On the Lookout for Processes Leading to Profit

When production upgrades make sense of your capital

Baking is big business in Canada – almost $3 billion in sales of baked goods nationwide in 2003.

Knowing how to bake a tasty product is important – but in today’s marketplace, it’s only the beginning. In an era marked by market dominance of a handful of grocery retailers, which are pressuring many of the smaller retailers, a baker/wholesaler’s key ingredient for success may be in understanding how to maintain a price and profit advantage over competitors.

Improvements to production equipment are allowing bakery operations to create baked goods at faster rates. The reduced reliance on manual labour that usually comes with a more automated environment also means product can be offered at a lower cost. Quicker turnaround at a lower cost is naturally attractive to a bakery’s current and potential consumers. But, before a bakery operation ventures into production upgrades, there are several factors to consider.

Increasing Capacity to Meet Demand
ShaSha Bread Company is a Toronto-based, wholesale bakery that, since opening in 1999, has focused on creating healthier baked goods. Its 11 products – including whole grain ginger snaps, and organic sourdough bread baked using traditional techniques – have found a following in health stores, gourmet food shops and chain grocery retailers across Canada, with the ginger snaps also reaching U.S. shelves. The company produces approximately 6,000 units daily.

The increasing demand for ShaSha Bread’s products led to the opening of a 32,000-square-foot production facility in June 2007, in addition to the existing 12,000-square-foot operation. Company president Shaun “ShaSha” Navazesh says the new facility is 80 per cent automated, whereas the existing building is only semi-automated.

“To make our products more cost-efficient and of consistent quality, we moved to the more automated lines,” says Navazesh. “You can’t go 100 per cent automated, if you’re producing the bread we make. It has to be handmade. That’s why no large manufacturers can make sourdough bread. It’s very finicky, and there’s no such machine that can ensure a consistent quality product.”
Navazesh says that while he doesn’t like to discuss specific capital investment numbers, the new facility and equipment will ensure the company is able to triple its current production capacity.

“We put the capital investment in, and the goal and hope is to make it back. I’m doing this because I already have a market share, and a strong product and consistent customers. There’s no guarantee you’re going to make your money back,” he says. Navazesh says with a tripling of production and growth levels remaining as consistent as they have been in recent years, the company expects to make its investment back within five years.

Navazesh says there are a number of factors to consider when upgrading your bakery operation. Price and quality are naturally important to look at when shopping for new equipment. He notes that much of his equipment comes from Europe. “They’re at least 10 years ahead of us when it comes to making equipment,” says Navazesh, who in addition to his corporate duties, shares his knowledge as chair of the Artisan Bakers’ Quality Alliance industry group. He has also purchased quality items such as mixers and conveyors from the U.S. and Canada.

Even before considering equipment, however, it is important to ensure you have the infrastructure in place to support your new purchases. Navazesh equates installing high-end equipment into a factory that’s not properly constructed to buying a $100,000 house, and then putting $20,000 worth of patio furniture in the yard. “It defeats the purpose. Your house is going to break down sooner than the furniture.”

Right Equipment Needs Right People
Based in Richmond Hill, Ont., GCP Consulting has spent the past seven years working with bakeries and other food companies seeking to increase production and streamline costs. The firm is also heavily focused on helping food manufacturers ensure compliance with food safety standards.
“The logic behind upgrading to automated equipment is to facilitate double or triple the production, without increasing labour,” says Pius Gasser, GCP Consulting president, who estimates more than half of GCP Consulting’s current client companies are in the baking industry.

Gasser says GCP has worked with companies as small as five people, and as large as 100 employees. He says that while staff costs do not generally increase in a more automated production environment, a resulting reduction in labour costs may not be feasible or desirable, either. “One of the basic principles is the product has to move, not the people,” he says.

According to Gasser, companies looking to expand or ramp up production capacity through automation should first ensure they have a quality management team in place. Because such a production upgrade requires new processes and a new learning curve, as well as the expected increase in production, leadership has to be in place to support staff, and ensure employees remain happy.

“The labour pool is very small, and it’s getting smaller and smaller,” says Gasser. “Bakers need to look at becoming more efficient, while working with the same labour pool. That’s where the equipment comes in.”

Gasser says GCP Consulting does not limit themselves to a specific set of equipment manufacturers. Instead, they help client companies search for the best equipment choices for their individual product needs.

“We use a lot of European technology in bread baking, because they are the leader in the industry. But there is some very good North American engineering now as well. We search for products at bakery equipment shows, or sometimes we’ll even custom-design a machine.

“Our job is to put the client together with the best match for them, not with the company we like to work with,” says Gasser.

“Most of the time, you look at adding conveyor belts, or production lines, before you get into replacing complete operations. It’s done in gradual steps,” he says, noting that GCP hasn’t worked with any clients where there has been a need to replace all existing equipment.

Upgrade costs for GCP Consulting clients have ranged from as low as $60,000 to as much as $1 million. He echoes Navazesh’s advice that companies need to keep infrastructure improvement costs in mind when planning upgrades.

“With one company, we’ve upgraded their facility and added new machines. In the past two years, they’ve spent $500,000 – but only about $100,000 of that has been spent on the actual equipment.”

Gasser says that, ultimately, there is no formula for how often a bakery operation should consider upgrading its production equipment, or how much it should invest.

“A bakery should always been on the lookout for improvements to its processes.”