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01 July 2004

Food for thought: A holistic approach

By Johan Arts

Strategic asset management impacts bottom line.

If you are part of the food and beverage industry, it's no secret you're under constant pressure to improve revenue and reduce costs. Yet while you could once rely solely on consolidation and product innovation as sources of new revenue, the current business climate demands you look internally for ways to improve profits.

Although product innovation and marketing agility are still important, you might want to expand your view to include supply chain and inventory management, food safety, improved efficiency, and other initiatives to protect your margins.

Food and beverage companies are beginning to recognize the need to leverage previously low-focus areas such as asset management to maximize profitability. The asset value chain touches all areas of operation, from production to distribution and quality control to new construction and facilities management. This focus even includes the delivery trucks and the information technology (IT) and telecom equipment—a key part of running the business. It is crucial to improve efficiencies and bottom-line results, and you'll want to implement a process to manage these assets and the critical functions they perform.

Strategic asset management

Your objective with strategic asset management (SAM) is to maximize asset performance and directly affect your corporate objectives. SAM is a holistic approach to the life-cycle management of all critical assets within an organization. If you are an executive in the food and beverage industry—focused on improving plant, supply chain, and distribution efficiency—evaluate SAM as a powerful tool to improve your corporate performance. Its integrated approach to managing assets across the enterprise can result in lower costs, longer asset life, improved profit margins, and ultimately, an increased competitive edge.

In this context, assets include not only conventional plant and machinery, but also those assets responsible for transporting people; raw materials and finished goods; facilities, grounds and infrastructure; and the tools of the knowledge worker—the PC and the personal digital assistant, the network, the server and other communication infrastructures. In this broader context, the asset life cycle is defined as the process that includes these activities: plan, procure, deploy, track, maintain, and retire.

Strategic assets

How can you manage the variety of assets in the food and beverage industry to optimize their value? Equipment uptime is critical to meet customer needs. Strategies lie in production equipment assets, investments in fleet, inventory, IT infrastructure that supports vital assets, and facilities that house capital and human assets.

Until now, companies have managed these different categories of assets separately, using nonintegrated and department-level applications. As a result, users suffer from an island-of-information approach, causing a lack of control and lack of visibility. This can lead to a higher cost of ownership, more errors, and ineffective decision making. Instead of having to acquire separate applications for each asset class and maintain multiple integration points into the business systems environment, companies can now acquire a single SAM solution to serve all critical assets across the corporation.

Particularly in environments where regulatory compliance is important, a lack of application standards could affect the cost of compliance. If complying requires you to access multiple systems, obtaining and retaining compliance becomes more costly and labor intensive. You will realize significant value by deploying a single application to manage all the company's critical assets across their life cycles.

SAM's value

Although the practice of predictive and preventive maintenance is growing, there is still room for improvement. The ARC Advisory Group found about 35% of indirect costs in food production are attributable to maintenance. With this in mind, you can take the opportunity to improve efficiency and reduce costs through better maintenance.

Many industries recognize maintenance as an area that needs improvement. Automation original equipment manufacturers are including increasingly sophisticated condition-monitoring capabilities to meet the needs of predictive, preventive, and corrective maintenance programs.

As the supply chain in the food and beverage industry becomes more tightly linked, resulting in lower buffer stocks and higher demands for accurate delivery against plan, the threat of equipment failure disrupting the supply chain also becomes greater. Companies are now more dependent on critical assets throughout the supply chain and more vulnerable to work stoppages. They are facing larger, more far-ranging problems when stoppages do occur. The food and beverage industry needs ways to improve the efficiency and reliability of those assets.

This is where a SAM solution can play a big role, enabling companies to take charge of critical assets and to view them not in isolated silos, but from an enterprise level that seeks to optimize asset performance across the organization. SAM can improve revenue performance and cut costs, while complying with regulatory standards and reducing overall risk to the company as well. By implementing a SAM solution, you can improve the overall reliability of critical assets and reduce the likelihood and impact of equipment failure.

