Positive signs of an economic rebound have fueled optimism amongst suppliers, although concerns linger regarding commodities, investment recovery and customer service demands.
CANDY INDUSTRY: With the Great Recession of 2009 in the backview mirror, early prognostications suggest that 2011 will display stronger signs of recovery than last year. Do you see such signs of recovery among your customers? If so, where do you see growth coming from?
JAN HAMMINK: What we see is that, starting actually with November last year, our intake increased very rapidly. And when we now look at - it’s only February - but when we look at our orders, there is a huge difference from 2010. It’s very broad-based. I don’t know whether it is sustainable, but at the moment it is really good.
CANDY INDUSTRY: Jan, have you implemented any cost cutting measures during the recession?
JAN HAMMINK: Yes, we did, but it didn’t affect our production, so we can easily ramp up with the same manpower.
MADS HEDSTROM: We also see a difference, we’re seeing more and more orders.
RALF SCHÄFFER: It’s also the same situation with us. The orders are much higher than last year, even in 2009. Cost cutting at Sollich has always been a focus, but we did not reduce our staff or reduce any capability to build our processing machines. The problem we are facing at the moment is that companies supplying specific components are not delivering the parts we are looking for. I think we are all facing the same problem on the machine building side. So the time we normally calculated for ordering and receiving has tremendously increased. It’s forced us to adjust our planning and scheduling.
STEVEN STAAL: Do you know why this situation has arisen? Is it because they brought their stocks down and couldn’t recover quickly enough?
RALF SCHÄFFER: I think they reduced costs, they reduced production capacity. They reduced the stock. And I think they were forced to look short term, to save money and reduce costs, much more than we were.
THOMAS MATOSEK: Yes, we see shortfalls across the board - sheet metal processing, welding, whatever.
CANDY INDUSTRY: It certainly complicates long-term planning, which I suspect also affects ingredient suppliers.
STEFFEN STORGAARD: For us in the fats and oils industry, it’s still very early to predict how 2011 will be. As you all know, commodity prices remain at a very high level, so customers are very reluctant to cover long term. That’s the challenge at the moment. So they are covering for the next month.
JAN HAMMINK: Just-in-time deliveries.
STEFFEN STORGAARD: So that’s why we are waiting for them. Yes, orders are coming in, they are okay, but we don’t know how it will be in six months. And another issue is that there are quite large regional differences in terms of the recovery, and what we see from a global perspective. We expect quite good growth in, for instance, Latin America. The Brazilian market is really good right now in our industry. We also expect a lot coming from Asia, China for instance. We are opening a new sales office in China next month. And while we do a great deal of business in Europe - in terms of growth - it’s a saturated market, a lot of competition. So it’s not as big a growth area as in the new markets, in the emerging markets.
EDUARD SALA: As a chewing gum supplier, we hold views similar to Steffen’s comment. Latin America and Asia are the two regions that are providing by far the largest growth at present. On the contrary, other areas like Europe are much flatter in terms of activity, at least for our customers. There’s no doubt that raw materials prices are rising, which is reinforcing the perception from customers that it’s important to act quickly, buy your raw materials now, because most probably in the next coming months it will increase even more. Moreover, doubts remain whether these cost increases will end soon, so companies are even maximizing their purchases to avoid future price increases.
ANDREW FLEMING: I would like to add to my ingredients colleagues’ comments with a chocolate and cocoa perspective. In looking at 2011, we’re sort of strapping ourselves in, because it’s going to be a pretty turbulent year. If you take into consideration the current crisis which is evolving in the Ivory Coast, I mean that’s a huge concern for us, not to mention other commodity pressures. Steffen has commented on oils and fats, which clearly have an influence not just on the CBEs [Cocoa Butter Equivalents] that we use, but on the cocoa butter itself. And then you also take into account the volatility for sugar and dairy, and this degree of volatility is something that the chocolate industry has not experienced before. I mean, buyers are used to looking at volatility in the cocoa market, and are experiencing that. But when you add that to volatility of the cocoa ratios on the processing side as well as sugar and dairy, then the price swings you can see are massive, and it becomes very difficult for our customers, particularly in the UK where private label dominates. A lot of the business goes into private label, and then they find it extremely difficult to have those conversations with the retailers. As a consequence business changes hands a lot. The problem that people can get themselves into is, if they have a good position on raw materials, they have sugar covered, they have dairy covered, they have cocoa covered, they sometimes use that as a competitive advantage. That quickly changes, however, once the terms of the contract expire. So we see a lot of switching of business backwards and forwards.
ANDREAS LEITZE: For us in the sugar confectionery processing sector, 2010 was a very strong year. Now we have the feeling that the customers are more open to new concepts, new ideas, and that they’re trying to get new products into the market. Consequently, customers are looking to conduct trials for new recipes, test new types of product.
