The food and beverage (F&B) industry is dealing with accelerating changes, meaning more disruptions and opportunities, and more information to process. These pressures are pushing a shift in F&B’s preferred approach to gathering and handling information — a shift away from transaction management, often in the form of Enterprise Resource Planning (ERP), and into innovation and end-to-end brand management via Product Lifecycle Management (PLM).
Food and beverage companies have tried countless ways to improve and monetize the innovation process. PLM solutions have a proven-in-use track record for delivering higher value in brand management and new product introduction.
The most dramatic impact is the new level of connectivity achievable — with greater transparency — throughout F&B’s enormous amount of data. Many food and beverage companies are at risk of being buried in the data spawned by the exponential growth of new products. The number of retailers’ SKUs keeps climbing. A typical grocery store has 20,000 to 50,000 SKUs, though not all are F&B related. The biggest stores have far more and no two grocery stores stock the same things. As a peek into the data sprawl of F&B and for all retailers, just one eye opener: Coca-Cola has 500 brands and 3,500 products in its global portfolio.1
Meanwhile, driven by intense competition, F&B business models and strategies are undergoing fundamental change in regard to regulators, retailers and customers. For decades, F&B’s approach to managing information was to focus on transactions, specifically the costs of everything sourced, produced and sold.
Development of new products usually had to fend for itself even as F&B data and information expand exponentially. Burdened with inadequate tools and poorly integrated, ad-hoc processes, product developers resort to work-arounds. Work-arounds solve immediate problems but they add complexity and process variation, and do little to resolve underlying shortcomings.
Consequently:
- Crucial data is overlooked while product developers struggle to access information scattered through countless spreadsheets, stacks of standardized printed forms and thousands of pages of documents.
- Much information is still generated and updated by hand.
- Technical specifications and data entry efforts are often duplicated; offline management makes this worse.
Mitigating these risks requires a radical new business strategy — an innovation platform that places product definition data and the management of its lifecycle at the center of the business model. Leading companies like Coca-Cola and Procter & Gamble have been using PLM solutions for many years but it is now becoming mainstream.
Brands and Innovation Management with PLM
This transaction-to-innovation shift is a step in enhancing an F&B company’s brands, its most precious asset. Branding and packaging helps consumers identify what they want to buy from store shelves crammed with choices. Managing a brand properly requires governance and repeatable processes. Each product within a brand must support and enhance the brand vision, as well as its associated characteristics that describe the brand.
Additionally, a brand description requires rigorous definition and use of each brands’ master data — its ingredients, formulas, recipes, packaging material, artwork, labeling and clear quality specifications. Ensuring that the master data is properly defined requires cross-functional collaboration and effective project management tools that support the relevant enterprise functions including portfolio planning, product development, marketing, manufacturing and supply chain, and, of course, regulatory compliance.
Many leaders in the F&B industry have found that the key to effectively managing a brand (or any product) is comprehensiveness. This is the holistic lifecycle, in which nothing is skipped over, the tight, end-to-end, closed-loop integration of all the information and processes that define, manage and protect the brand. PLM allows the consolidation and effective management all of a brand’s information across multiple supply chains and manufacturing sites in what data managers often call a “Single View of the Truth” or a “Single Source of Truth.”
Managing all this information from myriad sources and data repositories requires an up-to-date lifecycle-based business strategy. PLM with its supporting/enabling tools allows any and all brand data to be tracked from concept to store shelf, then through to consumption — and beyond. This is a priceless capability if, for instance, there’s a recall.
Broadly speaking, the benefits of using PLM will show up in revenue growth, accelerated time-to-market and controlled product management, along with product and process cost reductions throughout the lifecycle, including cost avoidance
A deeper look at benefits:
- New ideas get to market with minimal risk. It’s no secret that most new food and beverage products fail.
- Process efficiencies and effectiveness improve and automation is easier.
- Time needed to find and verify any of a brand’s information (or all of it) can be slashed as PLM enhances visibility and tracking.
- Derivative products can be created faster through data reuse.
- Confidence in data quality grows amid gains in the integrity and consistency of fast changing brand information from sources old and new.
- Impacts of changes on compliance, production processes, and cost can be easily assessed before committing significant resources.
- More secure intellectual property — from simple recipes in successful brands to complex business models, and everything in between.
Peter Bilello, CIMdata president, sums this up concisely: “The bottom-line in all of this — the necessity to get it right the first time and build and protect the brand for the long-term requires a holistic, end-to-end approach to brand-related requirements management. Anything less results in sub-optimization, continued inefficiencies, and islands of disconnected automation and information.”
F&B Realities and Drivers of Change
CIMdata has numerous clients in the F&B and closely related consumer packaged goods (CPG) industries, and with leading PLM solution providers that serve these markets. Many of these relationships are long-term. They have given CIMdata deep insights into implementing and integrating PLM and working up credible Return on Investment (ROI) proposals to justify those implementations. CIMdata has gained insights into the many marketplace issues that govern the creation of new brands and products — or derail them.
Somewhat arbitrarily we have classified the challenges F&B faces as Product Development, Formulations, Labeling and Economics. Before we begin this deep dive, three caveats: One, these lists are not complete. Two, most of each list’s elements have many moving parts. Three, dozens of departmental databases are involved.
