While the food and beverage industry has fared somewhat better than other industries during the recession of 2009/2010, most processors have limited budgets for new projects and are using any funds they have to fix and improve existing assets. According to the engineering firms interviewed for this article, new projects are down significantly, but renovations and expansions picked up as processors realized they could improve output by taking another look at inefficient lines, energy-wasting buildings and processes and site locations that don’t measure up.
Food Engineering’s annual Plant Construction Survey (see graph at right) shows reportable projects-which include new, expansions and renovations-down 6.2 percent from 2008 (464 projects in 2009 vs. 495 reported in 2008). Reportable projects are those in the planning stages, begun or completed in 2009 and valued at more than $1 million.
“As expected in a weak economy, we are seeing fewer greenfield projects and more investment in renovations, conversions and expansions,” says John-Paul Saenz, vice president of food and beverage with Haskell. Industry consolidation and excess manufacturing capacity in most food and beverage segments have spurred processors to transform their manufacturing networks. Consolidation and transformation initiatives lead to facility renovations, conversions and expansions.
To make better use of building assets and to get product closer to end users and distribution hubs, processors have relocated production lines, sometimes completely closing sites that no longer make sense due to changes in distribution or drops in sales, says Scott Pribula, TranSystems market sector leader. Location has become a major factor, determining whether processors close sites or renovate and expand existing sites to accommodate additional lines and match specific product output to certain geographical areas.
While new projects in 2009 dropped off by 25 percent (146 in 2009 vs.195 in 2008), expansions and renovations accounted for a 6 percent increase in 2009 (318 projects vs. 300 reported in 2008), according to FE’s survey. Rather than building dedicated warehousing space in a separate or off-site structure, processors are adding storage space as they increase processing capabilities.
Proving there is more interest in fine-tuning processing assets than adding warehousing space, projects dedicated to cold storage, distribution and warehousing accounted for 8.6 percent of the total number of projects in 2009-a decrease from 2008. In 2008, total distribution and warehousing projects accounted for 12.1 percent of all reportable projects as processors ramped up distribution capabilities.
Opportunity still knockingAsk a few project managers what’s going on-or not going on-and they paint much the same tableau. There is a continued trend by food companies to cut costs by decreasing capital expenditures, reducing operating costs and increasing efficiencies. Therefore, plant construction has recently involved plant relocation and consolidation or plant remodeling versus new construction, says Joe Bove, vice president of design services at Stellar. While processors may not be spending on new buildings, they need consulting services. Typically, processors need answers to questions such as: Which plants should be refurbished? What are the production and logistics effects of consolidating plants? How is the supply chain functioning? What is an efficient layout of production lines?
For processors that have some ready cash, there are opportunities. Lower project costs compared to just a few years ago is common, says Jeff Jendryk, Valdes Engineering Company project development manager. The construction trades are reducing their profit margins to keep their people busy, and are very competitive. In addition, processors looking for an existing building may be in luck. “Several food and beverage plants are available for retrofit as companies have reduced their manufacturing sites by consolidation,” he adds.
There’s another plus for processors that have funds. According to Dan McCreary, The Dennis Group’s project manager/principal, a surplus of contractors are ready, willing and able to take on projects of all scopes. Contractor bid responses and pricing have never been better. For example, McCreary saw an office construction project drop by 20 percent over a six-month period. On a larger scale, commodity prices-particularly metals-have eroded as a result of the worldwide economic slowdown, meaning less expensive building materials.
Some communities are doing their best to lure processors to build new sites. Robert Graham, vice president of food and consumer products for The Austin Company, reports a greater competition for projects on a geographic basis due to labor, energy and tax incentives.
The economy has really modified local communities’ embracing of industry, says William Sander, Hixson VP and project manager. Communities, which in the past were not very interested in development, are all of a sudden very interested and are offering inducements that make sites attractive to potential processors.
Food safety still a concernWith the growing emphasis on food safety, facilities must be designed, built and remodeled to meet strict guidelines for receiving, processing, packaging and shipping areas, minimizing possible contamination and bacterial growth areas, says Bove. Security, which is key to keeping food safe, continues to be a consideration for construction in terms of placing fencing and cameras and identifying employees who enter and exit the facility. Both food safety and security have become more important because of recent high-profile product recalls. The emphasis now is on traceability and the continued importance of homeland security.
There is also more focus on self-performing audits rather than audits from outside firms, and this applies to production facilities as well as ingredient suppliers, says Ken Gruenhagen, senior project manager of SSOE’s food division. Processors are reviewing existing facilities and processes, and making substantial investments to increase food safety by reducing the risk of microbiological contamination.
Is sustainability sustainable?
Energy, water and reduced materials inputs are all aspects of the broader term, sustainability. While processors used to expect short-term ROIs in sustainability investments, the playing field is changing. According to Burns & McDonnell Senior Director David Dixon, processors are now more able to fund sustainability projects with extended paybacks.
While it would seem that sustainability is good for the bottom line, the price tag can be expensive. “Sustainability is driving many energy projects, which are having a difficult time achieving the necessary hurdle rates for board approval,” says James Bingham, Middough director of business development. Uncertainty over future costs causes many projects to be sent back to the drawing board for redesign and/or put on hold.
