Food Engineering

Consolidation’s Fallout

May 9, 2003
In today’s environment, food processing often resembles a game of addition by subtraction.

THE FOOD AND BEVERAGE MANUFACTURING game is often one of mathematics. Take J.M. Smucker Co., for example.

The Orrville, Ohio-based maker of fruit spreads, toppings and beverages recently announced it would shutter three plants in the coming months, phasing out those operations as a new Scottsville, Ky. facility dedicated to the production of Uncrustables, a frozen peanut-butter-and-jelly sandwich, comes on line. Net change: 185 fewer production workers, with 150 added in Kentucky and 335 subtracted in Watsonville, Calif.; West Fargo, N.D.; and Woodburn, Ore.

Many factors were at play in Smucker’s decision, though the company declined to discuss them. A strike affected the Woodburn facility last year, though local sources say the workforce included many second-generation employees who were willing to work with the company to improve efficiencies. Outsourcing of some fruit processing is a possibility, though the company continues to operate two other fruit processing plants. More likely drivers of the decision were product trends and logistical considerations, forces beyond the control of a manufacturing facility. Where to build new facilities and which plants to close are issues manufacturers have wrestled with since the dawn of the Industrial Era, and corporate consolidation has complicated the issue even more.

Optimize or perish

Labor relations and other non-financial considerations can affect siting decisions, even when supply-chain optimization models are being applied. Robert J. Belshaw, vice president of Manassas, Va.-based Insight Inc., cites the case of a client who used Insight’s logistics management software to select the optimum location for a new plant. The model factored in labor and land costs, transportation issues and hundreds of other variables. Los Angeles was the most cost-effective location, but management was determined to avoid a union environment and was concerned with quality of life issues.

“A Nevada location added $1 million a year to their operating cost, but that’s what they settled on,” Belshaw recalls. “Some decisions are driven by non-financial considerations. By using the model, management was able to make a decision on actual costs, not just a wing-it number.”

Companies are just as likely to use Insight’s models to decide which plants or distribution centers to close. Food and beverage clients include Kraft, Nabisco, Dean Foods and Kellogg, all firms that have confronted decisions about what facilities to retain and possibly expand and which to shutter in the wake of mergers and acquisitions in recent years. “If you can make corn flakes at two plants but you only need one,” says Belshaw, “which is the best choice? Making the tradeoffs between the silos usually is cost driven, but understanding the capacity and capability of a facility and the true cost of servicing a market quickly becomes a very complex metric.”

Increased flexibility, not efficiency, needs to be the new mantra in U.S. manufacturing, says Insight’s recently retired president Dick Powell, but that requires alternative reward structures from top management, and Powers is uncertain if that’s forthcoming. “People’s compensation has historically been tied to cost reduction: the lower your unit of production cost, the higher your bonus,” he observes. “But it’s often more profitable for the company to reduce production of the slower moving products that account for 20 percent of sales. That’s done by performing more line changeovers, and that requires alternative ways to rewarding and motivating people.”

Receptivity to change has played a role in the survival of Pet Dairy in Wilkesboro, N.C. The 65-year-old processing facility only handles 490,000 gallons of fluid product a week, but it has survived long after the closing of other Pet Dairies in the Southeast because management’s acceptance of technology that boosted flexibility. “If you’re not upgrading, you’re in trouble,” notes Operations Manager Mike Reid, and plant management has seized every opportunity to maximize performance and increase flexibility. Labor relations and other non-financial considerations can affect siting decisions, even when supply-chain optimization models are being applied. Robert J. Belshaw, vice president of Manassas, Va.-based Insight Inc., cites the case of a client who used Insight’s logistics management software to select the optimum location for a new plant. The model factored in labor and land costs, transportation issues and hundreds of other variables. Los Angeles was the most cost-effective location, but management was determined to avoid a union environment and was concerned with quality of life issues.

Increased flexibility, not efficiency, needs to be the new mantra in U.S. manufacturing, says Insight’s recently retired president Dick Powell, but that requires alternative reward structures from top management, and Powers is uncertain if that’s forthcoming. “People’s compensation has historically been tied to cost reduction: the lower your unit of production cost, the higher your bonus,” he observes. “But it’s often more profitable for the company to reduce production of the slower moving products that account for 20 percent of sales. That’s done by performing more line changeovers, and that requires alternative ways to rewarding and motivating people.”

Receptivity to change has played a role in the survival of Pet Dairy in Wilkesboro, N.C. The 65-year-old processing facility only handles 490,000 gallons of fluid product a week, but it has survived long after the closing of other Pet Dairies in the Southeast because management’s acceptance of technology that boosted flexibility. “If you’re not upgrading, you’re in trouble,” notes Operations Manager Mike Reid, and plant management has seized every opportunity to maximize performance and increase flexibility.

Supply chain optimization is a powerful driver in deciding where to locate new manufacturing facilities and which old plants to shutter. Tools like SAILS software is used by several leading food companies to help make those decisions. Source: Insight Inc.

