Solutions for key challenges in the food and beverage industry

Fast, reliable and efficient intralogistics, from pallet handling to storage to order fulfilment, can mitigate today’s key challenges.

The food and beverage (F&B) sector is changing rapidly, with new trends and drivers creating new challenges for manufacturers. Grocery retailers are putting pressure on supplier margins, consumers are becoming more price conscious while at the same time asking for a greater range of products, input costs including labour, raw materials and energy are increasing, and safety and product tracking regulations are becoming more onerous. All these trends pose significant challenges to F&B manufacturer supply chain and logistics operations.

Leading F&B manufacturers are investing in warehouse automation to address these challenges and to realise significant and lasting competitive advantages to their supply chains and businesses.

1. Cost pressures

The imperative to optimise productivity and reduce costs in supply chains has never been greater for F&B manufacturers, and cost pressures are being compounded like never before by the increasing concentration of the grocery retail market and increasingly price-conscious consumers.

Concentrated grocery retail market putting pressure on manufacturer margins

A continuing trend toward concentrated grocery retail markets means fewer numbers of retailers are becoming increasingly dominant. This position of strength has major implications for F&B manufacturers. For example, in Australia the market share of the two top grocery chains stood at 67.5% in 2017–18.¹ The major grocers have also consolidated market share in the liquor retail sector. The two major grocers — with the introduction of big box liquor outlets and aggressive pricing — now control 67.5% of the alcohol retail market.²

The grocers have leveraged this market position to drive strong agreements with suppliers, eroding supplier margins and enabling them to offer low store prices that smaller outlets find very difficult to compete with. They are also using their position to drive their own private label ranges at the expense of branded products.

Grocery retailers pushing inventory back to manufacturers

The major grocery retailers are also pushing inventory back towards suppliers, increasing logistics costs for manufacturers — especially those that have outsourced their distribution to third-party logistics (3PL) providers. With grocers pushing inventory back on suppliers, the 3PLs are holding higher levels of inventory with consequent costs for many of their manufacturing customers.

As a result, manufacturers are increasingly looking to insource their logistics operations and build supply chain competence back into their own business. For many, the timing of this presents an ideal opportunity to optimise their distribution activities.

Price-conscious consumers

Consumers are remaining highly price conscious, and are favouring low-cost supermarkets over convenience stores. Volumes shift toward lower-margin grocery retailers at the expense of higher-margin convenience and small food retailers.

Consumers are also increasingly open to purchasing an expanding array of private labels. Consumers consider private labels as good alternatives to national brands, with many believing private label brands to be of equivalent quality. This trend places further pressure on F&B manufacturer margins.

Labour issues

Decreasing labour availability — primarily driven by an ageing population and a workforce increasingly reluctant to work in warehouses, especially cold stores — has major implications for distribution costs.

While manufacturers have automated their processing lines, for many their distribution and warehousing operations remain highly labour-intensive.

In recent years, many companies across different sectors have increased labour productivity through human resources measures. Many are now recognising that having implemented these measures to their full extent, the next step change in improving labour productivity will be through investment in productivity-enhancing technology.

Increasing productivity and reducing costs

Automated storage and retrieval systems (ASRSs) fully automate the process of product storage and handling, eliminating ‘touches’ by operators and greatly reducing warehouse labour and operating costs. Although highly dependent on the specific inventory profile of a manufacturer, productivity gains of up to 20–30% can typically be realised with ASRSs.

ASRSs also reduce waste, product and rack damage associated with forklift trucks, and typically have lower maintenance requirements in comparison to forklift leasing and maintenance costs.

2. Consolidation of production and distribution

There is a growing trend for manufacturers to consolidate their production facilities in response to cost pressures, reducing the number of nodes in their networks to lower warehousing and transport costs.

As part of this consolidation, F&B companies are building their distribution operations adjacent to their manufacturing lines, eliminating the costly and labour-intensive process of shipping finished goods from a processing facility to a warehouse.

