The UK fresh produce industry is facing tough times. Stretched margins, pressure from overseas competitors, an increased level of scrutiny on food safety, legislation, new standards in the form of RFID and less than perfect economic conditions are all taking their toll. And to further exacerbate matters, there are few signs of this tempestuous climate abating.

In order to achieve profitability, cost-cutting remains a primary objective. But this goal is set against a backdrop of numerous other pressures of ever-pressing urgency.

Traceability legislation came into force in January this year and it has cemented a need for manufacturers in the food industry to ensure watertight traceability systems.

To build further on this pressure, the high profile Sudan 1 case in February raised awareness of the potential damage to brand reputation should a food safety recall be handled poorly. But of course, such traceability systems do not just happen by default - they often require step-changes in processes and regular reviews and investment to ensure effectiveness.

RFID has been subject to so much hype in recent years, it is difficult to know where the hype ends and the real implications begin. Analysts estimate that around £2.3 billion will be spent on RFID technologies by 2008, yet the benefits and return on investment for fresh produce companies remain unclear. In the absence of this visibility, many manufacturers have sidelined RFID preparation in favour of other projects. However retailers are leading the RFID march and in doing so, need manufacturers to comply with it. This being the case, it is only a matter of time before pressure from retailers forces compliance from manufacturers. As some of the larger food companies start to take steps towards compliance, the rest of the industry is likely to follow suit in the next few years in order to avoid being ousted by the competition.

As conditions for manufacturers continue to be tough, through rising costs and pressure on margins, it is easy to see why fresh produce organisations are being tempted by moving overseas. Lower wage rates for high-labour content, flexible labour contracts, regional tax incentives and in many cases the fact there is no need to outlay capital expenditure on a new plant can make for a compelling prospect and inflated margins.

However, many manufacturers reject such a move because of the increase to risk profile and longer term costs which eat into short term savings. Improved automation and better IT systems in UK operations can make an immense impact to profit margins without a radical shift in strategy and risk profile. So while an element of overseas operation is necessary for many fresh produce companies, the threat to conform to an overseas model entirely is not as severe as the hype would indicate.

When it comes to the economy, recent research commissioned by Ross Systems revealed that 82 per cent of food manufacturers feel let down by government, while 64 per cent cited increased investment through capital gains tax as top of their list. Lower interest rates were stated by 36 per cent. Although this research paints a far-from-perfect picture of economic conditions for the industry, the recent reduction in interest rates and reports of a more positive outlook would deem this pressure as one which is improving.

Although there are examples of manufacturers leading best practice in some of these areas, few fresh produce companies could confidently claim to be a step ahead of all such pressures. There are many reasons for this, however the main one is funding. Making large investments when a cost cutting agenda infiltrates every major business decision is bound to present a dichotomy for organisations. However, acknowledging the need to make investment to cut costs and achieve the best practice is the first step towards gaining control of the issues affecting them.

So how should companies operating in the fresh produce sector prioritise investment into the escalating number of challenges and where should they dedicate already stretched resources in the next 12 months? In an ideal world an infinite pot of funding would be available to deal with each and every challenge in a timely and effective manner. But in the absence of such a pot, investment often has to be staggered, meaning that the weighted importance of each initiative has to be decided.

Food safety is becoming intrinsically linked to brand reputation, a key differentiate in ever-competitive markets, so ensuring watertight traceability systems has to be a priority. RFID could be viewed as a necessary evil as it will require significant investment, yet there are few visible benefits to manufacturers. However the near future will see retailers starting to impose stipulations on their suppliers (if not already) so this has to follow closely behind.

Economic conditions are impossible to influence so resources must be channeled into those initiatives which can help to reduce costs, increase margins and secure long term profitability.

The threat of overseas competition is also impossible to directly head off. However implementing business processes and IT systems which enable operations to run efficiently and preserve margins are integral to ensuring a competitive position in this market. Those manufacturers using a significant amount of manual processes will struggle to compete in such conditions.

It goes without saying that investment is fundamental to business growth.

However ensuring that investment levels are prioritised in the best way holds the key to winning the battle to reducing costs, increasing margins and securing prosperity for companies in the fresh produce industry in the long term.

IS POOLING RESOURCES THE ANSWER?

Imagine you are supplying product into three major UK retailers and a number of customers in other sectors. As well as growing your own produce, you also work closely with a few specialist independent growers. And to support your key customers’ programmes you source imported produce at peak periods and around the shoulder ends of the season.

What differentiates you in the marketplace? Well, you have the edge on quality of course: no one can really match what you’re offering, can they? Also you pride yourself on flexibility. Each one of these key customer relationships is different and success means the relationships continue in the future - but in any case, there are penalties for making mistakes. So how is your business doing? Well, it is challenging: last year was a very tough year. You are hoping that next year will be better. Does any of this sound familiar?

Consider how much it is actually costing your business to deliver that flexibility. The chances are, your internal processes have evolved to be different for each key customer that you have. You are almost certainly paying to maintain different EDI systems to receive their orders. The work instructions for packing, labelling and distributing product are likely to be different, too. You may be using several alternative sets of internal paperwork for QA and through the packhouse, depending on the customer. Even the way you invoice product to your customers is most likely designed to meet their individual needs. Put another way, there is duplication of effort going on here. And if you run multiple packhouses, how easy is it to switch production between them - is that customer specific capability easily transferable between your locations? Are there cost savings to be had if you could do it confidently, without compromising the quality and consistency of your deliveries?

Of course, you cannot opt out from dealing with variety. Unless you have decided to build your business on a single key customer relationship, you must provide the flexibility to meet each customer’s needs. The goal is to do this cost effectively.

IT has a big role to play here. A modern, flexible business system designed for the produce industry provides two of the fundamentals.

Firstly, implementing standard software will help to ensure that you do not operate different business processes for every customer, just because things evolved that way. The more commonality you can get in your internal processes, the more strength you will have in your operations.

The second foundation is around product knowledge. The chances are that right now you have key personnel in your business who work very closely with particular customers.

They understand the relationship and know the products inside out, the right people to talk to and the processes that must be followed to get things done. They are also the people whose experience is most valuable and whose talent could be harnessed to help your business grow. If only they can make the time: but of course they are working flat out to maintain the status quo.

What a business system can do is to provide a single, central location for storing all that valuable product knowledge, in a structured way, so that it can be easily shared. This makes it easier to cross-train existing staff or to train up new people, and reduces the scope for errors. It can also free up your best people to spend time working on opportunities that will drive the business forward.

Establishing standard business processes internally sounds like common sense and will surely repay the effort. However, one group comprising some of the largest growers in the US is aiming higher. What they want to do is to influence retailers to adopt a common method for describing and ordering items of fresh produce electronically, to eliminate variations between different retailers. This translates into more efficient operations internally, as the need for customer-specific order processes and EDI systems disappears.

The members of this group meet as competitors, but on this initiative they have chosen to pool their resources and work together, for the benefit of all.

Ambitious? Certainly - and it is not something that any one of them could hope to tackle alone. But acting in concert they represent a substantial volume of supply in their home market - enough to get retailers around a table to listen. And their goal is to reduce costs in the supply chain, for the benefit of all parties. How successful the initiative will prove remains to be seen - but all credit to them for spotting an opportunity, and for partnering with one another to try and make it happen.