Downsizing Leaves Holes in Innovation and Engineering Talent

A decade of downsizing has sent former food industry innovators to engineering firms -- where anybody can hire them.

When was the last time your company produced breakthrough processing technology? Is the engineer responsible for that last success still with you, or did he leave the company with a pink slip or, if he was lucky, an early retirement package?

More than a decade of downsizing has left many processors with gaping holes in technological know-how and a faint spark for innovation. The pattern has been remarkably similar at many prominent companies. First, they contracted the manufacturing organizations and cut the engineering team in half. Then they merged the company with another nearly as large, closed plants and contracted the operations and engineering again.

Many believe that food industry innovation is at an all-time low. And the thought of venturing into high-risk new technologies today probably is out of the question in companies still staggering from the debt loads of big mergers. Adding to the pressures are mass merchandisers such as Wal-Mart, whose demands to lower costs have rippled through nearly every consumer products segment in American industry.

Downsizing doesn’t just dampen the creative urge. It is invariably a piece of a larger contraction strategy that leaves few resources free to develop technology or innovative new products.

Pore through the lists of recent new products. You’ll see few signs of daring. As one equipment maker put it, “We’re in a period now where you sprinkle lemon juice into a box of Cheerios and call it Lemon Cheerios. That’s what passes as innovation.”

So where are the breakthroughs coming from today? Who will come to the plate to deliver the next home run, the next fruit roll-up or aseptic pouch beverage system? For that matter, who can you count on to develop that minor piece of equipment that would simply relieve the problems on your line and reduce manufacturing costs? Who’s delivering the specialized equipment and technology that can solve problems or give you a competitive edge?

Get your vendors to develop it

Food companies are outsourcing more now than ever, according to several people we spoke to.

“The trend is to get suppliers to do [the research and development] for free,” says Ed Goldman, senior vice president for Foster-Miller, Waltham, Mass., a manufacturer of custom equipment for food and other industries. “Processors go to the equipment supplier or the ingredient supplier and say, ‘If you’ll do the research and design for free, I’ll probably buy it from you.’ ”

That proposition entails higher risk than equipment companies like to assume in the current manufacturing environment, although some do.

Foster-Miller has notched notable food industry achievements. It developed the process for General Mills’ Fruit Gushers, to which General Mills now holds the patent. (For the record, General Mills is one of the few processing companies that still maintains in-house equipment-making capability.) Foster-Miller also developed water-jet cutting for Nabisco’s Fig Newtons and a new fabricated potato chip process for a snack maker. Still, few food companies today are eager to invest in products requiring new, difficult or untested technologies even when such technology might pose a formidable hurdle to market entry from competitors.

Glenn Anderson and Steve Howard had long careers with Ore-Ida – Anderson’s was 28 years – before the two left to form Atec LLC in Pocatello, Idaho. “They were doing electronic sorting in the early 1980s, before Key Technology had even gotten into the game,” says Mike Keough, director of engineering-industrial packaging of Power Engineers Inc., Hailey, Idaho, which will acquire Atec this month. Keough himself spent 21 years with Ore-Ida.

The Ore-Ida experience brought expertise in specialty meat slicing, too. Gagliardi Bros., another Ore-Ida/Heinz division, had invented a “superslicing” technology to make the unique finely sliced Steak-umms frozen meat product. “You can still see Glenn’s designs in today’s slicers,” adds Keough, “with their servo-driven components and other features that may appear common today but were uncommon and very innovative in the ’80s.”

Prior to the purge of the 1990s, having in-house personnel to design processing equipment was common – even expected -- in the industry. Many processors had their own fabrication plants to build specialty equipment on premises. Nearly every food giant sported dozens, if not hundreds, of engineers and other technical talent that contributed to processing improvements.

Many spent decades with the same company, absorbing then adding to the institutional memory, learning from the old timers, and mentoring the next generation of experts within the same manufacturing organization. Careers spanning 20, 30, even 40 years with the same company were not unusual. Processing technology was considered critical to maintaining a competitive edge. Processors prided themselves on homegrown technology and protected the family secrets jealously.

In a downsized world, the thinking is reversed. Why pay the high cost of keeping a stable of technological talent when you can buy technology more cheaply?

Indeed, companies providing engineering and equipment services today use that argument in their own sales and marketing pitches.

“We have two advantages,” says Goldman of Foster-Miller. “First, we’re aware of technology in a number of industries and food segments. We also hire heavily experienced people and have little turnover.” He adds that the company is multi-disciplinary, enabling it to take on complex projects and to look at all aspects of those projects.

Foster-Miller, recently purchased by Qinetiq, the $1.5 billion British engineering firm, is hardly small anymore. The company’s staff includes 260 degreed engineers. Unlike some of the technology boutiques built from the bones of castoff engineers, Foster-Miller has developed much of its own expertise internally. It has also acquired key personnel from other equipment manufacturers. Still, says Goldman, “Sometimes you come across processing personnel so good that you have to hire them,” recalling several hires of former Kellogg personnel during past periods of cutbacks.

The trouble is that the same cost pressures that limit internal hiring inhibit outside investment as well.

A sea of blue-chip talent

Even before the Atec acquisition, Power Engineers became a much bigger player in the food industry with the acquisition of Blue Chip Engineering of Boise, Idaho. The acquisition brought the company 50 engineers and designers and an impressive client roster that includes a number of Top 25 food firms.

Most of the employee-owned company’s current work in food has come from processing and packaging projects, predominantly in the salty snacks, bottled water, dairy and vegetable areas, with particular expertise in potato processing.

