BY CATHY JOHNSON
VICE-PRESIDENT EMEA CONSUMER, HITACHI CONSULTING
We live in a world which is ever changing. Businesses are facing increasing challenges to meeting consumer demand. As well as having to respond to volatile commodity prices and currency fluctuations, increased information available to consumers is impacting traditional demand planning. Businesses are having to respond to consumer choices quicker than ever before.
Factors like the “Delia Effect” – named after legendary UK chef Delia Smith – where food products sell out quicker than usual when featured on television programmes now impact the whole supply chain, and manufacturers in particular. Forecasting and delivery channels need to be designed to respond accordingly.
For the food and drink industry in general, information flows have been key for some time. The import of fresh goods from different locations to provide a year-round supply of products and the automation of production in agriculture and food production are not new. These advancements have reduced the industry’s dependence on labour and have provided consumers with a wider range of choice.
Digital manufacturing, or Industry 4.0 and all of the new opportunities that come with Big Data analytics, cloud computing, artificial intelligence, the Internet of Things, robotics and so on will progress consumer choice even further, for example, by differentiating high-end products and luxury articles through personalisation or providing far more information about ingredients, origin and ethical information at the scan of a barcode.
So how and what is impact will this have on production companies and business performance?
Cranberries are one of the products to benefit from the “Delia effect”.
Moving beyond continuous improvement
For years manufacturers have strived towards achieving operational excellence through continuous improvement, new ways of working, staff behaviours, and application of key learnings throughout the company’s operations. The aim is to become more efficient by reducing complexity, streamlining operations, managing performance and aligning the roles and responsibilities of staff accordingly.
In reality, however, most continuous improvement programmes are focused on specific plants, regions, business units or departments, and do not cover the entire value chain. The result is that while one silo may become very efficient, overall benefit to the business is eroded. Programmes often lack overarching KPIs which measure the ability to drive both efficiency and effectiveness whilst meeting consumer needs. This leads to reduced clarity of roles and ownership, and ultimately impacts leadership. Efficiency improvement tools that employees have used to improve performance to date are still useful, but are insufficient to make a difference across the chain. Employees need to interact with different departments within the business, as well as with partners and customers outside of their organisation, to operate the process to best performance. Innovation, for example, is no longer an internal process, and the ownership for ideas and their implementation frequently crosses organisational boundaries.
This development has a major impact on business models, communication processes and ultimately performance management. Small, agile start-up businesses will challenge these models as a matter of course. Large businesses set up to drive efficiency may find themselves in a disadvantageous position unless they are able to adapt. All of this also has an impact on what continuous improvement means. Companies need to be more predictive about the market and trends.
The need for predictive improvement
At Hitachi Consulting we believe the way forward is for companies to begin the journey from a culture of continuous improvement to a one of predictive improvement. It is a case of looking to move beyond continuous improvement methodology. This will take time, but is the only way companies will hit fast moving targets and be able to adapt to every changing consumer demands.
To reap the true benefits of digital you have to develop a dynamic operational strategy across the whole value chain that can deal with both everyday variability and future disruption. Predictive improvement goes beyond classic continuous improvement and is about anticipating tomorrow; developing new capabilities in leadership and management and processes to be able to respond quickly and stay ahead of the curve. Building a culture of predictive improvement is about using innovation to do things differently and making significant changes with high impact.
There is, however, much more to driving improvement than just enabling technologies. Even the most advanced and innovative technologies cannot deliver results on their own. The need for increased rigour to improve capabilities, leadership and management, processes, communication and performance management only becomes greater along with technology. Management needs to ensure that decisions are made at the right time, using the right information. Digital will mean ensuring that anyone involved in operating a process must be able to interpret information at the right time and act upon it, regardless of where they are organisationally or geographically.
The leadership style in a business model which collaborates more and more beyond traditional boundaries requires engagement with people who have a lesser feeling of dependency on the organisation rather than an implicit dependence on authority or position power. Each individual will increasingly own their skills and capabilities and will develop the ability to match these to a business’s needs. This shift in power impacts the ability of a business to secure and retain skills and also impacts variable and fixed cost structures and the way the business is able to price competitively.
From the employee perspective, the perception of a “factory” worker on a repetitive production line needs to change. In the same way as a car mechanic now uses a laptop rather than a spanner, the average level of education and skill needs to increase. Automation replaces manual work but also increases the responsibility on the remaining workforce.
The challenge to businesses looking to adopt predictive improvement processes will be aligning the whole value chain to respond to what the information is saying and will change the way people see ownership of information. The measure of success which has driven continuous improvement so far, will be complemented or superseded by customer-driven measures – even consumer driven measures – and the feedback process will be more immediate through social media. Feedback can render an innovation obsolete before it reaches the market.
The challenge this poses for industry and markets is the ability of government and policy to keep up to speed sufficiently and to support the changes. For the food industry, this could have major implications on the sourcing and cost of labour input. UK debate about removing food technology as an A level subject is one example of the concerns around how education supports industry. Whilst such a qualification is not the only solution, it provides a base from which to develop understanding at an earlier age.
© FoodBev Media Ltd 2018