In the ever-changing food manufacturing landscape, there is consistent pressure to cut costs from retailers, customer or internally within your business. How do you uphold your margins whilst maintaining product quality for the end consumer?
While it can be easy to fall into the cost-cutting traps for short term gain, this can result in long term sustainability failures for your company. In this article, we unpack how you can cut costs while upholding product quality.
How do you cut the cost of your product?
There are numerous ways to cut costs out from your products and when considering the options, long term sustainability should be the overall strategy. Here are some of the common cost-cutting strategies:
- Substitute ingredients and packaging with a cheaper option.
- Switch supply base to whoever is cheapest.
- Reformulate the recipe using cheaper inputs or removing ingredients.
- Reduce pack weight and leave the price as is.
- Reduce the specification requirements and hope the customer approves.
- Increase economies to scale, even without a demand.
Impacts of cost-cutting and what this means for product quality?
No matter the reason for cutting costs, it is important to understand the holistic impacts for your process, product and customer to stay competitive and relevant within the industry.
How many of you have seen or been a part of the following situations or risks created by cost-cutting?
- A substitute of equal or lesser quality, may not perform as effectively and therefore impact on product performance (e.g. shelf life).
- Destabilisation of the supply base with no strategic partnerships and/or supply consistency.
- Customer complaints increase due to factors such as product sensory attributes or price change. The customer has expectations and perceptions that the company should try and align with.
- Customer or Retailer don’t accept the adjusted specifications.
- Increased product waste or excess stock to be disposed of or sold at a reduced price elsewhere in the market.
- Lost sales or impact to brand due to product adjustment – this can be hard to quantify, as a majority of end consumer don’t report product issues.
- And dare I say it… product recall or withdrawal and the associated costs.
Being aware of all of the potential impacts of cost-cutting will help mitigate risks and allow your business to make an informed and strategic decision.
What to do when any element of the product is changed
Here is a list of the essential activities your business must do when any element of the product is altered or changed.
- Retest the product in the same way for any NPD (New Product Development), including micro’s, shelf life and transit/handling trials.
- Check the product processes against the current HACCP and allergen systems and update where required.
- Utilise a trained sensory panel or even experienced company staff on the product and compare the adjusted product to the current product for the full shelf life of the product. This data will either prove the product is equal to or better than current product and if not, further work needs to be undertaken. This process is continuous until an approved product is reached. You could go one step further and doing consumer testing.
- Provide the above data to the retailer/customer along with the proposed updated specification to open communication and gain agreement of the adjusted product. N.B It is beneficial to work with your sales team on this and get them scripted on what has changed and why. Customers will probably try to get a reduced price, this is when the sales team works hard to keep the margins.
- If product is approved, update all production sheets / systems / data / procurement etc to ensure it matches with the new product, leaving enough time to order new materials for the launch date.
- Communicate and train the updates with the manufacturing floor staff who are producing the product. Be clear on what has changed and the new procedure(s).
- Last, but not least, check that what you have put in place is what is actually happening – this is the critical verification process. It is key that not only the quality team do this, but also the operations team.
What to do if your supplier makes a change
If your supplier has proposed a change and communicated this with you, follow the above steps. Unfortunately, it’s the unknown supplier changes that catches food businesses out more often than not and it is important to limit this risk to your business.
Here are some helpful tips to manage this potential risk:
- Ensure you have a thorough approved supplier program, that includes applicable current, in date certifications and audits for their operations and yours.
- Work at creating strong supplier relationships, so the supplier is more likely to discuss changes or issues with you before they are implemented.
- Check delivered inputs to site against agreed specification (preferably before use) and trend supplier performance. Review supplier performance quarterly or when there is an increase of non-compliant inputs.
- Ensure your business has effective verification systems (e.g testing schedules) that are appropriate and likely to pick up an issue before the customer does.
In summary, cutting costs comes with a host of potential risks and impacts on product quality, key supply chain relationships and consumer satisfaction.
It is your businesses’ responsibility to identify and mitigate these risks with considered strategies and implementing a whole of business approach to an effective process change.
- Validate your product no matter how insignificant the changes might seem. For example, a molecular change in the formula of plastic packaging can decrease your shelf life by days or even months, despite the specification appearing to be the same.
- Verify your current processes and systems, to ensure what you are supposed to be manufacturing and to what standard is occurring. If not, review the non-conforming areas and make the necessary changes.
- Create strong relationships both within the business and externally with suppliers and customers. They should then be more open to discussing challenges, successes and upcoming changes.
- Continuous improvement to review and update your business to stay industry relevant.
- Align the decision-making process and change management process with the company strategies and long term goals.
For support with your processes and systems, reach out to Intuitive Food solutions. Schedule a free confidential conversation with us.
I’d love to hear your thoughts in the comments below. Do you follow a similar process? What impacts has cost-cutting had in your food business and how did you overcome these?