On the podcast this week is Robert Hersh, National Managing Principal in Manufacturing and Food and Beverage for Grant Thornton. Throughout the next half-hour, we talk about the results of the firm’s 2020 Digital Supply Chain Survey as well touching upon Food Processing’s own 2021 Capital Spending Outlook.
We cover a lot of ground in 30 minutes, including talking about how food and beverage processors can become better equipped at assessing supply chain risk as well as discussing how digitalization and other technologies are playing a significant role in the future of the food and beverage workforce.
Transcript
Erin: Welcome to the Food For Thought podcast. Grant Thornton recently released its 2020 supply chain survey findings. Can you talk about some of the highlights of that study?
Robert: Talking to my food and beverage clients as well as my manufacturing clients in general, a couple of things of things stood out. The risk around supply chain has become very a prominent, top of mind type of subject for our clients, both on the CFO side as well as on the operational side. I think that the survey also highlighted sort of the people aspects of like the risks and the execution around supply chain. And then it also comes down to the people's side.
If we start pulling the onion back on the operational side, there's been a lot of conversation about the reshoring or the re-optimization of supply chains. That came out loud and clear in the survey. Although a large portion of the population knows that's going to happen or needs to happen, the actual actioning of that reshoring and re-optimization turns out to be harder than anyone expected.
On the people side, what we're seeing is there is just a lack of skill sets up and down the food chain. From the unskilled labor shop floor type of skills all the way up to the C-suite, we're seeing across the board a lack of availability of those skill sets.
Not surprising, but also sort of interesting at the same time, is that the focus on technology. All of these things are kind of interrelated. When you talk about technology, some of the things that are driving that interest in technology is a lack of skill sets, or being able to apply skill sets into that manufacturing or into that food and beverage ecosystem. You also need technology and skillsets to re-optimize the supply chain.
None of these things stand out on their own, they're all very interrelated. But if you think about it, it always comes down to process and what you're doing. That's the optimization of supply chain. The people aspect of it, how are you going to develop skills and find the right people at the right time and also give them sort of career paths so that they're growing in that?
And then there's also the technology. I've been doing this consulting thing for a long time and it always comes back to people, process, and technology. And although the issues change, the fundamentals are always the same. People, process, and technology, and how you apply those in a competitive way to gain competitive advantage.
Erin: That makes a lot of sense. Last season I talked to someone about the skillsets of people on the plant floor and how much the industry is lacking is for people on the plant floor. It's interesting that you bring that up. You know, it's almost that bias of the more you hear something, the more you realize like, "Yeah, wow, this isn't just one or two people who think, it's definitely...there's a higher frequency of hearing this."
Robert: It is pervasive. It's an issue in manufacturing but, also, it's specifically in food and beverage. Let me kind of expand on what we're seeing there too. If you pick a food manufacturer and they've got issues at the shop floor where they can't find enough skilled resources to not only man the high-tech manufacturing process, but it's also moves up the supply chain. There are a couple of things that are going on. And one of them is there's sort of a lack of training and lack of skill development in the overall economy. I looked to our educational system for that, but there's also that specific need for a given organization, for a given food and beverage manufacturer.
2021 Outlook on Capital Spending and Site Selection
In this April 29 Webinar, Food Processing's Pan Demetrakakes will analyze the results of our annual Capital Spending Outlook, which tracks the capital spending budgets of 40 of the largest publicly held food & beverage companies as an indicator of growth (or lack thereof) of the larger food & beverage industry. We'll look at the biggest new plants and expansions under way, new trends in plant construction and renovations and what specific types of machinery and software are being bought. Listen in today
What we're seeing with our clients is those individual companies are trying to fill that gap on their own. And it comes in a couple of different flavors. It's getting the right skill set or enabling the shop floor worker to do their job better. We're also coming to find is there's a career progression, career path aspect of this that our clients are starting to address because then it becomes a retention issue. Once you train and enable a workforce with those skill sets they become very marketable and you have to start presenting a broader opportunity, a broader career path, a better economic outcome for those individuals once they become more valuable.
It’s almost a self-fulfilling prophecy that once you start down that road, you've got to really accelerate it so that the retention of those skills becomes ingrained in not only the skill retention but the culture of an organization. That constant evolution, that constant fulfillment of the human capital that you're investing in is something that's long-term for our clients, or long-term for an organization.
Erin: I want to come back to the workforce topic, but before we do that, can we go back and talk about supply chain risk? I know that was a big finding. You talked about it before, and then also I read a lot about it in the study. I'm curious, do you think without the pandemic in 2020 manufacturers would have uncovered the vulnerabilities that we saw?