Plant construction, automation, and maintenance

Drivers such as consolidation and restructuring will continue to influence new construction, expansion, and renovation. Specific needs are line flexibility, automation, sanitation, and safety and security. A Food Engineering survey indicated an increase in spending for automation and plant hygiene. With new products and packaging proliferating and old ones being discontinued at a rapid rate, companies need better ways to accommodate multiple lines and quick changeovers. Today you can gain a lot by implementing a lean enterprise. This model reorganizes the work of functions and departments through the value stream with committed work cells and assets dedicated to performing certain tasks. You can remove unnecessary and non-value-adding activities from the system, leading to a more efficient process.

Plant automation—the focus of current investment—depends on automated equipment uptime and proactive equipment monitoring to ensure the highest quality production and packaging output. Because critical assets are basic to lean manufacturing success, how can maintenance departments establish programs to improve and manage those assets? Master a set of core competencies related to the asset management function and implement the required improvement programs. SAM gives maintenance and asset managers a framework to make decisions about improvement programs and to make the right decisions in relation to the corporate objectives.

Environmental responsibility

It is critical to be environmentally responsible, just as it is to think about food safety and security, and not just because of outside security threats or growing environmental awareness. Data from the Food and Drug Administration says the number of food product recalls rose by 43% in the past decade, and there is no indication this trend is slowing. In fact, food safety is the most critical issue facing U.S. food manufacturers. Many manufacturers are retooling their hazard analysis and critical control points programs, tightening access to the plant—including the installation of video camera and card access systems. They are improving traceability backward into their supply chain and sealing trailers and bulk storage tanks. Moreover, they're developing new training programs specifically to identify and prevent bioterrorism.

To be environmentally responsible, replace or add updated or automated equipment and IT systems to improve environmental and facility controls. You will need to maintain these systems with greater frequency to ensure controls are fully operational and in compliance.

Supply chain, inventory management

In today's world, e-business goes hand in hand with supply chain and inventory management. Food and beverage companies traditionally have not been in the forefront when it comes to upgrading IT systems and addressing supply chain management. But that's changing. They are beginning to replace legacy systems, upgrade information systems, establish global electronic networks, and build e-business relationships with customers and suppliers.

What drives interest in supply chain visibility and demand planning? Usually it is problems of excess inventory and low turns.

It could also be the need for more accurate and timely information about consumer buying patterns and retail chain demands. New technologies such as radio frequency identification can improve shipment accuracy and lower purchase- and order-fulfillment costs. More companies are working to provide two-way visibility with customers and suppliers. These initiatives include real-time inventory reporting and capable-to-promise insight with Web-enabled order and shipment checking, plus collaborative planning, forecasting and replenishment (CPFR) and demand collaboration.

Companies are spending more for asset management solutions related to the care of critical assets. Executives and senior management are recognizing asset reliability and utilization will improve all areas of their operations—delivery objectives, food security initiatives, CPFR, and most importantly, bottom-line performance.

Stepping up the ladder

Growth rates are low, and profit margins are thin in a mature industry such as food and beverage. Still, some companies manage to generate profits above industry averages quarter after quarter. These companies demonstrate leadership and drive best practices in all business disciplines, including brand marketing, supply chain management, environmental and safety policy, and corporate governance.

Now, executives in leading food and beverage companies are engaging in yet another round of efficiency improvements. They are focusing more on brand marketing and the customer experience. Supported by increased automation, they are intentionally reducing or eliminating inventories that previously served as buffers.

Lower buffer stocks entail higher risks. You need to balance those risks with more accurate forecasting—moving to a demand-based replenishment model. You also need more reliable assets—essential to performance in each node of the network. Regardless of whether these assets are the injection-molding machine in the soda plant or the mobile device of the distribution truck driver, they become more critical in the supply chain.

SAM is a holistic approach to building critical assets across the enterprise. Whereas managing assets used to be a departmental function, SAM solutions enable executives to view and manage all types of assets from an enterprisewide perspective, optimizing performance across the entire organization.

Behind the byline

Johan Arts is vice president of industry marketing at MRO Software in Bedford, Mass.