Sequoia

FMCG Manufacturing History

A five million percent increase in productivity during the last century has, of course,
fundamentally changed the task of managing and FMCG business.
Three decades ago, had you joined the FMCG Industry, you would have witnessed
what looked like a revolution. The newly invented “microchip” spearheaded a low
cost manufacturing revolution that swept away the creaking post-war manufacturing
facilities. Highly integrated, highly automated production lines sprang up all over
Europe; direct headcounts were reduced by anything up to ninety percent; and the
management task changed fundamentally and permanently.
In fact this ‘revolution’ was just another part of the continuing evolution of FMCG
manufacturing –which the Soft Drinks industry illustrates especially well.

It is unlikely that any readers of this paper were

around in 1898, which is when the first meaningful
mechanised support for filling Soft Drinks bottles
was invented. The Crown Soda Machine was a
revolution of its own. It quadrupled the output of
the average operator to 4 bottles per minute – and
the best operators could achieve 8 bpm.
The following year Coca Cola opened its first
bottling plant. A major plant of the time would
employ 150 people in order to produce circa
200,000 bottles a year. By 1909 there were 400
bottlers of Coca Cola in the US and by the 1920s
there were over 1,000 (when cocaine was still in the
formula).
What is notable is the relatively low scale and high cost of a plant – and also its
sensitivity to operator performance. Labour costs were still the dominant driver of
operating expenses; labour performance was by far the primary concern of
performance management. If you could move your operators from average to best
performance standards, you could pretty much halve your conversion costs.
The machines were also stand alone units. Bottles needed to be manhandled to and
from the machines, so internal transport operations and stock handling would have
accounted for much of the factory headcount.
Today soft drinks can be filled at circa 2,000 units per minute; the entire operation
from palletised empty containers to palletised full trays is automated; and a crew of 6
can operate two such lines back-to-back – pushing out almost 400 million bottles p.a.
To set this in context, using Crown Soda Machines this output would have required
300,000 operators; or to put it another way – production labour costs have been

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Tel: +44 1753 891 400 Fax: +44 1753 891 600 www.sequoia-uk.com
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reduced by 99.95% in a century. Also, from a peak of over 1,000 Coca Cola bottling
plants in the US there are now less than 100 – and where there used to be more than
400 bottling companies there are now less than 10.

This move to high output, highly automated facilities has fundamentally changed the
management challenges in running an FMCG Supply Chain:
• Operators used to be regarded as a Direct or even a Variable cost, and were the
major cost and performance challenge;
• Production managers have had to become technology managers, often with an
engineering training rather than pure people managers;

• Now Operators are few in number and manage multi million dollar equipment.
They are not merely skilled, but invariably multi-skilled and are increasingly
regarded as a fixed cost;

• In high labour content operations shift working is less of an issue. However,

with the highly automated lines utilisation becomes a key cost driver.
• Labour is still significant so, in order to maintain flexibility through variations
in demand, annual hours contracts are becoming increasingly popular.
At the same time as lines have become more automated, products have proliferated.
For example Coca Cola has moved from having a single brand in a single packaging
format (i.e. 1 SKU); to multiple brands (Cherry, Vanilla and Diet as well as Fanta,
Dasani, Powerade etc.) in multiple formats (Cans, Returnable Bottles, Plastic Bottles
etc.) in multiple primary sizes (1L, 500ml et.c) and multiple secondary formats
(Singles, multipacks etc.). The net result is a explosion to more than 1,000 SKUs –
which works directly against the trends for ever bigger, faster and more concentrated
production facilities.

The challenge of leveraging these very low cost production facilities whilst coping
with increasing and changing product portfolios, is a significant one – which is
tackled on multiple fronts;

• Faster changeover, including push button set ups are being built into
packaging equipment – using programmable actuators rather than hard
mechanical drives and linkages;
• More multi-skilled Operators so that minor set ups can be conducted without
specialist engineering resource (and time);
• Specifically engineering schedules and sequences so that family groupings can
be used to minimise the impact of incremental SKUs
According to supermarkets –
consumers demand choice,
and choice means range. The
battle for market share
amongst the major European
multiples is therefore one of
relentlessly increasing range.

© The Sequoia Partnership Berwyn House Chalfont St Peter Bucks. SL9 9QA UK
Tel: +44 1753 891 400 Fax: +44 1753 891 600 www.sequoia-uk.com
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In the US 35 to 40 thousand SKUs is not unusual – so we can reasonably expect that
European ranges will head in that direction. This is bound to pose yet more
challenges for how the Supply Chain is managed – whilst continued cost pressure is
just as inevitable.

© The Sequoia Partnership Berwyn House Chalfont St Peter Bucks. SL9 9QA UK
Tel: +44 1753 891 400 Fax: +44 1753 891 600 www.sequoia-uk.com