The Food & Beverage industry is very complex, and any planning tool must address a myriad of issues – from expiry date management to resource utilization to balancing the carcass and seasonality – to name just a few. We’ve identified the top ten factors that are critical in any state-of-the art planning tool.
Over and above all other considerations, the tool you choose should be all encompassing: Firstly it must cover the entire supply chain from demand to supply (not restricted to production, distribution, or inventory planning). If the solution doesn’t consider the entire supply chain, you are very likely to end up with sub-optimal decisions. Secondly, it must consider every critical business rule, variable cost and business constraint.
Factor #1 – Scenario planning
Companies frequently face situations where they would ideally like to test different scenarios but find it difficult due to the lack of tools. For example, ‘Should we invest in a new warehouse or outsource?’, ‘Should we invest in a new production line?’, ‘What is the optimal number of permanent staff vs casuals?’. Or, you might be negotiating with suppliers and need to test what supplier and contract would be most beneficial.
To ensure your decision making-process is more accurate and robust – its best to seek out scenario-running functionality that allow you to test new scenarios by entering the changed structure, or costs, etc and then “test-run” it with a forecast.
Factor #2 – Resource Utilization
There are many ways that effective resource utilization can improve profit. For example, many companies employ different sets of staff whose cost is related to their skill and versatility, and it can be challenging to make the right allocations of skilled resources with regard to cost effectiveness. You firstly need to make sure you have the people with the appropriate skill-sets working on the right jobs, and then often make decisions about how to allocate overtime versus casual. For food & beverage companies in particular any planning tool needs to easily identify the right the right mix of resource utilization.
Factor #3 – Materials that Must Be Used
Food companies are often faced with situations where all raw materials must be used regardless of demand. For example, a meat producer would generally not have a balanced demand for the entire animal – a chicken producer might have more demand for breast than for thighs and drumsticks. But to get the chicken breast the bird still needs to be killed, leaving surplus material to be utilized. The producer is then left with a mix of pull and push so the key is to either push the unbalanced part of the bird to the right products or to highlight the surplus.
A good planning tool willl ensure you get the correct mix of push and pull (which is virtually impossible without optimization – so any tool should have optimization capabilities built in).
Factor #4 – Storage and Distribution
The use of Third Party Logistics (3PL) is very common in the Food sector. 3PL companies generally provide storage and sometimes logistics. It is important to consider the cost implications when use 3PL providers. This could be in relation to stock building.
A good planning tool will help you make decisions about whether to buying larger quantities at lower purchase cost but with higher stock-holding cost as opposed to buying smaller batches at higher cost with lower stock-holding cost.
Distribution cost must also be considered as part of the supply chain. An effective planning tool should help you align optimized logistics with production, procurement and stockholding. Or if you can’t fulfill all demand it will help you understand what demand would generate the best profit for the company including the cost of distribution.
Factor #5 – Expiry date management
Most food companies have products with expiry dates. Those businesses who are also producers face the dilemma of whether to continuously build stock over time (therefore risking expired stock), or rather to use overtime or casuals closer to the time of demand (which is more costly from a payroll perspective). An ERP system can’t solve this problem on its own. You will need a planning tool which identifies the best management of products with expiry dates, considering current stock, expiry dates, set up cost/time and cost of carrying stock.
Factor #6 – Impact of Promotions
The marketing department might want to run an aggressive promotion. From a supply chain perspective, you need to consider how to manage this: ‘What are the risks and where is the breakpoint?’, ‘If we reach the breakpoint, specifically where will we see the issues? ’. You also need to consider potential material shortage, production issues and product mix issues. A planning tool should enable you to make the right decisions in these circumstances by you can running the what-if scenarios so that you can analyze the potential outcomes.
Factor #7 – Optimize batch sizes
Food producers are often faced with the challenge of dealing with batch-sizes. Bigger batch-sizes generally mean lower production cost but higher inventory and a higher expiry-date exposure. The classic way of looking at batch sizes is to do an analysis once a year and then set a fix batch size. This is far from ideal simply because it just does not sufficiently consider the continuously fluctuating demand and supply that occurs throughout the year.
The only way to manage the complex situation of setting batch sizes dynamically, for each period, based on current demand, cost and time for the set-up, cost for overtime, cost for holding stock and shelf-life is to use “mathematical optimization”, which a good planning tool will utilize to deliver plans whose batch sizes are always perfectly right for your business.
Factor #8 – Identifying Sales Opportunities
When the sales team doesn’t have a clear understanding of expired stock and surplus well in advance, you end up with fire sales, price erosion and poor customer service caused by lack of understanding of available stock. So it’s essential that your planning tool can project inventory for whatever period into the future that you are planning for.
Factor #9 – Optimal Stock-Build when Supply Capacity is not a Mirror of Demand.
There are many situations for which F&B businesses need to build stock in order to meet demand at a later point in time. On the demand side it could be due to changing seasonal demand and special promotions, and on the supply side factors such as vacations, public holidays, and required maintenance make an impact. The advantage of a planning tool which incorporates optimization techniques is that it doesn’t just create a plan that works, it finds the single best plan that optimally balances supply and demand at maximum profit. This is done by weighing up the cost for overtime versus cost for stock build and at the same time considering the shelf-life of the products.
Factor #10 – Manage Capacity.
Food businesses are characterized by expensive assets / production lines which need high utilization to pay for themselves. When demand is low this means those production lines are not always fully utilized so it is important to identify this while there is still time to rectify the problem, and when demand is high it is important to understand where the bottle necks are and their impact. The right planning tool will do exactly that, identifying the surplus capacity and also telling you how you can convert this spare capacity to increased sales. This is important input for promotional planning and shaping the demand plan that yields the maximum profit for the business.