More Related Content Similar to Opportunities Challenges for Food Beverage and CPG Similar to Opportunities Challenges for Food Beverage and CPG (20) More from ARC Advisory Group More from ARC Advisory Group (20) Opportunities Challenges for Food Beverage and CPG1. Opportunities and Challenges
for the
Food, Beverage, and CPG Industries
John Blanchard
Research Director
Food , Beverage , and CPG Industries
ARC Advisory Group
jblanchard@arcweb.com
2. Challenging Times
Food, beverage, and CPG manufacturers find
themselves caught between slow growth, rising
costs, waning pricing power, accelerated regulatory
and customer requirements, and a growing
p
percentage of sales from a limited number of
g
powerful and demanding retailer, and increasingly
limited capital, human, and even material
resources
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3. Challenging Times
How do we improve margins
and increase profitable
growth to sustain
shareholder value?
3
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4. Business Environment
♦ F d and product safety d dili
Food d d t f t due diligence i
increasing
i
• Concerned consumer
• Yearly food borne illness statistics
• Global terrorism
• Global sourcing & rapid high volume distribution
• These facts plus product counterfeiting are producing
• New industry and company food safety initiatives
• Increased regulatory and customer requirements
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5. Business Environment
♦ I
Increasing government regulations
i t l ti
• US Bioterrorism Act
• FDA and USDA regulations
• CBP/CT PAT
CBP/CT-PAT
• DHS
Customs- Trade Partnership
Against Terrorism
Recall Reason
• Truth in labeling laws
E. coli
Foreign
Matl Listeria
• FDA & USDA mandated HACCP programs Staph
St h
Allergen
for fish, meat, poultry, and juices Salmonel
• Environmental regulations: land, water, air
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6. Business Environment
♦ Increasing share of market controlled by a limited number powerful
retailers, manufacturers, and suppliers
♦ Increasing global competition for everyone
♦ Mature US and European markets with limited growth opportunities
♦ Seeking opportunities in high growth emerging markets
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Share of Business at Wal*Mart Dollar Sales
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7. Rapid Change, More Complexity, Limited
Resources
♦ Global sourcing of more limited, higher cost, more exotic ingredients
♦ Value health, and environmentally conscious and demanding new
Value, health
consumer
♦ Lots of consumer short (fads) changing purchasing patterns
♦ Rapidly changing demographics and new geographies (small
bodegas)
♦ Increasing number of SKUs and new product introductions
♦ Increasing percentage of sales from promotions
♦ Increasing importance of packaging
♦ Limited resources
♦ Available capital
♦ L b pool and skill sets
Labor l d kill t
♦ Water, energy, ingredients, packaging materials
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8. More Sustainable Manufacturing
♦ Driven by retailer initiatives
• “The challenge of creating a low-carbon society will
require a revolution in thought and action – a
revolution in green consumption.” - Terry Leahy –
CEO Tesco
♦ Driven by business and regulatory
y g y
requirements
• As a part of their effort to eliminate waste and
improve efficiency, Pepsico has been applying eco-
friendly technology in packaging, deploying solar
energy and methane gas recovery technology, and
testing hybrid vehicle programs in their delivery fleets
♦ Driven by limited resources for manufacturing in most
parts of the world
♦ Driven by the “green” consumer/shareholder
• A recent survey over 50% of consumers consider “
f id “green” i their purchasing
” in h i h i
decisions and 20% are ardent “green” even concerned over how a company
treats its employees
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9. Sustainable Manufacturing
♦ To the consumer
• Product availability
Environment
• Environmental & Resource
responsibility Friendly
Products
♦ To the employee and
his/her family
/ y
♦ To the local community Environment
& Resource
Environment
& Resource
Friendly Friendly
♦ To many segments of Supply Chain Plants
manufacturing
♦ To Wall Street
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10. Response to Changing Business Environment
♦ Initial Strategy
i i l “Margins rise while returns are flat”
• Mergers, acquisitions, divestitures, outsourcing
• Product portfolio rationalization/optimization
• Productivity initiatives
• OEE, TPM, continuous improvement
• Supply chain optimization programs
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11. Now Food, Beverage, and CPG Manufacturers Are
Asking
♦ How do I address the fluctuating price and availability of
commodities?
