food & Beverage • concept to delivery • present to future • foodprocessing.com

Equipping Your Plant With Economy,

Flexibility

Special RepoRtlate-NovembeR 2013

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Done DealSurplus and used equipment – from both dealers and auctioneers – offer benefits to both buyers and sellers in a tight market. By Bob Sperber, Plant Operations Editor

Back in 2010, Dean Foods sold its dairy processing plant in Kingsport, Tenn. Silos, tanks, fillers and all manner of processing systems – the whole plant – is now in the

hands of another dairy. That’s not an unusual event. It’s the cir-cle of life in the food & beverage industry.

An auction was used to transact the sale. The buyer could have been a dairy just entering that market; a processor seeking to reduce long distribution hauls; a company that wants a plant but doesn’t want to wait to build. It could also be a firm looking for key pieces of equipment that will sell off the rest in a subsequent auction.

Auctions are one option a company has at its disposal for buy-ing and selling assets. For sellers, they provide quick finality (and quick cash) for a no longer needed asset. Speed also can be an asset for the buyer, for he’s looking at equipment that’s already built; and he’s probably getting it for pennies on the dollar.

For processors seeking to add equipment to a plant, auctions are a good place to start looking. When an auction won’t fit the bill, negotiated dealer sales, even rental/leasing companies, can meet the need. These and other used-equipment channels play a role in extending the usefulness of assets and helping food pro-cessors operate under ever-tightening margins.

Dealer and/or auctioneer?The typical auction company has two primary missions: to ap-praise a seller’s assets and to hold auctions that turn those assets into cash. Appraisals also are done by dealer, too, but they also take possession and warehouse the used equipment, sometimes whole processing lines.

Even post-recession, credit is not so easy to come by. So food & beverage companies have had to find alternatives, which can range from a dealer offering lending or leasing arrangements to large pro-cessors helping finance smaller suppliers or copackers – and then turning to auctions to reduce their own capital expenditures.

Having a relationship with a surplus equipment company of any type helps processors source equipment on a large or small scale. For example, a food company might call a dealer or an

auctioneer to locate a single piece of equipment. The auctioneer who has one seller’s lot of 100 or more pieces of equipment might or might not have it; a dealer might or might not have it in inven-tory, either. However, either party can contact potential sellers in their database (even each other) and find the asset.

Acting as a middleman, the auctioneer or dealer can then fa-cilitate a negotiated sale. Sometimes it’s easier when the buyer and seller aren’t in direct contact. Dealers and auctioneers can work in competition to connect buyers with assets, or can even use each other as resources. Dealers can buy at auction, and auc-tioneers can consult dealers in helping buyers.

Chicago-based Loeb Equipment (www.loebequipment.com), which is both dealer and auctioneer, has its in-house technical staff inspect and repair all machinery it takes into its warehouse. After a sale, buyers are entitled to a 10-day right-of-return policy to allow for on-site final evaluations and “to prevent buyer’s remorse.”

In an auction sale, “It’s all as-is, there’s no warranty or re-turn policy, and we don’t test the machinery out,” says Charles Winternitz, president of the auction side of the business, Loeb Winternitz Industrial Auctioneers.

It’s not bad, it’s just a different business model. In exchange for getting what may be a bargain, buyers who use auctions should perform their own inspections before the auction and know what they’ll need to do to bring the equipment up to snuff. And in a recession, bargains have become an increasingly relevant means of budgetary survival.

Buyer and seller both can win in the used equipment market. Equipment in the food industry tends to retain its value better than that in other industries. Even a 10-year-old machine that is well maintained may still bring the seller up to 50 cents on the dollar if the processor conducted good preventive maintenance. And it can bring the buyer savings of 50 percent or more.

‘co-opetition’“A typical situation for us might be that a company with 10 or 20 or more plants is buying another company that has a couple of

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it a waiting period of three to six months. “If you can find the same type of tank being sold at an auction,” Davis says, “you may be able to not only buy it for half that price, you might have it in your plant in a matter of weeks.”

beyond the purchase priceEspecially at auction, the purchase price of a machine is just the start of its cost. Transportation, part changes, engineering costs and other considerations all figure into cost justification and total cost of own-ership. Cost and time – delivery time as well as time to market – are valuable commodities to weigh into any purchase decision.

