State of Food Manufacturing
Food and beverage companies feel the effects of a sour economy, though industry professionals see opportunities in market shifts.
Throughput gains at North American food and beverage plants this year are expected to be about a third of the levels two years ago, with the proportion of facilities registering a loss in production triple the rate of 2007. At the same time, spending for production, packaging, process control equipment and professional services is shrinking. Manufacturing assets will claim 17% of the typical plant budget, the lowest share in five years. The high water mark was 2007, when manufacturing assets accounted for 23% of spending.
Like healthcare and other vital services, food and beverage enjoys a built-in cushion against recessions and other economic disruptions. Food and beverage retail sales may gain share over food service volume in tough times, but both channels rely on manufacturers for the products they sell. Still, the industry is not immune to economic difficulties, and food and beverage professionals are feeling the pinch.
Though capital budgets aren’t shrinking, they are growing at a much slower rate, according to Food Engineering readers who answered this year’s State of Food Manufacturing survey. The proportion of companies adding engineers to their staffs dipped to 10%, the lowest level since 2002, the last time manufacturing was pulling out of an economic downturn. One in seven firms is downsizing its engineering staff, the highest ratio since 2004. Yet food and beverage companies continue to invest in their infrastructures and processes and adjust to growth opportunities.
“People [are] relearning to cook, conserve and eat at home,” another writes in describing the top trends that will affect operations in the coming years. Many readers agree, and most expect the growth in retail purchases will come at the expense of branded goods, as well as food service sales. “Private label growth, national brand decline,” sums up one respondent.
Because those changes entail a redeployment of production assets, manufacturers continue to invest in machinery and automation hardware while scrapping brick and mortar projects. The average increase in automation and controls budgets this year is a modest 1.5%, well off the pace of 5.8% in 2008 and 9.5% in 2007, but spending cuts at one in six plants account for much of the slowdown. For the three in 10 facilities with more to spend, average budget increases of 21% are in line with happier days.
More than a third-36%-of readers indicate their plants will add lines or change processes to take advantage of consumption shifts. A similar proportion are expanding their facilities or otherwise adding capacity, but that represents a significant drop from expansion ratios in the four prior years. Fewer readers report new construction projects by their firms than in any prior year this decade, a fact borne out by Food Engineering’s annual construction survey.
Lean manufacturing, Six Sigma, total productive maintenance and total quality management often are cited in the open-ended trends question. Advanced tools such as “stochastic and heuristic simulation process adaptation” and “implementation of software to make OEE visible” are among the technical trends readers see. And the need for workers with higher skill sets remains a nagging concern.
Reader comments on food safety have a sharper focus. In particular, international standards and how they impact best practices are of interest. One respondent cites the British Retail Consortium’s Global Food Safety Initiative. The retailers’ standard “will change the way food manufacturing companies document their activities,” he writes, adding domestic debacles will put a premium on documentation to “make sure we do not have repeats of the peanut scare.”
The “peanut scare” was this year’s equivalent to melamine in Chinese dairy products in 2008 (and pet-food ingredients in 2007) and E. coli 0157:H7 in ground beef from Topps Meat Co. in 2007. Eight deaths were linked to salmonella in peanut butter produced by the Peanut Corporation of America, and more than 2,000 products from 200 food companies that used PCA products as an ingredient were recalled in January and February. These cases underscore the complexity of today’s supply chain and how a problem with a supply source anywhere in the world can mushroom into a global issue.
Given the recall ripple effect from contaminated ingredients, readers were asked what changes are needed in current industry practices. Two-thirds believe more stringent traceability requirements and validation of suppliers are warranted. Almost half favor more rigorous third-party audits of suppliers (see chart on page 54). Periodic microbiological testing of ingredients by PCA customers might have flagged salmonella contamination a year before the recalls occurred. Perhaps cognizant of that, 37% of readers agree periodic microbiological testing is warranted, and three in 10 believe periodic chemical testing has value. Chemical testing could detect melamine.
