Sampling attitudes to enterprise resource planning in the UK food and drink manufacturing sector
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1 Whitepaper: Sampling attitudes to enterprise resource planning in the UK food and drink manufacturing sector November 2012 sponsored by
2 1 Sampling attitudes to enterprise resource planning in the UK food and drink manufacturing sector The Office for National Statistics continues to publish results showing that the UK food and drink industry has been one of the highest producing manufacturing sectors throughout 2011 and During that time, food and drink producers have maintained some of the most consistently stable levels of production of all the manufacturing sectors. No wonder that the voice of the industry, The Food and Drink Federation, refers to food and drink as a stabilising force in uncertain economic times. The outlook remains optimistic, with the federation observing that the industry is reliable and capable of growth in adverse conditions. However, individual manufacturers face significant challenges. These businesses operate in an aggressive market, facing often global competition, and there is a constant squeeze on margins from customers wanting to offer the consumer the most attractive deal. The UK food and drink industry in figures: The industry is the largest manufacturing sector in the country... Up to 400,000 people are employed directly Up to 1.2 million are employed in ancillary services It accounts for 16% of the UK s total manufacturing sector by value. Source: The Food and Drink Federation Executive summary A survey conducted in summer 2012 reveals insights into the current issues exercising the UK s food and drink industry. The survey was sponsored by Sage, the leading accounting and ERP software vendor, and Datel, the UK s largest Sage Business Partner. Senior managers were invited to join the food manufacture debate and have their say on a range of questions aimed at bringing to light the industry s current business priorities, concerns and processes. Their answers create a fascinating snapshot of the pressures facing the country s food and drink manufacturers.
3 2 About the respondents Almost 250 decision-makers responded to the survey, in senior managerial roles including MD/ CEO, finance, production, IT and sales. The scale of their business was relatively evenly balanced between companies with under 10 million turnover (37%), 10 million to 200 million (36%), and over 200 million (27%). A large majority (around 80%) of respondents carry out manufacturing either entirely or partially in the UK. There was a good spread in terms of the outlets where respondents market their products. Customers included restaurants and pubs, shops, cash & carries and independents. However, not surprisingly, given their market dominance, supermarkets made up the largest proportion at 57%. The survey findings The bottom line The first focus of the survey was to ascertain respondents key business objectives. Given a choice of 11 objectives, plus the opportunity to add their own, it is interesting to see that for many manufacturers reducing costs and increasing sales the classic recipe for business success continues to be the principal goal, with increased margins and improved production processes following not far behind. Figure 1 shows how these over-arching business objectives were placed in order of priority by the manufacturers surveyed. Increase sales 68.0% Reduce costs 64.8% Increase margin 50.7% Improve production processes 42.0% More effective marketing 21.0% Improve customer/supplier communication 13.2% Improve stock management 10.5% Improve order fulfilment 7.8% Improve visibility of KPIs 7.3% Better financial management 6.8% Other 4.1% Improve staff retention 3.7%
4 3 Factors affecting business profitability The survey then went on to analyse the factors that respondents report are impacting their profit levels. Clearly some of these, such as the cost of raw materials and packaging, along with competitive consumer pricing, are very much symptoms of challenging market conditions. However, many of the other factors could conceivably be brought under greater control by the manufacturing company, with the right tools and technology giving greater visibility across the business. Cost of raw materials (84%) Packaging costs (50.2%) Competitive consumer pricing (42%) Machinery downtime (34.7%) Forecasting demand (31.1%) Shelf-life of products (28.3%) Production bottlenecks (25.6%) Delays in delivery (16.4%) HR / Staffing issues (14.2%) Surplus stock (10%) Product recalls (9.1%) Other (5.9%) Figure 2: Factors affecting business profitability Let s consider some of the areas where manufacturers could look within their business to improve their responsiveness and agility in meeting the demands of their customer base... Improving traceability Many larger supermarkets expect their suppliers to be able to provide full backwards and forwards traceability, tracking back to the source of raw materials and showing where they have been used on a sample product. The deadline to achieve this is often tight, as challenging as four hours for some major retailers. However, in the survey, 26% of the businesses cannot identify product recall items within this time; 11% of businesses say they would take over a day to do so; while 10% are unable to identify product recall items at all.