Shipping is probably the first add-on to encounter. Typically, personnel are on hand at any sizable auction to give shipping prices and offer rigging services. According to Davis, a typi-cal price to remove a tank that might sell for $50,000 might be $5,000 or $7,000 … or maybe just $2,000. “It’s not so much that it throws out of whack your [purchase] price point [especially] when you consider you’re shortening your delivery time in some instances by months.

“We’ve done some very big auctions where individual compa-nies have spent millions of dollars,” Davis continues. One such buyer, he says, “sent out a group of engineers going over every-thing at the site and making themselves fully familiar with the equipment, and then went back and checked what else was avail-able. By the time we got to the auction, I think they knew the equipment at least as well as the people who were selling it. They spent millions in the sale, but what they bought would have cost them two or three times that if they had bought it new.”

“The term ‘used’ is a misnomer; it implies worn-out,” says Roger Gallo, president and CEO of EquipNet (www.equipnet.com), Canton, Mass. “In the consumer goods business, people are changing lines all the time. They start up a line to produce a particular product, and when that product doesn’t sell they dis-continue it. Or they decide to consolidate two facilities, or they get acquired or a variety of other things can happen. So ‘used’ doesn’t mean worn-out, it simply means previously owned. A lot of the equipment, especially from the multinationals, are pris-tine, top-of-the-line assets that are quite modern.”

And lately, the big multinationals have been among the buy-

ers. “When budgets were slashed, some of the biggest food com-panies, the ones that used to only buy new, started looking more closely at used equipment,” says Rabin’s Rottman.

General Mills, Anheuser-Busch, Labatt Breweries and others have partnered with Schneider Industries (www.schneiderind.com), St. Louis, an auctioneer and more. Schneider manages on-going investment recovery programs for those companies, which go beyond traditional buying and selling to include tracking and transferring internal assets from plant to plant.

“One of the things we’ve found over the years is that one plant may be looking to start a new project and spend significant dol-lars on equipment, when those same pieces of equipment – ket-tles, processors, downstream packaging metal – may be sitting idle at another plant, but they don’t know it,” says Dan Rosen-thal, chief operations officer for Schneider. “We can track all of this, and when the need arises, we can move it from one plant to another and save money in the process.”

the electronic ageThere are various kinds of auctions, starting with the traditional on-site plant auction, where the auctioneer walks a crowd of buy-ers from one piece of equipment to the next.

plants,” says Marty Davis, president & CEO of M. Davis Group (www.mdavisgrp.com), Pittsburgh. “What they really want is the smaller company’s volume and maybe the label and brand. They will move that production to another plant.”

Such sellers may call the auctioneer to consult, appraise and prepare reports in helping that new plant owner decide which assets to keep and which to sell. In some cases, no equipment avoids the auction block. This was the case also in a 2010 New York auction, where Davis sold “every last piece of equipment that was in that plant. In other situations, we may sell the 70 or 80 percent of the plant that is not transferred as part of a real-location of production.”

It’s not always easy to find good, used equipment. For help, food processors can turn to specialists. Surplus equipment houses of all types keep their ears to the ground by building relation-ships, maintaining databases that track customers’ plants, track-ing public bankruptcy records and being aware of all leads in the used equipment grapevine.

“Typically a dealer doesn’t want all that equipment,” says Keith Rottman, chief appraiser for Rabin Worldwide (www.rabin.com), San Francisco. “When we go in and auction a plant, we sell everything including the kitchen sink, whereas a dealer is more likely to want a handful of key pieces of equipment.”

Full-service auctioneers offer services from start to finish. For buyers, they can help with sourcing and procurement, crating and shipping, inspecting machinery and providing assurances of condition. In some cases, they even offer maintenance/engineer-ing services. For the seller, auctioneers’ services span inventories, appraisals and valuations; cleanup, repairs and reconditioning; listing/marketing and overall management of the transaction; and even demolition after the sale.

Early on, consulting might include advice to the processor to know what work should be done to increase the condition, usability and therefore value of assets. As for the sale itself, the auctioneer brings “a timeliness and certainty to the process,” says Davis. “If we say an auction is going to occur on Nov. 26, ev-erybody knows that equipment will be sold on Nov. 26. There’s none of the ‘Maybe we’re interested or maybe were not,’ about it on the part of buyers. The ones who have an interest pay atten-tion to the market, do their homework and make arrangements to participate in the sale.”

