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Chilling out as food supply chain heats up

26 October 2011

The growth in fresh and chilled food, at the expense of tinned and frozen, and the acceleration of product life cycles in the quest for diversity and consumer choice are creating massive challenges for retailers and food producers alike

But there are also huge opportunities for those organisations that can combine product innovation with an agile and responsive supply chain.

Many companies have invested heavily in both state of the art production technology and ERP systems, yet still use clipboards and paper to collect critical production information – and hence have no insight into the true costs associated with responding to fast changing supplier demands.

Steven Hargreaves, Group Product Director, Solarsoft, explains how closing the automation gap through real time data capture and monitoring is key to creating a flexible business, driving up yield and accelerating the supply chain.

Forecasting Failure
Over the past twenty years there has been a transformation in the food industry, as the market has switched from tinned and frozen goods to chilled and fresh produce. Retailers have responded to consumer demand by radically expanding variety and their sources of supply.

This shift has opened up the market to smaller niche producers and provided new opportunities for local suppliers and farmers. But it has also created massive supply chain pressure to maximise the far shorter product lifespan of these goods.

To put this into context, twenty five years ago, typical supermarket lead times were between seven and 14 days, with companies holding upwards of two weeks stock. Today, lead times can be a matter of hours with supermarkets amending order quantities as late as 12pm and expecting goods to be shipped by 4pm. Stock holding is minimal – and the retailers will impose significant fines if the supplier fails to meet its order, even if that order is 30% higher than the day before.

Underpinning this highly challenging supply chain is the inability of even the most sophisticated forecasting tools to manage the variables that affect the daily sales of chilled and fresh goods – most notably the weather.

For traditional, slower moving, longer life goods, forecasting can be extremely accurate, reflecting predictable seasonal variation and established purchase histories to provide suppliers with capacity planning data well into the future.

This model simply does not work in the chilled and fresh sectors where purchasing decisions are more frequent and the short shelf life means that inventory cannot be kept to ride out fluctuations in demand.

Add in the complication of accelerating product life cycles - which means there is limited history on which to base a forecast – and retailers are left with no choice but to create incredibly short lead times and demand extraordinary agility from suppliers.

Retailers increasingly are able to offer suppliers direct access to EPOS data to undertake their own forecasting. It’s a step in the right direction but one that leaves the supplier with complete responsibility for trying to optimise a highly dynamic value chain whilst minimising waste.

The risk for suppliers is that switching rapidly between product lines to meet demand can rapidly undermine profitability. The overhead of repeated wash downs and resets in shorter production runs drives up unit costs and is often not apparent until too late.

As too many manufacturers have discovered: money can be lost very quickly without tight control. But fail to meet the retailers’ demands and the manufacturer may face significant fines or lose the account.

Improving Yield
In a bid to increase peak capacity and become more responsive, manufacturers have invested heavily in both new plant equipment and ERP software. Yet too many still rely on paper based information and manual processes to bridge the gap between factory floor and their systems.

Why spend a million pounds on new equipment simply to rely on an operator with a clipboard to record gross materials consumption on paper and then wait for that data to be keyed into the ERP system before it can become useful management information? How can any company respond to changes in demand effectively, and without putting the bottom line at risk, without detailed, real-time insight into production costs and efficiency?

An agile business must understand its costs, not on a monthly basis but batch by batch. The key to creating a highly responsive business is to bridge this automation gap between plant and ERP systems by automating the recording mechanism to collect data much more intensively throughout the process and monitor yields more closely to attain a precise measure of raw materials used, wastage and production.

Touch screen information gathering terminals, real-time monitoring of weight scales and production lines can all be integrated directly with the ERP system to give managers immediate insight into their manufacturing efficiency.

From raw materials to energy consumption, overweighs and wastage rates, performance can be monitored by the second, enabling companies to gain unprecedented insight into profitability and the factors that undermine it. Armed with this data, management can assess the true cost of adjusting production runs to meet retailer demand.

Class leading companies are using real-time manufacturing data as part of their continuous improvement programmes. For example, one organisation now projects the results from the check weigher onto a large screen to ensure give-away is being continuously monitored by production staff and kept to a minimum, driving down wastage and maximising yield.

In another case, a regional production manager uses an iPad app to monitor bottling plant production rates across seven factories – in real-time. Again, the goal is continuously to increase productivity.

Conclusion
Growing demand for product diversity and local sources of fresh and chilled food, combined with the continued growth of the large retailers is creating significant opportunities in this sector for innovative producers of every size.

However, given the inability of forecasting systems to deliver reliable short-term predictions, retailers will continue to demand incredibly fast response times from their suppliers - in essence, passing the buck.

Those organisations that can combine product innovation with a slick supply chain and can leverage real-time information to maximise production and yield, will be best placed to respond to this fast growing opportunity.


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