Table of Contents 1 Executive summary 2 Redefining healthy choices: Market trends 3 Sourcing ingredients: Think local, plan global 4 Forecasting shelf life for daily and long-term production 4 Planning and scheduling a fresher product 5 Achieving the right inventory mix 6 Ensuring transparency in food production 7 Building a better warehouse 7 Going the last mile with direct store delivery 8 Delivering fresher foods with software that won’t expire Executive summary Fresh foods imply many things: healthier choices, higher-quality ingredients, and careful preparation. For food manufacturers, fresh foods present something far more challenging: a short shelf life. Worse yet is the highly volatile inventory with overages in some supplies, shortfalls in others, and a greater potential for selling unsafe food products. Despite these challenges, producing fresh foods need not be impractical. The real challenge for the food and beverage industry is to produce fresher foods with shorter shelf lives, without incurring unnecessary or impractical costs. In this day and age of fresher foods and cleaner labels, you can no longer rely on enterprise resource planning (ERP) or supply chain management (SCM) systems that have passed their shelf life. Today’s manufacturing environment requires more real-time data and business intelligence (BI) integrated into a solution that encompasses the nuances of food and beverage manufacturing. Taking advantage of these tools can improve your business processes, while also meeting consumer demand for healthier, fresher products—all without a negative impact on your bottom line. The primary segments of the food and beverage industry that are affected by the challenges of fresh foods as detailed in this paper include: • Dairy (milk, yogurt, and cheese) • Bakery, snacks, and confectionery • Beverages (beer, soft drinks, and juice) • Prepared and chilled food • Fresh meat, poultry, and aquaculture products White Paper Meeting today’s fresh food challenges Increased demand requires manufacturers to reassess their business systems 2 Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Redefining healthy choices: Market trends The freshness of today’s food products is as much an issue with changing consumer perceptions of fresh foods as it is with the manufacturer’s ability to control shelf life. More than ever before, today’s consumers are anxious about how their food is produced, and whether the ingredients are fresh and safe1. As consumers make healthier lifestyle choices, they want fresher and less-processed foods and beverages. For the home chef, the Hartman Group asserts that, “cooking is fast becoming a form of glamorized entertainment, creating considerable opportunities for retailers, food service, and CPG manufacturers to meet the growing demand for fresher and less-processed foods and beverages.”2 Fresh food (and with it healthy food) is glamorized by the theatrics of cooking as seen in television programs like Top Chef, on blogs and social media websites like Foodspotting and Pinterest, and in traditional food media, like magazines and cookbooks. But while consumers want fresh foods, that doesn’t mean they necessarily want to be cooking all their meals from scratch. They also want their choices to be convenient. Fresh food, therefore, has grown to include refrigerated “ready meals” made with fresh ingredients, to smoothies and yogurts made with fresh dairy or bagged fruit and vegetable products. This change not only impacts traditional grocers, but it also redefines the concept of the convenience store. Convenience stores such as the Austin, TX-based Whip-In have begun selling microbrew beers on tap, and stocking their shelves with organic dairy products and grass-fed beef. Others offer offer fresh food items like Sheetz’ signature Made To Order® items that include Angus beef burgers, premium grilled chicken sandwiches, and freshly made salads. Vending machines are also getting into the game: Seattle’s Best Rubi Kiosks bring the innovation of movie rental services like Redbox to the sale of coffee.3 The demand for fresh foods exists. Now, it is up to retailers and manufacturers to make the changes to meet this demand. Retailers are reconfiguring their stores to better accommodate fresh foods by adding more space for prepackaged meals and fresh bakery products. Food manufacturers are developing new products to take advantage of these market trends; but they also need to ensure that their business systems have the agility to plan daily production, look to long-term sourcing and forecasting needs, and manage the daily activities of warehouse and production facilities. 1 Deloitte, The Food Value Chain: A Challenge for the Next Century, 2013, p. 8. 2 The Hartman Group, Ideas in Food 2013: A Cultural Perspective, 2013, p. 5. 3 The Hartman Group, p. 19. 3Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Sourcing ingredients: Think local, plan global Sourcing hyper-local ingredients has become a key differentiator for the restaurant industry, with chefs preparing smaller courses that feature a variety of flavors and seasonal ingredients. Increasingly, the home cook shares this sensibility. Adding to this trend is the popularity of greenmarkets in major urban centers like New York City’s Union Square or San Francisco’s Ferry Plaza. But not every consumer has convenient access to farm-fresh foods. For food manufacturers who distribute their product to grocery stores or convenience stores, the pressure is on to satisfy an item’s shelf life—especially if its shelf life is less than a calendar quarter. In addition to planning the day’s production orders, food manufacturers need to plan long-term by sourcing ingredients and packaging materials, as well as the production capacity to meet continuing demand. This situation creates an additional level of impracticality to the procurement of these ingredients for manufacturers4. At the same time, farmers face long-production cycles and the inability to make agile responses to market movements, which can result in a “volatility of input costs and selling prices, coupled with the unpredictability of weather and yields,”5 affecting the bottom line for food manufacturers and creating seasonal volatility in supply. Figure 1: The real challenge for the food and beverage industry is to produce fresher foods with shorter shelf lives, without incurring unnecessary or impractical costs throughout the entire supply chain. When faced with these challenges, food manufacturers need to be wary of the consumer demand for hyper-local ingredients. Consumers want to feel that their foods are produced ethically, safely, and with freshness at the top of mind. Yet, many industry watchers, including Keith Nunes at Food Business News, suggest: “Consumers are not demanding to know exactly where their food originates. They are more interested in knowing how it is grown, sourced, and processed, and they expect the information to be readily available.”6 To succeed, fresh food manufacturers also need to forecast for daily and long-term production, so that they have the proper ingredients along with the packaging and labeling materials in stock to ensure that their production facilities have the personnel and capacity to meet their goals. 4 FoodManufacturer.co.uk, Food Manufacturer State of the Industry Survey 2013, 2013, p. 2 5 Deloitte, p. 4. 6 Keith Nunes, “Be wary of consumer demand for locally sourced products,” Food Business News, Jan 17, 2012. Procurement Manufacturing Warehousing Fulfillment Variable quality/ quantity Forecasting, traceability Flawless FIFO Short lead times Challenges in fresh foods 4 Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Forecasting shelf life for daily and long-term production Though the common grocery store saying may be that bread is “baked fresh daily,” bakers cannot manufacture on demand. To produce baked goods, food manufacturers need to anticipate and forecast for demand in order to meet multiple daily shipments. Products such as confectionery goods, condiments, or dry goods could have a shelf life of several months and still be considered fresh. Most bakery products need to be available for sale on the same day they are baked to be considered fresh. This results in bakers working in shifts that can run around the clock to meet shipping demands. Baked goods are not alone when it comes to forecasting challenges. Harris Ranch is one of the largest family-owned agribusinesses in the US, with annual sales in excess of $400 million. It distributes to foodservice markets in the US and around the globe. The beef producer’s cattle are exclusively sourced, fed, and humanely processed in order to raise beef that is pure and natural. Meeting market demands for Harris Ranch means determining the proper balance of product types to avoid production shortfalls and overages. While food waste is a concern for all food manufacturers, overstock of beef can impact shelf life as well as it can affect spoilage concerns. Consumers also want to know that their meat has been sourced with care. For Harris Ranch, Infor® Advanced Planning and Infor Demand Planning allows the company to use real-time data to create statistical forecasts that help determine how best to use their raw materials and how much of each product needs to be packaged so as to meet customer demand while also maximizing their profitability. For the food and beverage industry, forecasting supply and demand is only one part of the complex equation that goes into the story of fresh foods. With increasing consumer concern about where food comes from, food manufacturers must not only be able to track and trace where food is going, but how it gets there. Planning and scheduling a fresher product The challenge of planning and executing fresher foods with shorter shelf lives is not going away. IDC Manufacturing Insights and IDC Retail Insights predict that by 2016, 50% of national retailers “will invest in distributed order management, enterprise inventory visibility, and workforce management to enable same day fulfillment.”7 Fresh foods cannot sit in a storeroom or on grocery shelves past their freshness date. Food manufacturers must have a clear understanding of their supply chain in order to plan and schedule the creation and shipment of a fresher product. To do so requires the agility to plan and re-plan on a daily or even hourly basis. The reason for this is quite simple: Overproducing products can lead to food waste, which has the potential to increase costs for both the manufacturer and retailer. It is essential to avoid the guesswork involved in the planning process to avoid the wasted time, money, and resources caused by over- or under-producing products. 