Don’t forget about Lean manufacturing in food and beverage

Lean manufacturing in the food industry has traditionally been about reducing waste – it has been about reducing down time, material waste, and making sure plant and machinery are running as efficiently as possible. However, with the advent of Industry 4.0 and the Internet of Things (IoT), some companies who deal with the food and beverage industry think that Lean manufacturing principles are getting left behind, which could be a mistake.

Tim McLean is the managing director of TXM Lean Solutions, a company that specialises in helping manufacturers implement transformative lean methodologies into their workspace. He believes that the new technologies of Industry 4.0 and Lean thinking can work together. The first question is, what exactly is Lean?

“Lean for us is a set of principles and techniques that eliminates waste and maximises value by delivering to customers exactly what they need, when they need it, in the quantity they need, in the right sequence, without defects and at the lowest possible cost,” he said.
So, why does he think there is an issue between Lean manufacturing and the principles that are outlined with Industry 4.0/IoT?

“Lean is primarily about people and process and some Industry 4.0 aficionados see this as ‘old school’ thinking. These Industry 4.0 enthusiasts argue that we won’t need Lean because we’ll have self-optimising machines which optimise themselves through machine learning and artificial intelligence. This is a very narrow interpretation of Lean – thinking of it as just reducing waste in the production process,” he said. “But it resonates in the food industry, because we have a lot of machine-driven processes, where the output is determined by the output rate of a machines.

Big Food and FMCG companies tend to have a functional silo structure where they have got operations, procurement, supply chain, logistics – all as separate functions reporting through to different areas. The role of manufacturing in this structure has traditionally then been focused on delivering the products to the supply chain at the lowest possible cost.

This has led to the belief that Lean is just about production and a version of Lean in many big food companies called Total Productive Manufacturing (TPM).

This means sweating the assets. The improvement focus is on maximising run speeds, minimising downtime, reducing set ups between jobs (to further reduce downtime), increasing yield and keeping tight control of output with short-interval controls. In other words, tracking performance hour by hour and squeezing as much out of that hour as you can.” In this context, better process data from IoT sensors that integrate with software platforms such as ERP systems will help provide better visibility of every aspect of machine performance in real time.

Beyond that, artificial intelligence tools will take this data and help processes to optimise themselves in real time. All this adds up to machines driving machines to produce more, more efficiently and at lower cost.

However, reducing waste and increasing efficiency is only part of the story according to McLean, “Investing in more equipment, more automation and better factories and running them harder all sounds good and the right thing to do, but where is that approach leading us?” he said. “What that is driving is long production runs high inventory and big warehouses. The exclusive focus on waste and cost reduction also drives huge investment in often quite inflexible equipment.”

“However, there is another goal of lean thinking that tends to get forgotten in this drive for lowest cost, that is maximising customer value,” said McLean. The relentless focus on cost reduction in food and beverage production has taken focus away from customer value.

“There seems to have been a disconnect, particularly at the big end of the food industry, with what customers really value. People take it for granted in the food industry,” he said. “The big brands don’t really seem to have an answer to competition from generics except to drive down costs and prices. But people don’t go and choose to drive a home brand car.

They don’t wear a home brand suit. They don’t use a home brand mobile phone. Why is it the food industry – in particular the FMCG – is having such an incredible loss of market share and margin due to generics? Why do customers buy generics? My argument is that customer no longer see the value of buying a branded food product.”

“At the end of day your brand is a promise to the customer that the customer will get something different or special,” he said. “And if they don’t get something different or special, then they’re just going to buy a generic, which is just the same thing.”

However, McLean said that new entrants are carving out market share with higher margins and prices by providing customers the value they have been missing. Beer is a great example. Big brand owners with the big automated production lines have to discount to sell their mass-produced products for around $50 for a case of 30 cans. However, craft brewers are struggling to keep up with demand for their boutique brands that sell for $5 and $6 per can.

