Every year, in every industry, companies challenge their organizations to increase productivity and margins, as well as grow the business. While the first few productivity and margin “wins” may be relatively easy to identify and implement, it becomes increasingly difficult year after year. Returns per project become smaller, requiring more initiatives to be deployed in order to reach the goal. The focus becomes cost cutting vs. value creation; big ideas with the potential to drive step-change are missed or overlooked. But it doesn’t have to be that way.
Over the past 40 years, I’ve led or been involved in hundreds of Productivity and Margin Improvement (P&MI) initiatives for several leading food companies and brands. Over the course of my work, I’ve found that there are three primary reasons that P&MI projects fail: Visibility, Focus, and Inertia. These challenges are common across companies and categories. They can be overcome by re-thinking how the organization structures, staffs, and supports their P&MI initiatives, driving innovation and collaboration.
- Visibility: As companies get leaner, fewer resources are dedicated to business optimization. What once was a robust team may now be a skeleton crew. Further, P&MI goals are often assigned to a single department, such as Purchasing or Sourcing that tends to focus on pressuring suppliers for reduced pricing. This only goes so far, is a short term solution, strains key partner relationships and has the potential to impact product performance in unanticipated ways when implemented.
You can avoid this by creating cross functional teams with visibility and access to enterprise-wide operations and knowledge of the key drivers of customer and consumer satisfaction and financial performance. This includes Marketing, Sales, and Finance, as well as Operations and Purchasing. Immersion into all aspects of the business, from understanding the properties of key ingredients, to walking the plant floor, to listening to consumers, to seeing the product on shelf, to dissecting the P&L, is required by all team members, regardless of their functional expertise or responsibility. This creates a common base of knowledge, helps stimulate new ideas, and facilitates buy-in.
- Focus: Another consequence of leaner organizations is that P&MI goals become just one among many objectives individuals are charged with meeting. They also tend to be among the first to suffer in the face of competing priorities. This leads to delays in idea generation, evaluation and decision-making, making the entire activity inefficient…the exact opposite of what is intended. In addition, short term pressure to deliver P&MI results now means smaller gains delivered this year often supersede larger opportunities that require a longer time horizon to implement. Given the choice of assigning resources to a $250,000 savings opportunity in six months or a $4 million opportunity in three years, the former usually wins out. Years later, these same multi-year projects are still just an idea on paper, even though the return is much greater.
You can avoid this by creating P&MI teams with the singular objective of identifying and implementing projects to deliver both short and long term goals. Multi-year initiatives can be broken down into key milestones in order to establish specific objectives relevant to the goal-setting time horizon. This may require establishing a “special assignment” for cross-functional team members for a defined period of time and/or bringing in outside resources on a temporary basis (see #3, below). Redeploying an already lean staff to the sole purpose of productivity improvement may seem counter-intuitive, but in my experience the scope, speed, and ROI is exponentially greater using this approach.
- Inertia: Even with a fully cross-functional team, relying exclusively on internal perspectives can lead to misdiagnosed problems, overlooked opportunities, and fewer truly novel approaches. It also risks driving to the wrong solution or pathway to implementation. For example, one company consistently experienced ingredient overages across multiple facilities. They attributed these losses to manufacturing inefficiencies at loading stations, mixers, and filling areas. For nearly two years an internal team worked with equipment suppliers and plant personnel to try and solve the problem…but with no success. Finally, they brought in a team of outside experts with broad cross-industry and cross-functional expertise to assess the situation. They identified and confirmed that the issue had nothing to do with plant floor losses. Rather, it was the result of last-minute sales forecast increases that ultimately didn’t materialize. The extra ingredients that had been moved to the production floor were then moved to off-site storage, but not inventoried on a regular basis. This created the reported usage overages (and excess inventory!).
You can avoid this by, quite literally, thinking outside the box. At times, a fresh perspective is needed to challenge conventional wisdom and overcome “that’s the way we’ve always done it.” And sometimes, companies don’t have the necessary skills in-house to identify, scope, define, confirm, prioritize and implement opportunities. In either case, tapping expertise and services from outside the enterprise can lead to breakthrough ideas and accelerate implementation. In today’s free-agent workforce, where many very experienced experts work on their own or through companies like YourEncore, access to expertise has never been easier.
By bringing together cross-functional teams with enterprise-wide access and visibility, prioritizing and focusing their efforts, pursuing both short and long term opportunities, and bringing in outside perspective, wisdom and experience when needed, you’ll avoid these common mistakes and accelerate achievement of your Productivity and Margin Improvement goals.
About Jim Kamman, Ph.D.: Dr. Kamman is the former Executive Vice President of R&D and Quality for ConAgra Foods. He has over 30 years of Quality and R&D experience in the food industry, including leadership positions at General Mills, Quaker Oats, and Hormel. Since joining YourEncore in 2007, Jim has led over three dozen successful margin management initiatives for YourEncore clients. Jim holds a Ph.D. in Food Science from the University of Minnesota, with minors in Physical Chemistry and Marketing.