Robert: The quick answer is an absolute yes. I think the variable here is the timeline because these things naturally expose themselves at some point in time. If there's a risk out there it's going to be exposed. But in a normal time, they would have been exposed over some period of time where you might've gotten an inkling of them or been able to react to them; but it wouldn't have happened all at once. I think what the pandemic did for us as an economy, as a global economy, is it exposed those risks in a very short period of time. And those risks have a couple of different dimensions.
It could be the risk of a foreign supply chain that's not secure. We saw a lot of hoarding early on in the pandemic. So that also puts a stress on a supply chain. It could even be the people aspect because people weren't coming to work or we were being exposed. We had to be very careful with not only the security of the supply chain, but also security of the workplace of the people executing in that supply chain. I think it comes down to a lot of different dimensions, but that risk was exposed more acutely because of the time dimension. In a normal time, it would have probably come to the forefront maybe through more geopolitical type of stresses or something else in the supply chain. And the pandemic really kind of brought all that to bear all at once.
Erin: It does and that leads me to my next question. How can food and beverage processors become better at identifying their risks for the future?
Robert: You have to have the discipline around it. You have to have the formal function of enterprise risk management. You've got to have a methodology to go through that process and constantly have it as a point of conversation or an agenda item from the board level on down. From an overall business strategy and business risk perspective down to financial and operational issues. And it's not something that happens overnight, it's not something that happens by accident, and it should never happen because of something acute that happened that you're not ready for.
Get out in front of these conversations. Just the fact of having those conversations and having the discipline—even if the things that a management team may not even talk about, rather some of the things that might happen—of having a risk-based view of your business, coming up with scenarios or things that might happen, prepares you for the things that ultimately will. To summarize that, it can't happen by accident. You've got to have a formal methodology and it has to be something that's disciplined where you're doing it, you know, on a cadence basis, on a continual basis so it's always front and center as you're making business decisions throughout the planning and execution cycle.
Erin: Food Processing recently released its 2021 Capital Spending Outlook. And I know when I read the survey, I noticed some talk of capital projects. What I wanted to ask is something we've noticed in our own review of financials pointed to how capital projects were paused and capital expenditures being put on hold due to the pandemic. Can you speak to why that would have happened?
Robert: When the pandemic hit, there was so much uncertainty. Nobody knew where this was going to go and where their businesses were going to go. I'm not going to say there was a mentality to hoard cash but there was certainly a large focus on cash flow and liquidity. And that happened across the economy. Every firm, every company was making sure that they had enough cash on hand to get through the crisis. And then it turned out that as bad as the crisis was, the economy didn't necessarily fall off a cliff. There were stresses and there were people in parts of the economy that were hurt very hard. I don't want to belittle that, but at the same time, the economy kept chugging along.
And so over time, that sort of confidence curve started to increase. And what we're seeing now is that pent-up demand that happened when people were pulling back on their capital expenditures is starting to loosen up. I'm very certain that what I'm seeing in my business and what I'm seeing in my client's business is a freeing up of that capital expenditures. And we're going to start seeing that curve kind of accelerate because capital expenditure, unlike some other parts of the economy, does drive a lot of pent-up demand. I think you're going to start seeing that really pick up speed and that capital spending curve is really going to start accelerating. It's really going to start to accelerate as people get vaccinated. As we get more and more confidence in the economy, you're going to see more and more of that happen.
Erin: Speaking of that uptick of capital spending, a lot of what we've seen is that many of these companies are talking about plans to invest or improve upon the digitalization within their facilities and plans. We've talked a bit about this, but can you speak even more to why that's even more important now?
Robert: I'm going to go back to how I started the conversation, Erin. It's people, process, and technology. As you pull back on the risks and the uncertainty of your supply chains, one of the ways to increase the certainty is through digital transformation. Have the analytics and the machine learning and the artificial intelligence around managing those processes more front and center so you can get out in front of those supply chain risks. And back to the people, when you don't have the right skillsets in the right place, one of the ways to kind of bridge that gap is to apply the right technology, the right automation, the right robotics, whether that's real shop-floor robotics or it's process robotics, back-office type robotics.
