Helps with Event Management Framework from CDC Software

1. W H I T E
“Back to Basics”: A recipe for Food
P A P E R
Producers in the Recession.
Profitable production in an era of changing consumer values, capital preserva-
tion and price pressure: changes Producers may consider with the prospect of
a protracted recession ahead.
Executive Summary
This paper brings up to date the analysis of volatile, recessionary market conditions facing
food producers today. It focuses on specific market challenges and impacts that many
CEO’s expect to see over the months ahead. Many have contributed to this analysis.
Most talk to their staff about a one year problem, but are privately planning for a recession
as far out as 2010. Branded products companies are publicly refusing to acknowledge
a need to lower prices but are privately planning for it and expect it to occur sooner
rather than later as retailers pile on the pressure, or alternatively are planning to move
to a higher profit model, with fewer SKUs and less growth. In essence this is creating a
market separation between private label and branded products, rather than the growth
led convergence we have seen in recent times. Most are planning and setting targets for
productivity improvements, labor, material and energy cost reductions because whatever
happens, 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. In this climate margin headroom is the name of the game. Product strategists
are facing rapidly changing consumer behavior and are trying to sift the short term
changes from the emerging trends many assumptions, rock solid for a decade or more,
suddenly fail to provide a guide. Much strategic brand-related expenditure is being cut in
favor of promotions where response is more immediately measureable, and product mix is
shifting to value and lower cost product lines.
If this sounds gloomy, it should not be. It is an opportunity to prosper for those that embark
on decisive action, taking advantage of the prevailing sense of urgency and implementing
change while resistance is low. The good news is that the fundamental drivers of the
industry are sound. People will always need to eat, so the issue is not whether food will be
purchased, it is whether it is your products that are purchased at the price and quantity to
generate acceptable profit and meaningful growth.
The risk lies in competition for this new volume; price-led brand-switching, maintaining
margin under mounting price pressure, funding operations from cash flows rather than
debt, and a powerful behavioral risk of inaction in the face of a compelling need for
decisive action. Doing nothing is not a cost free option; it is the worst of all responses.

2. Many progressive businesses are considering the following strategy
& actions:
• Urgently refocusing on establishing a “Back to Basics” performance agenda. This needs to be driven by the CEO
who must set a compelling change agenda that separates core activities from non-core (which should be shelved or
eliminated for now).
• Margin expansion goals with timelines set against these core priorities so that constructive price headroom decisions
can be made with the sales organization in determining increased margin from a different product.
• Separate genuine constraints from operating assumptions; evaluate operating assets and leverage them: the most
valuable of these is human capital; the untapped potential to unlock plant capacity.
• Back to Basics operations; apply proven innovations to harness and empower the human capital with transparency,
accountability and responsibility for profit and cost in “real time”.
• Player-coach line management from SVP down: obsessively manage these few factors from live metrics with data
no longer buried in analysts’ charting system or automation engineers “Historians”. Simply put: metrics are to make
action unavoidable.
Many others might be wise to consider following suit.
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3. The Market Sector Analysis: Margin Value analysis is habit forming. The family grocery
store spend is next for analysis, item by item, this
pressure and Back to Basics immediately creates a brand switching debate. Growth
“Back to Basics”: The phrase sums up a mood that has in volume is likely to remain as long as the recession,
never been more relevant than today. It heralds a shift in but price is likely to become the new battleground for
thinking in homes and businesses across the globe; a the share of that demand, with loyalty becoming a luxury
return to thriftier consumer values. that is in the “optional” category. Premium items and
home-consumed indulgences, including the growing
Focusing predominantly on the expanding middle classes, segment in ‘ready-meals’ will still sell well, but not for
sophisticated marketers positioned premium brands to everyday consumption; these will be the replacement
say “something about you” beyond their core function to to the restaurant visit and the babysitting costs. The
provide nutrition and have driven tremendous growth in everyday is the staple and the battleground for expanding
the sector over the past ten years. Status, sophistication, private label offerings and lower price-points for branded
comfort or indulgence has been the exciting end of the products is being set.
business and the “value brands” have historically been
relegated to a “sub-prime” status. Now, however, value This creates an opportunity as well as a threat - for every
and price sensitivity and a desire not to feel “wasteful” is brand-switch there is a winner and a loser.
becoming a shopper’s core value-set; the recession is
changing their behavior at breathtaking speed. The Food Producers pricing dilemma
Almost overnight a profound, collective sense of regret may be decided for them.