“More rigorous internal audits,” writes one respondent, “more stringent third-party audit protocols at the production level,” writes another, and “better in-house inspection processes,” adds a third. One in 10 favors a change in how auditors are paid: Instead of the manufacturer dealing directly with independent testing services, a different paradigm is warranted. One in six (16%) believes no changes are needed.
The status quo is supported by the same proportion when it comes to overhauling the federal food safety system. Self-policing with regulatory oversight would help, one respondent writes, while another comments, “free market system dictates this.”
Respondents are almost evenly split between three of the reorganization proposals under discussion: a super-agency combining FDA, USDA and the Department of Commerce (37%); separate agencies for food categories such as baked goods, dairy and meat and poultry (36%); and a disengagement of food and drug oversight by FDA (33%).
Faced with a product recall, three-fourths of respondents believe their companies could notify all customers or suppliers of a contamination problem within 12 hours (see chart on page 50). One in 14 would simply issue a blanket notification, regardless of which customers received the suspect goods, while one in 50 frankly admit they could not identify and alert affected customers.
People are the key to productivity, and survey respondents consistently rank operator skill training as the most effective way to improve productivity, with almost a third indicating there is a great need for more operator training and a fourth saying the same for line-supervisor training. Equipment upgrades are a pressing need at a fifth of the facilities represented.
In recent years, one in six has expressed the need for improved monitoring of key performance indicators (KPIs). That base support remains, and a growing number of professionals are recognizing this as an area of some need, pushing KPI monitoring into the top tier of productivity-improvement methods. Other keys to productivity gains are controls upgrades, better maintenance systems and improved reporting of overall equipment effectiveness.
Automation and controls budgets may not be getting their usual bump, but plant shopping lists are notably similar to prior years. PLCs top a list of 20 items, though the two-thirds of plants buying them this year is the lowest ratio since 2006. Motion/motor controllers are in the budgets of half the respondents, followed by digital sensors/transmitters (33%) and lab analysis equipment/software (33%). HMIs remain popular hardware purchases, though only a quarter of readers will buy them this year, the lowest ratio since 2003.
The value of asset-management systems is the black hole of automation, with half of those using them uncertain if there is any return on investment. On the other hand, one in eight pegs ROI at 10% or more, and one in 12 puts return in the 7%-9% range. About half the survey sample has an asset-management system.
Lean manufacturing programs appear to be more of a trend than a fad, with almost half of readers saying their organizations have implemented lean. Total quality management is the second most frequently cited continuous-improvement method. The proportion of firms deploying theory of constraints doubled to 6% of respondents. Other mentions include high-performance work systems and proprietary programs. Time spent browsing the Internet for processing and manufacturing topics is part of the work routine for seven of eight readers, with the majority spending at least an hour a week on work-related research.
This report is based on 275 usable responses from readers. Surveys were mailed in May to 1,000 readers, with an additional 5,874 e-mail invitations to complete the survey online. The overall response rate was 4.1%, with 6.8% of mailed surveys and 3.6% of e-mailed invitations generating input. Engineers account for 28% of the sample, with quality control and research & development professionals combining to form a third of the base. Operations managers generated 13% of the responses, followed by production managers (8%) and general administrators (4%). Other disciplines include packaging, maintenance, purchasing, technical and environmental services and continuous-improvement specialists. A broad range of food and beverage production is represented, with processed meat, poultry and seafood constituting the largest category at 15%. Baking and snack and dairy and frozen novelties each account for 9%, followed by flavors, ingredients and supplements; cereal and grain-based products; and beverages, each at 8%. One in seven works at a pilot plant, R&D facility or company headquarters. A third of respondents work at facilities with 100-249 employees, with 12% based at facilities with 1,000 or more. One in five is at a plant with 50-99 or 250-499 workers, and 15% work at facilities with 500-999 employees.