Most of the time on the AZO blog, we dive into the tactical details of how to address very specific plant challenges. Today we’re zooming out and having a higher-level business conversation with our general manager Chuck Kerwin about risk, uncertainty and how the COVID-19 pandemic has forever altered the landscape of the bulk material handling world.

Chuck often talks to a variety of high-level managers across the industry, so we recently caught up with him to discuss what he sees evolving in the world of manufacturing relating to these pertinent and all-encompassing topics. 

Many companies across packaging and processing have experienced a surprisingly profitable year, but it required fast action in rapidly changing market conditions. The common thread among many success stories is agility and flexibility. Here are a few thoughts and takeaways from our discussion about the state of the industry adapting to the COVID-19 pandemic. 

What is the difference between “risk” and “uncertainty” when it comes to bulk material handling?

CK: In my eyes and my mind, risk is defined as what could go wrong doing the things that you do every day. Uncertainty, on the other hand, is a major event or problem that you can’t control. It could happen inside your organization, but likely it is outside of your organization. Either way, it will impact your production in a big way. COVID, the ultimate example of uncertainty, impacted not only your company... it impacted the entire economy. It was a classic unknown, unknown.

You can plan for risk. You can take steps to reduce risk like training people to be better drivers. You can do preventative maintenance in your manufacturing line to minimize downtime risk. It is much more difficult to plan for uncertainty. A better way to plan for uncertainty is to strive for flexibility and adaptability. Diversify your manufacturing plants, be ready to quickly diversify or modify your products, and to have plans ready to be able to shift from one way of doing things to another quickly. 

For example, if you have both consumer and commercial food product, and demand for one suddenly changes, could you quickly pivot to shift production from one to the other? You need to ask yourself, “How can I be flexible enough to make such a change, as fast as possible?”

Everybody needs to look at their own operation their own way, and it’s certainly not an easy question to answer. There are a lot of different solutions and scenarios there, and you have to look at the whole chain of production — where you get your ingredients, how you manufacture it, how you go to market, etc., to be able to have flexibility. 

For years we’ve seen specialization as the way to lower unit costs, but specialization is inherently inflexible. There are many companies that produce only a few products with let’s say, commercial-type packaging. In the last six months, COVID-driven change gutted demand from plants. Conversion to consumer packaging took time and often a lot of money.  It’s easy to make the case that not only should your plants be diversified, but what’s produced in the plants should be diversified as well.

In response to COVID-19, how have companies had to evolve and think differently about supply chains?

CK: If companies are articulating more awareness about any future supply chain disruptions [such as COVID-19], we’re only now hearing from them. Initially what we heard was “let’s wait and see,” “let’s keep our cards close to our chests until this passes.” As time has passed, we are beginning to hear more talk about the need for production flexibility and redundancy.

I think there are a couple of things that are changing. I read last week that some big companies that raised extra cash in March and April are now releasing that cash because “We’ve seen the worst of it, and things are better.” I think our customer’s reaction to COVID continues to evolve and it will continue to change as the pandemic winds down. 

As a result of COVID, are companies continuing to consolidate their manufacturing, or have the recent market disruptions slowed that process?

CK: From what I’ve seen, consolidations have slowed but not stopped. It seems cost reductions are still driving capital purchases. We do have one customer that is bucking this trend. This customer produces a single key mix in a single plant. They were actively negotiating to build a duplicate plant with us. They were concerned about having all their eggs in a single basket and were looking to duplicate production with a second plant to mitigate this risk.

Unfortunately, their commercial business is way off. Despite booming consumer business, overall business is down about 15%. As a result, that project has now been delayed a year. 

Should companies use capital to drive down costs and increase efficiency, or to build in resilience and the capability to endure disruptions? 

CK: This is a fundamental question faced by every manufacturer in every industry. For years, efficiency and cost reduction drove change. COVID has definitely forced many companies to adapt quickly due to changing market conditions. Some companies made these transitions better than others and their financial results improved significantly. 

We continue to see a decent amount of discussion concerning new projects, but it is difficult to say that the projects are driven more by cash in their pockets vs. the need to address deficiencies. Still, we think that people are thinking about how COVID changed their business and what they may need to do in the future. 

That said, people are still reluctant to actually make that leap — to place the order, to spend their money. But we’re seeing some interesting projects on the radar screen, and we are optimistic for 2021. 

Do more companies wait until a machine stops running to replace it, or do most companies invest in new technology because of the specific benefits it would pose to their line? 

CK: I could give you anecdotes of both in spades. “If it’s not broken, why fix it,” right? That kind of thinking can easily get you into a jam. I think that the smart thing to do would be to start with the depreciable life of the equipment. That’s a good rule of thumb. Depreciable lives have different lengths because of the nature of each asset. Nothing lasts forever. Ultimately, everything needs to be upgraded or replaced. Unfortunately, accounting usually wins out over engineering. Generally, American companies run equipment until it breaks down. 

I honestly think that manufacturers need to be continuously upgrading plant and equipment. The idea that “everything is good, we’re in a perfect place and we don’t have to spend any money on capital equipment” is a recipe for disaster. Efficiency deprived from process improvement will allow for sales growth. Efficiency derived from consolidation and plant closures assumes the top line is, at best, stagnant. If demand suddenly takes off due to some market disruption, where can you find the extra capacity? It’s a missed opportunity. 

Tech companies, whose evaluations have really taken off in the last five years, spend money like there’s no tomorrow. They’ve been able to really deliver sales, so their investors are ok with gigantic capital investments. I think management in traditional companies are really reluctant to make those bold investments, because it would put themselves into a hot seat with their investors. If you make big investments, then you’ve got to deliver solid financial results on those investments. That said, you don’t have to spend like Amazon to bring new technology onto your production floor. Digital scales, updated operating system software and integrated filters are just a few of the small investments that can be made to improve efficiency and accuracy of your production lines. Think in terms of continuous improvement instead of next generation. That’s a recipe that is sure to work for everyone!

If you’re ready to start delivering new and greater results through ingredient automation, we at AZO welcome any questions or concerns you might have. Our sales engineers are dedicated to solving your process challenges. We also have free, downloadable material on a variety of topics (including how “Super Plants” are shifting the landscape of ingredient automation). We have more than seven decades of experience in the ingredient automation world and have added tons of other topics also covered at length on our blog.