over years of over-consumption and waste has set in, and Having recently negotiated (after a lag of several
with it a new attitude to cost cutting. It is now front and quarters), price increases with retailers due to input cost
centre; the new obsession of the sophisticated consumer. escalation last year, producers are now under pressure
It is no longer “cheap” to be “cheap”. Back to Basics is to lower prices once more. They argue that although
back in fashion. The challenge is that no one can predict commodity prices have dropped back, they are still higher
how long this feeling will last, indeed if people will ever than before. The only flaw with this argument would be the
revert fully back to the buying patterns that existed prior adage “never let the facts get in the way of a good story.”
to the credit crunch. Successful producers will be those
that are agile and flexible enough to cope with a ‘moody’ The power balance between the retailers and the
consumer without needing to spend large amounts of producers is not the issue here. The decider may well
capital. In other words, the available human capital in the be public sentiment, the tide of public opinion. Retailers
plant should become your ‘new’ capital equipment. are already in the media chastising food corporations for
not passing on price reductions to needy families just
Value Analysis has come home to as bankers are castigated for not passing on the bailout
monies to needy business owners.
the consumer.
Families have put their monthly spend “under the Product mix emphasis is moving from “premium” to
microscope.” What items are really needed and what are “value” categories increasing demand for branded staples
not? Many “nice to haves” are then reduced or stopped; (Pasta, Soups, Cheese slices), and for all categories of
ranging from unnecessary cable subscriptions and phone private label products. For those whose product mix is
lines to visits to restaurants. Industrial engineers would already focused on making healthy profits from these
call this “value analysis”. product categories this presents a tremendous upswing in
business outlook.
The first food-related sector to be hit has been the Food
Service industry as families eat out less. Grocers fuel Those that have a broader product portfolio now have to
this trend and increase sales volumes by advertizing the address the issue that although volumes are up overall,
“Back to Basics” family values of staying at home, saving the margins across their whole mix of products may erode
money and eating together as a preference rather than as more of their capacity is geared up to products with a
a necessity. lower operating margin. Most do not have the operating
metrics from production operations at a sufficiently
Restaurants drop prices but trade continues to decline granular level to tell them which sub-SKU costs what to
except for fast food. Food producers supplying to retail make and instead are relying on standards and averages
stores are experiencing increased demand as a result. against a brand category . Not much use if you need to
Those that supply to the value & fast food service outlets identify which pack-sizes to drop.
as consumers’ trade down to lower price points are also
experiencing this increase. As branded producers enter the segment more
aggressively, they will start to compete at a lower price-
point supported by sophisticated marketing and “in turn”
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4. the private label producers will need to lower prices to a sound, confident success strategy designed to protect
maintain an acceptable differential. If either party allows the enterprise. Re-hiring and more experimental growth
the price differential to become too wide between private strategies can occur when we are through the recession
label and branded product the consumer may be inclined in better shape.
to switch. Quality and taste continue to matter, provided
this preference does not come at too high a price. Some
consumers will find that many private label lines are Back to Basics communication.
surprisingly satisfactory once a switch occurs, and so the Complexity is the enemy, management speak is double-
race is on. Another factor already seen is the appetite to dutch. Convert “generalized” intentions (Let’s be the
seek a “deal”. The use of the “promotion” may become a Best), into specifics that staff can envision taking action
continuous activity rather than an occasional instrument on (for example: Lower set up time and cost by 12% in
used to drive demand. Consumers, moving from 90 days). Do the same with the list of constraints on what
promotion to promotion and buying in volume; which in actions and investments are realistic so everyone has
turn means that the cost of production must be lowered to a clear understanding not only of the challenge but of
support a climate of semi-continuous promotion-pricing. the boundaries, within which action-taking must occur.
They then stop pushing against the constraint and focus
The Food Producers Strategy to meet on what they can do, not what they wish they could do.
Many operational constraints and assumptions should be
these Market & Supply challenged, and many structural ones are set externally
and we are stuck with.
chain challenges.
