Product quality tools are a high priority

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If agile manufacturing, innovative products and responsiveness to changing customer preferences are three pillars for success in the modern food and beverage environment, those pillars require the support of IT systems and other technologies that can help companies drive success in these areas. To that end, a recent industry report revealed that nearly two-thirds of food manufacturers are investing in new processing technologies to improve quality, reduce contamination risks and extend product shelf life. On the retail side, the survey noted that the number of stock keeping units will continue to rise, meaning that food and beverage companies must have IT systems that can keep pace with the steady increase in product offerings.11

Clearly, some of these trends are on the minds of Monitor survey participants, two-thirds of whom say their companies invested in new process or production technologies in the past year. But the forward-looking view shows some differences of opinion on where new spending should be allocated during the next 12 months. For instance, 44 percent of non-U.S. leaders say they will invest in technologies to improve product safety during that time frame, well above the 34 percent of U.S. executives who plan expenditures in that area. Conversely, 45 percent of middle market U.S. food and beverage companies will purchase equipment to increase product volumes, versus just 28 percent of international firms.     

Up for debate: The internet of things 

For years, the internet of things (IoT) has been a live-wire discussion for business leaders. The concept uses embedded sensors to collect and exchange data within a network of internet-connected objects, and it has been enthusiastically embraced by many high-tech industries for its ability to coordinate production, logistics, supply chain and other manufacturing systems. While IoT has been a harder sell to leaders in many other market segments, there is growing evidence that digital laggards are paying a price. In fact, one recent study found that the top quarter of “digitally transformed organizations” posted average gross margins of 55 percent across the three-year comparison period, as compared to the average gross margins of just 37 percent for those in the bottom quarter. Tellingly, the average spend on IT as a percentage of overall revenue between the top and bottom performers was nearly the same.12

In the food and beverage arena, the application of IoT and big data (large data sets that can be analyzed for key patterns, typically for operating systems or customer behavior) can deliver several core benefits. For example, many manufacturers now embed sensors within the packaging of certain products, which can alert manufacturers and retailers if refrigeration or humidification levels move outside set monitoring parameters.13 In manufacturing, IoT systems can help orchestrate literally hundreds of variables in the food or beverage production process, while also monitoring output quality and equipment efficiency.14    

In the Monitor survey, 41 percent of leaders say their companies have either fully or partially implemented an IoT strategy to improve the performance of operations and processes, with 34 percent saying they have made similar headway toward improving product performance. Cost reduction (43 percent), product quality improvements (40 percent), safety improvements (37 percent) and operational speed improvements (35 percent) are the main value drivers behind these technology investments. 

On the other hand, 17 percent of executives say their companies have no plans to develop an IoT strategy. While perceived cost of implementation was the main drawback in the full food and beverage survey sample, 36 percent of U.S. business leaders not pursuing an IoT plan made that case, as compared to just 13 percent of non-U.S. executives.   

Supply chain monitoring: Missed opportunities

Outside of operational risks, leaders in the Monitor survey say that supply chain issues are the most important variables addressed by their enterprise risk management guidelines. However, a closer look at the data shows surprising variability in how effectively middle market companies monitor ingredients and product quality across the entire supply and distribution chain. 

As a general rule, food and beverage companies in the Monitor survey do a much better job of tracking ingredients and quality parameters within a production area, or on outbound or incoming deliveries. However, only 30 percent of respondents say they have complete ability to track ingredient or product quality after delivery in customer warehouses and just 27 percent can monitor it at the grower or producer level of the supply chain. 

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What this means

Generally, food and beverage companies are not cutting-edge adopters of technology. That said, many business leaders are not taking advantage of proven tools that can add demonstrable operational and risk management value.

Leverage more operations value out of business analytics. While 37 percent of leaders say they want technology investments to help reduce operations costs, just 26 percent of those in the Monitor survey report using business intelligence tools or analytics to track and improve operations performance. This helps strengthen the case for investing in these systems, particularly for the 23 percent of survey respondents who say they have no plans to invest in business intelligence or analytics.  

Extend supply and distribution monitoring to reduce risks. Surprisingly, about one in five Monitor survey respondents say they have no way to track raw material and finished product elements in certain key supply and distribution areas, including:

  • Customer sites (23 percent)
  • Grower or producer sites (22 percent)
  • Customer warehouses (21 percent)

Since these lapses mean middle market companies may be unaware of potential food safety and quality risks, it’s worth taking a harder look at technology investments that provide complete tracking capabilities across the entire supply and distribution chain.

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