RENE DE VRIES: At last year’s roundtable, we were talking about a negative curve. But just after February, in March, the recovery started with some fairly large orders. Since then it didn’t stop. As a result, we were actually slowing production a bit. Since April last year, we began running two shifts, then 24 hours a day starting in February. At the moment we are already full with orders until the second half of 2012. So from a little work, it went sky high. It was quite a big switch. And again, it’s a problem of getting our suppliers to provide us with components. As you can imagine it really complicates production planning.
BERND ROSER: Well, we have seen a strong recovery last year as well, due to the wide customer base and multiple industries we supply. Though we had to go through stock reductions, we managed this without extending lead times. So we have capacity, we can supply, and we see a lot of demand. Globally, the USA and Europe are good. Latin America and Asia, as everybody has said, are also growing quickly.
THOMAS MATOSEK: Actually I can only confirm what has been said already. We saw a big increase in 2010 compared to 2009, but we increased the same figures as we were used to before the crisis. We did not reduce our workforce, we reduced the number of temporaries, so we kept the same capacities, and we’re facing the same problems as, I think, our friends here in the industry, with sub-suppliers and long lead times. I think you will see some more growth in 2011, but I’m not sure whether it’s going to be at the same rate as 2010.
MATTHEW COTTAM: I still see a lack of credit in the marketplace as having a dampening influence on 2011, which would prevent the recovery progressing as fast as we would like it to progress. The knock-on effect of this, I believe, is we’re seeing more sales with a private owner than we are with the big corporates. And this is maybe more a British phenomenon. Still the European economies that have struggled recently - notably Spain, Ireland and I’m going to say Britain - it’s been because of a lack of credit.
CANDY INDUSTRY: So even big companies are finding it difficult?
MATTHEW COTTAM: Well, I’m just reflecting on the past 12 months really, and I’d say generally there’s a lack of credit out there. There are plenty of good project plans, but the financial release doesn’t happen to enable the projects to go ahead.
MARK BEAVER: I’d agree with Matt there. I think we’re seeing private owners, who are very cash rich and able to move very quickly when they see an opportunity, whereas the large multinationals are maybe a bit more constrained, and need to preserve their cash for other areas of the business, who can’t move as quickly.
CANDY INDUSTRY: Especially those who’ve made major acquisitions recently, right?
MARK BEAVER: Absolutely right, yes.
STEVEN STAAL: I think another aspect is that over the last 12 months, we discussed that last year also, conditions have changed. You see more and more people asking for bank guarantees. So like we concluded last year already, that it is all about cash, not only for the customers but also for the company producing it. I think that still stands.
ANDREW FLEMING: I think that also fits with the ingredient sector as well, because more and more customers are having to make sure that they have the cash available to finance their working capital, because, of course, if their raw materials double in price, the amount that they have to reserve for working capital goes up, so the cost of running the business, particularly if you’re in commodities, is very high.
CANDY INDUSTRY: Eventually that’s going to translate into a price increase, I would assume?
ANDREW FLEMING: It will, inevitably. But just building on Matt’s comment, I think what it does do is that probably, people are a little bit more careful about how they manage their cash position, and therefore probably a little bit more reticent to make big investments.
STEVEN STAAL: I think the world has changed structurally, and it will take a long time to get back to a level like that, if we ever get there - because I have seen a significant transfer from a seller’s market to a buyer’s market, and I would say that buyers in the industry, depending on what type of company it is, realize that they have more power than they thought.
MARTIN MCDERMOTT:The pressure now is on the price. It’s the work that’s been put in. So when you refer back to 2008, there wasn’t that pressure, you know. You were getting your pricing. Now it’s different. Now it’s a real battle.
CANDY INDUSTRY: That means internally you have to kind of figure out a way to cut costs.
THOMAS MATOSEK: Each and every project.
STEVEN STAAL: Well, you do everything to try to move away from the price, which is sometimes possible and sometimes not, and you have to be clever in the sense, well, what have you supplied and with whom have you compared? Because I would say that in 2008 two quotes were enough for a company to do something. Now they ask for five quotes, and they deal more seriously with it.
JORDI TORRES: Well, basically we have started the year in a very promising way, but our concern is how the turmoil in economies such as Egypt, Libya, Tunisia will affect the global economy. Some projects in that region now are, let’s say, a little bit ‘Stand back.’ So our concern is what will happen with this and how this will affect the whole economy. As you all know, one can’t escape globalization. If something happens there, you’ll feel it here.
CANDY INDUSTRY: Right. Anyone else dealing with countries such as Libya, Egypt, Tunisia?
MARK BEAVER: I think the ramifications are global. If the oil price keeps going up, then that’s going to limit the spending power of consumers in a lot of the developing markets, which consequently is going to affect the consumption of the end products that a lot of our technologies produce. So I think we shouldn’t delude ourselves since there’s a long way to go with all this. There could be a lot of volatility during the course of the year.