1. Back to Basics margin expansion goal 2. Back to Basics Prioritization: concentrate
setting from the CEO on the quickest wins first
This is an uncompromising directive from the top. There Separate genuine constraints from operating assumptions
has never been a better time to “not waste a crisis” and and leverage your human capital
use the current climate of fear and uncertainty to drive
Split operating constraints into two lists, those that
change when organizational resistance is low. Provided
improve the cost performance of what we do now and
the risks, issues and opportunities outlined above
can impact immediately and those longer-term constraints
are communicated effectively and without “fudging”,
that use some profit and cost analysis to determine things
prevarication or softening, staff, both senior and rank and
we may stop or change as a result of negotiations with
file will quickly unite to support the leadership. Leadership
the Sales group and customers in the future. The former
is essential at this point and a calm, decisive explanation
should be started now, with the 2nd being the things we
of how to get the organization ready to respond and
could improve in a second wave.
gain from this economic climate coupled with a set of
measures to follow will replace fear with determination. List 1: Improve those constraints that have an
Typical top level goals for factory operations might have immediate Impact:
these sorts of highly specific goals:
In order to drive productivity in this hostile climate we
“The market challenges outlined create a situation where have to re-visit assumptions that have come to be
we must, by September 20? have reduced staff costs by recognized as ‘conventional wisdom’ and delve deeper
<X>%”, but not have reduced volume. We will spend into where opportunities lie. These can be split into
<Y>% less on ingredients so must improve yield and external and internal constraints. In general it is true
tune recipes. This equips us to deal with any number of that those considered ‘external’ should be regarded as
issues we may face as it…… genuine constraints in that the average producer cannot
• Allows sales do more “promotions” and coupons to affect change on a macro level. For example; there is little
beat the competition and still make a profit. influence to bring to bear on input or commodity costs,
“they will be what they will be”. Likewise the cost per hour
• Allows price-matching where needed, protecting our of energy and labor is fixed
market share and volume.
• Creates a barrier to entry for the grocery chains. However there are a number of internal constraints that
can, and should be attacked to drive productivity.
• Allows for profit on a simpler product mix with more For example:
volume coming from lower priced SKU’s.”
• We can improve the % of materials we convert into
Being part of a “higher” strategic goal lowers resistance product; we then spend less on materials to produce
to change. Simple communications can be shared with the same output. We make more profit.
the whole workforce. Energies focus on how to do it not
how to resist it. This is no longer perceived as “reactive
and unfair” job elimination and mindless cost cutting, it is
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5. • We can make the same number of cases with less Line 3. Back to Basics people productivity
running time; we then spend less per case on energy
– leveraging your number one asset to
and on labor. We make more profit.
generate profitability
• We have to find out how to run the equipment we have
today, better and produce more with it, replacing or re Most hourly paid workers and supervisors are very
engineering specific pieces only when we can prove smart people. They don’t need an ‘expert’ continuous
the improvement exceeds the investment. The focus improvement management committee to guide them in
becomes making better use of the assets we have, so every aspect of their jobs. You may well employ anywhere
we need to keep a very close track of what goes wrong, between 100 and 10,000 of them. If they were 15% more
for how long and what causes it. productive you could remove the 15% most disruptive,
• Throughput analysis of key “bottleneck assets” will least productive and make everyone’s life that much more
uncover “point improvement” opportunities. pleasant. They are your secret, untapped “innovation”.
Most of them can tell you exactly what causes equipment
These are all tactical and possible to address in weeks rate reductions, changeover delays, minor stoppages that
and without negotiation with customers: Put simply: can go unrecorded and reasons for scrapped product. They
we do the same with less cost? are able to pinpoint the problem and do something about
it. We just don’t ask them to do this, let alone equip them
• Same volume, fewer personnel or in less time?
to systematically improve processes.
• Same volume, fewer materials, stop- overfilling and
yield losses? What prevents them from acting and
• Same case count in less time, by speeding up what “innovation” already exists to
changeovers, preventing speed adjustments and
repetitive downtime incidents? change this?
List 2: Consider changing what we do based on an 1. Visibility of the occurrence at the time it occurs, by
analysis of its profit contribution: the hourly paid workers, and
• Same SKU, less costly materials or share the same 2. Absence of an organized working practice to follow
materials across more product lines? when such issues occur.
• Fewer SKU’s, longer, simpler to manage production It is the job of senior management to see to it that these
runs? two factors are addressed. Are these occurrences
difficult to identify? Is the workforce conducting complex
• Fewer pack size and materials variations, leading to
activities? No, more often than not, line side and
longer, simpler more cost effective production runs?
management monitoring of these basic issues is simply
In summary, attack the things that can be done in weeks not there. Basic issues such as:
and which have an immediate impact on the cost of
• Visibility of efficiency is not available to line side workers
current production activity. The priority must be to identify
during their shift
and dollarize these ‘core’ opportunities and understand
the key barriers to improvement. • Visibility of recoverable production losses is likewise
absent and also goes unrecorded.
