Most manufacturers recognise that the world of FMCG has changed dramatically in the last few decades. High Street competition is now more cut throat than ever, with the latest statistics showing that Aldi have overtaken the Co-op in sales volume for the first time. Lidl are doubtless not far behind. The big four supermarkets are continuing to battle in their attempts to gain competitive advantage. In addition there is the continual upsurge in online marketing, which has changed the dynamic totally and irreversibly.
Against this backdrop, most supermarkets, embattled as they are, have little leeway to accept price increases from their suppliers, even if they were minded to do so.
At the beginning of the manufacturing supply chain however, we see increases in raw material costs, increases in minimum wage, increases in energy costs. Therefore, any manufacturing company which intends to continue ‘doing what it has always done will not only get what it has always got’, but will be paying more for the privilege of receiving the same income or less.
Of course not. We have already seen the price increase which Unilever tried to agree with Tesco for Marmite. We have also seen the recent hostile takeover attempt of Unilever by Kraft Heinz, which was apparently rejected as it allegedly grossly under-valued Unilever. However, with the news that Unilever are making a profit margin of 15%, whilst Kraft Heinz are making 23%, it’s pretty obvious that Unilever will have to do even better, if they are to keep their institutional investors happy and also protect themselves from future hostile takeovers bids. To be totally fair to Unilever and other manufacturers, hit with such rising costs, retailers will eventually have to accept some price increases.
With such minimum wage differentials, a factor of 10 even across the EU, there is the risk that UK supermarkets will source more of their products from the lower wage countries. Even this week we heard that Spanish cauliflowers are being imported and sold cheaper than UK farmers can grow them.
“Everyone is asking for protection. The best form of protection is performance. The best performers do not need to worry about protection”
Another interesting development this week was the Peugeot takeover of Vauxhall and Opel. During one interview the Peugeot CEO, Carlos Tavares, (unfortunate Christian name in the circumstances) was asked what protection he could give the Vauxhall and Opel workforce against job losses. He replied “Everyone is asking for Protection. The best form of protection is performance. The best performers do not need to worry about protection”.
Whether we are talking about cars, food and drink, or any other industry, it becomes increasingly obvious that optimum performance has to be the number one objective on everyone’s agenda. Brexit will serve to bring this more sharply into focus for some UK food and drink manufacturers, not only because of higher import costs but also as current specialised trade agreements are either swept away or diminished.
It naturally follows, therefore, that continuous improvement must lead to continuous cost reduction, whilst ensuring that products are made to consistently acceptable standards and remain fit for purpose.
Trying to sustain and even improve performance is an ongoing challenge for all food and drink manufacturers, especially those supplying own-label products to supermarkets. The way many are achieving this is through paper recording which, whilst easy to deploy, lacks operational discipline, visibility and analysis; all necessary requirements for performance improvement. Some companies have taken this a stage further in converting their paper records by typing the data into computer spreadsheets for further analysis and easier traceability. The biggest weakness of this is that it’s not real time, it’s not necessarily visible to those who need it, it’s often too late to be of quantifiable benefit and its accuracy could be seriously compromised by transcription errors.
To further emphasize this point, on a Lean Six Sigma course which I attended a couple of weeks ago, our excellent Master Black Belt tutor managed to get two email addresses wrong out of 16 of us on the course. Was this the fault of the attendees who failed to write their email addresses clearly, was this transcription error by our tutor or a third party such as a secretary? In any event, if this can happen from such a small amount of data transferred from a Master Black Belt to a computer system, the mind boggles as to the potential frequency of transcription errors , for whatever reason, in factory environments.
Every survey that we have carried out during the last ten year, from automated data collection and information management, has indicated that combined losses due to slow running and short stops, neither of which can be effectively recorded manually, shows combined improvement opportunities of at least 10%. This is before the continuous improvement team begin to attack major losses caused through unscheduled downtime and product changeovers. Not surprisingly therefore, the majority of our users very quickly realise gains in efficiency of at least 20%, some as much as 50%.
We’ve touched upon why this is important, but how it’s achieved really comes down to four words – Measure, Analyse, Improve and Control. Many of my Lean manufacturing colleagues will recognise these four words as four of the five in the powerful DMAIC Six Sigma tool, preceded only by ‘Define’ (to ensure that the only issues being worked upon are those relevant to performance improvement).
Once you create an automated data collection and information management environment, leaving paper recording behind, it becomes impossible for operational teams to ignore non-compliances and performance improvement opportunities. In addition, visibility and traceability are both instant and easy. Once operational teams buy into the new paperless, easy and highly visible way of doing things, morale also improves, with more and more people taking ownership and suggesting new opportunities for improved performance. More about the what and the how next time…..