CANDY INDUSTRY: With interpack 2011 just around the corner, I’m interested in finding out what is the main thrust of the new innovations and improvements your companies have prepared for the show this year.
THOMAS MATOSEK: I think the biggest trend we saw at interpack 2008 was the demand for easy-to-clean or hygienic machines, and I think this trend will go on and we’ll see the same topic at interpack 2011. What we’ve done, we basically started re engineering our equipment about five, six years ago and we’ve been completing our range of hygienic equipment. The second big topic we see coming up is energy efficiency, so while in the past I think all of us produced equipment and lines for maximum capacity with maximum cooling capacity and with maximum utility consumption, we now have to downsize. We have to make it fit the application in order not to waste any energy and resources. The third trend we’re seeing is the trend towards smaller production lines, and local production in smaller markets, in order to avoid logistics costs or these kind of things.
CANDY INDUSTRY: And what are your expectations for interpack this year?
MASSIMO PIETRA: I would say as great as usual, and we’re expecting large crowds of customers, all eager to find new solutions, new equipment and a willingness to invest.
MARK BEAVER: I think the area of sanitation is interesting. We’re starting to see in the United States more direction toward that. The Grocery Manufacturers Association has come out with a set of rules for hygiene control.
MATTHEW COTTAM: The 12 principles.
MARK BEAVER: Yes, principles, which people are starting to look at. Another side of our business is biscuit technology, and in particular in that arena, there’s a big push for equipment design to follow those principles. People are very interested to see that. We’re starting to see that interest spreading to other areas as well, on the confectionery side and elsewhere. So I think there’s a definite move in that direction.
CANDY INDUSTRY: I know that your company’s been involved in new product development with ingredient companies, etc. Is that focus still ongoing, and are you being asked by your customers to help out more in new product launches?
MARK BEAVER: We’ve always had a product development lead over many years. It’s a mixed bag. You get the people who are brave enough to launch a new product. I mean that’s the real issue. Developing a product’s part of it, and obviously then we know the issues in terms of marketing and market acceptance of new products. That’s always a high risk strategy. I have to say, over the last 12 months we’ve seen more people wanting to spend time with us in our innovations center, looking to develop new innovative products, which is always a good thing to see. People, particularly the larger organizations, are looking for that differentiation in the marketplace.
CANDY INDUSTRY: And your expectations for interpack?
MARK BEAVER: Are good. Yes, we’re very confident.
RALF SCHÄFFER: As you know, I’m also part of the board at interpack, and therefore I can tell you that interpack is, of course, fully booked. So I also expect a very good interpack.
CANDY INDUSTRY: What about trends in terms of what you’ll be showing at the show?
RALF SCHÄFFER: I think what Thomas said is, of course, the trend: Everybody is talking about hygiene, about energy, about building the machine in a way that the operator can do the maintenance work. I think we, as a machine supplier, have to be a little bit careful that we are not pushed too far. When you talk to people who are responsible for the hygienic execution of the machines, they lose the view of the production goal. You can have a very hygienic machine, but it can’t produce anything. If there are some special situations, the machine will stop. That is the message that we have to tell our customers, that energy saving, hygiene, everything is very important, but not the only thing.
THOMAS MATOSEK: I can agree with Ralf. In some cases, hygienic machine design has become more important than the functionality. Yes, but still, I mean, when our customers’ team comes to a decision, hygiene is what counts the most.
MADS HEDSTROM: It’s the same with energy, I mean, we can say, ‘Yes, yes, you will.’ You have to. We have also just brought out a new tempering machine, where you save 5% – 50% on energy. You know, you have to do these things.
THOMAS HUBL: I agree that it’s the aspect of energy which is becoming more and more important, especially when you have to build roasters, and you need to have a lot of energy for the roaster. So at the interpack, Probat will display a roaster that has heat recovery, to give our customers a chance to save some money. And we’ll have also a new system to capture and clean exhaust fumes, which we have now installed in several facilities throughtout Europe. Our customers have to spend a lot of money to ensure environmental compliance, which involves using catalytic systems or afterburners.
ANDREAS LEITZE: These trends, such as easy to clean, energy efficiency, which have been mentioned here by Thomas and Ralf, are also present on the packaging side. That means tight packages for chocolate, again, a hygienic issue, obviously, and also for example, single-wrapped jellies. The trend toward individually wrapped jellies is another example of increased emphasis on hygienics.
