Managing Profitability When Raising Your Prices Is Not An Option

From the merging of grocers to the decreasing options of food distribution channels, industry consolidation puts downward pricing pressure on food manufacturers. The recent trend has been consistent and shows no sign of slowing down. When faced with decreasing profits due to pricing pressure, it’s common for food processors to turn to internal costs and processes looking for efficiencies that may restore lost margins.

Usually, the focus turns to the labor force and how to decrease the number of direct laborers on the line in order to decrease the direct cost to produce. There are rational reasons why management typically looks there. Mainly, it’s because labor is easy to see, identify, and target. It’s easy to say you made an impact on costs: there were 12 workers on the line yesterday and there are 10 today, so we decreased our cost to produce. It’s hard to argue with. However, legendary basketball coach John Wooden had a famous saying, “never mistake activity for achievement.” And it can be argued that focusing on decreasing the “unskilled” labor force on the line as a meaningful and sustainable way to reduce costs and increase profitability is exactly what John Wooden is talking about: activity without achievement.