Colin Elkins, Industry Director, Food & Beverage, IFS, outlines three key areas where smaller vendors can put pressure on larger competitors.
October 31, 2019
Today’s consumers are focused more than ever on the health and environmental impact of the food and drink they purchase. Eye opening recent statistics from Nielsen Group show that two-thirds of consumers will pay extra for a product if a brand has shown commitment to environmentally friendly practices. Large manufacturers are changing their processes in response, but due to their size and scale they are struggling to capitalize on sustainability initiatives.
Less than a year ago, the first-ever U.S. Access to Nutrition Index revealed that the 10 largest U.S. food and beverage manufacturers lack the policies and action needed to tackle the high levels of obesity and diet-related diseases in the United States and ensure consumers have access to affordable, healthy products. The ATNF, founded in 2013, has produced global indexes biennially that examine what the food and beverage industry is doing to address all forms of malnutrition, including obesity, undernutrition, food insecurity, micronutrient deficiency and diet-related diseases.
Leveling the playing field for smaller manufacturers
Smaller, nimbler and more flexible food and beverage manufacturers have a window of opportunity to exploit against larger incumbent competitors. But to earn a place at the table and a more prominent position on supermarket shelves, they will have to focus on some new principles. Introducing new and innovative food and beverage products and reacting to fluctuating demand means quickly adapting manufacturing routing and packaging processes.
There are three critical areas food and beverage manufacturers need to concentrate on to steal market share from the industry juggernauts that have traditionally dominated the sector.
1. Leverage CSR as a brand differentiator
In today’s sustainably focused food and beverage sector, corporate social responsibility has gone from a ‘nice’ to a ‘need’ to have. Certain ingredients have hit the headlines and come under significant consumer scrutiny—take palm oil for example, which is attributed to loss of biodiverse rain forests in Asia, Africa and Central America. Retailers themselves are feeling the pinch here, with maximum percentages of RPSO-certified palm oil imposed on products they place on shelves—of course this is then passed on to manufacturers.
That follows with retailer demand for “clean labeling”, as consumers begin to favor more natural products for sustainability and health benefits, but also as they are often perceived as having more authentic flavor and taste. From supermarket shelves to restaurant table, being able to tell the consumer a “farm to fork” story about what they are about to buy, or order, can significantly boost the price of a product and do wonders for brand image. Today more than ever, traceability is no longer just about compliance and risk management—it has to be ‘built-in’ by supporting software.
Take a case in point with one forward looking IFS customer, Gaia Herbs. It offers an interactive “MeetYourHerbs®” web portal, which gives customers an insight into the supply chain and product origins for the company’s line of nutraceuticals and nutritional supplements. From grower, right down to the manufacturing batch and machine operator, consumers can accurately find out where their specific batch of product is from and who touched it along the way.
2. Harness the power of new technologies
Transformational technologies including the internet of things (IoT), artificial intelligence (AI) and powerful operational intelligence (OI) tools are already realizing their potential in food and beverage manufacturing, especially when solving business problems. Perhaps the most instant way these high-profile technologies deliver advantages for food and beverage organizations is in planning and scheduling. Because they often deal with fresh produce and perishable ingredients which require swift planning, there are big gains to be made by using intelligent algorithms to more accurately time production.
A good first step would be determining how much of a perishable ingredient to have on hand based on current and leading indicators including current sales pipeline, weather conditions and other data from inside and outside the company—not simply historical sales figures. It is then possible to make predictive, data-driven, decisions about purchasing, or how much of a precursor product to make prior to a daily order to meet demand. When combined with mobile geolocation technology and vendor portals, IoT can also deliver results prior to production, ensuring receiving processes dovetail with production to speed up overall manufacturing.
While robust, agile and integrated ERP is essential for the success of an international contactor, food and beverage manufacturers will also benefit from adopting operational intelligence (OI) software—a new enterprise management tool which rests on top of these systems. OI ties the underlying data in ERP and data from various information streams into an overall business picture, to map, monitor and manage business processes even as multiple variables change. OI software can even unite ERP products run by disparate businesses engaged in collaboration. This may be something as simple as shared sourcing between a brewery and a pasta company which pool their raw materials.
3. Become more agile
Producing new and innovative products to beat competition often requires setting up new processes, recipes and routings. The schedule for a single day’s manufacturing must be flexible enough to enable a manufacturer to ship the day they receive the order, breaking up batches into numerous packaging and product configurations according to emerging demand.
However, this is the point at which many manufacturers find their major ERP software solutions simply do not have a production scheduling engine. That is why even the largest food conglomerates, which may be using a solution such as SAP for finance, cannot use it to manage manufacturing or operational processes. The management of product as it passes through the manufacturing process is often managed by disconnected spreadsheets. In a setting as high-energy and fast-paced as food and beverage manufacturing this will fall down—to maximize efficiency and minimize wasted resources, processes must be streamlined and tightly integrated with the rest of the enterprise.
This is where a “two-tier” ERP approach comes in. When a food and beverage manufacturer runs SAP for financials on a corporate level, they may often opt to implement a more flexible, agile solution for the operational level of the business—or in specific divisions. One IFS customer, a division of a $3 billion food and beverage manufacturer, is a prime example of this. The parent company runs SAP to manage all financials. One of its business divisions expanded to begin manufacturing branded and private label soft drink syrups, which require very specific processes. Its single instance ERP implementation would have required costly and lengthy customization to handle these new complex and advanced planning processes. It decided to deploy a two-tier approach, meaning the division was up and running on IFS Applications with zero modifications to the code, while addressing their advanced license plating and other traceability requirements.
Press home the food and beverage advantage
Time is of the essence for smaller food and beverage players to steal market share. There is a captive and willing customer base to purchase sustainably sourced, environmentally friendly and genuinely healthy food and drink. But in the race to grab the opportunity, those who are held back by flexible software architecture can’t capitalize on new tech, become CSR aware and improve agility—meaning they run the risk being caught just as flat footed as the large industry incumbents they’re trying to overcome.
Colin Elkins, Global Industry Director for Process Manufacturing, IFS
Colin Elkins is the Global Industry Director for Process Manufacturing at IFS with over 20 years’ experience in ERP software solutions for the sector.
Colin has been a professional consultant and senior pre-sales consultant for much of this time and has extensive knowledge of the business issues and requirements faced by process manufacturers. This covers many industry sectors, specifically Food and Beverage, Chemicals, Pharmaceuticals and Mills and Metals.
He is a key member of the IFS Product Directions Board and plays an instrumental role in the decisions regarding IFS product strategy.
Colin completed a Mechanical Engineering apprentice and holds a BSC degree in Production Technology and Management with a further endorsement in Metallurgy. He has held senior positions within a large engineering company of Works Manager, Production Director and Worldwide Group Systems Manager.