Tag Archives: Food and Beverage Industry

The rise in food prices is all over the news these days. The USDA and the Consumer Price Index tell us that, in 2023, grocery store purchases were up 5% from the previous year, while eating out cost an average of 7.1% more. This year, those costs are set to bump up another 1.3%. But, if you work in food manufacturing, (or buy groceries for your household) you don’t need the government to tell you those prices are rising.

It’s the trickle-down effect. Challenges facing food manufacturers mean higher production costs, which are ultimately influencing everyone’s grocery bills.

Here’s why, and what food manufacturers can do to save money on the front end to stop that trickle down.

Challenges affecting food prices

Some of the issues food manufacturers are navigating through that can ultimately show up in prices at the grocery store include:

Supply chain disruptions. Whether it’s geopolitical tensions, droughts, wildfires, strikes, or other events, it can disrupt the supply of raw materials food manufacturers use to get the job done. This can and does create delays, backlogs and other costly challenges.

Price inflation. Before price increases hit the grocery store shelves, the rising cost of things like grain, meat and dairy affects manufacturers who use those raw materials to make their goods.

Shipping costs. Rising fuel prices affect how much it costs to get those raw materials to food manufacturers, whether it’s coming from across town or across the world.

Labor shortages. The continuing battle to hire and train good people, and retain the ones you have, contributes to labor costs at the plant, which contributes to rising costs for the end user.

Evolving demand. Consumers are ever changing in their preferences and expectations. People are increasingly demanding sustainability, ethical sourcing, friendly practices like free-ranging and more. And dietary trends shift too, with plant-based alternatives growing in popularity on the one hand and minimally-processed meals on the other. This makes it difficult for manufacturers to forecast to accommodate the demand.

Regulations. Compliance with FDA regulations can be complex at best and lead to inefficiency and higher costs for manufacturers at worst. It’s especially prevalent in yield, when manufacturers are trying to hit the “wiggle room” the government allows between what the package label says and how much product is actually in the package. Not wanting to be out of compliance, manufacturers often overfill packaging to reach that sweet spot, but it means they’re actually giving away product… and profits.

All of these challenges can have a direct impact on manufacturing costs and will inevitably trickle down to their customers. It boils down to:

Higher production costs. This is by no means unique to the food manufacturing industry. Higher production costs on things like raw materials, labor, transportation and more mean higher costs to the customer – that’s a fact of life for most every business.

Supply and demand uncertainty. Supply chain disruption leads to shortages, which cause prices to rise.

How food manufacturers can tackle these challenges

In the short term, agility is key. But strategic planning, process improvements, and a focus on efficiency can shore up food manufacturers for the long run.

Sales, Inventory & Operations Planning which we call SIOP, takes the sales and operations planning (S&OP) process that most manufacturers use and adds inventory to the mix. At USCCG, we find inventory is often left out of the planning process, but it can be as important of a variable and a strategic tool. Following this methodology helps manufacturers eliminate waste, increase efficiencies and achieve an optimal level between not enough and too much.

It’s also an unparalleled tool for inventory management, which is a tricky business today given all of the challenges this industry is facing.

If you would like to learn more about SIOP, download our (free) eBook, “Sales, Inventory & Operations Planning: It’s About Time.”

Process improvements. One way streamlining and refocusing your processes can help manufacturers now is in the area of yield. Getting a handle on yield — improving processes so you’re not giving away product — can save millions of dollars. To learn more about how one food distributor saved $2.3 million per year by improving their yield, read “Food Distributor Masters Management by the Numbers to Improve Yield.”  And speaking of management by the numbers…

Implement a Solid Management Operations System. Many manufacturers, whether food or other industries, tend to manage on the basis of what has worked in the past, a gut feeling by seasoned managers, and other methods. At USCCG, we like hard numbers, streamlined processes and everyone doing the same job the same way. And about that…

Focus on training. It’s crucial to have all shifts, all facilities and all employees working in tandem, doing the same job the same way. It’s how you create the proverbial well-oiled machine.

None of these tactics will stop challenges from happening, but they can and do make your operations more efficient, and in turn, save you money. Not only will it improve your bottom line, but you might just be able to trickle the savings down to your customers, too.

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In the food processing industry, the name of the game isn’t necessarily doing more with less, although that’s a powerful goal. For many companies, it comes down to getting the most out of their raw materials. To do that, it’s all about yield.

It can be a slightly confusing term to those outside the industry, but yield is generally defined as “the amount of usable product AFTER processing raw materials.” There’s a popular meme on the internet right now with the theme of: “How it started. How it ended.” Essentially, it’s “before and after” photos. When you’re talking about yield, the “before” photos might be a side of beef hanging in a cooler, while the “after” photos would be a pound of hamburger packaged and ready to ship to the grocery store. In that case, how it started isn’t necessarily going to be how it ended. In other words, a pound of beef isn’t always going to end up being a pound of burger. The difference is your yield.