However, the limited availability of land next to manufacturing facilities and the increasing cost of land — at least in high-density population centres — can make this prohibitive with conventional manual storage and handling solutions.

Increasing storage density

By maximising storage density and allowing heights up to 35 m, pallet ASRSs require up to 60% less space compared to conventional pallet storage.

With a reduced building footprint, ASRSs can make it feasible for manufacturers to build finished goods distribution facilities adjacent to their manufacturing plants, even where land is limited. And by consolidating distribution into an ASRS warehouse, manufacturers can reduce safety stock holding requirements and total inventory costs.

An ASRS is also a very cost-effective solution for conventional warehouses that are running out of space. Replacing conventional pallet racking with an ASRS significantly increases pallet storage capacity, extending the life of the existing building, reducing costs and eliminating the need, costs and disruption associated with constructing a new facility or relocating.

3. Ensuring superior customer service levels

In such a competitive consumer-driven market it is imperative for F&B manufacturers to get the right product in the right quantity at the right time to customers, more so than in any other industry. Grocery distributors are less tolerant of missed delivery windows or incorrect products that lead to out-of-stock store shelves, imposing penalties for late or incomplete deliveries. Manufacturer distribution operations need to ensure they have the correct product in the required stock quantity, and that orders are complete and accurately dispatched in a timely manner. They also need sufficient redundancy and tolerance to operational disruptions. Just as importantly, distribution functions need to ensure they are not causing bottlenecks for operations, which can lead to production lines being stopped.

Optimising service levels

Completely automating the processes of put-away, storage and retrieval, ASRSs eliminate potential operator errors and ensure optimal inventory availability and maximum order accuracy. Operations know exactly what is in stock and customer orders are assured of being correct.

ASRSs also deliver significant benefits for staging and dispatch applications and for consolidated production and distribution facility processing lines — all critical elements in ensuring customer orders are fulfilled on time and in full.

Ensuring efficient staging and dispatch

In a manual staging and dispatch area, pallets need to be staged in trailer-load quantities to ensure trucks can be loaded rapidly. Having a large enough dispatch area is critical for dealing with daily operation fluctuations; however, many dock areas have limited floor space and the headroom is usually underused (as opposed to in an ASRS). In the event of a disruption, such as a truck breakdown on the way to the facility, stock for orders is often left in dispatch until the problem is rectified. This can lead to potential bottlenecks for other orders, which can cascade into disruptions to upstream operations, with significant impact on delivering customer orders.

A very effective alternative is extending the use of an ASRS to staging and dispatch. With ASRSs delivering faster cycle times than manually operated forklift trucks, pallets of stock can be retrieved from the system so they are ready for loading when the transport vehicle arrives in the yard.

Automated guided vehicles: integrating processing lines and ASRSs

For consolidated production and distribution facilities, automating the complete process from end-of-processing line palletising through to an ASRS increases the complete system redundancy and resilience, eliminating potential bottlenecks to critical process operations which can occur in manual systems, for example if an operator leaves accumulated pallets at a processing line outfeed.

While pallet conveyors and monorails provide robust and reliable links between production and automated storage, the ideal solution for operations that are looking for maximum redundancy and flexibility is automated guided vehicles (AGVs). Apart from providing reliable and cost-effective pallet transport, the inherent flexibility of AGVs means that as throughput requirements and pick-up and delivery destinations change, pathways can be easily adjusted and additional AGVs readily added to the fleet.

4. SKU proliferation and order complexity

Consumers are demanding a wider range of products, driven by tastes and food fashion trends, fitness and health concerns. Manufacturers are responding by introducing many new products.

The impact on F&B manufacturer supply chains is continuing SKU proliferation and the need to stock an ever-increasing variety of product. For manufacturers who are also producing private labels for retailers, this only adds to the SKU complexity they need to manage.