JAN HAMMINK: I’d like to make an announcement related to interpack: Carle & Montanari, Probat and Caotech, have entered into a preferred partnership relationship for cocoa processing. This means that we can offer our customers complete turnkey projects, and the customer can work with one supplier. Also internally, we designed our partnership so that we can be very competitive for complete projects. We call it a preferred partnership, because it’s only preferred. When a customer wants to deal with another setup of suppliers, we, of course, accept that completely. But I believe that this arrangement will help our customers in their dealings with us, because it will be efficient, it will be easy regarding information flow, and it will be cost effective.
CANDY INDUSTRY: So Jan, can you be a little more specific as to how each company is preferred?
JAN HAMMINK: Simply, when you take the big items of the cocoa line, then Carle & Montanari is more on the pressing side, Probat, of course, is for roasting, and we are for grinding. We are now currently finalizing the technical aspects involved in integrating our lines so that it will be a very efficient turnkey system.
THOMAS HUBL: The core point is the machinery. They fit quite well together, so we have almost no overlapping, so I would say for a partnership, it’s a very good start.
MASSIMO PIETRA: Well, I can only confirm what Jan said. Of course, the cocoa processing market has changed in the last two years, let’s say, mergers, acquisitions and so on. We find this preferred partnership as a way to give something more to the customer than just machines that the three of us could supply alone. The idea is to design some solutions that the markets want today, to be open, to react faster, to be competitive on the price side.
CANDY INDUSTRY: And do you also want to comment on trends that you’re going to be showing at interpack?
MASSIMO PIETRA: I believe everyone’s commented on the trends that we’re all actively involved in. And we’re involved from cocoa to the confectionery packaging, so these trends change a bit along the way. When you produce, for example, moulding lines, you have quite complex lines, and this mix of trends is never that clear. Sometimes it is maintenance, very quick maintenance, it’s changeovers, it’s energy, it’s sanitation. The challenge is how to mix them together and at a good price, because it’s not easy. Every large customer has ideas on these trends. So you must also mix and match different ideas from the customer as well as propose something yourself. It’s a wonderful challenge. Nevertheless, there are costs involved, which I hope can be recovered. This is not very clear to me yet.
CANDY INDUSTRY: Oliver, any comments on your expectations for interpack, and what your company’s seeing in trends?
OLIVER NOHYNEK: We, of course, are expecting many customers and many orders. As many participants in the roundtable have already mentioned, the situation is improving after a tough and difficult period. The only thing I’m not convinced about is that – how stable is the recovery? Is it just a weak recovery? I haven’t found a final answer to that yet. We’re still in the process of getting to the end of the recession.
CANDY INDUSTRY: Are you saying you’re unsure of the recovery?
OLIVER NOHYNEK:Yes, I don’t know how stable it really is.
STEVEN STAAL: You will know on at the end of the year, December 31.
OLIVER NOHYNEK: Yes. Next year, I will be able to tell you.
CANDY INDUSTRY: Graham, because NID travels a long way to interpack, what are they estimating to do, and how do you look at interpack this year?
GRAHAM JACKSON: I think it’s a challenge just to get there this year, for us. But – yes, we have some new equipment that we will show this year, and I think what we want to do is dispel the myth that it’s the same old, same old. Because we’ve been accused of showing old equipment in the past, so everything that’s going to be there this time will be a new design. We’re quite excited to actually show the rest of the world that we’re still alive and kicking, and coming up with some new concepts as well.
MATTHEW COTTAM: On our end, BCH is going to increase its range of micro equipment. We started three years ago with a micro range of equipment, which has sold very well. It does the same thing as the big lines, but with less automation, for a lower price and delivers at lower output. So this year we’re developing that range with more equipment, which we see as the future, particularly as private or family-owned businesses buy into the power of technology and larger companies forego being as proactive in the marketplace as in the past.
CANDY INDUSTRY: So that’s definitely an adjustment to market realities, then, right? So you’re seeing midsize and smaller operators much more?
MATTHEW COTTAM: We see many more midsized and smaller operators every year. I think I mentioned it three years ago. It’s almost like reverse globalization. People don’t want to keep buying in commodity confectionery products from other countries. They now want them to make it themselves. And that doesn’t always justify a large line, it justifies smaller equipment, not just from a size of market point of view, but also from a financial outlay point of view.
CANDY INDUSTRY: That makes sense. And so are you the only player out there doing that?
MATTHEW COTTAM: I suspect not.
STEVEN STAAL: Up to now you were.
RALF SCHÄFFER: We have been doing this already since we started the company, so we had always the small equipment and the big equipment. Our experience is that if, let’s say, one big company buys another big company, they will concentrate on the mainstream products. They will reduce some small products, reduce small things, which are not profitable for them, and then there is space for smaller companies to go after this segment. We have many examples of this, and therefore you are correct that big companies stop producing small segments, there’s enough space and enough capacity for medium-sized and small companies to go in, and that’s exactly what we also see.
CANDY INDUSTRY: And in producing smaller equipment, are your actual costs of production higher as a result?
