By Frank Spano, Managing Director and Susan Riffle, Manager of Communications, the Austin Company
The food and beverage industry is enjoying a healthy growth spurt; the food products sector is among the fastest-growing of U.S. manufacturing, adding 95,000 jobs so far in 2017, representing a seven percent increase over the past five years. The U.S. beverage sector is also growing substantially, adding 66,000 jobs so far in 2017, representing an impressive 39 percent growth over the past five years.1
Along with such growth comes the need for expansion by manufacturers. With that expansion comes new facilities located in new communities and the generation of incremental jobs for those communities. Undoubtedly, the food and beverage industry holds a great deal of promise for regions and municipalities lucky enough to attract them. The competition is fierce, especially since the industry has rigorous criteria when defining site suitability. Site and property criteria determined to be important for the food and beverage sector was explored by Austin Consulting and published in the September/October 2017 edition of Expansion Solutions (http://bit.ly/shovelreadysites).
One must consider that a new manufacturing facility operates by no means in a vacuum. The community and area surrounding a potential site figures just as prominently as site specifics in terms of influencing the eventual success of the facility and its operations.
How does one assess the surrounding community and region? This article will cover those considerations, which fall into three main categories: supply chain/distribution framework, labor/workforce potential and competitive landscape.
Supply Chain/Distribution Framework
The fast and efficient transportation of inbound raw materials to the production facility, and then outbound product to end-user market concentrations is a primary determinant in a facility’s efficiency, profitability and eventual success. Some estimates place total inbound and outbound transportation costs as accounting for up to 40 percent of total operating costs, so getting site selection and community evaluation right based on inbound and outbound logistical considerations is vital to the ongoing viability of the new facility – and the food manufacturing organization.
Product is Key
It is smart to evaluate supply/distribution needs by focusing on the product or products to be manufactured at the new facility, and the life cycle of those products. Depending on the actual product, fresh food products have more potential for degradation and are typically created within smaller operations whose output travels 500 miles or less to the consumer. These types of products typically dictate a much different supply and distribution framework than more shelf-stable, preservative-rich products, which are typically manufactured in larger facilities whose end-product can safely travel well over the 500-mile radius to its final destination, be it retail or further distribution. Also, to be considered is the supply and distribution framework already in place by the expanding company for the products to be initially manufactured at the facility; what model is the organization most accustomed to using for these types of products, and is the organization comfortable with adjusting or expanding that model?
Inbound Needs
More specific examinations of both inbound and outbound logistical needs should be done. Regarding inbound logistics, the closeness of growers and availability of raw materials necessary to produce the products in question should be considered. A thorough assessment of the existing raw material supplier network and potential agri-business relationships should be conducted, and primary and secondary suppliers should be identified to ensure continuity with inbound service in the event of failure related to weather or other factors. Access to rail lines, which are most often used in transporting raw materials to the manufacturing site, should be determined, as well as the efficiency of those lines, interstate routes and overall potential inbound freight costs.
Outbound Needs
Outbound distribution potential should be examined thoroughly, as this can be a more complicated factor than inbound material supply. Geography and transportation methods and lines related to product end-point destinations must be considered, and the distribution model (based on product attributes and the scale of the organization) must be firmly determined. In-house distribution networks, third-party distributors and direct-to-retailer models are all possibilities; each should be assessed for viability considering the potential new site, in relation to logistics and resulting costs.
Since end products are most often moved by truck, it is important to consider the competitive landscape of the trucking market in the region around a potential site, and the potential opportunities to optimize efficiencies by, for example, negotiating rates. When end-product perishables are in the mix, the use of refrigerated vehicles is often necessary and the pressures of food safety considerations are heightened. Therefore, an in-depth assessment should be done of trucking service providers within the potential distribution network and their capabilities to deliver the product to end users within a tight deadline.
Future Product Diversification – The Food and Beverage Challenge
When assessing supply chain and distribution potential, is it also smart to consider any potential diversification of the product line to be manufactured at the new facility in the future. A thorough review should not only assess inbound commodity requirements for products currently scheduled to be produced, but also forecast how the volume and variety of those commodities might change over time, as the variety and type of products produced by the facility changes. A similar examination of the distribution model and how it may vary with changes in the nature of products produced should also be undertaken.
An educated prediction of the future growth and diversification of the potential product lines to be produced within the new facility is undoubtedly a key to long-term success, and therein lies one of the biggest challenges for food manufacturing decision-makers today: how to select a location for a new facility that will not only suit today’s needs relative to logistics, but also continue to be an efficient logistical site in light of ever-faster-changing food product preferences and trends driven by an increasingly particular and changeable marketplace.
