Manufacturers have been urged to involve their production teams in rationalising product portfolios to remove less profitable products - or “cull the dogs”, as they have been termed.
Continuous improvement consultant Mark Colvin of Leanpal said production departments needed to make their voices heard more loudly by new product development (NPD) and marketing teams when they came under pressure to make products that they believed to be more problematic than they were worth.
Speaking at this month’s Food Manufacture conference on practical ways to improve profitability, Colvin said: “They should challenge or at least question these.” It was also, he said, critical to carry out regular reviews to identify those products that were making the biggest contribution to profits rather than those providing the biggest volume. And, he added, it was necessary to have a “filter up front” when new products were introduced.
His view was supported by Mervyn Hempton, head of operations at Allied Bakeries Ireland - winner of the bakery category in last year’s Food Manufacture Excellence Awards - who spoke of the “battle between production and marketing departments”. The latter, he argued, were quick to introduce new products but often too slow to remove those that weren’t performing.
Colvin went on to say that management of innovation was also often poor in companies: “Let’s understand the voice of the customer, not be a slave to it.” However, instead of always doing what the supermarkets demanded, some manufacturers were now doing their own market research to provide a “sense or reality check” on what they were being asked to produce.
Colvin asked: “Are the problem children going to turn into stars [requiring high investment]; are they going to turn into cash cows?” And he advised firms to “cull the dogs”. He added: “I’ve worked in a lot of organisations where that has not really been analysed. It [should be] all about return on investment; about applying techniques to give profitability.”
Andy Underwood, commercial director of Creative Foods, formerly the manufacturing division of Brakes, the foodservice wholesaler, supported both of these views. Creative Foods has carried out a rationalisation of its portfolio of products made at frozen prepared manufacturing sites at Flint in North Wales, which makes prepared meals sauces and soups, and Torquay in Devon, which makes sponge-based desserts.
These plants make around 370 stock keeping units for the UK foodservice and wholesale markets. As part of a strategic business plan, the company is now heavily into sales and operations planning (S&OP) and has taken a scythe through its product portfolio, resulting in a 20% reduction in its range over the last eight months. The process had resulted in stock reduction savings of £220,000, claimed Underwood. “Range management is so, so important. It’s like pruning: you’ve got to go a bit further than you originally thought.” But, he admitted: “It’s not easy; it can be painful when you start asking what your business is about.”
Meanwhile, systems company Infor has developed a raft of software tools to help manufacturers manage their NPD and product lifecycle management (PLM) more effectively. In a separate seminar to food business executives last week, Rory Granros, responsible for the global product market at Infor, said such systems “really manage what the customer wants”. He added: “We are surprised how many times the research and development guy does not know what the configuration is out on the plant.”
Dr Maarten Hagan, Infor senior business consultant, explained how clients such as Kerry Food Ingredients, Cadbury Schweppes, Campina, Coca-Cola and Campbell Soup, had used its systems to help manage PLM. “PLM allows you to reduce the time and therefore the cost of NPD.” It operated, he said, in a collaborative environment, taking account of issues such a regulatory compliance, purchasing, sales and what customers want, and covered packaging development, formulation and labelling. “It’s about knowing what you need at an earlier stage and how to develop it properly”, he added.
>>A full report on Food Manufacture’ conference will be published in the April issue of the magazine.