In recent years, there has been a focus in the food industry on lean practices, eliminating operational waste and redundancies, relying on data and automation, and thinking of capital investments in terms of their long-term success. Though all positive changes, many middle market businesses became too lean and lost their agility. This, of course, became extremely problematic when the COVID-19 pandemic hit, and the food industry was forced to pivot from supplying goods to restaurants and food service businesses to grocery stores and online distributors. The pandemic highlighted the need for middle market businesses to become as lean as possible while still maintaining agility in the supply chain.
Over the last two years, the companies that have fared best are the ones who remained in-tune with customers’ ever-changing needs and had the capital and agility to react to those changes. They managed data on a real-time basis and had regular communication and collaborative partnerships with suppliers that allowed them to pivot swiftly.
The companies that didn’t survive were the ones who relied so heavily on data and automated systems that they lost touch with customers and suppliers and had to rebuild relationships with both groups while trying to pivot the business. Their lean systems were actually constraining them from adapting to their new reality and they couldn’t keep up.
The good news—there were a number of issues that came to light in the last year that middle market businesses can learn from. Though the pandemic will eventually end, there will always be industry disruptors that will cause manufacturers to pivot while keeping operations lean. Here are seven of the biggest lessons learned in the food manufacturing industry during the pandemic and how companies can set themselves up to be more agile moving forward.
One of the first pandemic impacts on the food manufacturing industry was a halted cash flow. Restaurants and food service locations abruptly shut down, and as a result, food suppliers had next to no cash coming in. Though there’s little that could have prevented the halt in payments, better cash flow and contract management could have saved many companies from going under.
In our work with middle market companies, when the economy is on an upswing, we often see lax cash flow management. Receivables become strung out and payables terms are too tight. When the market shifts, these companies are left playing monkey in the middle and their resources quickly dwindle. In the case of the pandemic, when companies needed capital to pivot their operations and make changes to their manufacturing line or packaging materials, they were unable to make that shift due to a lack of funds.
In order to have enough working capital, it is essential to negotiate contracts so the terms on accounts payable and accounts receivable match.
In food manufacturing, there is understandably a desire to streamline processes and optimize the floor to push out maximum product at a minimal cost. However, when COVID hit and food manufacturers needed to shift their offering, it required changes to the packaging and manufacturing process. Having flexibility built into the manufacturing line allowed companies to pivot the business and support that operationally. But the companies that were focused solely on efficiency didn’t have the agility to shift gears and support the new demand.
Companies of all sizes in all industries know the importance of data, but it’s not enough to review data on a monthly or yearly basis. There is so much variability in today’s world that data should be reviewed daily—or at least weekly. Today’s consumers aren’t as brand loyal, so there are a lot of changing dynamics that companies need to be in tune with. If you aren’t aware of the constantly changing market and customer demands, you won’t be able to react quickly enough when a shift negatively affects your business. By reviewing data daily, you’ll be able to spot trends and predict when changes to your business, processes, or product offering are necessary.
Too often middle market companies decide which products to focus on and how to market them without first taking the products and marketing campaigns to the customer. Any new products, changes to products, and new marketing initiatives should be run through customer focus groups. Otherwise, you risk investing time and resources in a product your audience doesn’t want. Because customer needs are constantly evolving, it is essential to keep your finger on the pulse of their behaviors, so when the market is disrupted, you’re not starting from square one. Businesses that lost touch with their customer base prior to the pandemic wasted valuable time refamiliarizing themselves with their customers before they were able to take action—and that cost them.
There’s a reluctance in the food manufacturing industry to establish relationships with contract manufacturers because companies are fearful of revealing their “secret sauce.” But there are actually many benefits to these partnerships. Pandemic restrictions varied significantly from state to state, so the companies that had partnerships with contract manufacturers in other parts of the country were able to outsource work to a facility with looser restrictions, whereas companies with a single location had to shut down production completely when locked down. Partnering with contract manufacturers is also beneficial if you’re attempting to enter a new market. It allows you to test the market and offer faster lead times without building a facility of your own. The same is true for companies that have seasonal business or demand that fluctuates throughout the year. When busy, you can outsource overflow to your contract manufacturers rather than establishing another facility that sits dark during the slower months.
When middle market businesses make decisions about vendors, suppliers, and service providers, cost is often the top priority. But fit and size are just as important as cost when it comes to finding the right partner. When capacity was constrained by pandemic restrictions, transportation companies and suppliers that did business with manufacturers of all sizes were quick to cut ties with middle market businesses in order to preserve relationships with their Fortune 500 customers. The most mutually beneficial relationships will be those that are a close fit in terms of size and commitment to the industry and market. So, opt to work with business partners who value your business as much as you need their products or service offering.
Businesses today rely heavily on data—and for good reason. And technology has evolved so significantly that many operational processes are automated. In fact, it’s possible that a business doesn’t ever need to speak with their supply partners after contracts are signed. While this automated communication with suppliers or service partners can provide time-savings when business is good, it can be problematic when the market crashes.
It is essential to establish a regular cadence of communication with business partners to forecast potential challenges and come up with backup plans. If suppliers experience problems with their supply chain, it will eventually result in delays for you. During the pandemic, vendors should be sharing what they’re doing to safeguard employees and what their contingency plans are in the case of an outbreak in their facility, so you know you can count on their continued business.
Fortunately, the pandemic has forced many businesses to rely on Zoom, Teams, and other remote meeting software, so businesses in food manufacturing will be equipped with these tools post-pandemic to maintain stronger relationships with suppliers and service providers.
Finding the balance between lean and agile practices can be a challenge. And while business owners don’t want to make decisions expecting the worst, in today’s volatile world, they need to be ready for anything. That’s why it helps to enlist the help of operational experts.
The consultants at FortéOne have more than 20 years’ experience helping middle market businesses solve operational issues and create step changes to correct them. They work with your team to create measurable change at your organization and future-proof your business.
Give us a call at 847-291-9944 or contact us online to find out how our consultants can help your business thrive.
Contributor: Amy Green