The big brand owners have caught on to this and are increasingly developing premium brands or simply buying out the newcomers. However, when you take these premium products and just stick them in your big volume automated brewery or bakery or bottling plant and within your siloed management structure, compromises are inevitably made.

Inevitably, the new “premium” brands eventually end up being versions of the old volume brands with a different label – and we know that customers are smart enough now that they won’t buy this. If they buy a premium brand, they want a premium differentiated product.”

“We can actually reduce waste and costs until we go out of existence by offering the customer the same old same old while other people – who are probably nowhere near as efficient as we are – are offering a greater value to the customer and the customer is prepared to pay for that value,” McLean said.

This is where lean comes in. However Lean applied with a completely different mindset to what has traditionally applied in the food industry. McLean has definite opinions on how to get ahead of the game. One of the most important pieces of advice he gives, is that a company needs to map its value stream – and he’s talking not just the factory, but the whole end-to-end process, which includes the supply chain.

“And also consider the information flow, like replenishment and product flows,” he said. “One of the problems with a lot of food companies is they separate – including geographically separate – the supply chain team from the operations people. The supply chain team sits at head office planning the operation, and the operations people are out in the branches, and running the factories according to this plan that has been developed in head office.

This is a very inflexible approach. Instead, we need to also focus on lead times and agility. In other words, we might need to sacrifice some cost to be able to be more responsive to the market. To be able to offer more of a product range and have more SKUs, shorter Lifecyle’s, more change and be more flexible.”

He said another barrier to change is company culture, which is often driven by frontline leaders, but can often go right through to manufacturing operations.

“I hear food operations managers pushing back all the time about the number of SKUs they have to do, and the complexity they have to deal with, and they ask, ‘why can’t sales sell more of the standard offerings?’” said McLean. “Ultimately, we have to change that culture because if we can’t sell the diverse range of products someone else will, and those innovative products will take our market share. We have to design our operations to meet the needs of the market, rather than try and engineer the market to meet our operations.”

The implications of this for technology are quite different to the current assumptions, said McLean. Technology will allow manufacturers to get closer to their customers, obtain more granular real time data on what is selling to who and where. In the factory, the aim will be to have more flexible processes that can then respond much quicker to these changing customer needs. Equipment will need to be smaller and more configurable to make a greater range of product variants in smaller volumes. Customisation at the point of production such as in-line digital printing of packaging will ultimately offer the opportunity to create a unique product for every customer.

Organisationally, functional silos need to be challenged. The Lean organisation is built around the value stream or product family, which means all the functions required to deliver value for a particular product family from purchasing through to marketing work closely together to deliver customer value for that product family. This emulates the structure of start-ups and small- and medium-sized enterprises in the food and FMCG industry. Combined with efficient data flow, this structure allows for fast decision making and close alignment of every part of the process with the needs of the customer.

McLean’s final thoughts on Lean and its place in the value chain of food processing is that it will become an even more powerful tool to drive customer value. However, it will need a completely different approach and mindset to that taken by manufacturers over the past 20 years.

“The traditional cost reduction model that has built on the assumption that we will optimise what we do now, and take costs out of what we do now, is essentially flawed,” he said. “Because what we do now is likely not to be what we will do in the future. The whole traditional approach, in my view, is increasingly breaking down and not working.

Customers are not seeing value in branded products. I would think that if that was the case in any other industry, which would be a crisis. But it is seen as situation normal in the food and beverage industry.

“Simply doubling down on the current approach by using Industry 4.0 technology to drive out more cost and ‘make the big machines go faster’ will not work. A completely fresh approach is needed, and a new approach to Lean combined with technology and data can aid that transition. Critically, it is important to be clear on what a customer wants and focus on customer value rather than just waste reduction.

“Technology becomes a tool to give you greater insights into what constitutes value for different customers as well as changing your capabilities enabling you do to more, more efficiently to deliver customer value. Or do more at the same level of efficiency to meet your customer value.”