The world is changing faster than ever before and the digital transformation is the engine fuelling this process. Digital and physical are increasingly merging in the course of this evolution. Consumers are already living in a digital world. How can the food industry connect with and address their evermore demanding requirements? This is happening thanks to chain integration: running efficient, paperless operations, combatting waste, gaining grip on the mass balance while assuring optimal delivery dependability and inventory control. Big data makes it possible to reach out to tomorrow’s consumer.
Most of us already live in the digital era, in which questions are answered instantly and orders often delivered within 12 hours. Everybody is connected to internet, almost continuously. Smartphones dictate the way we work, how we share experience and how we buy product. We are notified immediately if something important happens. We are part of an integrated chain whereby inter-personal communication is becoming increasingly efficient and automated. We see this trend not only in the people business, but companies are also digitalising their processes, thus enhancing their efficiency, quality and speed of operation.
A company that has completed its digital transformation supports business associates with its customers, suppliers, staff and other third parties through its digital networks. In an advanced phase of the digital transformation, intelligent devices and sophisticated analysis techniques are connected to one another to optimise the supply chain from farm to fork. In this digital world, all relevant data can potentially be analysed; decisions, automated or otherwise, are taken on this basis. In some cases, this is more an imperative than a luxury. In 2017, the food industry will show modest growth of approximately 1% . Scale enlargement, consolidation and integration are the tools needed to confront and counter the competition. Under these circumstances, food and beverage producers are obliged to reduce their cost levels. They can do this in various ways, such as ongoing integration with supply chain partners and by the use of internal and external data. In addition, it is crucially important to be able to access detailed insight into cost structures. An integrated ERP system can provide this transparency.
Administration of food producers still traditionally on paper
Food companies lead the industry in product innovation. Having said that, process support tends to be done in the traditional way. Excel sheets and piles of production orders on paper – and consignment slips with hand-written notes – are the administrative hub of the factory floor. This is the case at both the smaller and the average-sized businesses as well as for some of the larger food producers. Family companies and organisations where the director is also the owner tend to trust Excel sheets and paper. We see that almost half of the businesses within the Dutch food sector work in this way. One of the causes of this is simply that these companies only have older ERP versions at their disposal, versions that do not optimally support paperless operations.
The sale and procurement processes are mostly digital and efficient, but the same cannot be said for operational processes. Working instructions are often written and distributed by hand. Or key measurements such as temperature and product quality are printed at a terminal or PLC on the factory floor and copied by hand. Later in the process and at another location, production staff enter that information into other systems. This is not only inefficient, but can also lead to data entry errors. Current technology is such that this can be done better, as a renowned fish wholesaler in Rotterdam is demonstrating. At this company, the scales on the factory floor are coupled to terminals driven by Microsoft Dynamics. The weight of the fish is processed immediately in the system’s incoming and outgoing order flow. In addition, integrated RF scanning guarantees a circular production process. This facilitates compliance with tracking & tracing, a legal requirement. The procurement rules are processed as the fish comes in, and labelled according to inventory batches by crate. These crates are stored in the fresh fish freezer, after which the traceability is safeguarded with respect to volume and weight. Meanwhile, the entire process from fresh fish processing to order pick and warehouse handling is completely paperless.
Optimal delivery dependability and a circular inventory
The next step in digitalisation is to be able to work wherever and whenever. The opportunities that the cloud provides include the availability of various applications with which the next efficiency gains can be made. The largest herbal butter manufacturer in the Netherlands has equipped its staff with tablets. Quality assurance with a tablet is now much faster and more efficient in the herbal butter factory. Products are scanned, photographed, entered and approved immediately in the ERP system. Thanks to the digital transformation, they can conduct the full spectrum of production tasks with any device anywhere.
This enhances delivery dependability, ensures stock levels are under control and that errors are avoided, as well as enabling more direct staff management. Scanning and tablets make a massive contribution to this end result. Tablets provide staff with real time insight into data from integrated ERP systems. Operators receive production orders, can book output and gain insight into process control as well as receive process disruptions automatically. They can see a new batch or a change in the planning immediately, and can also respond to line disruptions. Thanks to RF scanning, incoming and outgoing inventory no longer needs to be counted by hand in the warehouse. Warehouse staff also have real time insight into the database, so that they know the shelf-life of the resources and end-products. This enables observance of the FIFO principle of First In, First Out. This fully paperless way of working saves the butter producer a huge amount of administrative handling.
