Profiting in a Low Margin Industry

Profiting in a Low Margin Industry – Martin Gooch

Aug 1, 2019

Food loss and waste (FLW), quite rightly, is receiving considerable attention. However, the business case for reducing FLW often gets missed. I view FLW as a visible symptom of underlying inefficiencies and ineffective processes. As identified in the OPMA case studies available here, addressing the financial, reputational, and opportunity costs associated with FLW invariably has a considerably greater impact on business performance than a cursory glance may suggest. This is particularly the case given that our industry operates on slim margins and typically accepts higher levels of loss than other sectors of the food industry.

Capturing financial opportunities need not be complex or intimidating, and can be learned quickly. Key to sustainably improving financial performance is implementing the robust processes and daily management systems required to pilot and test ideas on a small scale before steadily expanding them across the business.

The name commonly given to this continually improving process of developing and testing ideas in a structured fashion is the Plan-Do-Check-Act (PDCA) cycle.

Based on two decades experience improving the performance of food supply chains and businesses, the tools and techniques first developed for OPMA – and recently enhanced for an online resource shortly being launched by CPMA – reflect a methodology known as “lean six sigma” (LSS). The focus of lean is matching capacity to customer and consumer demand, and reducing cycle time. The focus of six sigma is minimizing variations in quality and supply, resulting in greater predictability and consistency than otherwise possible.

So where do you begin? To help ensure that you will gain insights that can be acted upon in a short timeframe, form a small team of people from across the business. With these people, agree on a problem that you believe would benefit the business, if resolved. Distill the problem that you are seeking to resolve into a concise description, then determine how the project’s progression can be documented in terms of desired outcomes, timelines and scope. Together these descriptions form a project charter, an easily communicated document for gaining colleagues’ buy-in and support.

The next step is to map the chain. The purpose of mapping is to understand how current processes associated with the problem expressed in the charter operate to identify waste or non-value-added process steps and potential causes. A word of caution: do not undertake this action lightly. It is not unusual for businesses to experience multiple “aha, why are we doing this?” moments when a light has been shone on how their supply chain actually operates. 

Armed with the charter and map, the next step is to identify potential root causes of the problem identified. Completion of a cause and effect (fishbone) diagram will guide the development of pragmatic solutions. [Click HERE to see a mainline distributor’s process map and cause and effect diagram.]

A structured process for capturing financial improvements by having documented, prioritized, and auctioned solutions to problems identified in the project charter is accessible through OPMA’s food waste webpage and CPMA forthcoming online resource.