The State of Food Manufacturing
Staff expansions and production efficiencies are bright spots in an industry feeling the effects of economic forces beyond its control.
The impact of macro-trends can be seen in the new product formulations and anticipated capital expenditures of food companies. Participants in this year’s State of Food Manufacturing survey indicate spending will be flat this year for production, packaging and process-control equipment, and a small downturn in budgets for automation hardware and software is likely-and that was two months before political brinkmanship took the federal government to the edge of default. “People have to have a job to buy things,” one survey respondent correctly observes, and the expectation is increasing that they will use the available dollars to buy healthier, less indulgent foods.
The dip in spending for process control systems comes at a time when the need for more automation is great. “Automation to reduce headcount and adjust for production” is the top trend impacting food manufacturing, one reader writes, and a chorus of “Amens” can be heard between the lines in many other respondents’ comments. Whether for better inventory management, improved cost control or some other purpose, food and beverage professionals say there are gaps in their automated control systems that need to be filled. Funding the investments, on the other hand, may be problematic.
Despite the challenges and constraints, throughput is expected to increase, albeit at a slower pace than recent years. Food Engineering readers expect company-wide throughput to go up an average of 4.7 percent this year, less than half the growth anticipated in 2009 and 2010. The outlook for respondents’ own facilities is marginally better (see chart on page 70).
Production still is booming at many facilities, with slightly more than half anticipating an average throughput increase of 16 percent at their plants and 14 percent company-wide. But less production is in the cards at one in six facilities, and at one-third of that group, reductions of 20 percent or more are expected. Poor business conditions are the fallback for factories in decline. One reader suggests “consumer purchasing changes due to the economy” and higher price points caused by rising raw material costs are aggravating those changes. “Expendable products in a poor economy” is another reader’s epitaph for his firm’s fortunes.
For those experiencing increased production, various explanations are offered. Popular new products, equipment upgrades and price reductions made possible by process efficiencies explain some of the improvements. Past performance plays a part in the prognosis of others: “Because we have increased every year in the last 10 years,” is one respondent’s analysis. Another comment underscores the competitive nature of manufacturing, even when it’s friendly competition from a plant with the same ownership. “Business is better this year, but more of the work is being transferred to our larger, newer facility,” a reader writes.
Investing in people and plants
Plant improvement activities and staffing levels remained positive in the last year, although activities on both fronts were less pronounced than the previous year. One in three respondents reports the addition of a new line at their firms in the past 12 months, a solid sign of manufacturing investment but the lowest ratio in eight years. Movement away from outsourced production continued, with fewer than one in 10 saying more work is being outsourced. Outsourcing peaked in the 2006 survey, when almost three in 10 indicated more work was being done by copackers.
Reflecting on a positive outlook, one food professional points to his company’s decision to “invest capital into a manufacturing line” that will allow it to “repatriate a product line back to our plant.”
More firms are boosting their manufacturing and engineering staffs than cutting them, although the positive margins have narrowed (see chart on page 72). On the other hand, staffing additions are close to the 10-year average for both manufacturing and engineering. Negative employment trends were reported in the 2008 and 2009 surveys, reflecting downsizing that occurred in 2007 and 2008, when the economy crashed.
The point of automation is to reduce headcount, of course, making organic growth essential for employment growth. Greater product diversity and increased changeovers on existing lines make throughput improvement more challenging, and four out of five readers rank equipment upgrades as their top priority for improving productivity. Operator skill training is the second priority, with three-fourths of respondents saying there is a great need or some need for improvement in that area. Better maintenance systems ranks third, with one in five seeing great need for improvement.
Most organizations can benefit from closer communication between departments and job functions, and the need for a dialogue between marketing and production is glaring. Respondents rank improvements in that area as their fourth highest priority, up sharply from a year ago, when it ranked twelfth. Controls upgrades also moved up in the pecking order, leaping to eighth from 17th out of 18 factors.
Only 11 percent of readers believe there is a great need for better tracking of overall equipment effectiveness (OEE) if productivity is to improve, and almost half (46 percent) say there is no need for better OEE reporting. To be effective and timely, the OEE metric requires automated data capture and reporting, and fewer than half of survey respondents work at plants with that capability. At manufacturing sites with the necessary MES infrastructure, OEE averages 67 percent, meaning saleable goods are being produced two-thirds of the time that machinery is available for production. The average OEE improvement goal is 73 percent.
Data systems aren’t a requirement for improved performance; four out of five readers indicate their organizations have implemented people-oriented continuous improvement efforts. Six Sigma programs are in place at a quarter of respondents’ plants. Two in five plants have implemented lean manufacturing or total quality management programs, closely followed by self-directed work teams (36 percent) and total productive maintenance programs (31 percent). As the ratios suggest, multiple initiatives are the rule. One respondent cites an “integrated company program which uses TPM as a part,” while another writes, “Consistent refinement and evolution of production/manufacturing techniques” is his organization’s approach to continuous improvement.
