Overarching system is pure necessity
In order to increase profit margin, food manufacturers are looking to enlarge their operating scale and therefore looking abroad, where there are often potential growth markets. Partnerships, mergers and acquisitions are taking place throughout the chain, both horizontally and vertically. How do these expanding companies keep a grip on all their new subsidiaries?
It is anticipated that the overall food industry will undergo only modest growth in the years ahead. Domestic growth in The Netherlands is stagnating while consumption is increasing in emerging markets. Bulk producers can benefit from this development and alongside ongoing production and chain efficiencies are now looking at enlarging their operating scale through internationalisation in order to grow their margins.
At a global level, the population is growing and prosperity is on the rise. The demand for food is increasing in major parts of what used to be called the third world. That's why we are seeing more mergers, acquisitions, joint ventures and further chain integration. This is happening at home and abroad. Research undertaken by ING indicates a diverse and fragmented structure at the approximately 60,000 agri-related companies in The Netherlands. Due to their scale and degree of organisation, they are at a disadvantage compared to other parties in the chain. For this reason, cooperatives and grower associations are being formed: united we stand. These producers are increasingly bypassing the wholesale sector and delivering directly to the retail industry. Consumers want to be able to buy all kind of fresh fruit and vegetables on the supermarket shelf throughout the year. They will therefore buy from countries with differentiated harvesting periods and other climate zones, mostly located in the southern hemisphere.
At the same time, the predictability of quality and supply of products is important so as not to disappoint the customer base and lose it to other manufacturers. Traceability has become crucial in recent years due to food scandals and health trends. Products need to comply with more rigid legal requirements and consumers want access to more and more product information. All these priorities call for a streamlined, uniform way of working. For this reason, production planning, stock control, order planning and supply chain management need to become better and more transparent.
The more companies there are, the more systems they use. When food manufacturers acquire other companies, they are often confronted by a patchwork of IT solutions that are not integrated with one another. This not only works inefficiently, but can also be the cause of mistakes as the conversion of data sets, for example, is not always a seamless process. An integrated ERP system, supporting the entire production and distribution chain, can be the solution. This works best if that ERP system is installed in such a way that internationalisation is made easy due to compliance with local rules and regulations and by supporting various currencies. Moreover, the system must be able to support substantial warehousing functionality for international bulk traders.
Within the food sector, no single assortment, organisational structure, vision, strategy, way of working or corporate culture is the same. They do have one thing in common, however. Simply that all companies crave peace of mind with respect to their automation and administration. This enables them to focus on realisation of their corporate growth ambitions and on boosting their profit margins.