Consumer-Driven Demands Drive Change in Food Manufacturing

Jeremy Soukup
As more consumers are looking for healthy and organic food options, manufacturers are revamping their facilities and tailoring their products to meet these demands. These complex projects call for specialized cost management solutions.

Take a look around your grocery store. Does anything look different than it did when you were younger? You may have noticed “buzz words” that have become increasingly popular on food packaging: words like “gluten-free”, “non-GMO” and “organic”. These changes have come as a direct result of consumer demand, with the average consumer now looking for foods that are gluten-free, that do not contain genetically modified organisms (GMO) and that are healthy and organic. Many major food and beverage manufacturing companies have taken notice and are making huge investments in their brands to stay relevant in the current marketplace.

For instance, there has been a clear trend toward fewer GMO ingredients in food. Scientists, as well as both consumer and environmental groups, have cited many health and environmental risks with foods containing GMOs, which are novel organisms created in a laboratory using genetic modification/engineering techniques. According to a February 23, 2016, Food Business News article, a nonprofit known as the ‘Non-GMO Project’, which lists verified products under a variety of categories, reports that within its wholesale ingredients category, the number of verified products rose from only 15 in 2010 to 852 by the end of 2015. This displays the changes over time in what we are recognizing as “healthy” options in our food, and how the food and beverage industry is following suit.

Many major food and beverage manufacturing companies are currently in the process of consolidating plants, streamlining manufacturing processes...

While it has been established by industry experts that heading toward healthier options is the way to go, making changes of this nature in a food manufacturing facility is not a simple action. Take the trend toward reduced-gluten and gluten-free foods, for example. Switching a factory from traditional refining methods to gluten-free is a highly complicated procedure, particularly because of the issue of cross contamination. All machinery must be carefully calibrated, cleaned and monitored to safeguard against contamination that may be hazardous to a consumer who has a gluten allergy. These added requirements and complexities come at a cost, as allergen separation may require added infrastructure and structural upgrades.

Many major food and beverage manufacturing companies are currently in the process of consolidating plants, streamlining manufacturing processes, making more diversified products and moving in a more health conscious direction to respond to consumer demands; a movement that is occurring industry-wide. These consumer-driven changes are shaking up the industry and causing some unique production challenges. A few of these include:

  1. Shorter product shelf life: Gluten-free and organic/non-GMO products tend to spoil quicker than traditionally manufactured products. To accommodate this, we have seen clients reduce the amount of cases produced at once. This affects plant warehouses, logistics on delivery, customer (stores) shelf space, etc.
  2. Changes in production for isolation of allergens: As mentioned above, this process is particularly pronounced in the gluten-free trend, but it also affects many other ingredients. For example, plants are closely monitored for cross contamination of allergens from nut products. Our clients are required to consider the necessary added infrastructure costs required to create this separation of space.
  3. Changes to ingredients: General ingredient changes, even to the amount of an ingredients included (such as reducing the amount of sugar in a product), affect process design, room criteria, allergen separation and many more factors. This increases costs through revised product delivery, modifications to existing lines, additional means to scale and monitor ingredients, among other factors.
  4. Short turnarounds: Many of these plant changes must be completed in as quick and as efficient a manner as possible, often with ongoing production operations in the facility in parallel with construction activities.

Cost Estimating for Quick-Turnaround Plant Projects

For projects on a compressed schedule, the challenges listed above are compounded and it is key to have the project set up efficiently and accurately from the very onset. Faithful+Gould leads this process by providing specialized cost estimating services. Our food and beverage manufacturing expertise specializes in streamlining and expediting the planning process, which provides a significant benefit in that it allows the project engineers to focus on design and execution while we organize and validate their respective scope and budgets. By providing benchmark cost data, our clients are informed with what similar scope/projects have cost and this aligns them from a high-level sense check data point. We call this our construction intelligence service delivery. This expertise gives our clients the knowledge to make decisions as quickly as possible.

On cost management projects (outside of the estimating phase) our goal is to save our fee plus 10-15% on project costs. This historically equates to 2-3 times the cost of our services.

Our estimating involvement begins with a kickoff meeting with the client’s core project management team and manufacturing engineering resources that will be developing, designing and executing the project to collect as many necessary details as possible, and establish rapport. From there, we’ll review the project schedule and project success criteria. By working collaboratively with our clients, we create an itemized project scope document and cost estimate to align these elements and identify any potential cost savings measures. We also provide guidance on project schedule and forecasting of project financials. By identifying and forecasting project costs, we allow our clients to best manage their own internal capital commitments. We coordinate these efforts with Faithful+Gould’s expert Construction Intelligence team, which pulls benchmark data and localizes our estimates (for example, the cost of labor or materials in a specific market location) to ensure they are accurate, fair and provide the client with detailed projections. These benchmarks include local labor rates, contractor availability in different regions to help understand the current construction market, evaluation of the available contractor pool, etc. We may also provide price per square foot benchmark costs for varying manufacturing building types to include production space, packaging space, ingredient/finished goods storage, etc.

In the end, our deliverable is a comprehensive, detailed scope of work/cost estimate. This detailed scope of work has historically varied from 1,500–3,000 line items of scope and cost. We work directly with each of the client’s discipline leads (internal and external engineering resources) to generate these. Our resources work collaboratively with the project engineers to obtain equipment quotes, validate installation hours, verify units of measure (where applicable) and provide benchmark cost data from years of experience in the food and beverage industry.

It should be noted that the earlier we can become engaged, the better we can help our clients deliver a successful project on time and within budget. We are often able to provide a great deal of value by being engaged early on. From the projects conception at a feasibility stage through contract/bid documents, we can facilitate value engineering discussions for all stages while providing project costs in parallel with design as it evolves. This enables our clients to make the necessary decisions during project development to include or exclude scope that may or may not be necessary. We can also identify project risks and advise on design allowances to capture the cost of scope that is required but not fully designed. Calculating the amount of risk helps our clients understand the amount of contingency that may needed to cover any unknown complications. This budget document is reviewed and approved with the client and put in place by the project or construction management team. We continually meet with project engineers, reviewing their scope and budget, sometimes multiple times a week. Most of our fast-track projects are set within an eight- to twelve-week delivery time for the project scope and budget. Again, this is very important in the food and beverage industry when trying to beat your competitors to the market shelves.

As a result, roughly 90% of our food and beverage cost estimating projects result in engagement in cost management services.

When the client chooses to continue our engagement, we engage as cost managers to track budgets throughout the project execution and closeout. Our cost managers work directly with the construction manager, design coordinator and project engineers to verify scope to be included in bid packages and organize these packages as efficiently as possible. This allows coordinated efforts by the project management team to structure the project schedule in a manner that best suits the facility’s ongoing operations. This also allows our cost managers to understand, in detail, of the scope to be executed in each bid package. This is very valuable during execution; as change orders are submitted we can quickly identify if the request is truly a change and understand what drove that change.

As the demand for healthier options drives the food and beverage industry, maintaining the budget during project execution is all the more critical. On cost management projects (outside of the estimating phase) our goal is to save our fee plus 10-15% on project costs. This historically equates to 2-3 times the cost of our services. These savings can come as a result of our team reducing the amount of scope duplication being invoiced, reviewing change orders to verify their validity of scope and cost and executing strong negotiations on behalf of the client. Faithful+Gould experts will also advise our clients on buyout/procurement strategies to review and scrutinize labor rates, contract mark ups and general conditions. As a result, roughly 90% of our food and beverage cost estimating projects result in engagement in cost management services.

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