Developing new technologies and tailor-made equipment often involves partnering, with large engineering firms frequently linking with small fabricators and, if necessary, equipment design specialists.

“We have gone to outside resources, design and custom shops, before,” explains Keough. “But we didn’t have as much control. That’s why we wanted Atec. We may need to deliver a project to a client in six months. With an outside fabricator, I might not even get on his docket in six months. It’s all a matter of control.”

Power Engineers has many Fortune 500 food company alumni on staff. Numerous layoffs and early retirements in the food industry dumped mountains of expertise into the field. Much of it was swept up by the support industries, from major equipment and engineering firms to small specialty shops. Some talented engineers with an entrepreneurial itch and business sense have flourished. Many have come and gone or simply made enough to get by.

It is ironic that while many complain of industrial espionage, the drive to create technologies worth spying on seems to have all but died. Processor-developed patents run out each year, and some are simply not defended. Today, food companies are holding fewer technologies deemed worthy of a patent.

In some cases, even food companies with a vested interest in a specific system or piece of equipment opt to turn the technology over to a third party more willing to invest in and advance the system. No doubt, the quality and sophistication of supplier-made equipment is higher than it’s ever been. Equipment manufacturers and engineering firms are offering more and more turnkey systems that have taken the onus of design and development off of the corporate and plant engineers.

But few new systems are perfect and old systems abound. Furthermore, running a new product on an existing system invariably dictates some kind of line modification. That leaves plenty of room for improvement.

Filling the gaps

“You see the fryers and dryers at the heart of processing systems in a food plant, but there are all kinds of things needed to make that whole system better,” says Power Engineers’ Keough. “We see a lot of these projects that could save companies money. A lot of steps in food processing are still being done by hand but don’t have to be. We don’t need to create a better oven. We are happy to improve components and connections.”

“You put product in a bottle, then you put the bottle in the case. We build the equipment in between,” says Mike Slattery, senior project manager for Stainless Specialists, Wausau, Wis., defining his place in the technology landscape. His company may be best known for its specialty conveying and unique pallet dispensing work, he says, especially where the lines are regularly washed with caustic cleaning agents. But much of its work is replacing manual roles on processing lines with mechanical solutions.

For most control and automation work, Stainless Specialists forms alliances with larger firms. Some partnerships are formed directly with processors and may even involve the development of patented technology. “(The processor) wanted control of the technology so competitors couldn’t employ it. We developed it. We share in the patent,” Slattery explains of one development. In another instance, his company shared a patent on a frozen pasta product.

“A lot of products in the food industry still are driven by food marketing people,” he continues. “They don’t ask if the company has the equipment to make the product or understand how it’s made. All they have is a prototype from a lab and, all of a sudden, they need someone to make it. That’s where we step in. They might need specialized equipment for folding or creasing a product or a special accumulation unit that won’t damage the product.”

Stainless Specialists operated out of a garage when the company was first formed in 1985. Working with local food manufacturers at first, it has extended its work to a number of Fortune 500 companies. Today it employs 120. Exposed to a lot of food industry problems, it now has the keys to a lot of solutions.

“As big companies have downsized their engineering groups or relocated, they remember the work we did for them and continue to hire us,” Slattery says. “That’s one of the ways we’ve grown.”

Custom standard

Some custom equipment companies decide that there is greater profit to be had selling standard, mainstream equipment.

“The premise of our company was, ‘If you have a problem, we’ll sell you a solution,’” says Daryl Mims, who today heads Machine Builders and Design, the Shelby, N.C.-based company his father founded. “The business streamlined into bakery, then even more so into cookies, though we also continue to work with pretzels and chips.”

Though the company continues to do some custom work today, it largely reaches the biscuit (cookie) makers today with specialized equipment for laning, indexing, depositing and sandwiching. A unique capping machine may be its top seller.

“We can often take our standard equipment and customize it with a change part,” says Mims. “We make our equipment versatile. Instead of designing a dedicated machine, we take the custom order and create change parts to fit the cookie profile. And the customer can order change parts for a different cookie profile later. Some customers can run 10 to 12 products on the same machine, with only 15- to 30-minute changeovers.”

Co-packers are among the company’s best customers due to their need for versatile, reliable equipment. “We do a lot of work in line layout, building specialty conveyors with 90- and 180-degree turns,” says Mims. “We still get a lot of these specialty requests.”

The food industry’s realignment is far from over. It will continue to test new organizational and operational paradigms. Partnerships, alliances, and multi-company project teams will continue to replace the in-house development team working under a single roof.

Lost in the shuffle of realignment and frenetic drive to reduce costs is the question of how much processing technology is worth defending at all. Many argue that deployment of information systems and existing assets is the key to success in the industry today. But with so few new products derived from newly developed technology these days, one wonders if the prospect of gaining a competitive edge from processing technology is being tested at all.

Expect more carefully selected alliances to develop in the years ahead and engineering firms committed to food assembling more food-directed technological capability. The shakeout and realignment will continue.

And as for those tiny technology boutiques?

“I don’t know what the future will be for these small guys filling in the gap,” says Power Engineers’ Keough. “A lot of the little companies went away after 9/11, but some are still hanging on and doing well.”

In the meantime, the small entrepreneurial firms that have been filling in the design and fabrication gaps for food companies will continue to work, some faring well with successful partnerships, others eking out a living, still others becoming targets for acquisition.

All will be wondering where they will fit in the food industry months and years from now.

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