5 4 When one considers the great waste of time and potential damage to business relationships this inefficiency creates, it seems surprising that manufacturers do not look to their IT systems to automate and manage traceability. It is one significant advantage of using a modern ERP (enterprise resource planning) system. Unable to identify recalled products (10%) Over 1 day (10.5%) 4-8 hours (5%) 1-4 hours (21.5%) 30 minutes to 1 hour (22.4%) minutes (19.6%) under 10 minutes (11%) Figure 3: Response times to product recall Reducing the need to hold surplus stock Although they have concerns about shrinking margins, almost half of the manufacturers in the survey (nearly 43%) carry surplus stock. Due to the nature of the product, at least some of this stock is going to be perishable, with a limited shelf-life leading to waste and eating into profits. While in some cases having surplus stock is due to cancelled orders, when the survey explored the reasons for tying up resources in this way (let s not forget, it s not just the cost of the stock itself, it s the cost of managing it appropriately, too), the following reasons emerged: Inaccurate forecasting of sales (59.67%) Other (29.25%) Lack of production planning (17.55%) Cancellation of orders (16.38%) Unable to trust the figures (9.36%) Lack of reporting (3.51%) Poor quality control (1.17%) Figure 4: Reasons why food and drink businesses hold surplus stock To sumarise these findings, 83% of businesses holding surplus stock feel they have do so because they have process failings. This situation, with the associated outlay, is not inevitable; once again these weaknesses could be rectified by the strategic use of technology.
6 5 Streamlining complex production planning Manufacturers in the survey take into account many constraints when planning production, ranging from operatives shift patterns to machine downtime to the production process itself, with multiple lines and the sequence in which materials are added all having an influence. Despite the complexity of the production process, almost half (45%) of those in the survey do not have any support from their IT systems when planning production, while 25% rely on a manual process involving multiple spreadsheets. Yet of those 45%, over half (53%) do not see the relevance of enterprise resource planning to their business. The reliance on spreadsheets is endemic in some businesses: over a quarter of businesses in the survey are dependent on spreadsheets for financial accounting and reporting. This means that they are again missing out on the management insight that a business management system can deliver. Spreadsheets also generate their own problems in terms of the manual effort involved and the risks of using duplicated, inaccurate or out-of-date data. Even those businesses with ERP technology in place may not be benefiting from recent advances. Around 60% have had their system in place for over three years, and 11% surveyed rely on technology over ten years old. Many report problems that indicate their system is struggling to keep pace with the demands being placed on it. Among the major issues reported were: The business is missing out on newer software features 11% The age of the system makes it difficult to find the necessary skills to maintain it 11% Third-party applications are becoming harder to manage and scale 9% The business has moved on and the ERP system hasn t kept pace 8% Database/operating system on which the technology runs is no longer supported 8% Conclusion As the survey findings show, despite the overall buoyant state of the UK Food and Drink industry, many individual manufacturers are struggling to keep pace with their more enterprising competitors. They are still largely reliant on manual processes or outdated IT systems. But, however well entrenched these are within the business, they cannot provide the instant access to accurate management timely information necessary to survive and thrive in today s challenging operating landscape.
7 6 Agile ERP for food and drink manufacturing The IT systems that support your business processes are key to facing competitive demand, reducing costs and increasing efficiency. An agile, comprehensive ERP solution can support your business, enabling you to be proactive instead of reactive, and help you to stay ahead of competition. It will drive production, monitor throughput, provide visibility and improve responsiveness to deal with unplanned situations - all of which are essential in a customer-driven business.. Together, Datel and Sage are helping food and drink companies to implement systems that allow them to react rapidly to customer demands for shorter lead times and to improve flexibility in delivery. Processes run more efficiently, issues are managed as they occur and recalls are reduced to a minimum. Software with all the right ingredients A fully integrated food and drink solution from Sage, implemented and supported by Datel, will help you to: Maintain accurate recipes and costings Interactively plan production Use material requirements planning to recommend what to purchase and manufacture Track orders as they move through production Provide full batch and lot traceability Provide quality control data Automate processes with bar code technology Integrate with retailer systems via EDI or XML technologies Manage warehouse operations efficiently Provide comprehensive business reporting deliverable over the web Sage scores highly on flexibility, while Datel has outstanding knowledge and experience of using Sage within the food and drinks industry. It s all very slick. We don t see or touch the product, but we retain full control of our systems and stock. Nichols plc, Soft drinks specialist For more information about ERP solutions for the Food and Drink industry, visit or call Datel on
8 About the sponsors: Datel Datel is Sage s largest Business Partner in the UK and is acclaimed as its leading systems integration specialist. Headquartered in Warrington, Datel also has offices in Leeds and the Netherlands employing a loyal team of over 150 highly skilled people who look after its growing base of over 900 customers worldwide. Datel specialises in Sage 200, Sage ERP X3, Sage Line 500, Sage ERP 1000 and CRM products Sage CRM and Sage SalesLogix. Datel has over 20 years of experience in providing business management solutions to the food and drink industry to enable these businesses to increase sales, reduce costs and build efficiency. Contact Datel Telephone: +44 (0) sage@datelgroup.com Sage Sage offers innovative, pragmatic management solutions addressing all the challenges faced by medium and large companies. These solutions help customers simplify their process management in order to improve visibility and achieve faster, more effective decision-making. Sage is a global vendor offering customers local expertise and unique international assistance. Sage is the 3rd largest international business software company, present in 21 countries with a network of 30,000 resellers and integrators and 6.1 million customers. Contact Sage Telephone: +44 (0) customer.development@sage.com Copyright 2012 Datel Computing Limited
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