Grip on mass balance and inventory
Track & trace is often an issue for food producers. Companies know precisely what drives the production process as well as where it is heading. There is, however, a subtle difference. That is caused by production steps that are not administered well enough. There are various reasons for this. Often, the feeling is that the factory floor should not become an administrative office, or there is simply too little return on investment to justify better registration of the product phases. By properly organising this process, the mass balance becomes clear and action can be taken during those moments in the production process that the loss is largest. Companies can typically not do this from the ERP package because it does not provide management information at this level of detail. The information, however, is spread around the organisation in various piles of paper and Excel sheets.
Food companies are also looking for an integrated solution with as little administrative workload as possible. That is mostly not the case. Often, food producers work with an administrative system with a separate factory floor package. Too often, that is not a seamless process. If company accountants for example want to see details of a transaction, they need to look in another system. In addition, we often see examples of so-called island automation: an administrative system, a quality assurance process and separate packages for the factory floor and for logistics. An integrated ERP system takes care that companies use the same data and the same logic, reducing errors, removing the need to enter data separately and enhancing the uniform reporting process.
Companies often develop apps themselves to accompany an integrated ERP system. That is of course possible, even though there is a danger that these various apps take on a logic of their own. For that reason, these apps should be no more than a presentation of the data. Logic, data and checks and balances must always be derived from the ERP system. If this does not happen, the database can fill up with incorrect data, resulting in loss of management grip.
Better insight with combined data
The link between management and shop floor is much easier to realise with the help of an integrated ERP system. ERP systems are full of data related to production processes such as raw material procurement, composition of the end product and, ultimately, financing of the process. Business Intelligence dashboards with food-related charts and infographics help management to see when and which production lines should be replaced, which staff members could use additional training and which products deliver a decent – or an insufficient – margin. Food producers can see much more if they also make use of process technology data. Temperature, air pressure, light intensity and process waste can all be measured, but rarely does this information find its way into ERP systems. And if the data is entered it becomes clear, for example, that a particular team on the evening shift is responsible for much more slicing waste. It can also be seen that the raw materials of a certain supplier lead to a longer production process or that equipment operates at a higher temperature.
We see more and more applications of big data within the food industry. Some manufacturers actually initiate the production process before they have received the transaction order. The system indicates that on a given day two tons of product is needed, based on historical data and weather conditions. The orders flow in at the moment the product is being produced. On this basis, the system is able to adjust its production volume real time. In addition, companies within the fruit and vegetable sector can anticipate future trends on the basis of weather conditions in certain countries. They can see that certain fruit and vegetable products from a specific region will be available a few weeks or months earlier – or later. Retailers can use this information to embark on marketing campaigns with producers. We see far too few of this kind of alliances within the sector at this point in time.
Manufacturer becomes a retailer
Data is sometimes referred to as the new gold, although not everybody has access to the truly key information. Retailers cannot predict that the potato price will plummet in a month. Producers in turn do not know the customer as intimately as the retailer. While consumer information is of extraordinary interest to food producers. Simply because more and more producers are selling their wares to the consumer directly. They can generate a better margin in this manner. Consumers can place an order on the producer’s digital sales channel, and become acquainted with other products. In order not to disrupt the relationship with the retailer, a manufacturer’s products are sold via the website under a different brand name. This kind of trend is leading to a broader range of tasks for food producers, including direct customer contact, returns, marketing and a more complex logistics operation.
A digital outlet for most businesses in the food industry is probably some way away. A first step, however, could be to develop a portal where consumers can whet their appetite for more product information. A portal enables them to get a feel for the comprehensive product range – and they may well wish to order product directly. Whichever way a food producer goes, remaining seated is not an option if you want to have lunch and not become lunch.
Your company too can embark on the digital transformation and make production more efficient. Would you like to better understand the opportunities and benefits of an integrated ERP system specifically focused on the food industry? Please contact us at ProStrategy or call Deirdre on 01 429 1977.