Revised shopping lists
The programmable logic controller (PLC) is an icon of food and beverage automation, and it topped the controls hardware and software shopping list throughout the last decade. But the PLC became mature technology years ago, and this year’s survey suggests it is on its way to obsolescence.
Until 2010, the majority of survey respondents indicated PLCs were in their plant purchase plans, with 85 percent saying they would purchase them in 2004. The numbers have been declining ever since, and this year, barely one quarter of readers plan to buy them, dropping the PLC to the third most frequently purchased process control technology. A similar slide is occurring with HMIs, which fell from third to ninth, appearing on the shopping lists of only one in five readers.
The new automation hardware king is lab analysis equipment, closely followed by digital sensors and transmitters. About three in 10 plants will add those items to inventory this year, a ratio consistent with previous years. Wireless plant networking equipment jumped to the No. 5 spot from 11th last year, with one in four readers including them on their acquisition lists. Wired networking equipment, by contrast, will only be purchased by one in 10, half the level of four years ago.
Reader opinions of food safety initiatives were solicited, beginning with the Food Safety Modernization Act (FSMA) and its impact on manufacturing and business operations. Almost three in 10 indicate FSMA would not affect operations, while a third agrees with the statement, “We already practice what FSMA preaches, so it is not an issue.” One in four indicates they have created a checklist of changes needed to comply, and almost as many say the legislation will nudge their organizations toward electronic recordkeeping. One in 10 agrees with the statement, “FSMA could help stop another melamine crisis,” a reference to the chemical covertly added by Chinese processors to pet food in 2007 and milk and infant formula in 2008.
Another 13 percent of survey participants agree with the statement, “FSMA will create an undue burden,” and others offer written comments, including one deriding FSMA as an “imposed change.” Referring to one of the audit standards approved by the Global Food Safety Initiative (GFSI), a reader reflects, “The switch to BRC was partially due to this act. Some provisions are good, some may not help, but all of them will cost extra money.”
Food and beverage manufacturers can choose from several GFSI-endorsed standards when undergoing an independent third-party audit. The Safe Quality Food standard administered by the Food Marketing Institute is the preference of a third of manufacturing professionals, with 25 percent opting for SQF Level 2 and another 7 percent pursuing the more stringent SQF Level 3. The BRC standard developed by the British Retail Consortium is the choice of one in 10, with FSSC 2000, the Global Red Meat Standard and Synergy 22000 also garnering interest.
One in eight (13 percent) of readers indicates they are in the process of acquiring GFSI certification, while two in five have not investigated any of the certification options.
All the GFSI programs require evidence of a food safety management system, and FSMA extends the HACCP requirement to all food and beverage processors. But only three out of five readers say their companies have established a food safety management system, the same ratio of those with capabilities for lot-level traceability.
Federal regulators waited 15 years to extend HACCP beyond meat and poultry plants, but retail and foodservice customers have made HACCP a condition of doing business for years. Consequently, 77 percent of survey respondents indicate their firms have already implemented HACCP, including 46 percent with paper-based programs and 31 percent with electronic systems. Electronic signatures to verify HACCP compliance are in place at 15 percent of the plants.
Participants in this year’s survey represent smaller operations than previous years’ samples, which may explain a drop in the number who have adopted corporate social responsibility or sustainability programs. Still, two-thirds have a program in place, with workplace safety and workforce diversity programs the most prevalent. A third of the companies know their water and energy inputs per unit of production, and a quarter can calculate their carbon footprint. Participation in the Global Reporting Initiative and recycling programs also were cited.
Who answered the survey?
Readers of Food Engineering provided the feedback that serves as the basis of this report. A total of 130 readers responded either to surveys mailed in late May or to an e-mail invitation to complete the questionnaire online.
Almost a quarter (22 percent) of respondents’ job function involves engineering, with general administrators and managers accounting for almost a fifth (19 percent). Operations managers account for 14 percent, followed by R&D (13 percent), production management (10 percent) and quality control (8 percent). The rest were spread among purchasing, packaging and the other.
A wide variety of food and beverage companies are represented, with processors of meat, poultry and seafood products representing the largest category at 16 percent. Suppliers of flavors, ingredients and supplements constitute 14 percent of the sample, followed by baking and snack food producers (12 percent), beverage products (12 percent) and shelf-stable foods (7 percent). Plant head counts are smaller than last year, with more than four in five (82 percent) working at plants with 500 or fewer employees, compared to 57 percent last year. The average number of employees is 329.