7 IDC Manufacturing Insights and IDC Retail Insights, “What will consumer goods look like in 2014?” Dec 13, 2013, press release. 5Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Rynkeby, a Danish manufacturer of fruit juices and other fruit-based foodstuffs, grew its business by taking advantage of the demand planning tools found in Infor M3 ERP to meet industry-specific requirements and avoid excess production or stockouts. By better understanding its existing planning processes, Rynkeby was able to forecast for the long- term. “Now we have the right system in place to improve the availability and accuracy of our key company data and information, providing overall reporting abilities for our management team,” said Steen Lund-Pedersen, IT Manager, Rynkeby Foods. Achieving the right inventory mix Fresh-food planning requires the right inventory mix at the right time. Out of stock equals lost revenue, while overstocking means incurring unnecessary costs either in waste or increased expenses at the warehouse and refrigeration level. One tested and proven planning assumption is that for a particular product or product segment, the demand pattern is similar every week (see Figure 2), assuming it is a normal week—one with no holidays or promotional events. If so, food manufacturers like you can anticipate the pattern, because consumer and retailer behaviors are repetitive and habitual. Figure 2: Consumer and retailer behaviors are often repetitive and habitual. During weeks without holidays or promotional events, you can predict the demand pattern for particular products or product segments. C a se s Time of Day Current Week Prior Week Rolling 12 Week Weekly Sales Demand Patterns 0 2 4 6 8 10 12 14 16 18 20 22 6:00 8:00 10:00 12:00 14:00 16:00 18:00 6 Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Consumers, for example, resupply basics after the weekend or shop on Thursday for a weekend event. Retailers restock the shelves based on that pattern. Because they can’t keep stock, fresh-food manufacturers need to know the pattern and incorporate it into their planning. The more SKUs a manufacturer produces, though, the more complex this exercise becomes and simple Excel spreadsheets and manual calculations become overwhelming. Infor has worked with companies around the globe to study and build solutions that allow manufacturers to use this sort of historical data to better forecast the future. Ensuring transparency in food production Producing a safer product is a much greater obligation to food manufacturers than ever before. Food contamination costs the US $77 billion a year in total healthcare costs,8 making contamination a serious issue for government regulation. With the signing of the FDA Food Safety Modernization Act (FSMA) in 2011, government regulations have become more focused on preventing food contamination rather than responding to it.9 Food safety remains top of mind for the industry as well. Food professional respondents to Food Processing’s 13th Annual Manufacturing Trends Survey, “overwhelmingly ranked food safety as 2014’s most important manufacturing issue, far and away the top priority in a list of 11 that readers were asked to rank.”10 One way to assure food safety compliance is by reducing labeling errors. Nearly 20% of recalls are due to labeling errors. There are two key areas where label compliance can be an issue. The first is ensuring that the listed ingredients match what is actually in the product, in regards to completeness and correct order. Failure to disclose all ingredients, especially if there is potential for allergic reactions, can result in a recall. Secondly, a product label’s nutritional and health claims must be accurate and comply with government standards. Due to changes in formulas, as well as raw material fluctuations, food manufacturers like you must have the means to make sure that the product you produce matches the label you are using. With that in mind, realizing the cost benefits of traceability, while also ensuring your products are fresher and safer than even before, means investing in an industry-leading product lifecycle management solution (PLM). Infor Optiva®, a best-of-breed PLM solution, is designed specifically to address this issue—none of the customers who use it have ever had a labeling- related recall. 8 Robert Roos, “New study puts cost of US foodborne illness at $77 billion,” Center for Disease Research and Policy (CIDRAP), Jan 2, 2012. 9 Food Safety Modernization Act (FSMA), Frequently Asked Questions, Product Tracing, US Food and Drug Administration (http://www.fda.gov/Food/GuidanceRegulation/FSMA/ucm247559.htm#ProductTracing), Oct 25, 2013. 10 Kevin T. Higgins, “2014 manufacturing trends survey: The swagger’s back,” Food Processing, Jan 13, 2014. 