Professional development

Processing flexibility is certainly one of the factors Gary Neal and his colleagues at the Washington Group consider when performing a plant evaluation in a consolidation project. Another is the trainability of the workers and the availability of assistance from economic development agencies.

“When a manufacturer decides to consolidate, the plants are competing with similar facilities within their own organization, not with the competition,” observes Neal. “If the decision is obvious, management doesn’t need to bring us in, but often there are so many variables to consider and the choice isn’t clear.”

Worker training incentives for companies with existing operations used to be taboo in many states, but that’s changing. “Existing companies often are treated differently than new companies, but there has been a change in this philosophy in recent years,” according to C. Jones Hooks, director of the Hampton Roads (Va.) Economic Development Alliance. “More and more localities are treating expansions in the same manner as they historically had treated new companies.”

Training assistance was a key consideration in a consolidation project Neal was involved in, but the adaptability of line workers to change also was a factor. The packaging department of the facility that would remain would have to undergo radical change, with servo-drives and microprocessors replacing mechanical equipment. “We knew we’d need help in training employees in PLC skills and other technologies,” the Birmingham, Ala.-based packaging engineer recalls. “It came down to which group of workers was the most flexible and which community could offer the most assistance in retraining.”

Retraining shouldn’t stop on the plant floor. To increase the likelihood managers will meet new demands created by consolidation, some manufacturers are instituting formal processes to help them identify and bridge their skill gaps.

Automation engineers and other plant professionals at Unilever plc, the world’s fifth largest food manufacturer, annually measure themselves against a Leadership Growth Profile, a skill competency model geared toward identifying areas of possible deficiency and eliminating them. “We are a company that has ambitious growth plans,” explains Andrew McDonald, global automation & control manager in Unilever’s Trumbull, Conn., office, “and we recognize corporate goals can only be met if we give people ways to assess their skill gaps and be leaders.”

For example, supply-chain strategies can only be executed with the cooperation and support of plant supervisors who understand how to integrate plant-level systems with Web-based technology, he says. The Leadership Growth Profile is useful in gaining organizational support for supply-chain strategies, but implementation hinges on specific types of training that professional staffers need to execute those strategies. At Unilever, networks of practitioners devise training programs to meet those individual needs, McDonald says.

Issues of consolidation were tackled head-on at the recent Food Engineering Food Automation & Manufacturing Conference, with two speakers discussing the dynamics from the perspective of an acquired company and a corporation that streamlined its own operations.

Lane Paolocci, operations director, supply chain integration for Minneapolis-based General Mills, addressed the issue from the perspective of a manager who survived 1989’s hostile takeover of Pillsbury by Grand Metropolitan and the more amicable purchase of Pillsbury by General Mills. He cautions food professionals against arrogant “we’re too big to be closed” attitudes and emphasizes the need to understand the new owners’ operating philosophy and how they measure performance. “If you understand all the drivers, it will be easier for you to adjust and talk the same language,” Paolocci advises.

The intangibles of a plant don’t get measured in an acquirer’s “data room,” where black-and-white evaluations of newly acquired facilities are made, he says. Food engineers and managers need to take a cold, hard stock of their plants and address any shortcomings before a new owner—who is under pressure to cut costs to pay for the acquisition—makes his own decision to exploit its potential or shutter the asset.

“First-visit impressions are hard to overcome,” Paolocci adds, and a plant that is bright, uncluttered and operating smoothly makes a positive impression with the new owners. “It’s all about interpersonal skills,” he concludes, and consolidation demands a spirit of cooperation, not confrontation.

Given the emotional nature of consolidation, cooperation isn’t always in abundance. Knowledge is power, and managers at the acquired company can be less than forthright in explaining their processes, why the plant is organized as it is and what steps must be taken to ensure smooth operations. As a project and engineering manager who has participated in the process from both sides of the table, Brookes A. Britcher Jr. noted mergers usually don’t result in “a happy ending” for all concerned. Coping with consolidation becomes a matter of individual objectivity and professionalism, the executive at Sara Lee Bakery Group’s Tarboro, N.C., plant says.

“You go into a consolidation thinking it’s all about specs and drawings and quickly learn it’s about people,” says Britcher, whose plant has expanded to 865,000 sq. ft. as production of additional products shifted there when other facilities closed. “Cooperation and professionalism sometimes is found in the places you least expect it.”

He recalls the maintenance manager at a Sara Lee bakery that was slated for closing. The manager recognized what was happening but remained committed to the plant and to the process of winding down production. When operations finally ended and the equipment was mothballed, he was the one who padlocked the doors.

The last soldier standing often becomes the tour guide when leasing agents show the facility to prospective tenants. In the case of a shuttered Borden Foods plant in Tolleson, Ariz., the plant engineer filled that role and eventually became a valued member of the team at American Italian Pasta Co., winner of this year’s Food Engineering New Plant of the Year.

“People understand that consolidation sometimes is necessary, and they accept it,” Insight’s Belshaw notes. “The smart guys embrace it and look for ways to optimize their own plant’s performance.” And if forces beyond their control dictate that the plant will be one of the casualties of consolidation, personal professional will determine how they approach it.