Yield is affected by a wide range of variables, and low yield numbers can mean trouble for a company’s bottom line. It’s a common problem, one USC Consulting Group helps our clients with regularly. Let’s look a little deeper at yield, how and why it can bedevil companies, and what they can do about it.

The challenge with yield

Improving yield is the end goal. But let’s start at the beginning. Staying with the beef industry as an example, when companies start with a pound of beef and end up with .8 pounds of burger, that’s an 80% yield. The reasons for that gap become the problem.

Loss of moisture or weight. In processing beef, moisture is lost. It’s just the nature of the beast. That’s why, when you start out with one pound of raw materials you don’t always get one pound of finished product.

MAV. Government regulations give the food industry a little wiggle room between the expected quantity of any given item and the actual quantity. That’s the Maximum Allowance Variance (MAV). No product should weigh less than the MAV, nor should it weigh more than 100% of the MAV. That’s the gray area, or wiggle room. However…

Label weight. Due to government regulations (and good sense) the actual weight of a product — say, that pound of packaged ground beef in a grocery store — should not be lower than the label weight. End users, in this case, grocery store customers, can’t be told they’re buying a pound of burger when they’re really getting .8 pounds or less. Nor should grocery store owners be told by their suppliers they’re buying 100 pounds of ground beef when they’re getting 80. So to hit that MAV sweet spot and comply with label weights, food processing companies commonly…

Compensate. In the case of the beef industry, it means adding a little more ground beef into each unit. To not take the risk of going below the MAV, companies often prefer to run the process at a higher weight than the label. It’s what the industry calls “the giveaway.” They are essentially giving away beef to compensate for the loss of moisture.

Just a little more? How big a problem is this? If a company is processing, say, 30,000 pounds of ground beef into burger every day, adding a smidge into each package can be a very big problem. One recent client of USC came to us when they realized they were giving away over 1.5 million pounds of beef yearly.

Maximizing yield

This isn’t unique to the beef processing industry. Produce companies can overbag. Companies that process shelf-stable foods can use too much water. The list goes on. But no matter the type of food industry, maximizing yield is about achieving the right balance, hitting the right numbers. Not too little, not too much. Here are a few ways we help our clients do that. Hint: It’s all about efficiency and managing by the numbers.

Operations. Efficiency is the key in any operation, and at USC, we are always looking for opportunities for our clients to improve their processes. Scheduling, the sequence of how the job gets done, and even shift changes can play into efficiency. Creating a solid management operating system that allows you to “manage by the numbers” is vital in evaluating these processes for maximum efficiency.

Equipment. We don’t always recommend the latest and greatest technology. In many cases, it’s not necessary to upgrade. Maintenance? That’s another issue. Machines used to process raw materials into batches need to be at their optimal best. Regular maintenance and monitoring are key. Something as simple as build-up on a machine can lead to overfilling. A processing arm that slows down just a bit can hamper production.

Throughput. One reason for loss of moisture in beef processing is speed, so you need fast, efficient processing. But not too fast, or you can risk issues like bottlenecks in packaging, errors and ultimately waste. The Lean Six Sigma methodology helps companies maximize throughput and eliminate waste while preserving quality.

Yield is a key element to a company’s bottom line. The more efficient, streamlined and effective the operation, the more it allows companies to wrangle yield so it adds to, not drags down, profits.

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It is a delicate balance to run a business in times of economic uncertainty. On one hand, you want to be optimistic, but on the other, you must also be realistic. Many organizations in a variety of industries did just that when the pandemic first struck. Whether in official press releases, mass emails, or executive meetings, business leaders acknowledged that tough times may indeed be ahead, but also expressed confidence and cautious optimism that supply chain disruptions would be minimal.

While the economic fallout from the pandemic proved to be less harmful than anticipated for some – particularly those in the big box and e-commerce retail segment, such as Walmart and Amazon – it greatly impacted the vast majority of industries. This includes food and beverage suppliers, packers, and manufacturers. Indeed, the pandemic and resulting economic downturn have impacted several major organizations, and as a result, led to a domino effect resulting in back orders and food shortages.

Since a vaccine for COVID-19 likely won’t be available any time soon, the food and beverage industry is ramping up efforts to adjust and adapt so shelves, pantries, refrigerators, and freezers are as fully stocked as possible.

