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Say Hi to Mom
How manufacturing operations management can keep your company healthy
by Mark Sutcliffe
Food processors have always lived in a world of challenges, and food prices have historically been volatile. But the unrelenting price increases over the last two years are troubling at best. Food prices spiked 4.9% in 2007, the biggest jump in 18 years, according to Time Magazine. Wheat and milk prices have risen to all-time highs. Soybean prices are at their highest level in 34 years, and corn prices have hit an 11-year peak. Rice and coffee are now at 10-year records, and meat prices are up by 50% in some countries, according to reports published late last year in the Financial Times.
For a growing number of senior executives and industry analysts, these trends are much more than a hiccup. They are a clear indicator that the food and beverage manufacturing industry faces a long, severe cycle of rising prices—unlike anything we have seen in decades. In an article in March’s Sunday Times, David Budworth said that commodity cycles, which tend to last an average of 20 years, indicate that the current run in prices is just beginning and could very well last for the next 15 years or longer. Exacerbating the rise in commodities are major macroeconomic factors such as an unstoppable demand for grain-derived ethanol, unprecedented global demand for energy, and the rapidly growing middle class in Asia and Latin America.
On the supply side, the rising scarcity of arable land is a significant problem. In Asia alone, an estimated 75% of land that could be used for agriculture is already under cultivation. In India, that figure is closer to 95%. Moreover, the increasing shortage of water is making it more difficult and costly to plant crops.
Together, these factors are creating a perfect storm. Food processors are rapidly losing pricing leverage. Energy costs show no signs of abating. And consumers, who continue to feel the pinch from falling home values, rising fuel costs, and recession fears, are starting to show that they are not impervious to price increases. But a number of food processors have found an answer to this dilemma—manufacturing operations management (MOM), technology and techniques that represent a fundamental shift in the way food manufacturers improve production performance.
Tough Times, Smart Measures
For food processors, powerful economic factors are creating systemic ills that call for much more than the standard medicine. Stopgap measures like reductions in capital expenditures, recipe reformulations, and creative packaging solutions will only provide short-term relief. Engineering-based improvement initiatives involving plant and equipment are not the answer either. Research into failed continuous improvement initiatives suggests that the inefficiencies at the core of today’s consumer packaged goods factories do not reflect an engineering problem.
In fact, an 18-month benchmark study recently conducted by CDC Software’s CDC Factory on more than 100 food plants in North America and the United Kingdom—one of the largest and most comprehensive analysis-based studies of its kind in the food processing industry—revealed that 37% of the losses in the plant are not related to inherent constraints or plant conditions. Instead, they are people-based issues. They are workflow and management problems—problems that must be treated differently from the engineering-led focus most companies use today.
The massive, long-term price increases faced by today’s food industry require a paradigm shift in how food processors can reduce the underlying costs of production while improving their ability to respond to change, maintaining product quality, and protecting brand equity.
With pricing leverage gone, the allocation of labor and material to the production process remains the most significant variable food processors can still address—the last bastion of significant and sustainable performance improvement opportunity.
Poor Transparency Prevents Action
Unfortunately, most food processors lack the transparency needed to identify where this waste reduction opportunity lies and how significant it may be. The CDC Factory study uncovered a staggering $98 million cumulative opportunity for margin increase just by making simple changes to the way existing workers are deployed on the shop floor. The study also revealed that addressing these improvement opportunities would help organizations avoid an additional cumulative $400 million in unnecessary capital expenditures.
But perhaps most alarming was the discovery that these simple-to-address, people-based problems are essentially invisible in most food plants, a fact evidenced by the significant gaps that exist between reported factory efficiency performance and actual performance, which varied, on average, 9.1% across a sample size of 100 plants.
Why the disconnect? Quite simply, in most food plants, shop floor personnel are operating in the dark. They lack the relevant real-time information required to identify and report production-line problems as they occur. Furthermore, processors almost always lack a framework within which to teach, execute, and sustain daily operating best practices.
As a result, company executives aren’t able to take steps to drive change because the compelling need and potential improvement benefits have not been revealed and quantified by plant directors. This is not because plant directors are unwilling to reveal the opportunity but because they are not aware of it themselves.
Yet, according to the CDC Factory study, failure to take appropriate action on these performance improvement opportunities is costing food processors three to five points in bottom-line profits—the difference between profit and loss at many food companies today.
Food processors can capitalize on this hidden opportunity by helping the shop floor improve visibility into production. And, in order to make a direct and significant contribution to the company’s profitability, operators and supervisors must be empowered with real-time information—actionable information they can use to shine a light on production performance and help prevent problems from occurring. In essence, the shop floor needs a practical, people-based information management system.
Say Hi to MOM
Leading food processors have found an answer in MOM technology and techniques. Much more than technology, MOM represents a fundamental shift in the way food manufacturers improve production performance. In essence, it’s a new way of thinking about the shop floor’s contribution to the business—a very different approach from traditional methods involving data historians and manufacturing execution systems, which collect mountains of data and create more work for the very people who want to contribute.
What makes MOM different from other traditional automation technologies and systems?
- MOM systemizes the human element: By “systemizing” the human element, MOM takes what has traditionally been a theoretical, feel-good concept—the idea that people are the key to vast improvements in performance—and makes production efficiency improvements practical, repeatable, and predictable.
- MOM eliminates paperwork: MOM does away with the endless, de-motivating reams of shop floor paperwork. Instead, it provides operators and supervisors with clear, real-time insight into the performance of their own production lines, much like a speedometer helps a driver adjust his or her speed.