MARTIN MCDERMOTT: It depends who designs your equipment. If you have the same engineer designing the high output equipment and designing the smaller equipment, then they take out two bolts and change the motor, and then it’s supposed to be cheaper. You really need to be careful around that sort of thing.
MATTHEW COTTAM: Yes. BCH approached it from a point of view of starting again, so everything was thrown out of the large equipment, and we just started again with a more economic production method for making the smaller equipment.
So you actually started…
MATTHEW COTTAM: From scratch. We took some brave decisions, sort of reversing what the industry standards were, in some instances, to make the equipment to a price that would justify the output it was delivering, and it seems to have paid off.
CANDY INDUSTRY: Yes, so it’s a far cry from all the bells and whistles that we talked about three or four years ago. Now, there’s a countertrend toward simpler, cheaper, and actually custom-designed to the smaller operator. Do you find that as well, Jordi?
JORDI TORRES: What we hear is the need for flexibility. If you want to do everything with just one machine, it’s difficult to cope with this.
MARK BEAVER: I think there’s two ends of the spectrum here, interestingly enough, because we’re also being pushed at the higher end. Some of the larger producers now have factories based in China. That floor space is getting more and more expensive, and hence they want to get more capacity out of the same footprint. So in some areas we’re actually being pushed to increase the top end of our capacity, to get more out of the same area.
STEVEN STAAL: Wider belts, more per minute and all those kinds of things.
MARK BEAVER: Absolutely right, yes.
MARTIN MCDERMOTT: From a cooking capacity point of view, I agree you also have to look at the higher end. You have certain sizes of equipment, and with some markets and some multinationals, you just can’t get in if you don’t make that big equipment. They even want bigger than what you’re used to producing. So I think there’s definitely growth on both sides of the spectrum.
STEVEN STAAL: It’s also important to mention that many companies over the last one-and-a-half to two years have been putting all their attention in surviving. And now, we have noticed that, and I think it’s psychological, that people think, ‘Okay, we have spent enough time on surviving.’ People get more positive, so they think more long term. As a result, we expect more demands, more new ideas and concepts, because people can breathe a bit more and have more time to consider such possiblities. We also think that it depends a bit on who is visiting your booth. If you get engineers visiting at your booth, they want to know about how you’ve constructed things, whether it’s hygienic, questions along those lines. But we hope we will also see some marketeers who will come up with thoughts about how new products could be designed.
CANDY INDUSTRY: I’d like to address our ingredient partners at the roundtable. Are customers coming to you regarding R&D efforts? Are you more involved in working with them than ever before?
STEFFEN STORGAARD:Our efforts within research and, in part, development has very much been linked to the trends coming from the market, and there are two clear trends that we see in the market right now. That is the health trend, and it’s what we call indulgence.
CANDY INDUSTRY: Two separate movements, right?
STEFFEN STORGAARD: It’s quite a challenge, but for a consumer it should be a pleasure to eat a confectionery product. But we are more and more aware of the health aspects. It started with the fats containing no trans fats, then it was followed by non-hydrogenation. Now the new trend is low saturated fats, and this is what we are looking a lot into. And our response to that is that now we have a complete product range of non-hydro, non-trans fats and fats with very much lower content of saturated fat.
CANDY INDUSTRY: Do they still deliver the indulgence that you talk about?
STEFFEN STORGAARD: Exactly. So in that way we are quite convinced that we’ll see a lot of business within these products over the next years.
CANDY INDUSTRY: I mean, I assume that these ingredients cost more than the regular fats and oils that you’re delivering, right?
CANDY INDUSTRY: And are customers willing to pay the price for that?
ANDREW FLEMING: Some will.
STEFFEN STORGAARD: Yes, because for many companies it’s quite important, and the demand is very often coming from the retail chains, because they’re being pushed. And another thing about the indulgence, this is where we have tried to invent something new, especially within aerated, light fillings. This is a trend that we are seeing much more of, the mousse fillings, etc. And there we have created a very nice filling fat which you can aerate. So this actually goes hand in hand with the health trend, because by aeration you put in air, and then you can actually lower the amount of the fat in the product.
ANDREW FLEMING: I agree with Steffen in terms of some of the trends in the market. I mean the health trend continues; it’s been there for a while now, for a couple of years. Where we do see much more potential, much more interest, is in the indulgence side, and creating chocolates that really do have very unique flavor profiles or very specific flavor profiles. And we’ve put a lot of effort, money and energy into products like Terra Cacao, which is a new product we launched this year, which is all about controlled fermentation, monitoring the cocoa, and really cultivating it in a way that delivers a particular type of flavor. That has a lot of credibility and a lot of traction in the marketplace.
