The “perfect storm” in the (food) industry – an update

6 February 2019

6 February 2019

A few months ago, I wrote a widely read blog about the perfect storm in the food industry(Blog: perfect storm). Many companies hope that in 2019 the storm will blow over and they will naturally gain more grip and control of their situation. This resembles frogs in a pan of water whose temperature keeps rising. A degree higher (or an additional product added) is not so bad, until it suddenly becomes too much and too complex. Especially in entrepreneurial (family) businesses where customer focus is in the genes, the pressure for an additional or different product is great. However, the chances are significant that suddenly performance collapses, additional costs must be incurred for hiring staff, and customer claims follow as a result of poor delivery performance. As a board, how do you recognize whether or not you are in a negative spiral and how do you get out of it?

A single additional article never leads to a direct increase in complexity

Cruijff once said, “you’re not going to see it until you see it through.” So does complexity. Marketing and sales are (if all goes well) working on innovations, customer-specific adjustments to recipes or packaging that do have the right cost. In addition, requirements from a quality perspective are being increased, which in practice results in additional cleaning and, for example, better separation of raw materials. Within operations, there is then a grumble that there will be another item, another format or extra cleaning, but that one item always fits in the end. In this way, complexity is added whose impact on cost and manufacturability within operations is unclear, if at all. But even if it does not lead directly to visible additional costs, it can lead to a situation that puts pressure on the cost of the entire portfolio.

Objectifying complexity is the basis for good executive discussion with commerce, quality and operations

Complexity thus often becomes subjective, and discussion quickly leads to a yes-no game between commerce, quality and operations. The challenge is to objectify complexity. To clarify within management whether complexity has indeed increased, in which items it is, and with which customers, channels or categories, so that concrete actions can be taken. However, objectification almost never happens and discussions thus remain subjective. Especially in (family) businesses with a strong entrepreneurial spirit, gut feeling can be considered more important than the bare facts. “Facing the brutal facts” is necessary, but how do you do it?

Complexity lies in several factors

The most obvious analyses are to look at the historical development of e.g. number of recipes, packaging forms, action pressures, raw materials and production volumes. This can already lead to interesting insights: for example, that the number of production batches and cleaning hours has risen sharply. But sometimes these analyses provide too limited insight into the actual development of the portfolio. The complexity is not in the number of SKUs and a different approach is required.

In any company, it is possible to identify – in consultation with supply chain, procurement, production and QA – the factors that contribute to complexity. Is it the mix of allergens, the time required for a conversion or the specific skill of an operator? By scoring these qualitative factors using a report grade, subjective complexity can be made objective. A mix of factors can then be combined into a single report grade or complexity factor for each item. Then historical data or forecasts can be used to determine whether overall complexity has increased or decreased. You can also view which items, customers or product groups have changed in complexity. In my experience, this almost always leads to unexpected insights. The challenge then is not to immediately sanitize items, but to address the various complexity factors in a structured way, such as harmonizing allergens, for example. A side effect is also often that the method of costing must be adjusted or even the complexity factor becomes part of the cost structure.

In conclusion

The entire enterprise benefits from clear facts, especially at the executive level. In my experience, it is precisely by making the topic of complexity factual that discussions within the board can run much more smoothly and constructively. The discussion is then no longer about operations, for example, “holding back customer-driven change,” but about a shared challenge and approach to keep the company thriving in a world in change.