Top Editors ... Optimising production to increase margins

Title: Optimising production to increase margins
Date: 19/09/2006
Autor: By Stephen Egli, Senior Consultant, Newton Industr

To compete in this margin-squeezed industry requires companies to tighten up every element of their production processes and reduce any unintentional losses

Over the past few years many sectors of the food and drink market have reached maturity, and the rapid growth in chilled, prepared foods is now on a plateau. This has led to merger and acquisition activity as organisations seek to reap the competitive advantages of supply chain efficiencies that can be achieved through consolidation. All of this points to future margin pressure.
With this backdrop, how can companies hope to maintain a strong bottom line performance? The answer lies, at least partly, in maximising return from the manufacturing shop floor. The route to achieving this is through active measurement of the right elements; identifying the key factors that impact on those measures; and by evaluating and prioritising them according to their financial impact on the business.
If the appropriate time and resource is invested to carry out this exercise there will be clear and identifiable profit recoverable from the processing operation.
It is one of those business clichés: ‘What is not measured; is not managed’, but as with most clichés, it is often taken for granted. In working with improvement projects across factories in the food business, Newton Industrial Consultants has experienced first hand that measurement is the fundamental step in any improvement process. Without it, it is hard to build consensus from different departments on the top problem to address. This agreement
is essential if the solution requires inputs from more than one person.
Nowhere is this more the case than in the food industry. There are many factors in the fresh food factory that affect bottom line: yield loss, end of life dump rates, labour efficiencies, lead times and waste, to name a few. The challenge for measurement is to understand the problems behind these factors and to evaluate each problem by its impact on the bottom line.
Without measurement and analysis, the real impact of problems on business profitability can go hidden for many years. The impact of the few grams giveaway recently at a fresh food manufacturer was shown to be worth over £1 million (€1.4 million). Once the impact of the problem was understood, a change in process controls and management focus reduced the problem and profits increased in turn.
Similarly the difference of a few percent in yields from different cooking programmes for a prawn oven started a project that delivered a six figure per annum return within a few weeks.
In a recent project in a food factory, Newton found that an oven cooking up to 4 tonnes of chicken a day had been set to a programme that cooked the chicken slightly longer than necessary, resulting in a yield reduction of 8%. The oven had been setup like this for over a year and the problem would have been imperceptible if the project team had not measured the yield in terms of actual versus potential as part of a factory assessment. The programme was corrected, and then over the next few weeks optimised to give a yield 3% above the original target.
This increased the bottom line profit by over £400,000 (€560,000) per annum.
The interesting fact here is that many opportunities for operational improvement lie not in the areas we all know about, i.e. the big line failures, which involve clear procedures, or the issues that the shop floor have made management aware of (although these inevitably provide excellent returns). They usually lie in either hidden opportunity through technically focused improvements to existing plant, or through tens or even hundreds of small issues such as slow running lines or excessive downtime, which cause waste and lost throughput. Each problem on its own is not big enough to warrant further investigation, but when you take all of these issues together, and add on to that the accumulation effect of one impacting on the next, this can frequently lead to lost profit in excess of £1 million (€1.4 million) per site.
Ever since F. W. Taylor measured the optimum sized shovel for moving coal, scientific management has been widely criticised. The image of the Time and Motion man standing over people in the workplace is both feared and despised by workforces. However, this type of focus would miss the problems that account for most efficiency losses in production. In most processes, the causes of lost efficiency are generally the problems that stop people doing their job, not how fast they are doing it. These are the problems that need to be measured in order to improve efficiency quickly, and the best people to measure them are the people who experience them - not the person wielding the clip board or stop watch.
Here is an example: in the plant of a large chilled food factory a team prepared sauces on eight large cooking vessels. The whole cooking cycle was often interrupted by not having the necessary ingredients, or waiting
for downstream processes. These problems had been there for years. A project was started to record all problems and prioritise them daily. The team recorded all the time they lost through not being able to do their job. The team then worked on the biggest problems as recorded and could quickly see the results of their efforts within this measurement system. Within nine months they were able to produce sauces 50% faster than before. This process identified the factory bottleneck, so the improvement process in this one area increased the total factory capacity. Given that sales of this product had been production constrained, the resulting extra capacity meant an additional value to the business of £600,000 (€840,000) per annum.
As well as measuring to prioritise problems, measurement is also a necessary part of understanding and solving complexproblems.
In fresh food production, there are few problems more complex and valuable to solve than that of shelf life.
One of the critical variables in rice shelf life, for example, is cooling rate. A recent project aimed at improving the cooling rate began by measuring all of the key variables that control cooling rate and measuring their effect. One of the solutions that resulted in a reduction of the cooling time by 50% involved installing a few baffles to remove
dead spots in a blast chiller. The route to this achievement involved taking measurements across a given area with an air flowmeter, over a period of several days.
This rigorous approach ensured that the solution was the best available. The result of this work was an extended shelf life and a reduction in the lead time from cooking to packing, resulting in market differentiation.
A good measurement system of bottom line impact of problems can focus improvement teams and give them quick
feedback on changes. A logical approach to measuring can also give a depth of understanding of complex problems that can create reliable solutions. An organisation that fails to measure in this way risks letting these problems continue, and thereby hit the profits of the company for many years.
In the past few months, Newton has worked with two companies that have recovered £4 million (€5.6 million) and £1
million (€1.4 million) respectively straight to the bottom line through deploying this process with resource and rigour.
As margins continue to tighten, it is likely that uncovering and then sustaining the hidden value that lies on the shop floor will become an increasingly important aspect of successful business in the food and drink marketplace in the future.