CANDY INDUSTRY: While attending ISM this year, I saw more what I would call reactionary products than innovative concepts. Has the recession dampened research regarding cutting edge product development? Do you as suppliers find yourselves forced to become thought or idea leaders for confectionery companies nowadays?
THOMAS MATOSEK: I think our customers have definitely been trying the last few years. Since the initial crisis, they’ve been trying to explore any possible niches through existing products. So instead of also investing in complete new lines, they’ve bought more single machines to extend an existing line to come up with another product extension. On the other hand, I think by now they have realized that they’ve explored all these possibilities, and it’s now time to come up with something new, something revolutionary, and that’s probably why we’ve started seeing more customers really interested, as Andreas said before, in new forms and new concepts.
STEVEN STAAL: Could it be that since the recession, more and more companies are more financially driven? Putting new products out means investments in marketing, investments in equipment. Financial people look at other things, and may well act as a brake to these kinds of new developments.
CANDY INDUSTRY: You’re saying that the actual focus is on profitability?
STEVEN STAAL: Yes.
CANDY INDUSTRY: So companies are cutting back on R&D?
STEVEN STAAL: Or they aren’t commiting to introducing new products. Maybe the ideas are there, but the introduction is another investment, isn’t it?
MARTIN MCDERMOTT: It used to be by changing the packaging you had a new product, but the same product was in there. Now the consumer is saying, ‘Well, we actually would like a new product.’
JORDI TORRES: I just want to say, with the market, we have the same feeling; we don’t see that people are cutting costs on research and development because our innovation center has been fully booked. However, we also notice a big increase - from the universities, from the public sector - to try to invest in infrastructure. In Barcelona there are three universities, and the food technology centers, they are really using our research and development center to improve on food.
MADS HEDSTROM: We have even seen the trend that they want the machines out to their facilities. They are not only using the innovation center, but they also want either rented machinery or new machinery to test their concepts for a longer period of time in their plants.
MATTHEW COTTAM: I think that people are outsourcing. Even big multilaterals are outsourcing their testing facilities, so they’re relying less on in-house development of new products and looking forward to working with suppliers to help them develop new products. I can only believe that’s because they see it as a cheaper way of doing it. I don’t think there’s any other reason for doing it. So they are releasing confidential information under strict control, and expecting suppliers to work with that information and develop new products. It’s a trend that we’ll see increase.
CANDY INDUSTRY: Do you think there should be increased regulation in the commodities markets?
MARK BEAVER: I’m not sure you can.
ANDREW FLEMING: I think there should be some limits on what they can do and what they can’t do, yes. I mean, we need to be careful, because as an ingredients manufacturer and supplier, we need to trade in those markets as well. But there should be limits on some of the things that are done, because there’s been some blatant manipulation of the cocoa market within the past 18 months, and people have been quite open about it, as well.
CANDY INDUSTRY: Bernd, obviously belting plays a critical role in food safety. Have you seen demand from your customers about improved conveying systems?
BERND ROSER: Besides a generic level of traceability and declaration of conformity, which we all have to fulfill, it’s on the agenda daily. We are more and more involved in CIP requests from the end-user side; clean the belt in place; add to existing equipment. Our main mission involves supporting the customer in hygiene, developing product with CIP for the belt and creating better, cleanable, more hygienic, less delicate surfaces. That’s how a belting company can support manufacturers.
CANDY INDUSTRY: Turning to our ingredient suppliers once again, are you being charged to even be more exacting regarding sourcing, food safety?
EDUARD SALA: I think it’s a significantly different approach compared to machinery. In our case, it will affect our operation significantly. First of all, we have more regional restrictions. Second, we’re constantly investing a lot in our factory to meet increasing requirements and demands. It’s a matter of controlling every step of the process. And you must be prepared for different audits. As you can imagine, a tremendous amount of effort and money is invested in this aspect. We all know the standards. Independently, however, there are certain customers who want us to uphold their standards specifically. At the end of the day we may be subject to 10, 11 audits a year. As a result, it’s a continuous process.
CANDY INDUSTRY: The cost of doing business these days, I guess. Stefan, do you want to add something about traceability?
STEFFEN STORGAARD: The only thing I’d like to add involves our efforts regarding sustainable palm oil again. There are requests coming from the market for sustainable palm oil, consequently all our factories have been certified by RSPO, Roundtable on Sustainable Palm Oil. That means we have to set up a secondary supply chain for the palm oil. That, of course, is a procedural change.
CANDY INDUSTRY: Andrew, any comments on that?
ANDREW FLEMING: Yes, many of our customers are increasing their standards, and they are placing more and more limitations on us. So we have to adapt to those limitations. We also have to invest in our infrastructure, because we have conditions where, for example, if a customer insists on a positive release, we have to have all the microbiological resource back before we actually send the product out. That means you need to hold the liquid chocolate for another three days. You need more tank capacity to do that. It does have an impact.