♦ How do I reduce my energy and other utilities costs and
ensure the long term availability of these resources?
♦ How do I find and evaluate new technology that will support
innovation and speed time-to-market?
♦ How do I reduce my manufacturing cycle time?
♦ How do I come up with new ideas or equipment that is multi-
tasking and that can reduce change over time?
♦ Wh t are th b t metrics to support future manufacturing
What the best t i t tf t f t i
requirements?
♦ How do I support my ever expanding manufacturing and
business automation systems and networks?
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12. Response to Changing Business Environment
“An agile, innovative enterprise to
sustain growth and improve
♦ Strategy Going Forward – margins”
• Global “super branding”
• Expansion of distribution channels
• Process automation and integration of
manufacturing & business processes enterprise-wide
• More sustainable & flexible manufacturing & supply
chains
h i
• Develop a more innovative and extended
organization and culture (people)
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13. Operational excellence is no
longer enough.
Its power to differentiate has
eroded.
Rory A. M. Delaney
Senior Vice President
Strategic Technology
General Mills
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14. A Discipline of Innovation Emerging
Innovation is generally recognized as the principle
driver of growth and shareholder value
g
• An increased rate of change has made an
ability to change more valuable
• Methods and tools are emerging to vastly
improve innovation success rates
• Companies need new insights to achieve
p g
growth
• Companies are “globalizing” their innovation
p
processes. A “follow the sun” p
process is
emerging
• Companies are also utilizing more external
resources to drive innovation
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15. A Discipline of Innovation Emerging
Innovation is generally recognized as the principle
driver of growth and shareholder value
g
• Companies involving suppliers earlier in design phase of
new products and processes
• Some OEMs are driving innovation faster than their clients
– even in non-traditional areas of their business
• Patented p oduc pac ag g
a e ed product packaging
• More functions on a single unit or machine
• More continuous on-line quality verification
• New environmentally friendly technology
• Packaging end line provider
• Sustainable manufacturing and limited
resources in emerging markets will
drive innovation even faster
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16. Where Are We Today?
♦ Few food, beverage, CPG manufacturing sites have
their processing, packaging, warehousing, logistics,
and business systems networked together with bi-
bi
directional electronic exchange of information
♦ Over 67% of packaging lines do not measure
performance
♦ All respondents felt there was room for improvement in
on-line quality verification, with almost two thirds
saying there was significant room for improvement
ARC Insights & Manufacturing Performance Surveys 2007
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18. Where Are We Today?
♦ One of the primary reasons for purchasing production
management software is compliance
♦ Leading edge companies depend upon production
management software to optimize margin and quality
ARC Insights & Manufacturing Performance Surveys 2007
♦ Some factors inhibiting adoption of technology
• Lack of ease of use for operators
• Cost and complexity of maintaining technology
• Lack of resources to evaluate new technologies
• Long standing purchasing & amortization policies
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19. What Do We Need To Do?
♦ A More Comprehensive Plan to Meet Business and
Regulatory Requirements includes:
• Increased emphasis on performance monitoring ,
continuous improvement, and flexibility
• Improved electronic tracking and tracing from the source
to the consumer
• Improved manufacturing plant security
• Increased on-line quality verification and Quality by
Design (QBD)
• An “in depth” sustainable manufacturing strategy
• An automation strategy that recognizes the commonality
in both business and regulatory requirements
• Affocus on people – your most valuable resource
l l bl
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20. It’s Not Just About Technology
“To sustain the productivity surge, today's managers must
develop incentives that encourage their workers-as well as
themselves-to be more creative, self-starting, educated, and
willing to experiment. Jobs that call for simply following recipes
will become scarcer, and demand for an innovation-driven
workforce will continue to grow.”
“……..It took 40 years for businesses to figure out how to
redesign their factories and processes so that electricity could
deliver a productivity payoff. Managers cannot afford to wait
decades to harness the greater productivity offered by today's
today s
IT advances. …….
“Productivity's Technology Iceberg” March, 2004
by Erik Brynjolfsson,
Professor of Management
MIT Sloan School of Management
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