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End Flap: Let Go of Legacies

March 16, 2022
In his April column, Senior Editor Pan Demetrakakes ponders the notion that keeping an old, creaky plant running is an industry tradition – but for how long?

I’ll never forget the first food plant I ever poked my nose into as an industry journalist, almost 30 years ago. I won’t say who owned it, but it was a major company, and the plant was running a well-known condiment. The palletizer went down, and to keep production moving, workers had to frantically stack cases next to it on the floor while it was worked on.

It was my introduction to two themes that I was to see over and over: The disconnect between processing and packaging capacity that is chronic to certain operations; and the by-any-means attitude that keeps so many plants running. Accumulator? We don’t need no stinkin’ accumulator!

As I would find, plant after plant has equipment that is older than most of the workers. Plant managers bragged to me about how they kept things running with chewing gum and chicken wire – remarks I never got to print, lest their bosses see them.

The impetus for this approach isn’t hard to figure out. In an industry with razor-thin margins, there often isn’t a lot of capital around for equipment upgrades. Volume is how the industry makes money; the mindset is, keep it moving, get it out the door and spend as little as possible along the way.

That approach still prevails. But it has been eroding, and for a good reason: Over the long term, it’s just not sustainable.

The biggest difficulty is it depends on legacy knowledge. An old, creaky filler or labeler needs someone who has worked with it for years and knows just how to tweak it. I have a sneaking suspicion that certain major food companies found that out last year, when their workers went on strike and they tried to get their plants back up and running with temps and white-collar employees.

But there’s an obvious problem with legacy knowledge: The people who possess it are not immortal. Sooner or later they will stop working for you, and then you might very well be stuck with a lot of old, balky equipment that no one knows how to handle.

This pressure has been building for a while. Now certain conditions have brought it to a head.

The labor situation, always tough in the food industry, has been made exponentially harder by the pandemic. First, workers were sickened or so afraid of sickness that they were reluctant to come to work; then they had some stimulus money in their pockets and were in a position to reevaluate their career options. That situation undoubtedly encouraged some of the workers who struck last year.

The pandemic also has shifted consumer demand in ways that are straining the capacity of the existing manufacturing base. The first lesson was that existing supply chains didn’t have nearly enough flexibility (and in many cases, still don’t); they couldn’t handle a massive shift in demand from foodservice to retail. The second is that certain segments, like meat and pet food, experienced a surge that is likely to be permanent, or at least have long legs.

How can this situation be dealt with?

Using contract manufacturing is a palliative measure that cuts into margins. Some companies, however – and not just the smallest ones – might very well turn to it on a permanent or semi-permanent basis, baking those additional costs into their prices (as many of them already do).

But more, I predict, will go the way of Tyson Foods, which plans to build an additional 12 plants over the next two years, or Hostess Brands, which recently announced that it would convert a recently bought facility in Arkansas to “the bakery of the future.”

For companies that intend to do their own manufacturing, modernization is the only viable long-term strategy. Labor pressures will abate when the pandemic is finally stamped out, but they will never go completely away. Companies that invest in the right kind of automation and other revitalization eventually will hold an insuperable advantage over competitors who try to keep doing things the old way.

Keeping a legacy plant running with legacy workers, as cheaply as possible, will keep your expenses down today. But tomorrow is coming.

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