Food & drink: an industry facing some difficult choices

As preparations began last year for last month’s annual Food and Drink Federation Convention, it was unlikely director general Ian Wright and his executive were struggling to find agenda topics. Brexit, Brexit and more Brexit, plus food and health, never had any serious contenders for the ‘Tackling the Big Challenges’ debate.

There was no difficulty in persuading government and opposition to turn out. This year’s Westminster representation included business secretary Greg Clark and junior health minister Nicola Blackwood; for the civil service DEFRA Food and Farming Directorate head Tim Render; as well as shadow international trade secretary Barry Gardiner.

Throw in too the likes of the NFU’s Terry Jones, Coca-Cola’s Jon Woods and Gab Barbaro of British Gas representing various key aspects of British industry.

No surprise either at Brexit’s pride of place – whatever the virtues or not of withdrawal from the EU, nearly three quarters of FDF members were firmly in the Remain camp and it’s not difficult to see why:

• More than 70% of UK imports and exports in food and non-alcoholic drink is with the EU
• 94% of exports/97% imports of food and non-alcoholic drinks are with the EU or countries with which EU has signed/ is negotiating a trade deal
• More than a quarter of the circa 400,000-strong food and drink workforce consists of non-UK EU nationals
• 130,000 new workers are required over the next decade
• 75% of research and development innovation is selffunded, with much aided by EU grants.

Source: FDF

The implications of this extend far beyond the sector because food and drink’s contribution to the country’s overall economic health is crucial.

First, there is scale: F&D accounts for the largest single share of manufacturing turnover – at 16% it outstrips even chemicals and pharmaceuticals. Gross value added is close to £22 billion and nearly equivalent to automotive and aerospace combined.

Second, there is effectiveness: while total UK exports have declined, food and drink’s doubled to £12.8 billion in the decade to 2014. And while overall UK productivity rose 0.5% in five years, food and drink’s has leapt by 11%.

Challenging times

So a key contributor to economic wellbeing finds itself having to compensate for a long-term deficit of properly skilled labour while facing the more imminent prospect of losing much of its existing personnel.

At the same time the sector must assume it faces diminished access to the EU internal market and the prospect of rising costs associated with such trade. All of which will likely contribute to higher consumer prices.

And, in addition, government is now ramping up the pressure for product changes to comply with and help promote more rigorous food and health guidelines – most notably Public Health England’s recent pronouncements on sugar reduction.

For food and drink companies, notes the FDF, that will mean extra emphasis on “reformulating and innovating. But this will also involve a transformation in consumer diets and lifestyles that cannot depend on businesses alone.

“Productivity improvements require substantial investment in automation, robotics and enhanced IT systems allied with a stable view of customer requirements to instill confidence

Stephen Whyte, managing director, Qadex

“Manufacturers know the special place their products have in people’s lives. Companies are working hard to overcome technical challenges and make gradual tweaks to favourite foods that regular customers can accept,” said the federation in a recent statement.

Lobbying and influencing at the macro-economic level offers one means of lessening the burden. More directly, it remains a matter of the industry seeking ways it can improve on its own processes and way of working.

IT solution provider Qadex is focused on providing cost-saving strategies and improvements to company practices within the food and drink sector.

Its software is used at more than 16,000 manufacturing sites, with the company supporting 25,000 users on a daily basis to process more than 20,000 audits and specifications every month.

Qadex managing director Stephen Whyte [pictured above] says the sector faces an uphill task as it struggles to progress while overhauling some of its established ways of working.

“Productivity improvements require substantial investment in automation, robotics and enhanced IT systems allied with a stable view of customer requirements to instill confidence,” says Whyte.

The latter especially presents a challenge; retailers have to balance the demand for breadth and value, while contending with a health-driven agenda at government level and from a growing section of the public.

Whyte’s analysis is stark: “The majority of UK food and drink manufacturers do not have sufficient profitability or confidence in the stability of customer requirements to make long-term investments to drive substantial improvements in productivity.”

Culture shock

When it comes to cost savings and efficiencies, Andrew MacPherson, industry sector manager, food & beverage at Festo, points out that other areas of manufacturing – notably aerospace, automotive and rail – are forging ahead of food and drink at least when it comes down to automation.

And while GVA may compare well with EU peers “including Germany, Italy, Spain and France…it is still less than half of that in the US.”

For engineering leaders in this sector of the UK economy looking to remain competitive…understanding how to maximise this golden opportunity to grow and develop their business and organisation through better plant, productivity, process and people will be crucial

Andrew MacPherson, industry sector manager, food & beverage at Festo

“Productivity growth has further slowed since the global financial crisis of 2007-2009, as investment in automation has stalled and falling output has not been matched by reductions in labour hours,” advises MacPherson.

“For engineering leaders in this sector of the UK economy looking to remain competitive in the UK’s ever-challenging supply chain, understanding how to maximise this golden opportunity to grow and develop their business and organisation through better plant, productivity, process and people will be crucial.”

