Identifying Your Food Business’s Key Money Makers
With the Help of Your ERP System
Across the food industry, margins are being squeezed and those within the supply chain are feeling the brunt of the impact. Food producers dealing with tight margins isn’t a new phenomenon – in 2019 the gross profit margin for the food processing industry was 22.05%, less than half the overall market average of 49.4%, with the net margins at 5.16% and 7.81% respectively, according to Investopedia. However, sales are slowing and profit margins are down, according to Food Industry Executive, as the NRI for profit margins fell to its second lowest reading since the start of the pandemic in the third quarter of 2023, even amidst the apparent easing of inflation. And while food companies continue to face squeezed profit margins due to consumer pricing pressures, lingering costs such as transportation, labor, commodities, and more, RSM suggests that the solutions to offset these lower prices lie in driving up sales volume, technology and process improvements, and strategizing to compete and maintain profit margins. In as highly competitive of a market as food production, you cannot afford not to know what’s making you money or where you can (and should) cut costs and you need the data to make informed business decisions that improve your bottom line. When the market fluctuates, the companies who survive the fall of demand and/or the rise of costs are the ones who prioritize managing and monitoring their real-time data, so they know which levers to pull to save money and increase profit margins – and they have a good system and processes to help them do it.
The Challenge of Identifying Profits in Food Production
To be a company that survives – and hopefully thrives – in the face of fluctuating market demands and costs, you first need to conquer the challenge of identifying your profits to understand where you make money and what’s costing you. Putting it succinctly, KPMG stated, “Without Profitability and Cost Analysis, management is in the dark,” further elaborating with the anecdote, “A client we worked with recently completed such analysis which showed 20% of its branches were delivering 60% of its profit and 20% of customers did not even generate a profit.” While this statistic may seem shocking, it’s an all-too-common occurrence because the truth is, managing profitability and costs is hard to do. This is especially true for those in the food industry where your costs are many, varied, and often hard to track and/or unpredictable.
To manage profits and costs well, you need complete visibility of the following costs:
- To procure and/or produce
- Sales and/or rebate programs
But tracking all of these costs individually is not enough – you need a system that can capture these costs, accurately summarize them to provide insight into what things cost you, and simultaneously track real-time sales data by item and customer to indicate who and what are profitable for your business. Once you have that data, you need to make sure you also have a team to help you use that information to analyze profitability and make decisions and/or changes that will improve the bottom line in an efficient way.
Setting Yourself Up for Success with the Right Food ERP Software & Partner
It’s clear to see that having the right software is essential to efficiently and accurately managing costs and profitability. What may be less clear to see is that the team helping you implement and manage it is just as, if not more, essential. Before you can even capture the data you need for managing costs and profitability, your system and processes need to be set up correctly to capture it, analyze it, and pivot based on the results. And in order to do that, you don’t only need to have the right software, but the right software team helping you along the way.
Often, you know the result you want to achieve – profit analysis, costing, and traceability, for example – but less often is there a blueprint mapping out how to setup your system and optimize your current processes to get there. That’s where we come in. When implementing NorthScope, our sole focus is not on setting up your system but instead on becoming your partner in building your processes to achieve the desired outcomes you’re looking for.
Our first step is to identify your goals and understand what you expect to get out of a system and then to work with you to learn your processes and figure out if you’re capturing data in a way that can be useful for achieving your goals. For example, you may be able to look at a customer and look at their sales but because you’re lacking the data to analyze costs you don’t know whether the account is profitable or not. Similarly, when it comes to traceability, you may be expecting to track data at a level that is so granular it is no longer beneficial and crosses over into being detrimental and an unnecessary added cost. We help you identify these excessive efforts and focus on identifying the opportunity cost when making decisions to choose what’s worthwhile based on your bottom line. In the example of traceability, we help you choose the data-capturing process that gets you as granular as possible without going overboard – so you can add value back to the customer, protect your exposure in the case of a recall, and meet traceability requirements without adding costs that have no benefit. We ask the hard questions and work with you to determine the answers for the best possible outcome.
Regardless of your goal, our goal is to work with you to connect the dots from where you are to where you want to be and help you get there by tackling the really challenging problems like cost accounting and traceability with the support of your system and improved processes. At the end of the day, we’re not an expert on your business – we’re an expert on your industry and an expert at learning your business to help you optimize your processes with the support of your software.
Learn more about how NorthScope and the team behind it can help support your food production company’s goals and get your free demo.