Staying attuned to these demand-side trends will help site selection decision makers evaluate potential locations based on logistical networks that facilitate the plant’s adaptation to future product strategies. Sound business forecasting and planning is essential to success. Labor and the Workforce In addition to assessing the supply chain potential and distribution framework aspects of a community, it is vital to assess the labor and workforce potential of the area. The availability of labor that meets operational requirements immediately and into the future is a critical factor for a new facility; a labor analysis, which assesses costs and skill levels, is an important step in determining whether there is a suitable workforce available to meet the food manufacturer’s needs.
The labor analysis should be two-fold: first, it should determine the availability and make-up of the current workforce – what are their skill levels, technical expertise, and how many workers with these desired credentials are available? Typically, a food and beverage manufacturing operation requires employees with backgrounds in specialties such as refrigeration, heating/cooling, quality control, food testing and safety, batch production, machine operation, etc. A detailed labor analysis can uncover the numbers and availability of such workers in the area.
Secondly, the labor analysis should determine what opportunities exist in the community to develop, educate and train workers in the skills required by the new food manufacturing facility, should current numbers of skilled, qualified workers fall short. Nearby colleges, vocational schools and technical training schools offering curriculum and certifications in food and beverage specialties should be identified and assessed, as well as the willingness of local educational sources to work with new employers in the community to prepare individuals for employment.
Competitive Landscape
The final key aspect of assessing a community for expansion potential involves an examination of the type, size and number of competitive food and beverage manufacturers located nearby or within the region. If a community has a history of hosting other food manufacturers of a similar size and type as the potential new facility, it will be accustomed to the typical overall needs of such an operation, in terms of workers, utility impact, wages and training, and support services. It is sure to have many properly skilled workers in its ranks of potential employees, readily available to step into jobs at the new facility upon opening if the new facility offers enough incentive.
On the other hand, if a community has historically hosted a large food and beverage manufacturing employer that happens to pay premium wages, a new, smaller operation may find it initially difficult to compete for the best workers based on compensation and benefits. In an industry rife with turnover caused by often challenging working conditions, an organization staffing a new facility must be open to the prospect of expanded start-up costs that include offering more attractive initial wages and benefits in order to compete for the best workers or be patient in training their workforce in-house.
Cutting-Edge Communities
Many states and regions are on the cutting edge in terms of offering food and beverage manufacturers a prime setting to do business. Part of an assessment of a potential community for new facility location should include an exploration of whether any special accommodations have been made to welcome food and beverage manufacturers to the area, and specifically what those accommodations may involve.
Michigan, for example, has created Agricultural Processing Renaissance Zones (APRZ) to further enhance food manufacturing and agricultural industry development and cooperation throughout the state, which already has a robust food and agriculture industry. For locating in these Renaissance Zones, qualifying food and beverage manufacturers are offered tax abatements if they demonstrate a positive impact on the region and on Michigan’s agricultural community.
AgriNovus Indiana is an initiative focused on advancing the state’s agricultural sector in the development of new products and services. The program focuses on the creation and support of new companies and in elevating the agribusiness sector in areas such as plant science, new agriculture developments, and human and food nutrition. The program is responsible for forming a consortium among companies, start-up agribusiness, industry associations, economic development and universities. AgriNovus Indiana is part of the Central Indiana Corporate Partnership.
Looking More Widely Ensures Success
Undoubtedly, it is wise to look beyond confines of the site itself when assessing potential locations for a new food and beverage manufacturing facility. The supply chain and distribution framework that would potentially serve the site are certainly key to success as they relate to both initial product production and planned product diversity down the line. An assessment of current and potential labor and workforce skills and availability is vital to ensuring initial and continued efficiencies and productivity at the facility. And, a wise eye to the competitive landscape with regard to food and beverage operations already located in the community and region sheds light on the business environment and its ability to be a welcoming one. Keeping these things in mind, combined with due diligence regarding site specifics, sets the table for choosing the right site from the menu of options, and ensures healthy growth as the years go on.
About the Authors: Frank Spano, Managing Director
As Managing Director of Austin Consulting, Frank develops and leads new strategies to increase The Austin Company’s leadership in aerospace, food and beverage and other manufacturing sectors. Frank also serves as a senior project manager, directs site location studies, and conducts detailed field investigation analyses for clients.
Frank’s areas of expertise include the aerospace and aviation, automotive, food and beverage, general manufacturing and consumer products industries, in addition to pharmaceuticals, publishing and alternative energy. Frank.Spano@theaustin.com
Susan Riffle, Manager of Communications
In her role as Manager of Communications, Susan creates and manages both internal and external communication materials and processes relating to thought leadership, media relations, online and content marketing, and employee training and development. Susan holds a Master’s degree in Business Administration with a concentration in Strategic Marketing. Susan.Riffle@theaustin.com