2020 Digital Supply Chain Survey
Conducted in the early fall of 2020, research suggests there are clear indications that the pandemic has highlighted numerous areas of deficiency in manufacturing supply chain operations. Check out the research conducted by Grant Thornton, the Manufacturing Leadership Council and the National Association of Manufacturers. View the Survey
There's a direct correlation to the lack of skillsets and the difficulty in finding people with the right skillsets. The technology application is a direct outcome of that lack of skillset. We are in a really cool time in history because there is a lot of technology that's coming together at the right time. You've got like the sophisticated ERP functionality that can be informed by asset management technology that's informed by the internet of things. And by tying all those things together with that integration, with machine learning, with artificial intelligence, it's just a really cool time in history where that's all coming together in a cross-section that's driving real business benefit, you know, starting right now.
Ten to 20 years ago, when we were newer applying technology, it was a heavy lift and it was a big project. It was a long-term effort. Now, with cloud technology and some of the automation that we've got, you don't have to jump headlong into it right away. You can kind of go down a curve where you're not making large capital investments in this technology all at once, but you can incrementally roll out the technology, see what works, see what doesn't. The risk curve on the technology itself has been dampened.
What we're going to see is an acceleration of the application of the technology in the automation, in the robotics, in the AI machine learning space because you can do it in a way where you don't have to take it on all at once, but you can do it in an incremental, very well-managed, very focused space to drive real business benefits.
Erin: Speaking of that acceleration, in the supply chain report, your team talks about analytical and predictive tools, human-centric augmentation, and autonomous devices. Can you unpack that and talk a little more about what that is or what that entails?
Robert: I'm going to go back to how you roll out the technology and enable the workforce to be really world-class or improve the outcomes. The conversations that I have with my clients and where I like to guide the thought process and the actions around that is: let's start with something that is business-critical or can move the needle on the financials.
I like to start with the conversation around what's capital planning, what does your capital planning and budgeting look like, and how do you start deploying that capital in a way that you can measure it back to the financial performance. And if you start taking that view, start taking a portfolio view of how you deploy your capital, how you deploy capital assets, and the workforce to those capital assets, it becomes an easier conversation.
All of the things that you just talked about, about the predictive analytics, the internet of things, and how you pull all of that into a monitoring and predictive environment become a lot easier and a lot simpler in that environment. So what we like to do is talk about capital planning, talk about deployed capital assets, talk about optimizing the supply chain, but do it in a way where you're applying the capital, applying assets, applying people in a way that is incremental so you can see the effect on the financials, and then you grow from there and build momentum and competence in how you roll out those advanced technologies.
2021 Capital Expenditure Report
In our 2021 Capital Spending Report, we look at the 31 biggest publicly traded, U.S-. and Canadian-based food and beverage processing companies to see where they're spending their money. See what they're spending and what they're spending it on. Visit our Equipment Resource Library to download the 2021 Report
When a client comes to me and starts talking about predictive analytics or the internet of things, where I try to kind of like tap the brakes on that is, let's be very pragmatic on how we apply those things so that you can see the benefit of those things so that it builds momentum and confidence in the organization.
Erin: As we go into kind of wrapping up the episode, I really want to hone back in on the people and the workforce so our listeners can really get a full grasp and have maybe some actionable items and tasks to take from this episode. Can you speak to how people and the workforce, in general, have played into the supply chain issues and what we can do, going forward, to alleviate some of the issues that we've seen?
Robert: It sounds simplistic, but it all comes down to education. I alluded to this earlier. There are two levels: There's the educational issues of our overall educational ecosystem. And we really haven't invested in that ecosystem in something like 30 or 40 years. I think we've got to have, as an overall economy, and as a country, we need to get a better focus on the skillsets that we need to compete in the global economy.
That’s one issue in my mind. The other thing that our clients and, hopefully, the listeners to this podcast can do is take that view of education and make it very practical to the workforce that you employ. Take a view of that, that's not just getting an individual skill to a person that's going to do something, say, on a shop floor, or, you know, working a piece of equipment. Take a broader sense of that. Take an individual, think about career path, think about retention. And it's not just sort of one-and-done type of education but you take the long-term view of how you're going to invest in an individual, move them along a career path, move them along a spectrum of how to make them a more valuable employee, and give them those skills, whether that's statistical process control, whether that's engineering a CNC machine or programming CNC machine, or basic business skills like, "How do you read a balance sheet? How do you read, you know, an income statement?"
Those are the types of things that you really have to look at and put it in a broader text, in a broader scenario, broader talk track so that its long-term, and it's not point-based because that's how you'll attract the right skills, you'll retain those skills, and your organization is going to become more viable, more profitable in the long-term.
Erin: That's great. I really hope at least one or two people listening today take something from that and do something with that, and then maybe come back and tell me about it, and we can have them on the podcast on how they took your advice.