So, what are these “core” activities that we know matter in
• End of shift meetings, if they happen at all are based on
a typical production run’s cost performance?
guesswork and assumptions.
• Downtime & minor stoppage avoidance • Changeovers times vary dramatically and also go
• Changeovers over-running unchallenged from shift to shift.
• Machine settings adjusted by operators • Equipment settings are routinely adjusted and rates
lowered from shift to shift, unmonitored.
• Slow running of the line
• Data capture is manual and laborious and by the time it
• Over filling of the SKU
ends up in a report is not believable.
• Yield loss through waste
• Labor is moved from run to run during a shift, masking
• Lack of intervention action taking place during the the true cost of production.
run when these things occur (as they will).
These are the basics of a well run operation. To question
Addressing the last of these can provide the best the need for them is as pointless as to wonder why a
opportunity for improvement in the shortest timeframe company would have poor cash flow when it does not
and can unlock potential improvements in all other areas: check that invoices are sent on time. The most illogical
Human Capital is the key. action possible would be to initiate a task force of
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6. least productive and make everyone’s life that much more 4. Back to Basics essential tools: applying
pleasant. They are your secret, untapped “innovation”.
proven innovations to harness human capital
Most of them can tell you exactly what causes equipment
rate reductions, changeover delays, minor stoppages that There have to be some tools, some framework. It has to
go unrecorded and reasons for scrapped product. They be supported. Performance intelligence is needed at the
are able to pinpoint the problem and do something about right time. It needs to be highly visible and highly specific
it. We just don’t ask them to do this, let alone equip them to the needs of the operation to allow it to run more
to systematically improve processes. effectively.
What prevents them from acting and what “innovation” Almost every significant productivity gain we seek
already exists to change this? and data we desire is definable up front and can be
1. Visibility of the occurrence at the time it occurs, by pre-packaged whether this is for a single or multi plant
the hourly paid workers, and network. It does not require complex plant historians and
armies of analysts. The issue moves from “designing it to
2. Absence of an organized working practice to follow using it.” This way an entire plant can be up and running
when such issues occur. with a new way of working in 4 to 6 weeks and the effort
It is the job of senior management to see to it that these can be devoted to embedding the right behavior and
two factors are addressed. Are these occurrences action taking with the information. Multiple plants using
difficult to identify? Is the workforce conducting complex the same framework start to generate consistent reporting
activities? No, more often than not, line side and and their progress can be compared. Standards can be
management monitoring of these basic issues is simply driven. Control is achieved. Profitability rises.
not there. Basic issues such as:
Imagine if operators and supervisors saw actual
• Visibility of efficiency is not available to line side workers performance of these few items in real time. These were
during their shift then reviewed with fellow workers at two hour line-side
intervals during the shift and summarized accurately at
• Visibility of recoverable production losses is likewise
the end before everyone goes home, and then again
absent and also goes unrecorded.
at the beginning of a new shift. Workers could then
• End of shift meetings, if they happen at all are based on be self directed or be instructed to make adjustments
guesswork and assumptions. immediately based on the last 2 hours of production and
• Changeovers times vary dramatically and also go therefore, make a positive impact on the next 2. What
unchallenged from shift to shift. would (or should) be the impact if you knew this same
visibility is available to the plant manager for every line?
• Equipment settings are routinely adjusted and rates
lowered from shift to shift, unmonitored. Conversely, if they have the information as it happens they
• Data capture is manual and laborious and by the time it have little excuse for not responding to it. They can no
ends up in a report is not believable. longer claim ignorance.
• Labor is moved from run to run during a shift, masking In 2009 no one wants to be seen as the individual or team
the true cost of production. that is not doing a good job. Now everyone can see.
Behavior will change in a week.