UK manufacturers’ aversion to risk and innovation may be explained in part, says Whyte, by the contrasting relationship with retailers that exists in the US.

“The UK market is dominated by chilled products with a short shelf life. However, the manufacturer is making a large number of products every day with small volumes, so automation is tricky.

“In the US it’s about ambient grocery products where brands are stronger and retailers are not as strong as they are in the UK.”

Given the American manufacturer is more likely to sell their own branded products, horizons will be longer – with perhaps a greater willingness to automate, confident that a company will be producing the product for the next four to five years.

Manufacturers do not have sufficient profitability or confidence in the stability of customer requirements to make long-term investments to drive substantial improvements in productivity

Stephen Whyte, managing director, Qadex

The irony, says Whyte, is that while Brexit could have grim implications for some suppliers who could be driven to the wall, the end result may strengthen the survivors’ position.

“It won’t take many failures in the food supply chain for capacity to disappear. We may end up with a balance of power shift where retailers have to work towards a partnership with suppliers to have continuity of supply.

“Already there are rumblings of retailers starting to have strategic relationships with suppliers and starting to have joint business plans over three years.”

Boosting productivity will depend ultimately on the interplay of several factors: collaboration across the supply chain, effective automation, better customer knowledge, and culture change based around upskilling the workforce with continuous learning.

As MacPherson puts it: “Connecting all the elements of the plant and supply chain together will deliver capabilities for faster, more diverse, more flexible and more intelligent production, together with increased energy efficiency, reduced wastage, closer links to logistics processes and an optimised value chain.

“Systems and components exchanging information to control and regulate themselves will also substantially increase the potential for leaner production, condition monitoring and predictive maintenance.”

In other words, building connections between machines and between people/organisations.

One example of this is Festo’s own co-operation with Siemens to create an adaptable, modular transport solution, the Multi-Carrier-System [pictured above] – a combination of Siemens’ controls knowhow with Festo’s linear motor and mechanical guidance tech.

The result is a machine that is adapted to customisation and short product life, minute batch sizes and seasonal variations. It has also resulted in PPMA Industry Awards for Most Innovative Automation System and for Partnership of the Year.

Technological collaborations as well as product recovery and waste reduction are yielding benefits, ensuring greater sustainability. Things are nevertheless moving slower at the logistical level.

“Procurement, ingredients and supply chain efficiencies require a paradigm shift where the entire supply chain collaborates for mutual benefit,” comments Whyte.

He cautions against over-optimism: “This will require a change of culture and ways of working across the supply chain from retailers backwards which I am not confident we can achieve as an industry, due to the short-term nature of too many businesses.”

There have been notable successes, such as the FDF’s Ambition ‘2025 – Shaping Sustainable Value Chains’ strategy, which saw the federation’s participating members reduce food and packaging waste sent to landfill to just 0.04% of total waste.

The human factor

The need for a more integrated and strategic approach is driven too by the human factor.

Namely, there is an insufficient supply of the right kind of labour to ensure a properly skilled and adequately staffed workforce for the next decade. The immediate concern is how the sector will find sufficient homegrown recruits to replace the likely loss of European workers.

As food industry leaders put it in their joint letter to government at the end last year: “For the longer term it is important to recognise that these workers from the EU are highly flexible and provide a reservoir of skilled, semi-skilled and unskilled labour without which the industry could not function. In fact, in some sectors of the food chain EU workers predominantly work in skilled and semi-skilled roles.”

MacPherson [pictured above] stresses the need for more agile strategic approaches at the top, mindful of the fact that employees will need to be trained to be more adaptable.

“Employees on production lines will be required to step up and perform complex decision-making, enact swift troubleshooting, and oversee effective preventative maintenance strategies – and we might see traditional maintenance engineers transition to ‘reliability engineers’, for instance, focused on maximising uptime, rather than resolving downtime.

“For workforces to fully embrace the opportunities offered by increased digitalisation, performing new and different tasks, such as working alongside collaborative robots, they have to understand what it means and know how to make best use of it.”

For Festo and others this has offered an opportunity to access new or expanded revenue streams based around training, with initiatives such as its Cyber-Physical Factory.

Thanks to the onset of the new Apprenticeship Levy and the extension of apprenticeship degrees, it may be easier for companies to tap into such training – whether in-house or not.

Cost vs opportunity

Steve Hill, director of external engagement for the Open University, is adamant about the benefits to companies and industrial productivity.

While best known for its distance learning degrees, the OU is also one of the largest workplace-based training providers. Its clients have included 80% of FTSE 100 companies and notably Babcock International Group’s engineering apprenticeship scheme.

“The upcoming Apprenticeship Levy is an opportunity to help solve the skills crisis across all sectors, but at a significant cost for many employers. The question on many minds is: will it actually work?” says Hill.

“The answer is yes – as long as organisations use their ‘levy pot’ effectively. Used to fund degree and higher apprenticeships for existing staff and new hires, it could deliver workers with the advanced technical, professional and occupational skills needed to rebalance the economy.”