessarily dragging too many people into the process.

Capital Project Management with Coriolis provides a methodology that it is rigorous enough to offer our clients a structured change management system that minimises their financial and technical risks, whilst retaining the agility and flexibility to react quickly to changes in the market and needs for changes to product specification.  As with everything that we do, our project methodology is lean, eliminating waste and anything that does not produce value for our clients.

The key lies in the efficient operation of a process to carefully control, manage, authorise and communicate change.  Depending on the size of the impact of the change, the appropriate level of approval should be gained and the process adapted accordingly.  The project manager can approve small changes with no impact on overall schedule, cost or benefits and communicate these to affected parties.  Communication should be made promptly without delay and officially cascaded to all other parties in the weekly project meeting.

 

When changes will have an impact on schedule or cost, without affecting other projects, the project sponsor must approve and stakeholders from impacting areas of the business should be consulted with.  Discretion should be used by the project manager and project sponsor here to ensure that this process does not add unnecessary delay to any tasks that lie on the critical path.  Large companies that follow rigorous project management methodologies can sometimes allow bureaucracy to get in the way of ‘getting things done’ here, and the strength of smaller more agile companies can lie in saving time and resource through smart decision making processes.  Whilst overheads associated with administering change management process can be reduced, it is important to recognise the increasing level of risk exposure from unforeseen setbacks.  Food manufacturers are driven by tight margins and resist large capital expenditures.  This moves the priority towards as little overhead as possible whilst still maintaining control of change and appropriate decision making processes.

 

If changes to projects will have a major impact on scope, objectives, benefits, schedule, or cost outside of the authority of the project sponsor, or if they will impact on other projects, approval from the project board must be gained.  At this point it is vital to have full engagement of a group of people who really care about the outcome of the project and who are also dedicated to delivering the best overall result for the company.  Changes to scope must be justified with a clear understanding of the risks.  The justification may be in the form of improved revenue, quicker time to market, technical compatibility, or legislative compliance.  In each case the impact on all project metrics should be understood including predicted cost at completion, time to completion, financial appraisal (IRR, ROCE etc), and the benefits document must also be updated.  Risks must be included and accounted for in the financial predictions, and if the change has originated from a recorded risk that has become an issue, the cost should be written off against that risk budget.  A robust documented procedure will ensure that any extra resource required is justified for the next gateway review.

 

 

Beauty and the Beast

May 13, 2014 12:00 pm
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But we wouldn’t let anyone else call Charlotte a beast!

Coriolis have recruited two new talented consultants into their growing team.  Charlotte and Ollie both bring fresh energy and enthusiasm to the company with experience in different industrial sectors.

After graduating with first class honours in engineering from the University of Nottingham, Ollie completed Jaguar Land Rover’s prestigious graduate development program, where he gained a wide variety of experience of the automotive industry.  Ollie’s main focusses were in project management of new product development and continuous improvement projects focussing on existing product lines.  Outside of work Ollie is a keen sportsman, previously competing at national level in swimming and more recently representing Great Britain internationally in Powerlifting.  Ollie brings to work the same determination and drive that won him a gold medal at the world championships in Finland in 2010.  He believes that being the best in whatever you do comes down to how much you really want it, how much you are willing to give, and what you are ready to sacrifice for it.

Charlotte completed her Master of Science degree at the University of Nottingham and went on to join The Butters Group, the UK’s leading horticultural manufacturer. Here she joined the Operational and Supply Chain Graduate Scheme, gaining invaluable manufacturing and management experience. Alongside this she worked to gain a Post Graduate qualification in Business Management and Organisational Change.  Charlotte’s personal motto ‘You miss all of the shots you don’t take’ comes from her experience in elite level sport, where she was a member of the England netball national squads. From this experience Charlotte developed many transferrable skills that are instrumental to her work in the business sector; such as leadership, initiative and ambition.

The Basics don’t come for Free, but they will pay for themselves

May 13, 2014 10:59 am
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No one goes to work to do a bad job.  However, in the absence of clarity of instructions and understanding, including the all-important ‘why’, humans will use their creativity to fill the gaps with what they think the most appropriate course of action will be.  In many cases their chosen course will be right, but possibly only right to achieve the objective within their immediate sphere of control, rather than right for the entire process, production team, product line and company.

This is where doing the basics right comes in…

In the digital globalised world there is a multitude of technologies to reduce time and cost of both time-to-market processes (such as product lifecycle management), and time-to-customer processes (such as end to end supply chain visibility).  But at the end of the day how many companies consistently get ‘the basics right’ by actually manufacturing the product in the factory at the lowest cost?

So what are the basics? – Stability

In defining the basics, we should first ask ourselves what the basics should actually deliver: in a word – ‘stability’.  Stability means knowing what sort of outcome you will get consistently – it is about having a factory that is predictable within known limits.  You may not like those limits, but nevertheless this is the starting point.  Many formal methods such as Six Sigma start from this premise; without stability we don’t have a good enough foundation to improve our limits of process capability.

In my experience the shop floor basics can be organised into 5 main areas:

1.      The golden rules

These are the set of rules that protect us from injury, such as PPE, restricted access areas etc. they are more important than anything else, and if violated should result in immediate disciplinary action.

2.      Does everyone understand what are we asking them to do?

Human beings by their very nature are creative creatures, channelling that creativity is vital as it is also the largest source of variation in the absence of clear and consistent standards.  Do all direct production workers have detailed ‘standard work’ and does everyone appreciate the products they are making, the features critical to quality and the various derivatives and markets which they supply?

3.      Documented processes and standard machine settings

Process ‘tinkering’ is possibly the greatest foe to stability, usually employed to quickly overcome parts of the process or the resulting output that are not performing to standard.  Whilst this ‘creative’ course of action is admirable to avoid lost production, over time it can lead to the entire process drifting out of control.  To avoid this ‘the basics’ must include:

  • Clearly visible process documentation kept at the point of use, not locked away in a cabinet or on a server.
  • Processes changes should be clearly communicated, including why, when and on which products.
  • Standard settings for each piece of equipment and product.
  • Lock down settings that should not change over time to stop the tampering.
  • Fit for purpose equipment, checked and calibrated, as regular preventative maintenance.

4.      A high-performing operations team

This relies on maintaining consistent discipline and behaviour as teams change, along with personalities, ambition and experience.  The trick is to keep this as simple as possible and make decisions as a team, to achieve their plan every shift:

  • Clear understanding of why, when, where and how we run operational reviews.
  • Do we have good reliable up-to-date data to support our plans and actions?
  • Do we have a plan of exactly what we will be producing on our shift?
  • Do we have a clear view of our current resource status?
  • Is there a clear plan for changeovers and audits etc.?
  • When do we review progress to plan and how do we communicate issues?
  • Clear actions to close out, such as root causes, incident reports etc.?

5.      Do we have a realistic plan?

Without a realistic plan we cannot measure or expect success.  As with many of the other basics, human creativity often comes into play:

  • Ensure data driving the plan is based on actual experience, such as cycle times, set up and changeover times, manning profiles etc.
  • If a separate Planning function is creating the plan, implement a regular process with the Operations team to agree assumptions and constraints.
  • Ensure plans incorporate planned downtime.
  • Ensure the plan is shared with operational support functions such as maintenance and logistics.
  • Confirm within the planning horizon that all required inputs will be available and, once accepted by Operations freeze within an acceptable timeframe.
  • Consider aligning the operations teams to the plan such that they have ‘line of sight’ accountability for achieving it across all process steps – this may require teams to be aligned to product lines rather than process areas.