“Energy cost isn’t the [only] issue; it’s funding restrictions that we see stalling many projects for the small and mid-size companies,” says Mike Golden, executive vice president of Food Tech. “Current conditions make it very difficult for small and mid-size food companies to get bank loans for expansions,” he adds. Golden says the irony is that these processors are profitable, pay their taxes, employ hundreds of people and have collateral.
Energy costs, per se, do not make or break a project, says Sander. There are many other factors related to energy. Processors pick locations based on manufacturing and distribution strategies and address energy costs in design by looking at all the available energy sources to see what makes sense for a given application. For example, does it make sense to use fuel oil instead of natural gas or co-generation for a process? What about employing alternative sources such as landfill gas recovery, wind power, etc.? Are specific energy incentives available from local and state governments?
When asked how uncertainty over energy costs is affecting construction projects, Daniel Krancer, senior project manager with POWER Engineers, sees little impact other than more demand from clients to either follow LEED or implement sustainable design, which will incur some additional capital cost but will improve operating costs.
LEED certification and energy savings opportunities continue to be high priorities for an increasing number of food manufacturers, says McCreary. These trends are driven by the pressures to maintain competitive unit pricing, the uncertainty in energy costs and the desire to develop/maintain sustainable practices in the marketplace. It was feared that interest in-and commitment to-LEED might ebb with reduced access to capital, though in actuality the negative effect appears to be smaller than anticipated, adds McCreary.
While energy costs may have dropped a bit, prices remain high on a historical measure, and the savings remain real, McCreary continues. In some cases, the price premium for LEED-type products has actually dropped in the last few years. TPO roofing is a good example, as is T5HO lighting. In these cases, the returns associated with a LEED energy investment may have actually improved during the recession.
“Our clients are very interested in learning about alternative materials of construction and their associated costs, especially in areas that affect energy costs like roof insulation, wall systems and doors,” says Bove. Many processors seem willing to spend initial capital on the thermal envelope to reduce future energy consumption and costs, he adds.
The real battle is access to capital, adds McCreary. While LEED design and certification may be a reasonably good investment, it’s often considered discretionary spending. When money’s tight, it’s easier to look past LEED, he adds. Yet the LEED movement continues to gain traction. “The USGBC appears to be working to make LEED more applicable to manufacturing operations, and as the economy recovers, I believe more dollars will find their way to support LEED,” he concludes.
Automation improves process, saves energy
While it’s easy to configure a new plant to meet LEED criteria and be sustainable, plenty can be done to improve plant quality and throughput without adding brick and mortar, says Dixon. The same space can be used to build new, faster production lines or consolidate multiple lines into higher-volume lines, reducing cost per case. Renovation of old facilities into higher-capacity plants with higher asset utilization and overall equipment effectiveness (OEE) are ways to improve performance without shopping for a new site.
According to Bingham, processors continue to focus on asset utilization to improve their bottom lines. Automation is still a significant consideration for most manufacturers as they try to improve efficiency and reduce operating expenses.
Processors are looking at using more metering (OEE, line efficiency, yield) to monitor energy use on a daily basis, scrutinizing all processes to conserve energy as much as possible, says Sander. Hixson expects to see a growth in the number of message screens used to capture OEE data on the floor at state-of-the-art food and beverage plants. By measuring and displaying the three major elements of OEE (availability, performance and quality) and providing this data at the point of use, production teams have real-time performance indicators and the data needed to work toward certain goals.
Regarding energy savings, there are plenty of places to cut costs by using utilities more efficiently. For example, waste heat can be recovered from processes, boilers and utility systems, says Gruenhagen. Electrical energy consumption can be reduced both in the facility and in the process. Water can be recaptured and reused as well.
Mark Shambaugh, president of Shambaugh & Son, sums up the energy and efficiency improvements processors are making at existing facilities through renovation and expansion projects. These include product recovery, water recovery, energy reduction, CIP enhancements and de-bottlenecking processes. And while many processors have solved their primary energy reduction problems (the “low-hanging fruit”), there is still much to be done. Energy reduction has been a major part of renovation projects for Shambaugh. Several clients have requested energy audits outside of any major work, and they will make investments as long as ROIs are less than two years.
Automation can be applied to utility performance, says Sander. Today, most plants measure overall consumption of utilities such as natural gas, electricity, water, etc. With the advent of better-integrated information systems, a proliferation of more sophisticated, integrated utility measurement will also come. For example, processors that want to take their current monitoring to the next level will begin to meter and monitor usage of all utility systems, such as refrigeration, compressed air, HVAC, steam condensate, etc. Processors could even go further than this by adding metering and measurement at points of use. Such monitoring could be broken down in multiple ways (e.g., areas of the plant, by line). The goal is to seamlessly and quickly provide meaningful data that can be used to continuously improve the efficiency and use of utilities, adds Sander.
There are still plenty of food facilities with mechanical equipment that hasn’t been automated, but processors are recognizing the value of converting old mechanical equipment to systems with electronic controls. If older controls are already in place, manufacturers feel the need to update the equipment with modern controls and interfaces, says Sander. Plants are beginning to deploy industrial wireless networks and machine-to-machine communications to pass critical information down the line. The simplicity and lower installation costs of wireless networking has made it a more practical solution for processors rather than revamping old, outdated wired networks.
The following companies assisted Food Engineering in compiling this survey:
The Austin Company
Burns & McDonnell Engineering Co.
The Dennis Group
A. Epstein and Sons
Gleeson Constructors LLC
Shambaugh & Son
Valdes Engineering Company
William O. Vaughn