- MOM makes improvement practical: Best of all, MOM technology and techniques are practical and people-oriented. They are designed around the way the shop floor works, providing operators and supervisors with immediate, real-time actionable feedback while enabling them to make real, measurable contributions to performance improvement that are aligned with corporate goals and objectives.
The advantages of MOM in an environment of systemic and lasting food price increases are far-reaching. MOM systems and best practices are helping food processors to systematically eliminate waste related to labor and materials, leading to a significant reduction in production costs. The advantages MOM has over other approaches include fast and significant improvement, reduced giveaway, less product rework, elimination of non-value–added quality checks, avoidance of unnecessary capital expenditures, and the unlocking of human potential.
MOM is no longer reserved for pioneers and mavericks. Hundreds of food producers—including makers of salads, yogurt, entrees, sauces, cakes, beverages, and cheese products—have already embarked on MOM initiatives, providing their peers with reasonable examples of what can be expected.
The results these companies have achieved are nothing less than remarkable. Near-immediate efficiency gains of 15 to 40%, with decreased labor hours and increased customer service levels, are not uncommon. Not surprisingly, leading analysts are taking notice. In fact, in 2007, Gartner Group, AMR Research, Forrester Research, and ARC Advisory Services all published research briefs touting the benefits of these techniques and technologies, and there are many case studies supporting their use, including one involving Breyers Yogurt Company (see “MOM Helps Yogurt Maker Improve Efficiency,” below).
It is common knowledge that in order to ensure high customer satisfaction, food processors, especially those involved in private label manufacturing, will often overfill product to avoid the risk of falling out of spec. But in an environment of escalating prices, this practice has become unsustainable.
A MOM system and framework enable food processors to reduce overfilling without increasing the risk of customer complaints. In one case, within just a few weeks of implementing its MOM system, a company discovered that it had been giving away more product than it had estimated. Now that the new system has made it easier for operators to enter sample weights, the company has significantly increased data accuracy and reduced overpacking without sacrificing brand equity or customer satisfaction.
Another commonly reported benefit of deploying MOM technology and best practices is reduced product scrap and rework as a result of lower quarantine time. When quality checks are performed manually or on paper, there is always a good chance that some of the checks will be missed or completed late. This problem is inevitable in a fast-paced, real-time food-processing environment.
If a weight check that is performed 30 or 40 minutes late, for instance, reveals that the product is out of spec, all of the product that was filled up to the time of the last quality check must be quarantined, retested, and possibly reworked. In most production lines today, this could easily translate into thousands of units of wasted product.
Until recently, this waste wouldn’t have been a pressing issue for most companies. But with raw material costs still escalating, quarantine and rework are much more important—not to mention the additional energy, labor, and opportunity costs of rerunning a sizeable batch of product.
By digitizing the process and making it more transparent, MOM systems build discipline into quality checks and ensure that all checks are completed on time. Quality managers are immediately alerted of any late checks so that they can take action to reduce the amount of product that must be quarantined, retested, and reworked.
In food plants today, process inefficiencies and misallocations of labor are forcing companies to perform unnecessary or redundant quality checks and audits. The fear of putting the brand at risk compels many to continue these inefficient practices. Only by completely digitizing the quality check process can food processors consistently drive accountability. This change ensures that all checks are completed on time while improving data accuracy.
Digitizing the quality check process often enables companies to eliminate redundant tasks and shift labor to more productive analysis and improvement activities that produce greater tangible value. Breyers’ MOM system automatically time stamps and documents all quality checks with the person who performed them. This built-in accountability helped the company go from 50 to 60% quality-check completion to 98% completion in just two weeks.
Cut Capital Expenditures
Another critical impact area for MOM technology and practices is capital expenditures. Food processors that embark on a MOM initiative often report significant savings from avoiding additional investments in quality management technology, new equipment, production lines, and plants. This is a key advantage, considering that only 11% of food manufacturing executives interviewed for the CDC Factory study could claim that at least 50% of their capital projects actually delivered their intended benefit.
MOM has also been proven to help food processors unlock their human potential by producing a more motivated, focused, and accountable workforce—one that can deliver instant, tangible performance improvement across all plants year after year, not just a one-time improvement on a piece of equipment or production line. In light of increasingly challenging economic conditions, the notion that a people-centric approach to improvement provides a dependable platform for ongoing, measurable cross-plant improvements must be given serious consideration. And, considering that unlocking the latent human contribution is nowhere near as capital-intensive as an equipment- or plant-focused initiative, this systematic, people-based approach to accelerating efficiency improvements is more relevant than ever.
In fact, for Breyers, one of the most unexpected benefits from its MOM initiative was the revelation that the proposed purchase of a new $1 million piece of equipment was not necessary. What appeared to be a problematic filler running at an average of 40% efficiency turned out to be the result of people issues that Breyers was able to identify and resolve quickly for a fraction of the cost.
MOM enables food processors across all sectors to bring new levels of insight, control, and closed loop visibility to the production floor. Companies that leverage MOM technology and techniques to deal with the inevitable structural food prices of the next decade can expect to see greatly improved plant efficiency, unlocked capacity, and significantly reduced production costs related to labor and materials.
Using MOM will enable food processors to create a more durable competitive advantage as they pass the savings on to the consumer—or at least hold prices steady while delivering an acceptable profit margin.
Sutcliffe is president of CDC Factory Solutions for CDC Software. For more information, call (770) 351-9600 or e-mail at email@example.com.