Ingredients and the formulations they reside within are proliferating as ever-changing consumer tastes constantly reshape F&B products. Ingredient definitions and formulations are the critical step in product development and deciphering what consumers will want to buy.
Alternate ingredients and recipes to address cost or supply issues add significant complexity, which underscore the need for a Single Source of Truth to track all these variants. Moreover, the FDA insists that supply chains be closely monitored, even as they grow ever more convoluted.
A related problem arises when an F&B companies acquire or divest product recipes as part of broader changes in product lines. Recipes can prove very challenging to assimilate into the new owners’ portfolios — especially on the factory floors.
Labeling challenges start with the safety initiatives of the U.S. Food and Drug Administration (FDA); its demands for regulatory compliance are felt everywhere in F&B. This is why so much attention is focused on labeling. Labels’ artwork, ingredient listings and nutrition facts, portions, cooking/serving instructions, measurements, marketing claims and expiration dates must be accurate and conform to FDA requirements.
Additional labeling challenges are:
• Certifications of conformance to kosher, halal and vegan dietary constraints.
• Presence or absence of growth hormones and genetically modified organisms (GMOs).
• Ethical concerns such as humane treatment of animals in the food chain.
Labeling errors account for a large share of F&B recalls and are probably as big a worry as contamination. The negative publicity of recalls and potential lawsuits are ever-present threats to brand reputations. Change management and data integration built into PLM are well-known antidotes for those risks, which have always been worrisome.
Economics is driving the shift to innovation management, too. In a fiercely competitive marketplace, price pressure from consumers and grocers is unrelenting. Even the biggest companies are reworking their business models to meet the pressure. As The Wall Street Journal notes, “Food makers have struggled to adapt as Americans swap boxed and canned foods for fresher options, while also eating more snacks and fewer full meals.”2
F&B’s profitability, or its lack of, is impacted by commodities. Prices of raw materials and ingredients fluctuate seasonally and in response to supply and demand.
Production realities are also a big part of F&B economics — machine asset utilization in particular, especially when factory ownership changes and factory assets are sold or swapped between F&B companies. Looking in from the outside, the impacts are easily missed, making techno-discussions about machine learning and the Internet of Things (IoT) seem superficial.
Several questions about ownership changes immediately pop up. How will the business synergy between distinctively different business units be sorted out? How will master data be handled? In the new entity, how will innovation be driven? How will this boost shareholder value? And finally, will a common PLM solution be implemented or can the business units work with what they have?
This is why PLM implementations in F&B, or any business, span the enterprise to integrate information, processes, people, business systems and use of brand information in support of collaborative creation, management and dissemination across the extended enterprise.
It is fair at this point to ask: Does this really help? The Heinz Foods unit of Kraft Heinz, one of the F&B giants, reports that its PLM implementation chopped time to generate labels from 45 days to seven days — this was because recipe information and the associated regulatory requirements were available sooner.
This probably could never have been done with transaction management. Transaction management’s basic information format, the Bill of Materials (BOM), rarely shows more than which and what, and how much so transaction management always falls short. True, some of this data can be managed in some transaction management solutions. These capabilities may be add-ons, however, whose integration is less than robust.
In contrast, PLM is unmatched in providing basic data connectivity out-of-the-box to help ensure regulatory compliance. PLM connectivity ensures that consumer issues and retailer concerns can be addressed promptly. And PLM can give product developers comprehensive, valid data for timely decision making, evaluations and impact analyses, and for managing innovations.
End-to-End Alignments of Lifecycles
Given F&B’s endless challenges, managing the countless innovations in what we eat and drink rests upon the end-to-end alignment of lifecycles. Lifecycles entail a huge inflow of data and information. Managing that effectively provides F&B the connectivity and transparency to remedy problems before they grow into disruptions — or product recalls.
Compared with the management of transactions, managing innovation addresses issues that are far more complex, dynamic and numerous. An error in transaction management can waste hours of an accounting staffer’s time and annoy the CFO. A specification or production error can quickly become orders of magnitude worse. Far more than brands and corporate reputations are at stake. If consumers are harmed, regulators will soon arrive with litigators close behind.
None of these insights is lost on the providers of many ERP and PLM solutions. They are working together more closely as both recognize that:
- Within F&B, paybacks from additional investments in transaction processing — regardless of how measured — are diminishing.
- Linking PLM and ERP enables faster time to market and improved quality, which can only improve business performance.
- Innovation is key to long-term business survival and solution providers need to focus on this concept.
F&B’s shifting its investments in information handling toward innovation will have dramatic impacts. All these changes must be monetized if the enterprise is to prosper. As we noted at the outset, monetization with PLM means that business profitability and return on assets can be maximized.
As an industry, F&B is recognizing and adopting PLM as the optimal business strategy to monetize innovation management to meet consumer and retailer demands while speeding up the creation of tastier, more convenient, safer and healthier food and beverages.
Tom Gill is Practice Manager, PLM Enterprise Value & Integration, at CIMdata Inc.
1. “Coca-Cola’s Plan to Move Beyond Its Name,” page R4, The Wall Street Journal, Feb. 20, 2018.
2. “Consumer Shift Bites Food Companies,” page B1, WSJ, Feb. 17-18 (weekend edition), 2018.