ANDREAS LEITZE: On the equipment side, I think it goes hand-in-hand with cost reduction, because if you have a more efficient, more sustainable machine, that means it save energy, it has less waste, shorter cleaning times, less water consumption, you know, these are all aspects which are reducing the cost of production. This is something which, of course, small companies are very interested in - reducing their production costs. And on the other side I see that many customers/companies are trying to market sustainable packaging. We now have a new technology using only monofilms. This is a way for small and medium-sized companies to cut their costs and simultaneously embrace sustainability.
CANDY INDUSTRY: I understand there’s a growing emphasis on improving customer service. Are your organizations reallocating resources to improve customer service – if so, do you believe this is one of the ways to improve your competitive advantage.
RALF SCHÄFFER: Basically I think that the general trend in the industry is that customer service today is different than it was in the past. Then, it was more the case that you did it from the front line, you gave information, you provided good service. Naturally, when the customer called and had a problem you said “As soon as possible somebody will solve the problem.” Today you need to have proactive service. We have to offer more active service involving either yearly or twice-a-year visits, maintenance with the machine, perhaps a better guarantee or whatever. You also need to think about providing operator training, checks of the line. I think most of us are doing this already, but I think that is a basic trend between the service of the old days and the future.
CANDY INDUSTRY:So you have to be a bit more proactive in your customer service?
RALF SCHÄFFER: Yes, to find solutions to help your customer so you can have good customer relations during the lifetime of the machine.
MADS HEDSTROM: You have to get out there more locally to them. If somebody has a problem at a certain time, at a certain place, they need a response immediately. And you have to give them that today. There’s a lot of different ways of doing that. You can have 24-hour service, you can have people at the spot in different offices, you can have service departments out there, you can have big service departments. I think what the customer – and we ourselves as consumers – want somebody to react as soon as we report a problem.
MADS HEDSTROM: Yes, of course.
GRAHAM JACKSON: I’ve found that over the last ten years our machines have moved from primarily an agricultural type piece of equipment to quite elaborate systems with servo drives and sophisticated software programs. We find now that whenever we go back the people who we trained initially, they are no longer there. People don’t stay in jobs like they used to and so you’re constantly having to retrain people. That’s where misdiagnosis comes in. And it’s almost impossible to do it over the telephone because what happens is: you pick up the phone, someone says ‘It’s not working. You say, “What’s the touch screen telling you? Are you getting any feedback from the drives? And is Dave still there?’ ‘No, Dave left two years ago.’”
ANDREAS LEITZE: Most customers with small problems want to have them answered immediately or within an hour; for major problems even there they want to have them answered within the same shift.
MADS HEDSTROM: They want somebody to be there, it all depends where in the world you are. What I mean is, service is one of the things which we have – all of us around the table – have to survive on. It has come to that.
CANDY INDUSTRY: So the service is a bit more demanding on your end, right?
JORDI TORRES: In general, it’s what Mads said, but I think we are living, all of us are making money because we are living in a society of our failures. Everything we buy can fail. So what we need, all of us, is an immediate report, and our customers, as well. People are more demanding because I think this kind of mentality will continue to have immediate impact on what you buy. That’s why after-sales service in our business is more important.
ANDREW FLEMING: Just a comment, I don’t know how the machinery colleagues see this, but ingredients, particularly in chocolate – one of the challenges that we have is the cost-to-serve model. So we have customers that are priced based on buying large volumes, bulk chocolate, it’s a commodity item. And they can eat up resources as well as energy from our technical support people when they have a problem. Then you have the other end of the spectrum, they’re buying relatively small volumes, but high-margin speciality products. Thus, one of the challenges we’ll have as an industry, not just Barry Callebaut, is trying to deploying quite a lot of your resources to relatively low margin customers.
CANDY INDUSTRY: The 20/80 rule.
ANDREW FLEMING: Yes, but is there really an appreciation for the value that’s provided through that? It’s a typical thing that a lot of commodity businesses go through, I mean the oil industry has gone through it, so it’s a normal economic cycle. We’ll have to address that because, you know, it’s creating, it’s really making customers appreciate the value of what they have there. Because with us, if they have a problem, they pick up the phone and pretty much anywhere in the UK, you know, within three to four hours we’ve got somebody onsite fixing the problem.
GRAHAM JACKSON: Also, a big problem for us is being in Australia – everybody’s far away. It costs a lot of money to get people onsite if we don’t have local people. Nobody ever wants to pay for that. We would love to set up a global network for service, but how do you actually do it? How do you finance that, because no one can actually predict when that telephone call’s going to come.
