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2020 Manufacturing Outlook: Signs of Optimism

Jan. 8, 2020
Respondents to our manufacturing survey say their companies plan to increase production – only not with much more equipment or labor.
Food manufacturing professionals are optimistic heading into 2020, and a strong majority of them say their companies plan to increase production, according to Food Processing’s 2020 Manufacturing Survey.

Asked how they feel going into this year, 44% described themselves as “somewhat optimistic,” and another 29% as “very optimistic.” Only 10% described themselves as even “a little pessimistic,” with no one going any further.

As for production plans, a whopping 77% said they foresee some degree of increase. It broke down as 30% saying they expect an increase in production of 10-19%; almost as many, 28%, saying they expect to see a modest increase of 2-9%; and another 19% saying they expect production to go up more than 20%.

Much of that production increase presumably will come from increased efficiencies or longer hours on existing lines. Only a bare majority of 54% said they anticipate opening new plants or adding new lines; 29% said facilities will stay the same, and another 8% anticipate closing plants or lines in 2020.

Predictions of capital expenditures follow roughly the same pattern, with a plurality of 44% saying that at their companies, capex will go up. The largest segment, 19%, say they’ll go up more than 10%, with another 13% saying spending will grow 5-10%, and 12% saying it’ll be less than 5%. By contrast, only 3% said they expect capital expenditures to be down by any degree. “About the same” came in at 23%.

The predictions on capital expenditures in our survey contrast with predictions for U.S manufacturing as a whole made by the Institute for Supply Management. As quoted by Bloomberg, that survey of manufacturing executives showed that they expect capital spending to drop 2.1% in 2020, which would be the first decline in 11 years.

Back to our survey, process equipment will be the most frequent spending target. In a weighted vote among a list of alternatives, process equipment edged out packaging equipment, with control systems coming in third.

Comments that accompanied our survey’s capital-spending question ran the gamut of possible projects. Most of them had to do with process-related improvements. Several mentioned packaging-related spending, like “potentially expanding bottling line and finished product case packaging automation.” Others mentioned supply-chain improvements, like “New automation equipment for our distribution center.” A few looked further into the future: “Discussion about expansion but no dates or exact plans which could take 2-5 years.”

This extra work and production apparently will be done by not too many more employees. A bare majority of 51% expect their companies to add to the payroll; 35% said they expect to maintain the current level of staffing, and only 9% said they should see fewer faces around, either through attrition or active reduction in workforce.

But worker availability was on the mind of at least one respondent, who wrote that challenges include “Lack of worker base around the country - skilled and unskilled. Lack of federal support for cooperative immigration programs.”

One way to deal with worker shortages is to outsource. However, the most outsourced functions for our respondents’ companies are the relatively specialized ones of pest control (71%) and microbial testing (44%) (multiple responses were permitted). Among more general ones, engineering was highest, at 38%.

Safety first

When it comes to overall priorities, food safety came out on top in our survey. Presented with a list of issues, food safety ranked highest in a weighted vote (respondents were asked to rank the issues from first to 10th) with a score of 964, followed by “cost control” (876) and “worker safety” (853).

Food safety may be getting this high profile because of a surge in recalls and alerts. Year-long statistics for 2019 were not available at press time, but recalls have been on a long-term uptick. Overall recalls rose 10% from 2013 to 2018, and Class I recalls, the most serious, for meat and poultry rose 83% in that period, according to the Public Interest Research Group.

That could, however, reflect increased vigilance, by both the government and food processors, rather than any increased danger in the food supply. “If companies think that the FDA and the USDA are looking over their shoulder, they’re going to do a better job,” Jaydee Hanson, policy director at the Center for Food Safety, told Time magazine.

Asked what they’re doing to improve sanitation and food safety, the overwhelmingly most popular answer in our survey, at 76%, was “employee training.” The next choices (multiple responses were permitted) were: “third-party certification,” at 37%; “HACCP plan,” 36%; and “more/improved sanitary equipment,” 36%.

Those respondents who offered further comments mostly indicated that when it comes to product safety, they were already doing what they need to do. As one put it: “Already there, just [need] increased QC and vigilance and get our suppliers more involved in all areas to help us [see] what we are missing to be perfect.”

Where they auto be

Automation is an area that might logically be of interest to food processors, especially during a sustained period of low unemployment in an industry where worker recruitment has been notoriously difficult. But automation came in at fifth place in our survey’s list of priorities.

Phil Kafarakis, president of the Specialty Food Association, suggests that part of the explanation may be that automation often is not compatible with the flexibility in production that many processors require.

“There will continue to be a need to invest in automation of manufacturing processes,” Kafarakis says. “However, faster is not going to be better, nor will it be more efficient as it relates to margin management and higher volumes/output. Flexibility to produce zero defect products that are unique and maybe modified within the manufacturing process will be the focus of food manufacturers.”

That sentiment was echoed by one of our respondents, who works for a seafood company: “Automation to replace labor [is a priority], but [we] have not found many solution opportunities in our specific fish processing.”

With increased automation comes increased complexity, especially for floor workers. As Kafarakis says: “More critically important will be the talent required to operate sophisticated machinery.”

We asked our respondents what measures, if any, they were taking to ensure their workers can handle automation. The most popular response, at 42%, was “expanding in-house technical training.” Others were “recruiting maintenance technicians” at 39% and “adding in-house engineering capabilities” at 27% (multiple responses were permitted). Another 23% said their companies were not addressing the issue.

Digital doings

Related to automation is the question of digital development. Asked how their companies are adapting to digital advances in manufacturing, a majority (54%) chose “replacing paper records with electronic records” – something that the Food Safety Modernization Act provides a strong incentive to do. Other popular choices (multiple responses were permitted) included “replacing analog devices with digital sensors and meters” (43%); “providing more remote access to machine controls” (31%); and “shifting from local computers to cloud computing” (30%).

One respondent said automation was “constantly a work in progress.” Another said that his company will “wait and see – we'll decide after attending trade shows for 2021” – a sentiment that ought to gladden the hearts of trade show producers.

Asked about the priorities of their trade customers, a majority of our respondents (53%) said they want better assurances on quality. The next most popular responses (multiple were permitted) were: 43% said they want better and more specific product tracing, and 39% said they want tighter delivery windows.

One respondent had a simple view of her company’s customers: “They are like all customers...they want everything.”

Who Answered the Survey

Our 19th annual Manufacturing Outlook Survey, conducted online in late 2019, garnered 144 responses from food and beverage industry professionals. In terms of what is manufactured, the most common categories were meat/poultry/seafood, at 15%; further-processed foods, at 11% percent; and fruits and vegetables, at 7%. In number of employees, the most frequent range was 101 to 500, at 32%, followed by 51 to 100 at 18%.

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