Developing a successful production strategy and plan for your next capital investment project could be the key to scaling up successfully.
It can be game-changing for a small- to medium-sized food & beverage manufacturer to get its first big order and begin scaling up production. Your investment in developing products that meet consumer needs, and cultivating relationships with your customers, has paid off. Whether or not you’re experienced at installing an expanded production line or, possibly, an entirely new facility, here are five things to keep in mind when crafting your production strategy:
1. Prioritize food safety in your facility
Producing food products that are safe to eat is still your most important consideration. One misstep regarding safety can put a company out of business, derailing all your efforts. This was front and center in 2007 when pet food was contaminated with melamine, a toxic chemical added to feed that led to dog and cat illness and death. More than 150 brands pulled their products from the shelves and the FDA soon brought in the Food Safety and Modernization Act (FSMA). As we found with our 2022 Horizons: Pet Food Report, pet food companies are aiming for the same hygienic and safety standards as their human food counterparts. So how do you protect the health of the consumer as well as your brand?
Align your food safety strategy with your overall production strategy
Safety starts with preventing allergens and pathogens from getting into the final product. This can be accomplished by following best practices in sanitary and hygienic facility design. Sanitary or hygienic design often starts with a cleaning plan, a schedule for manufacturing, and a wise choice of materials of construction (MOC). For example, equipment may need to be made of stainless steel that can resist high pressure, hot water, and caustic soaps.
Avoiding cross contamination is a matter of scheduling production runs to avoid overlap of non-compatible materials, and cleaning properly between runs. Contamination can also be avoided by optimizing facility and process design and choosing the right equipment to prevent allergens from getting into the final product. This is done by incorporating GMP elements into the building and the equipment, including segregating raw and cooked production areas with physical walls, and even separating air-handling systems. The separate areas may often have controlled access, and remediation such as boot wash stations before entering or leaving. This is often done for large facilities, or facilities that require high throughputs, so products containing separate allergens can be processed simultaneously.
Segregate production of allergen-containing versions of the same food
Segregation of allergen-free materials is essential when allergens are present in a facility. So how do you decide your approach, when you can accomplish this by scheduling or even by designing equipment and facilities to isolate the process, the equipment, or entire rooms?
Consider a smaller facility, built for flexible manufacturing. When multiple products are made in one open production room, the only way to manage contamination is with cleaning and schedule. You can’t run two different allergens in the same room at the same time, unless you want both to appear on the product label. A good example is cheese-flavored snack food, like popcorn, which requires segregation from all other flavors since dairy is one of the eight common allergens in food identified by the FDA. A manufacturer would start with plain popcorn and end with a run of the cheese-flavored variety. This is followed by a total clean-down of the production space.
Alternatively, allergen-containing flavors could be made in separate production areas, provided each room had dedicated HVAC equipment and employee entrance points. This would have to be considered during facility design. This type of hygienic zoning is becoming more popular to avoid labeling that sounds unpalatable to consumers. For example, by containing batching and bagging systems within their own production spaces, a company can run wheat-flour and gluten-free snack foods, like crackers or pretzels, at the same time and in the same facility.
2. Develop a production strategy around capacity, innovation, and packaging
Designing a facility and choosing the right production capabilities to make and package existing and new products requires foresight. No doubt you plan to increase capacity in the future and want to maintain flexibility in terms of the types of packaging you might use down the road. Here are three items to consider when developing your production strategy.
Develop a plan for at least five years after start-up
Estimating how much product you want to make in one, three, and five years allows you to right-size equipment and lay it out correctly. You might not even order all of it until year three. For example, in the first year of production, a new frozen meal company might be at a low enough production volume that it makes financial sense to manually place the finished product in corrugated boxes for shipping. By year five, production volumes might be high enough that it might be feasible to invest in equipment and automation, such as a case packer. For this example, the manufacturer would need to plan its facility to have the space and utilities, such as air and power, to accommodate the installation of a case packer in year five.
Test run equipment at a technical center
You have a good idea of what your product needs to be but reaching that next level of production might require using new equipment. How do you get confidence in what will work?