In one form or another, from restaurants to processors and grocers, no food-related organization has been unaffected. But the meat industry may have gotten the worst of it. As reported by The Wall Street Journal, this $213 billion segment has experienced significant declines in production and assembly line output, as thousands of workers have been sidelined after testing positive for COVID-19. According to the Department of Agriculture, beef and pork yield plummeted nearly 30% during the first full week of May when compared to the corresponding period in 2019.

With fewer individuals operating assembly lines, output naturally declines, but these adverse effects were exacerbated by meat plants shutting down almost entirely. Food service distributors are as a result notifying customers of what to anticipate in the days and months ahead.

“Expect little to no boxed beef,” a correspondence obtained by the Journal read. “Business as usual is nowhere in sight.”

Dairy industry plagued by problems

Meanwhile, dairy farmers and bottlers have encountered similar obstacles during this ordeal. Early on, grocers throughout the country experienced “panic buying,” in which consumers snatched up gallons upon gallons of milk in anticipation there would be a shortage. Others followed suit, fearing they too would be unable to purchase milk products. This forced the industry to ramp up production. However, with illnesses also impacting bottlers, the surge in demand could not be complemented with growth in supply, resulting in millions of gallons being dumped due to curdling.

Nearer to the start of the public health crisis, organizations like the American Dairy Products Institute turned to the federal government for guidance and support. In a statement, ADPI CEO and President Blake Anderson said at the time that the U.S. needed to draw lessons from what other countries had encountered.

“It is imperative that our federal government now begin to lay out a strategy for ensuring the continued operation of the critical infrastructure industries,” Anderson said at the time. “After speaking with the EU and Canada about impacts to their dairy industries, we must prioritize the safety and availability of our workforce, ensuring transportation routes remain open, and providing a viable market or market alternatives for our nation’s dairy products.”

Shortly thereafter, Coca-Cola reported some of its own supply chain issues, only related to the sugar alternatives used in its diet and zero-calorie products. As reported by CNN, the soft drink conglomerate noted in its annual report that it fully anticipated “critical raw materials” like sucralose, cyclamate, stevia and acesulfame potassium may become harder to find, having experienced fewer shipments from China.

While many point to the COVID-19 pandemic as the first of its kind, given the degree to which the virus has affected the economy, it’s possible that something similar may happen again. As such, the food and beverage industry may need to be more proactive about adapting their processes so interruptions can be mitigated.

Subsidiaries and franchises are at varying degrees of progress in the midst of these preparatory efforts. For example, MVP Dairy, located in the northwestern portion of Ohio, is more assiduously examining its supply chains to close gaps and ensure continuity. The co-owner of the plant told the Journal he’s stocking up on feed for his cows as well as vitamin and mineral substitutes should there be a run on such staples. MVP Dairy is also being more fastidious about cleanliness and sanitation by implementing regularly scheduled scrubbings of high-touch surfaces, handles, and equipment.

Inventory management more of a priority

It isn’t just the food and beverage industry that’s reevaluating its supply chains – it’s businesses, in general. For example, inventory management has always been something that consultants have promoted, but it appears that more organizations are taking this advice more seriously.

Griffith Lynch, executive director for the Georgia Ports Authority, noted in a recent group discussion that he’s witnessed the degree to which organizations have inquired and focused on smart storage strategies.

“We’ve moved from a just-in-time world to a just-in-case world,” Lynch said in a discussion hosted by the U.S. Chamber of Commerce, Supply Chain Dive reported. He further stated shippers have come to the authority requesting free storage.

Organizations inside and outside the food and beverage industry are also re-evaluating their suppliers and considering whether they should supplement them with a fallback provider. They’re further stressing the importance of buying local or at the very least transitioning processes that had been done overseas back to the States. In a Thomas survey conducted in April, nearly two-thirds of manufacturers indicated they planned to increase production and sourcing in North America, 28% of which said this move was “extremely likely,” Supply Chain Dive reported separately.

The coronavirus crisis has forced everyone to reevaluate business as usual. A new normal may be necessary moving forward. USC Consulting Group can help you make productivity improvements and learn from experience so challenging times can lead to opportunities for growth. Contact us today to learn more.

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The food and beverage industry is vast, with both online and offline supply chains. This industry includes companies that work in processing raw food materials, those involved in packaging and distributing prepared foods, organizations that manufacture and distribute alcoholic and non-alcoholic beverages, restaurants and cafes, and general retailers — amongst many others.

Apart from dine-in restaurants and bars, a lot of food-related businesses are categorized as essential services, which means that they have to keep running even during a global pandemic such as the one we face today. However, to do so effectively, stringent safety measures must be followed, thereby limiting the exposure of customers and employees at all stages of production, distribution, and consumption.

