Over time, many food and beverage companies have become bloated. These organizations have been too slow to adopt new technology and have limited their investments in both improved manufacturing capabilities and supply chain partnerships, which has tended to result in leaving efficiency gains on table. Consequently, productivity initiatives have emerged as a top priority as these companies aggressively pursue an array of efficiency initiatives to help them become leaner in a hyper competitive, slow growth and rapidly changing marketplace. To be successful longer-term, food and beverage companies must discern new productivity approaches as conventional methods begin to lose steam.
Traditionally, productivity has been treated as a one-time or reactionary event. One of the major ways industry players have been addressing productivity is through organizational restructurings. An organizational structure can be completely disrupted, dismantled and reformed strategically, through mergers, acquisitions and divestitures – all of which have been utilized in attempts to increase firm-wide productivity.
M&A activity continues unabated to 1) create new revenue in a slow growth rate marketplace, 2) leverage economies of scale to become a more productive organization and 3) address the increasingly popular health and wellness trend.
What other companies are doing to address productivity is quite the opposite from M&A: Divesting. Some companies have begun to realize that they are reaching too far outside the scope of their core capabilities and values. Divestitures can enable businesses to become leaner and more focused on their core competencies and most profitable brands.
History has shown that M&A&D can bear major efficiencies when strategically designed; however, the wellspring will eventually run dry. Food and beverage players cannot treat ‘productivity’ as a discrete event, as they have done in the past. Short-term efforts to improve productivity are no longer acceptable if businesses want to sustain a competitive advantage and old cost-cutting methods (i.e. zero-based costing) are no longer as effective, as methods have been exhausted. Instead, companies must view productivity as a strategic process.
Blueprint for Success
To remain at the forefront of continuous improvement, productivity needs to be a strategic imperative – part of the annual planning process and embedded in the DNA of an organization. Productivity cannot take a backseat in business strategy; in fact, it should be at the forefront of business priorities, with strategic long-term goals, objectives and corresponding KPIs for continual evaluation. Speed and agility are part of the new standard operating model – productivity improvements and advances in technology must be an ongoing process and continually assessed and prioritized.
The Role of Technology
One way to incorporate productivity strategy into an ongoing process is by embedding these principles into an IT strategy, creating efficient operations and supply chains. Many companies in the food and beverage industry have lacked the technological support and innovation in their supply chain processes, which are needed to be leaders. Over the years, the leaders of the food and beverage industry have demonstrated that deploying a number of technologies can in fact drive productivity gains. Available to Promise (ATP) solutions and Warehouse Management Solutions are such examples. These systems provide direct visibility and transparency within the supply chain.
We are now seeing investments in these core systems go to the next level with the emergence of cloud-based systems. Cloud software-as-a-service providers are rapidly replacing the days of expensive on premise technology deployments. Ultimately, the integration of the appropriate technology solutions in the cloud will enable long term savings and business benefits. The availability, simplicity and transparency of information made possible by the cloud is the future key to successful business technology platforms.
However, deploying cutting-edge technologies is not enough. The priority of technology investment should be threefold: defining the right technology, continually streamlining business processes and providing effective training. Unfortunately underappreciated and underfunded, training is essential for benefits realization of technology deployments. It requires focus and investment as the implementation of a new process and system without proper training is the equivalent of buying the newest computer on the market without the knowledge to use it. Without proper training, the investments become useless.
Capturing productivity gains to improve the bottom line through operational efficiency and M&A synergies will continue to be of major importance for food and beverage companies in this hyper-competitive, slow-growth environment. Leaders and laggards have very different approaches. Leaders proactively address ‘productivity’ as a strategic imperative enabled by a continuous process, fortified by appropriate technology and training. Laggards react to marketplace changes and perform ‘productivity improvement’ initiatives as discrete events and thereby often fail to realize its full-potential. Are you a leader?