These are the basics of a well run operation. To question
the need for them is as pointless as to wonder why a The back to basics message is not an easy option but I
company would have poor cash flow when it does not believe it is the only credible one. A unified workforce, with
check that invoices are sent on time. The most illogical fewer but more committed and productive personnel is a
action possible would be to initiate a task force of prime objective of the leader in 2009.
experts to prove beyond doubt that when an invoice is
not sent, that cash is not collected before they set about 5. Back to Basics accountability
taking action. Just by taking the action and making sure
invoices are sent promptly and to the right person will
and responsibility:
improve the company’s cash flow: “Back to Basics”. The Player-Coach Mentality from the Senior Vice
truth is that it is not analysis that is the first move; it is to President down.
establish working practices that stop these poor practices
occurring and to make that new behavior sustainable, Make it the plant manager’s job, do not delegate to a new
consistent and measurable. Manage the activity and the person or project engineer. The Plant manager should
performance looks after itself. make it the supervisor’s job, and he in turn makes it the
operator’s job.
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7. Age old and finely tuned organizational skills of fudging,
sand bagging, and delaying action while waiting for
Back to Basics success stories
“further analysis” will then evaporate within weeks and at This is going on right now in an increasing number
every level. of progressive organizations and the results contrast
dramatically with the average.
Failure to take action at every level becomes
unacceptable behavior and can be dealt with. If plant Some Producers have been tackling this issue head on
managers don’t respond and the SVP has the same over the past 18 months, mainly in the significant (multi
visibility, it is incumbent on the SVP to act. Lack of plant), private label sector and in the single plant contract
information cannot be used as a viable excuse for manufacturing arena, populated by largely anonymous
inaction. The only available course of action is to respond (to the consumer), privately held producers with one or
or seek alternative employment. Firm but entirely fair, two plants where value analysis, margin protection and
certainly hard to argue with. agility are the main instruments to apply in running a
profitable enterprise without the premium price protection
The Role of the Senior Manager of a household brand. Treehouse Foods are a good
example of the former and Masters Gallery, Marsan
Start at the top. There is an old adage that turkeys do not
Foods, Calypso Soft Drinks and Wixon examples of the
vote for thanksgiving. Middle ranking managers will not
latter. But this quiet revolution is now finding its way into
decide to do this, not because they are not committed
the household names found in most family kitchens, from
but because no one likes change and would rather “ease
some of the largest producers such as Pinnacle Foods,
into” this at a pace they are comfortable with, any coach
Premier Foods, Sudzucker and Intersnack.
knows that the athlete cannot set his or her own comfort
level; it is the senior manager that must decide to do this. Changes in behavior can lift efficiencies by upwards of
5 points in three months straight. In addition workers
There is another truth here, often not spoken but non-the-
become more involved and motivated, they are
less true. Unless senior managers have seen and heard
recognized for making a difference and they have a voice.
this for themselves first and made their own judgment on
Within a year 5 points can become 10 points and this is
the matter they will likely resist or ignore the protestations
sustainable. Poor performers and disruptive personnel
of their subordinates. They will think they are externalizing,
used to hiding behind a lack of transparency are weeded
yet again, their problem instead of buckling down and
out or leave for a less transparent place to spend their
getting on with the job. They have heard it all before!
days, and these are just as likely to be managers as
workers. It seems that going ‘Back to Basics’ can only be
a good thing.
About the Author
Mark Sutcliffe is an authority on people-focused change management who is frequently asked to
speak on leveraging human capital and successfully implementing new technologies. Mark founded
MVI Technology, a software company that based a unique packaged consulting model for food
corporations around the principles of the Toyota Production System, in 1991. MVI was acquired by
CDC Software in 2006 and re-launched in 2007 as CDC Factory. As head of the CDC Factory division
for CDC Software he continues to drive strategy and the boundaries of productivity for food production
and consumer products companies based on work conducted with experts from companies as
diverse as Gillette, Pfizer, Johnson & Johnson and The Coca-Cola Company. Mark also worked for
Nestle early in his career.
Mark welcomes feedback from his readers. He can be contacted with questions and comments at
msutcliffe@cdcsoftware.com.

8. Disclaimer
This document is provided for informational purposes only, and expresses the author’s current thinking on the topics
discussed herein as of the date hereof. The contents of this document are subject to change without notice. Neither
CDC Corporation, nor any of its subsidiaries or affiliates, nor any of their respective officers, directors, employees, rep-
resentatives or agents (collectively, “CDC”), makes any representation or warranty as to the accuracy or completeness
of the information contained herein, and CDC specifically disclaims any warranties or conditions, whether expressed
orally or implied in law, including, without limitation, any implied warranties and conditions of merchantability or fitness
for a particular purpose. CDC specifically disclaims any liability with respect to this document and no contractual
obligations are formed either directly or indirectly by this document.
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