Food Logistics

APR 2014

Food Logistics serves the entire Printing Industry with targeted content for the large commercial print segment.

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Overcoming the Barriers The goal for every company is growth and to see it reflected in revenues, profits, mar- ket share and brand influence. However, the road to growth can be bumpy and challeng- ing due to many common business barriers, as well as others that are specific to the food and beverage and CPG industries. In a 2013 survey by KPMG, the food and beverage executives surveyed cited these significant growth barriers facing their company over the next year: • Pricing pressures • Volatile commodity and input costs • Rising labor costs • Regulatory and legislative pressures Pricing Pressure One of the biggest obstacles to growth is when competitors maintain low prices in the marketplace. This squeezes margins and threatens a company's profitability. In this price-intensive environment, companies must find ways to increase market share by acquiring new customers, retaining existing customers, differentiating products or open- ing up a new sales channel. For many companies, highly differentiated products and ones targeted to specific cus- tomer groups allows them to charge higher prices compared to their other products. One key strategy gaining popularity for food manu- facturers is adding a new sales channel, such as online retail. By adding this new channel, manufacturers can increase sales, move a product that otherwise might be destroyed, or expand in new geographic markets. Whatever strategy a company chooses to increase market share, the focus should also be on optimizing operations and lower- ing costs. Improving production, optimizing the efficiency of a supply chain, minimizing waste and reducing costs not only lessens the impact of pricing pressures, but it also enables a company to grow profitability. Volatile Commodity/Input Costs The inherent volatility in commodities (grain, corn, wheat, sugar, etc.) is another common growth barrier and perhaps the greatest contributor to such tight margins in the food industry. This volatility also isn't going away any time soon either due to the increased demand from emerging markets, climate issues in certain agricultural regions and the continued increase in biofuel pro- duction. Other unpredictable input costs are in energy due to instability in certain oil producing regions, hurricanes and other miti- gating issues. The strategy of product differentiation can also be an effective strategy in this barrier. For example, product differentiation gives some companies more latitude in passing along commodity price increases since their specialty customers tend to be more accept- able of this. On the other hand, the rest of a company's customer base may not be readily acceptable of any price increases. Unlike commodity costs and market dynamics, companies can control internal operating costs. Labor Costs Labor is often one of the largest expenses in measuring cost of goods sold for a food company. This expense can increase due to a lack of productivity or increased overtime. Frequently, workers waste a significant amount of time searching for information and checking its accuracy. Since many work- ers still perform much of data collection manually, this can slow down production and ultimately compromise customer satis- faction. An automated forecasting system, for instance, can prevent waste in terms of production man-hours and a scheduling software system can help a worker make the best use of capacity, as well as minimize products being produced on overtime. The primary reason why automating busi- ness processes is so important is it empow- ers employees away from manual processing tasks to more strategic roles that directly impacts the growth of their business. Best practices in manufacturing call for delegat- ing decision-making all the way down the ranks to the customer-facing and plant floor employees. This can only work when employees have timely access to actionable information that empowers them to make informed, real time decisions. Increased Regulatory Compliance Indisputably, food companies operate in one of the most regulated industries with many companies having to comply with multiple food safety regulations that include HAACP, GFSI, SQF and now the new Food Safety Modernization Act (FSMA). FSMA is expected to have a significant impact on com- panies in terms of the cost and time needed to comply with the rigorous new record- keeping and reporting requirements. Some food segments like the seafood industry have tough additional requirements that include Roadmap to Growth in the Food & Beverage and CPG Industries By Junction Solutions 20 A P R I L 2014 ❯❯ FO O D LO G I S T I C S W W W . F O O D L O G I S T I C S . C O M S P E C I A L E D I T I O N The Buzz....Free Trade Agreements It's clear that software and technology are critical components for managing food supply chains, especially as they become more global and subject to regulatory oversight. Free trade agreements are helping drive globalization, of course. Deals between the U.S. and its trading partners—from Korea and Peru to multilateral pacts with Central American countries and NAFTA partners Canada and Mexico—improve market access for a range of U.S. exports, including food. In terms of sheer size, the proposed Transpacific Trade and Investment Partnership (TTIP) between the U.S. and EU would be a monster pact if it can be negotiated successfully and ratified by both governments. But, the big trade pact faces big opposition on both sides of the Atlantic. FLOG_20-23_0414 CS Roadmap.indd 20 4/3/14 5:43 PM

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