ANDREAS LEITZE: If we have a software problem there’s a solution. But if it’s hardware problem, a technical problem, you have to go onsite for half the customers. We at the Bosch Group have some advantages because of our size. In the last three or four years, we have built up our service in Japan, China, Bangkok, in the United States. So more or less in every time zone, we have service entities sitting there onsite. But even for us, it’s still a challenge to have all the competence you need onsite.
RALF SCHÄFFER: I think the problem is also that while we have to change, our customers are not prepared to, let’s say, employ staff sitting around waiting for a problem. So they’re using technical staff, like you said, they can do it locally, probably they can do it with some outsourced company, but normally the companies reduce their technical staff and therefore they are more depending on supporting services.
MARTIN MCDERMOTT: With the larger multinationals, mostly it’s part of the contract, they want a guarantee, no matter where, within 24 hours you have somebody onsite within 24 hours and that’s them being lenient. That’s part of the deal.
BERND ROSER: My colleagues on the machine manufacturing side have lab, pilot plants, application kitchens. Well, this is now coming to the component suppliers. We are asked to start upfront service checks.
CANDY INDUSTRY: Are you getting also into this proactive or preventative mode?
BERND ROSER: As much as this is, as you say, part of the contract, yes.
MARTIN MCDERMOTT: And your question earlier to Mads about what happens if you sell a line and somebody else takes over. We don’t have that luxury. You sell it, you’re responsible. So if the nasty phone calls come, you take some of it. I mean, we have a service department, but, you know, you’re the budget engineer, you’re the budget manager.
MADS HEDSTROM: We all agree about, sitting around the table, the customer wants more service today than they wanted 15 years ago. So to be within the business you have to support that.
MARTIN MCDERMOTT: No, there is no way around it.
MATTHEW COTTAM: If I can just expand on what Martin said about sales being responsible for what happens in the lifetime of a product. As a business it’s always easy to get someone there the next day if there’s a new business being discussed. If the same business then says “Actually, it’s going to take three days to get a service engineer there because we’ve got a problem,” there’s something wrong and you’re not going to be in business for long. If you can get someone there the next day to sell the machine, you’re just as capable of getting someone there the next day to fix the machine. So, I think it’s an expectation nowadays that if you can get there in one day to sell it, you can also get there the next day to fix it.
CANDY INDUSTRY: Well, you bring up an interesting point. Why couldn’t a service visit really be a sales visit, because in the end you’re dealing with the customer. When you’re helping him solve a problem - it’s not all about selling - it’s about maintaining and furthering the relationship that you have. So that requires mechanical service, or some intellectual service.
GRAHAM JACKSON: It’s all about keeping a competitor out as well.
RENE DEVRIES: For example, our service engineers are at least twice a year visiting all the customers in the world. We have a whole team of service engineers, and that is also generating new orders, spare part orders, etc. But it is also creating another thing, goodwill with customers, because with every business, there’s something you can help them a bit, some tweaks or resolving some small issues, it helps a lot. So twice a year they’re visiting every customer in the world.
CANDY INDUSTRY: On the confectionery processing side, modularity is the new buzzword in equipment design but are your customers buying into it? What about turnkey solutions, can modularity codes live with turnkey thinking?
THOMAS MATOSEK: Yes and no. I think the world ‘solution’ has been beaten to death in the last 10 or 15 years. That’s still what our customers expect from us. They don’t expect us to sell them, you know, pieces of equipment but a solution to make a certain product. But, on the other hand, any of our lines can be broken down into certain modules.
MARTIN MCDERMOTT: Modular design, which is the solution.
ANDREAS LEITZE: I believe most customers don’t care about modularity or machines. What they care about is short delivery times and flexibility and not in the machine. And that’s what we can do with the help of modularity.
CANDY INDUSTRY: I mean, is modularity the answer to flexibility?
THOMAS MATOSEK: I think we have to distinguish between two groups of customers. There are those big customers, multinational organizations, where you usually deal with project engineers. They have a certain project, they have to make one product for the next two or three years, and it doesn’t matter to them anymore what other 10 or 20 products they can make on the same equipment and how long this line will last. Whether it will last for only those two years or 30 to 50 years. So these cases, modularity and flexibility don’t have the same value anymore, the same importance any more. On the other hand I think we agreed earlier today that we’re all hunting for a new kind of customer - the small and midsize customers - these need modularity and flexibility because on the same thing on the same line they want to make all their products. They want to change from one to the other in a couple of hours.
THOMAS MATOSEK: I think modularity, the design of our equipment, might be more important to ourselves than to our customers because what our customers expect is a customer solution, but at a reasonable cost. So you need lots of standard components to build a huge variety of different solutions.
MARK BEAVER: I think you’re right, Thomas. It’s important to us because it means repeatability. Repeatability means reduced risk. Consequently, that should reflect in terms of benefits to the customer as well.
CANDY INDUSTRY: Thank you all for your contributions.