Present Conditions in the Food and Beverage Sector

With the COVID-19 outbreak, most restaurants and cafes across the world are shut down. Small eateries and local diners are struggling to stay economically afloat in these tough times. To put things in perspective, recent statistics released by the Bureau of Labor Statistics found that “Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places.” At the same time, both grocery stores and food manufacturing companies like Coca-Cola, Dominos, and McDonald’s are facing disruptions in their supply chains, resulting in delays in the supply of raw materials. This is especially true for organizations that have suppliers in China.

On the other hand, online food sales and related-services are still up and running, in an ever-increased capacity. Due to this, large corporations that provide food delivery services like Amazon, Walmart, and Kroger are expected to reap huge profits.  In fact, this article by S&PGlobal estimates that online buying of food and beverages in the US is expected to reach $38.16 billion by 2023! These trends are seen in other parts of the world, too. For instance, in February, South Korea saw an increase of 92.5% in the online sale of food products. This was the month in which COVID-19 infections were at their peak in the country. Similarly, there is a surge in online buying of non-perishable food items in Singapore — one that is expected to last even after the pandemic subsides.

These uncertain and ever-changing conditions have forced restaurant owners to get creative in order to stay afloat. In addition to options such as deliveries and takeouts, restaurants are turning their dining halls into grocery stores, steakhouses are being turned into butcher shops, and many fancy restaurants are hosting online cocktail-making tutorials.

Government Regulations and Legal Requirements

Price gouging is a common feature during emergency situations such as a global pandemic. Price gouging involves charging inordinate prices for necessities that see a high demand during such times. Most state and federal governments have declared this illegal and have implemented policies to protect customers and small retailers. State laws against price gouging also make provisions to ensure that consumers’ and suppliers’ needs are met.

Food and beverage businesses should also consider asking for subsidies to keep up the supply of essentials during a pandemic. For instance, the flour industry in Pakistan has requested the government to cut taxes or issue subsidies for items required to run the mills.

Businesses in the food and beverage sector need to be aware of the new local and federal requirements to protect themselves from litigation charges and/or bankruptcy. Gloves.com provides guidance procedures to help protect you and your employees and maintain a healthy and safe work environment. In order to ensure maximum safety, employees must be asked about their health before each shift, and all protocols regarding food handling and food safety must be strictly followed. Other important safety measures include maintaining safe distance at takeaways, non-contact delivery of eatables, and covering employment claims.

Tips to Adapt

Food manufacturers need to adapt to the current situation and meet new patterns of demand. Tips to do so include:

• Risk awareness: Grocery stores are places of high risk, yet, frequenting them is necessary. It is thus important to make customers aware of the potential risks of shopping at stores, as well as demonstrate what is being done to combat these risks. This is essential to retain customer trust, as well as reduce the spread of panic.
• Clear and constant communication: Organizations in the food and beverage sector should keep all involved employees up-to-date about operational challenges as a result of COVID-19. Doing so helps manage employee expectations, and being in-the-know helps employees retain some peace-of-mind through this uncertain time. Even though workers cannot interact face-to-face, staying abreast of organizational activities helps employees feel involved and is likely to boost morale.
• Stringent in-store sanitation policies: This goes without saying, but any in-person food and beverage related business must implement strict sanitation measures. Grocery stores are one of the most common places one can get sick, even during normal non-pandemic times. With this in mind, all in-store workers must be encouraged to wash or sanitize their hands frequently and refrain from touching their face during work hours. They can also wear latex gloves to decrease the chances of contagion. Shelves, knobs, switches, handles, refrigerator doors, computer hardware, and countertops must be regularly disinfected.  The various parts of shopping carts can also contain germs passed from one customer to another and must be disinfected after each use. To ensure this is done, grocery stores can provide out anti-bacterial wipes to wipe down carts before customers use them and instruct them to maintain a safe distance from the checkout counters.

There is much uncertainty with regards to the food and beverage industry in the time of COVID-19. One thing, however, is for sure: there is a strong need to meet consumers’ demand for quality and convenience. With a global crisis that is wreaking havoc in many countries, consumers are increasingly cautious about the quality of their food. Food manufacturers and organizations involved in retail and supply are thus obliged to adhere to sanitary measures to protect customers and employees, and at the same time invent creative ways to stay in business.

As the food and beverage sector evolves everyday to the changing demands, having a partner to adapt processes in operations and the supply chain could be the difference in survival or demise. USC Consulting Group can assist in enabling rapid acceleration of performance to meet demand. Learn more about USC’s capabilities in the eBook: Understanding the Challenges Facing Modern Food & Beverage Producers.

This article is written by guest author Beau Peters. View more of Beau’s articles here.

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