Adding up the real costs of expansion
June 3, 2016
by Joe Stout
Does the following sound familiar to you?
We are a mid-sized, privately held company, and business is doing great. We have a good, loyal customer base and great management team with a solid, committed workforce. Our existing product volume has been expanding 10% annually for the past three years, and we are approaching our current plant capacity.
However, two of our best customers requested that we expand into a new product type, which will require additional equipment and perhaps an expansion of our facility. We have capital — a combination of cash and a credit line — to fund such growth. It’s all good! Let’s get going and increase our volume and revenue!
Wait a second. What are we thinking? Slow down for a minute. We always have been supporters of food safety and sanitation, but more from a “get it done” program and execution perspective. As we approach decisions with our manufacturing operations, we should consider the long-term (5 to 20 year) view before we design and build something that may not be suitable or cleanable to meet future customer and regulatory expectations. At the same time, we should consider potential food safety risks, especially in the areas of pathogens and allergens. Also what about those Food Safety Modernization Act (FSMA) regulations that we hear so much about? Will they bring changes that we should plan for with an expansion?
At the a subsequent company senior leadership meeting, consensus builds for adding new products. While expanding is good news, it also presents complications as our facility is overcrowded with legacy equipment (older designs from a generation past) with limited space for production or cleaning — not to mention adding new lines with an expansion. With these new business opportunities, there are a number of questions. “Where should we start?” someone asks at the meeting. “Has anyone talked to quality, food safety and sanitation (QFSS) yet?” Another person quips, “Not yet because they have a tendency to analyze everything and slow down the process.” Another: “Well yes, but they are a necessary evil in the process, and they will bring a non-operations perspective. Set up a four-hour meeting with those folks to start the process.” The discussion and negotiations begin.
Seven hours into a scheduled four-hour meeting, there is some progress. Consensus is building to do a risk assessment on the existing facilities and equipment based on new product formulation and processes — and the limited available space in the existing operation. Some in the group believe lines can be installed in the existing facilities to minimize capital expenditures while others claim there is limited space now for food-safe manufacturing, shipping, receiving and personnel facilities. Finally, after eight hours, the meeting is adjourned, and all leave exhausted with a to-do list in preparation for the next meeting in a few days.
At the next meeting, the completed risk assessment presented by QFSS indicates the need for enhanced controls for new allergens (nuts and eggs) in the products requested by customers. The risks identified include allergen storage and the potential for cross contamination. The solution/required action involves additional storage for the allergens.
Consensus is building for an addition to the existing facility to house greater processing, packaging and storage space. Equally concerning is the need to complete allergen changeovers since the customers specified clean labeling (without “may contain” warnings). This, of course, calls for another risk assessment to determine if the legacy forming and packaging systems can be cleaned to an allergen-free level.
The follow-up risk assessment for equipment design and cleanability is completed by QFSS who use the Grocery Manufacturers Association equipment design checklist. The news is not good, and it appears that the score was less than 50%. The recommendation is to not use the legacy equipment and to plan on purchasing new cleanable equipment. Up go the capital costs, but you also enhance preventive controls to minimize food safety risks in the future.
Of course, you recognize that scenario. It’s happened to you before and will likely happen again to any successful baking or snack company.
This is a light-hearted look at the challenges companies face when developing a new facility or exploring an expansion. Considering food safety at the conceptual design stage is so important in bringing it all together when the time comes to start production and continually make safe products for consumers. Highly successful designs I have seen over the years have been those that involved early engagement and collaboration with functional partners. Teamwork wins.