This article first appeared in The Edge Malaysia Weekly on November 12, 2018 - November 18, 2018

ACTIONS speak louder than words. And in the world of business, nothing speaks better of one’s commitment and confidence in what one does than a readiness to share the risks involved. Swedish packaging giant Tetra Pak showed that last month when it launched an outcome-based big data-driven solution that seeks to address a key issue in the food and beverage industry: the underutilisation of manufacturing assets.

According to data captured by Tetra Pak, F&B manufacturers’ average asset utilisation is only around 30% — and falling. In comparison, asset utilisation is over 80% in the oil and gas industry, 70% to 80% in the mining industry, and 45% to 60% in the automotive sector.

The deterioration happens when margins come under pressure as disruptions buffet the industry. Just 30 or so years ago, retailers started launching and building their own private labels to compete with F&B manufacturers’ branded products, followed by discounters that transformed the marketplace with low-cost profiles 15 years later.

Today, e-commerce companies are driving another change as they expand into the consumer grocery food space. This is not only disrupting traditional retail channels but also giving rise to consumers’ expectations of an “omni-channel” grocery experience that is fast, easy and seamless. Each disruption raises the pressure on prices as it increases demand for mass customisation, leading to complex portfolios and expectations of shorter lead times.

To deal with the margin squeeze and demand pressure, manufacturers undertake cost-cutting measures that are often procurement-led. But there is only so much that can be cut without eventually compromising quality and productivity. Tetra Pak believes the only way to cut cost sustainably is to drive productivity.

With over 60 years in the F&B industry as a leading food processing and packaging solutions company, Tetra Pak believes it can help with that, which is why it introduced Tetra Pak Plant Secure — “a game-changing plant management service that delivers profitability improvements to customers” by using Industry 4.0 technologies like artificial intelligence, simulations, automation and data velocity.

It starts with a detailed audit of all the equipment and systems across the customer’s value chain, before Tetra Pak’s specialists work on identifying opportunities and implementing improvements across the entire operation.

Pilot projects in the Americas and Europe have delivered “results that are above customer expectations”, Tetra Pak shares with reporters during a media visit that coincided with the new service’s launch at the company’s headquarters and place of birth in Lund, Sweden. As an example, it cited an America-based dairy producer that reduced operational costs by over 10% in the first year of implementation.

All Plant Secure contracts come with agreed targets around operational expenditure reduction and capital expenditure optimisation. If the targets are not reached, Tetra Pak doesn’t get paid. “It’s a service that leverages our unique industry insights to provide guaranteed results. Essentially, we’re putting some skin in the game,” says Johan Nilsson, Tetra Pak’s vice-president of digitalisation and Industry 4.0.

It all boils down to three fundamental challenges, Nilsson says: flexibility, safety and productivity. “There is massive overcapacity, with low and falling utilisation. Apart from demand-driven factors, it is inefficient use of assets ... Unplanned downtimes are also a major issue for our customers. We can reduce this downtime and material losses with predictive maintenance, and provide faster issue resolution. As you can see, the book on Industry 4.0 is not written yet. F&B manufacturers should start [on it] now because they’re facing a new reality,” he adds.

And Tetra Pak isn’t just about packaging. While the company made its name globally with its trademark tetrahedron-shaped carton decades ago and has grown its product portfolio to some 7,000 combinations of packaging shapes, sizes and closures, it is also a complete end-to-end manufacturing solutions provider that can work with customers right from the start of market research and product development.

That’s why a food tasting session was one of the highlights of the media visit, during which the company proudly shared some of the products it helped research and develop via its 10 product development centres around the world, supported by seven customer innovation centres. The spread included varieties of yoghurt, juice, soup, sauces and milk, all of which can be stored in cartons at room temperature — giving rise to the term ambient products — with long shelf life.

‘The can is dead’

Confident with the innovation Tetra Pak has made in terms of packaging and product development, Anders Lindgren, vice-president of Tetra Recart, boldly pronounced to reporters, “The can is dead!” At the very least, Tetra Pak believes the can — which has been in use for over 250 years and still sees more than 100 billion sold each year — is dying.

Alternatives like Recart — a square carton package made from a new paperboard laminate material designed for foods traditionally packed in cans, glass jars or pouches — are making strides. Unlike aseptic packaging where the package is sterilised prior to filling it with UHT (ultra high temperature) treated food, resulting in a product that is shelf-stable for over six months, Recart is the first “retortable” carton in the world, says Lindgren, as it can withstand the tough retort process, where both the package and its food contents are exposed to high pressure and high temperature in a humid environment, which can extend a food product’s shelf life for up to two years. Retorting is typically used in canning and bottling.

Touted as the new generation of packaging “two centuries smarter than the can”, the Recart is 65% lighter than tin, reduces space used by 40% compared with cans and glass jars, is much easier to open, and is fully recyclable. Wickedly Prime, Amazon’s food brand, is now using the Recart for its soups, Lindgren shares. In July, Danish retailer Coop announced it would be phasing out the use of cans for its own brands in favour of cardboard and paper brick packaging.

Augmented reality via smart packaging

Packaging solutions are not just getting more sustainable, they are also getting smarter to meet new demands that arise as internet and technology transform the grocery trade. In the 11th annual Tetra Pak Index released this year, which focuses on the rise of online grocery and the unique opportunities it presents to the F&B industry, four key trends were highlighted: convenience, which is driving online demand in all geographies; technology, which is transforming both supply chains and consumer experience; sustainability, as environmental issues become more important across the value chain as well as to governments; and personalisation, as marketers look for new ways to attract consumers online, build relationships and drive loyalty.

Indeed, thanks to technology, every carton package can now carry a unique digital identifier, creating more transparent traceability as well as direct consumer engagement via augmented reality.

“Smart packaging, with features that enable digital purchase and enhanced consumer experience, is particularly highly regarded by Chinese shoppers (where scanning of QR codes is already commonplace). It is also welcomed by e-retailers in the region as it allows them to experiment with new business models and payment methods. As technology advances, it seems likely that smart packaging will become ever more significant globally in both upstream and downstream logistics through unique data codes, as well as being used increasingly to position online grocery items as premium products,” according to the Tetra Pak Index.

Such packaging opens up many possibilities, says Tetra Pak vice-president of sustainability Mario Abreu. “You can also scan the QR code and get the carbon footprint of the product you buy immediately. You will know where it comes from, and even which forest it comes from in the future. There are many possibilities. One thing we’re also looking at is how to encourage [certain] consumer [behaviours] by having something that is so personal to them. For instance, we’ve been talking about gamification. For example, like the popular game of hunting digital creatures, can you imagine a game of hunting real packages to recycle instead of imaginary creatures? It is fun and can help ocean clean-ups. There’re a lot of things that can be done in terms of traceability and consumer engagement,” he adds.

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