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Annual Manufacturing Trends Survey: Squeezed
Plagued by consolidation problems and slim profit margins, most food processors are still skimping on capital spending
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Maybe it's not so important where the raw material comes from as where the finished products go. According to Norcross, Ga.-based, Conway Data, which collects data relating to food plant construction, current emphasis for a lot of manufacturers is on ensuring that distribution networks tie in with those of larger retailers, most notably Wal-Mart.
More new products, quicker
According to a study undertaken by Hanscomb, Faithful & Gould, an Atlanta-based construction management and project services firm, the increasing demands to quickly bring new products to market not only impact plant locations but, increasingly, plant design, particularly as it relates to assembly line changeovers. The study also found:
* Due to shrinking profit margins, manufacturers are placing more emphasis on energy-efficient mechanical and electrical systems. Since plants can't afford downtime, redundant energy systems also are becoming more pervasive.
* Automated storage and retrieval systems with bar-coding and scanning devices are becoming crucial for rapid product delivery.
* More manufacturers are installing plant-wide information gathering and monitoring systems, including active and passive quality control systems, that provide operators with essential information for making rapid manufacturing and supplier-related decisions.
* Floor systems must provide economical solutions for wide-span floor plates, but also must consider future requirements to handle large penetrations when new assembly lines are moved or installed. Hence, choice of structural materials is becoming more crucial.
* Getting products to market requires plant site layouts that can accommodate more frequent traffic transport, including extensive aprons for trailer trucks and improved circulation planning.
Automation is one obvious solution to quickening the pace of both production and changeovers. While the food industry still lags some other industrial sectors in this area, automation is becoming a significant investment item on the shopping lists of most food companies. In our own annual Manufacturing Trends Survey [January 2004, p38], respondents ranked automation the third most important issue facing them this year, behind perennial concern food safety and in a virtual dead-heat with labor issues. Ninety percent said they were in the process of automating some component of their manufacturing processes.
Food plant construction
Greenfield vs. expansion projects
|
2003 |
|
|
New |
Expansions |
|
89 |
180 |
|
2002 |
|
|
New |
Expansions |
|
124 |
227 |
|
2001 |
|
|
New |
Expansions |
|
136 |
230 |
Source: conway Data Inc.
It's worth noting that although labor is the single highest expense that food manufacturers incur, food sector employment has held steady for the past several years, despite industry efforts to automate critical production processes and the national recession.
The U.S. Department of Labor has found that some tasks, particularly those involving handworkers in the meat, poultry and fish industries, simply defy attempts to automate them. Meanwhile, new automated equipment for tasks as various as packaging, inspection and inventory control simply swap out machine operators for maintenance workers and mechanics. Computers have likewise reduced employment growth among some mid-level managers but increased the demand for workers with technical skills.
Blame Wal-Mart, consolidation
While a number of factors have converged to suppress construction and capital spending activity in the food industry, skimpy margins rank high on that list. -- even with the national economy allegedly in recovery mode. Some industry analysts lay much of the blame on Wal-Mart, whose massive market presence has not only confounded its competitors, but given the retailer the clout to negotiate not-so-everyday low prices with its suppliers. Wal-Mart has wisely passed these savings on to consumers, who have rewarded the retailer with more business and an even bigger club to brandish over suppliers.
But that only completes half the vicious circle that has food companies chasing their tails these days. Lest anyone think Kraft is ceding its faltering cheese and cookie brands, the company plans to use funds from 20 announced plant closures to bankroll $500 million to $600 million in in-store price promotions, a tack that will likely force competitors to boost their promotional budgets , and shave profits , in order to keep pace.
Why does Kraft have so many plants to close? One reason is it's still digesting that little Nabisco acquisition of year 2000. As surely as dessert follows dinner, consolidation invariably follows a good feeding frenzy. So, it's not surprising that the number of new and expanded food plant projects in the U.S. has slid steadily since industry mergers and acquisitions activity peaked at the turn of the millennium.
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