In a manual warehouse system, the implications of handling additional SKUs means that everything has to get larger — more pallet storage and picking locations and more travel, which leads to slower and less efficient operations, in bigger, more expensive warehouses.

An ASRS delivers greater storage capacity

By offering greater storage density and the opportunity to go higher, ASRSs provide operations with significantly more storage locations for handling additional SKUs without increased travel.

And with order profiles changing, including variations in throughputs of individual SKUs as they shift from slow to fast movers and vice versa, ASRSs can readily re-slot product to ensure fast movers are located closer to outfeed zones, increasing system responsiveness.

5. Managing OH&S

OH&S is regularly cited as the number one priority for many F&B manufacturers. The movement and storage of heavy pallet loads, potential breakages and spills all pose dangers to operators. Many DCs require complete operational separation of MHE and personnel to ensure operator safety and compliance with new work safety requirements.

Minimising OH&S risks

ASRSs, by eliminating the need for operators and forklift trucks in storage and staging applications, significantly reduce the OH&S risks associated with manual handling.

ASRSs deliver precise put-away and retrieval from storage locations, removing the risk of product, pallet or rack damage. With regards to chain of responsibility, ASRSs can deliver pallet loads to a trailer in the precise sequence specified by a host system according to axle load requirements.

6. Rising energy costs

Rising energy costs are also impacting on F&B manufacturer margins; this has particular significance for manufacturers with energy-intensive cold store operations.

Reducing total energy consumption

By maximising storage density and reducing the footprint, ASRSs reduce energy requirements for cooling or warming the storage cube. ASRSs also require significantly less lighting, further reducing energy consumption. Equipped with energy recovery technology, ASRSs also conserve energy during operation. For example, braking energy is regenerated and used by the lifting motor, enabling ASRSs to consume up to 29% less energy than conventional non-regen ASRSs.

7. Tracking requirements

Government food safety agencies require food to be tracked through all stages of production, processing and distribution (also known as farm to fork). The aim is to enable quick and effective corrective action in the event of something going wrong, such as a product recall, and prevent contaminated product from reaching consumers.

In addition to meeting Food Standards Code requirements, F&B companies recognise that product traceability systems help protect their brands by enabling a rapid and effective response to any incident. Apart from batch and lot tracking, warehouse management systems need to effectively manage inventory and FIFO rules; in many cases, major grocers will only accept consecutively numbered batches and expiry dates.

ASRSs and WCSs provide tracking and responsiveness capabilities

ASRSs can be fully integrated into an ERP/MRP or WMS via a warehouse control system (WCS). The WCS provides precise tracking of product movement and storage locations in real time. As part of its comprehensive inventory tracking capabilities, the WCS manages batch and lot tracking of products and, in conjunction with the host, manages FIFO and FILO rules.

Conclusion

The latest developments in ASRS and associated materials handling and software solutions provide significant benefits for F&B manufacturers looking to address the latest challenges facing their distribution operations.

Automation provides distinct and lasting competitive advantage by reducing labour touches and improving productivity by up to 30%, increasing service levels, minimising OH&S risks and enhancing operational flexibility and resilience, while delivering comprehensive tracking, visibility and operational management capabilities. And automation achieves this using up to 60% less space compared to conventional storage solutions.

Automation allows F&B companies to review their complete manufacturing and supply chain networks and look at where they can consolidate storage and distribution to reduce total costs and deliver superior operational capabilities. And with the cost of automation falling significantly in recent years, the business case and return on investment has never been greater.

References

1. Samuel G 2018, Independent Review of the Food and Grocery Code of Conduct, Australian Competition and Consumer Commission
2. Roy Morgan 2018, Supermarkets continue to take alcohol market share from hotel bottle-shops, Finding No. 7753, <http://www.roymorgan.com/findings/7753-supermarkets-continue-to-take-alcohol-market-share-from-bottle-shops-201811080408>

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