7Infor Infor is in no way committing to the development or delivery of any specified enhancement, upgrade, product or functionality. See “disclaimer” paragraph contained herein. Building a better warehouse When Keith Oliver, a consultant at Booz Allen Hamilton, coined the term supply chain management (SCM) in the early 1980s, he was referring to a supply chain where the supplier is linked directly to each customer and to each buyer. Thanks to the growth of Internet-based technologies, today’s supply chain has evolved into a more complex animal—with global suppliers, customers, and buyers working together with manufacturers in real-time. To keep pace, it has become necessary for your warehouse to have the technological infrastructure to manage operations, logistics, and procurement—in addition to supply and demand. The warehouse is at the core of the food manufacturing supply chain. The software technologies that drive today’s warehouse functions operate on one, unchanging, crucial concept—first expired, first out (FEFO). You must be able to flawlessly move older products out to make space for newer products. Not only do you need to make sure that your products are hitting retailer shelves during the optimum delivery times on their freshness dates, but you must also reduce food waste and maintain an efficient, cost-effective operation. For fresh food manufacturers, knowing where your inventory is when you need it is essential for successful warehouse management. As a food manufacturer, you need Internet-based technology tools to be able to view and operate your entire supply chain as a unified whole that encompasses participants both inside and outside of your company—including customers, contractors, and suppliers. Infor Supply Chain Execution is the first solution to let you view and manage your supply chain execution activities as a coherent whole, which helps to eliminate bottlenecks and improve all-around efficiency. By combining warehouse management, labor management, transportation management, and 3PL billing in a unified solution with a common user interface, it unites your entire supply chain into an integrated, streamlined business process. With Infor Supply Chain Execution, you can run your supply chain like a single, well-tuned machine, not just a batch of unrelated segments. Going the last mile with direct store delivery Due to the nature of fresh foods, typical distribution models often don’t work. The shelf life is so short that you need to go directly from manufacturer to retailer within a day or two of production so the adoption of direct store delivery (DSD) becomes more common. Your DSD replenishment program should be responsive. A poorly executed DSD program is worse than none at all. Complexity comes with the territory, however, and must be managed with systems that offer exceptional power, agility, and a specifically focused functionality. Some manufacturers have tried to execute DSD programs using their existing ERP and CRM systems, only to find that most of those systems lack the speed and functionality they need to meet retailers’ needs. The usual response is to implement specialized software to support DSD operations outside of the main ERP installation. But if your specialized solution doesn’t interoperate smoothly with the ERP system of record, isolated silos of information emerge, which tends to undermine a DSD program’s goal of rapid, flexible responsiveness throughout the delivery chain. Therefore having that last mile visibility integrated with your overall business systems is imperative in a short shelf life environment. About Infor Infor is fundamentally changing the way information is published and consumed in the enterprise, helping 70,000 customers in 200 plus countries improve operations, drive growth, and quickly adapt to changes in business demands. To learn more about Infor, please visit www.infor.com. Disclaimer This document reflects the direction Infor may take with regard to the specific product(s) described in this document, all of which is subject to change by Infor in its sole discretion, with or without notice to you. This document is not a commitment to you in any way and you should not rely on this document or any of its content in making any decision. Infor is not committing to develop or deliver any specified enhancement, upgrade, product or functionality, even if such is described in this document. Copyright© 2014 Infor. All rights reserved. The word and design marks set forth herein are trademarks and/or registered trademarks of Infor and/or related affiliates and subsidiaries. All other trademarks listed herein are the property of their respective owners. This document is provided for informational purposes only and does not constitute a commitment to you in any way. The information, products and services described herein are subject to change at any time without notice. www.infor.com. INFDTP1420915-EN-US-0214-1 641 Avenue of the Americas New York, NY 10011 800-260-2640 infor.com Delivering fresher foods with software that won’t expire When it comes to successful fresh food planning, only a few hours exist between planning and execution. Like the shelf life of your food products, your software also shouldn’t expire, yet many companies are using outdated or “generic” software that doesn’t meet the needs of today’s food and beverage manufacturers. Many of the world’s most successful food and beverage companies turn to Infor software to help them manage the unpredictability of the food industry, while delivering great products profitably. Infor has the deep food and beverage experience that you need in a technology partner in order to stay competitive in this dynamic industry. Infor solutions help you maintain the highest standards of product quality and ensure food safety even with extremely short shelf life products, by giving you unmatched power to help manage your top challenges.