Most major equipment vendors run tests in their technical centers to guarantee performance and demonstrate production capacity and product quality. Along with university food processing centers, these partners are a great resource for a startup to test various operating conditions, such as to establish the number of products produced per minute. For example, getting par-baked pizzas just right requires testing with the oven manufacturer to dial in the airflow, temperature, and conveyor speed. This can help with facility design too, for such things as HVAC requirements to get the right humidity and temperature in the room. The manufacturer can advise on the amount of heat that will be lost to the room and, therefore, the size of the HVAC system you will need to remove it.
Consider change parts to increase flexibility
Changes to packaging are a great way to improve the consumer experience and to reach a broader customer base. It’s something to keep in mind when developing your five-year manufacturing strategy. So how do you develop production capabilities for day one and on to year five? Here are a few examples of how choosing adaptable packaging equipment allows flexibility to expand retail options.
Beef jerky
You might not yet be sure where your product will sell best. Bags can hang on a peg in a convenience store or sit on a shelf in a retail store. While both are made on the same packaging line—and potentially use the same film stock—they use different pieces of equipment to seal the bag and add a hole. These pieces of equipment can be switched out without adding significantly to the capital expense. To maintain flexibility, consider ordering both so you have two different SKUs to offer customers.
Bulk food ingredients
If you’re making large amounts of bulk products such as flours, you might consider both 50-lb bags as well as 2,000-lb super sacks. A final pack-out station that accommodates both allows you to support customers with different needs.
Beverage lines
Consider the recent move of premium alcoholic beverages to taller and narrower cans. Being able to change the shape of your cans gives you a way to manage inflation, by decreasing product weight, while creating a marketing buzz. Like cartoning lines, consider options to flex your canning lines to accommodate both traditional and modern, slim can shapes.
3. Decide if and when to automate
Your production strategy needs to be built with financial stability in mind. Long-term planning has meant some companies—especially larger manufacturers who are better capitalized to invest in upfront costs—are willing to put up more CapEx dollars during design, construction, and equipment purchase to realize OpEx savings on the back end, particularly by embracing the right amount of automation.
It is important to consider how equipment will be installed, to ensure your building can accommodate it. Also, you need to understand your staffing plan and operational philosophy, to choose the right level of automation.
Ice cream
Making multiple flavors of ice cream in one plant requires careful design planning. Full automation would have pumps and piping all hard piped in, along with multiple mixing tanks and mix valves. Alternatively, a semi-automated system could use a manifold system, similar to the type of flexible hose seen in breweries, that disconnects and connects to avoid mixing flavors during batch changeover. You might like the idea of automation but not know if you can afford it. Knowing the parameters of capital and product cost, as well as expected revenue, helps arrive at this decision rationally.
Reducing labor costs with CIP
Labor costs are one area where manufacturers are pushing automation to offset OpEx costs in their production strategy. Equipment or a process that can be run by one person, as opposed to 20 manual operators, are attractive in the long run. Cleaning is one such labor-intensive process. Choosing automated clean-in-place (CIP) equipment reduces labor, as well as changeover times between batches.
A CIP pasta sauce kettle
A classic example is a kettle for making pasta sauce. CIP-enabled tanks have a spray ring, which typically sits just below the inlet of the vessel, and use an automated pump to spray water onto every interior surface to rinse, clean, and sanitize. This is, in effect, a saucepan and dishwasher in one, reducing OpEx as well as water and electricity use.
4. Balancing capital budgets with product margins
CapEx can be seen as an investment in your product margin. Earlier, we spoke about the ways automation adds to a capital budget yet improves product margin by lowering labor expenses. When a company asks for our support, we help them understand the business case by asking questions. Once we have aligned on their production strategy, we can begin to do some really awesome work with them.
What is the business case for your production line?
Knowing this helps determine the maximum total installed cost (TIC). The TIC includes all the expenses, from the moment you engage an engineering firm for design work to the day you begin making product. It includes acquiring the land, design, permitting, construction, and equipment procurement, among much else.
