As the economic downturn continues to unfold, a profound sense of regret over years of over-consumption, credit over-extension and waste has set in with consumers. And with it, a new attitude to cost cutting, says Ian Huntly, CEO of Rifle-Shot Performance Holdings, official representatives of SoftExpert in South Africa.
Frugality is now a core consumer value. And while no one can predict how long this sentiment will last, one thing is clear: shoppers are simply not going to leap en masse back into premium product categories.
With unemployment level rising, consumers are more than willing to cut up their own broccoli or give up their premium salad dressing in favour of a cheaper private-label brand. In other words, they’re willing to trade in more of their
time for savings at the checkout counter.
For food and beverage producers that have traditionally relied on margins from premium categories, the continued shift in consumer behaviour is rapidly changing the dynamics of the demand-driven supply chain.
These producers must come to grips with the fact that much, if not most, of the demand they were experiencing over the last few years for premium categories was truly artificial. In other words, it was not based on inherent fundamentals, but rather on consumer spending patterns that were simply unsustainable.
Similarly, companies that have traditionally depended on a broader product portfolio must face the fact that although volumes may be up overall due to more in-home dining, the margins across their whole mix of products may erode
as more of their capacity is geared up for products with a lower operating margin.
Fortunately, the fundamentals of the industry are strong. Consumers will always need to eat so the issue is not whether food and other essential consumables will be purchased. Rather, it’s about whether they will be purchased at
the price and in the quantity necessary to generate acceptable profit and meaningful growth.
With the artificial demand now gone, companies that react quickly to become the lowest-cost producers in the value categories will be in a strong position to redraw the market share map once the recession is over. They will have
the luxury to take volume and customers from those companies that fail to develop the level of agility needed to pivot faster and maintain or even improve their standing.
Quite simply, margin headroom is now the name of the game. And regardless of whether or not consumer spending attitudes change once the economy starts turning around, being in control of the cost of production and operating
under the lowest-cost conditions provides the ability to make strategic decisions about the direction of the company.
Jim Collins, author and mentor on teaching companies how to grow, attain superior performance and grow from good to great companies suggests three tips on how producers re-gear for increased agility.
It’s critical to accept the harsh reality
With so much at stake, producers cannot afford to adopt a Pollyanna view.
The hedgehog principle
Get behind the thing you do best and drop the other stuff – “focus on core business and core operation excellence disciplines”. Producers must start adopting a back-to-basics approach to operational efficiency improvement. This
means scrapping esoteric data-capture projects and putting an end to obsessive measurement and analysis as an end in itself.
In their place, companies should deploy action-focused projects to improve labour productivity and fully leverage the company’s human capital, supported by “pinpoint” measurement and analysis of only the things that matter. This will move the dial on outcomes. The problem in food plants today is not a lack of data. Rather, it’s a lack of realtime visibility and transparency to help line workers, supervisors and managers quickly identify the root cause of a problem and take action to resolve it.
Use the existing resource pool
Back to basics also means making better use of existing resources in order to produce the same volume with fewer personnel, less material or in less time, all with the end goal of increasing productivity per labour hour.
Here again, it means taking a Toyota-like view of resources and making the hourly shop floor workers – the biggest variable cost in a food plant – more productive by giving them the tools and training they need to improve their own performance.
Not only is this approach proven to be highly effective, but changes in people and process are fast to implement and require limited capital expense – results can be measured almost immediately.
With the artificial demand for premium products gone, food producers that take action now to re-gear for greater profitability at lower price points and with a smaller product mix will emerge stronger and be in a much better position to
prosper in the economic recovery.
In hundreds of food plants across virtually every sector, manufacturing operations management has enabled manufacturers to unlock their human potential and produce a more motivated, focused and accountable workforce, one that
can deliver instant, tangible performance improvement across all plants year after year, not just a one-time improvement on a piece of equipment or production line.
And considering that unlocking the latent human contribution is nowhere near as capital intensive as an equipment – or plant-focused initiative, the systematic people based approach of Manufacturing Operations Management is more relevant than ever.