When developing your production strategy, having a realistic estimate of the five-year production capacity and associated revenue, will give you an idea of how much you can spend on the project. This helps make decisions about features like automation. Do you pay for more workers now and embrace automation later? Or, can you afford to install automated processes now, and realize efficiency gains over the full lifetime of the facility?
What is the operating model of your new production line?
An operating model allows you to understand the impact of labor and overhead on margins. Let’s say you intend to launch your product in a box store and you know your sales price and margin. Given the OpEx—raw material, labor, and overhead costs—you can then identify the best way forward. Are there too many people working on the line to meet your labor target? Do you design for full automation? Will you make a product as a co-manufacturer for somebody or are you going to sell it directly to retailers? Combining an operating model with your business case for revenue flow in year five puts guardrails on how much you can spend on the total project.
What are your facility’s utility capacities?
Even when a small or midsize company understands processing line costs, the cost of utilities is often overlooked. Take the process for scaling up extrusion of plant-based protein. Extruders require steam, electricity, hot water, and thorough HVAC to exhaust steam. Upgrading any of these can add significant cost to your project. Even small changes can make a difference. Since utility companies charge based on peak levels of energy use, adding a variable frequency drive (VFD) to an extruder can reduce energy costs.
What other costs, beyond equipment, may be required?
You may be so focused on getting the production facility up and running that you forget about ancillary costs. These include marketing, sales, transportation, and quality control. Consider if you’ll need additional space for QC labs, wider aisles to accommodate more forklift traffic, and whether your docks can receive the larger semi-trailers you’ll need to transport more product from your facility.
5. Determine your project delivery method
Decisions about the best way to design the production line and facility, as well as procure and install the equipment, facilitate smooth project execution. You’ll want to identify whether internal talent is available to manage the project or if you would benefit from engaging an architecture/engineering/construction (AEC) firm, or engineer/procure/construct (EPC)/design-build partner. The complexity of the production strategy might dictate this decision.
Knowing when the new capacity is needed allows you to assess lead times to procure equipment. We’ve worked with clients who had everything they needed, but were missing one valve—and supplies of that valve were on backorder for months. In terms of equipment, some traditional spiral freezers, extruders, and even electrical equipment like motor control centers (MCCs) and transformers require as much as 40+ weeks to deliver.
Tracking lead times for equipment procurement
Every two months we consolidate national data on supply and estimated lead times on vital equipment we regularly purchase to supply our clients, whether it’s manufacturing equipment or components to build a production line. It also includes the most current cost projections.
Our clients use this information as an additional tool for benchmarking capital project plans. The C-suite may be eager for a new product to hit the market by a specific date, but when they are shown it will take 50 weeks to obtain a key piece of equipment, they can adjust expectations accordingly.
Should you self-manage a project or hire a partner?
The decision to self-manage, versus hire a partner, should be based on project complexity and internal expertise. Less complex projects, such as procurement of a single piece of equipment that operates independently, may be easier to manage, compared to an entire line or new production facility. Consider whether you have experience in the following areas when making this decision:
- Executing capital projects, including design
- Partnering with and managing subcontractors
- Managing equipment procurement
- Evaluating utility requirements
- Ensuring food safety, preventing allergen contamination, and adhering to USDA and FDA regulations
- Scaling up production from a test kitchen to commercial production
- Assessing building codes and potential hazards
Without those internal resources, it is usually wise to partner and hire an AEC firm, or EPC/design-builder.
Partnering with an AEC/EPC/design-build firm while crafting your production strategy
Consider a seemingly simple renovation, such as installing a large convection oven. It’s not a matter of buying one piece of equipment and plugging it into an existing wall socket. The oven requires a dedicated power source, separate exhaust, and reinforced structural support. And installation comes with other ramifications, including liability and risk. It may require an upgrade to your fire protection system to meet building codes or have additional insurance requirements.
These are the types of challenges a firm like CRB can solve to protect a company that doesn’t have an engineering group or procurement department to scale up a project.
To learn how CRB can help you develop a successful production strategy and plans for your next capital investment, contact us.
Getting started on a new capital project and not sure where to start? Our Food & Beverage Captial Project Planning Questionnaire can help you begin preparing for success. Download here!