The same timeliness, the same refurbishing efforts, provide value to the buyer. First, the cost-savings can be significant. Da-vis cites a very basic piece of equipment, a stainless steel tank: “Let’s say it would cost you $100,000 to buy that tank new from the manufacturer. If it has been properly cleaned and main-tained, it can be five, 10 even 20 years old, and still be good as new, because stainless steel holds up well.”

This isn’t always true of more complex machinery with ag-ing sub-assemblies or electromechanical components. But when equipment is in top condition, buyers are better able to size-up the asset and determine when it’s cost-efficient – or cost-prohib-itive – to adapt to their production environments.

Getting a piece of equipment into the plant in a timely fash-ion can be worth many thousands of dollars if the plant has a critical need. So a tank that costs you $100,000 new from an original equipment manufacturer (OEM) might also carry with

Loeb Equipment is both a dealer and an auctioneer. If it takes used

equipment into its warehouse, its in-house technical staff will inspect

and repair all machinery.

EquipNet’s Roger Gallo: “Used” doesn’t mean worn out.

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“That’s a good method for people who want to ‘kick the tires,’ but we’ve seen more benefits in not doing that,” says Rottman. “We want the buyer to be comfortable, not tired.” Walking a plant – assuming this is possible because the plant is not operat-ing – can be tiring, and can lead to buyers missing details if they cannot see and hear well or become distracted.

Instead, Rabin uses a “theater”-style auction from a comfort-able room at the plant or a nearby hotel, with some coffee and lunch, and lots of data. Large-screen displays provide informa-tion on the item being sold as well as a running tally of bidders, bid amounts and perhaps simultaneous Internet bids.

Internet auctions have become commonplace. These can be held simultaneous to the physical event, so the buyer does not have to physically attend the auction to compete with bidders in

the “theater.” Of course, sales also can be conducted in a 24/7 web environment. This is typically done using an industry-spe-cific system similar to eBay. Even at eBay, it is possible to find food plant equipment, however this is typically for well-known pieces of equipment that require little or none of the kind of con-sulting an industry-specific seller can provide.

Many and perhaps most auctions by major industry auction-eers are conducted simultaneously on-site and online. Either way, it’s not the mode of selling, but the matching of asset to need that matters. Accountability and assurances are based on the reputa-tions and relationships of established industry specialists. And in this data-heavy age, extensive information about the condition and working order of a machine often is available.

Loeb operates two types of auctions: on-site sales with a si-multaneous webcast, and an online eBay-type sale. In contrast to on-site participants, very few online participants make the effort to do a physical inspection before the auction. So how do they know the assets they’re after are worth their interest? Loeb offers photos and videos from every possible angle – showing any dam-age – and good online descriptions of the equipment for sale. The company does not guarantee the online content because it prefers buyers to visit and do a physical inspection.

Still, most online-only participants do enough homework on big-ticket assets to prevent ill-advised – and career-threatening – expenditures. “There are ways to mitigate the risk, or at least being able to explain to your boss why you’ve just bought a piece of equipment sight unseen,” says Winternitz. “It’s not uncommon for a customer to contact the OEM with the serial number and get a complete service history, or even hire the OEM or a third party to go in and inspect the equipment.”

“People are getting more and more comfortable with the In-ternet,” concedes Tom Larson, sales manager for the dealer side of Loeb. Even on the dealer side of the business, the digital age has brought significant changes to the marketplace. “To give you an example, in the last decade, we’ve gone from mailing-out a quarterly newsletter to updating our inventory twice a day on the web. There are times when an e-mail blast of incoming shipments results in sales before the truck even gets to the warehouse.”

Kicking the tires is nice, says Keith Rottman of Rabin Worldwide, but

sometimes a remote event, with pictures of the equipment and even

data on its use, is more practical.

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Turn-on-a-Dime ManufacturingMass production of food has gone the way of the Model T, and nowhere is the need for line flexibility more important than at copackers.By Kevin T. Higgins, Managing Editor

ing. “The collaboration between Ishida’s and Heat and Control’s engi-neers becomes even more important when you want to make a seam-less system, from front to back,” he continues. But unless a snack food manufacturer is engaged in mass production with minimal change-overs, front-to-end automation results in lost flexibility, he concedes.

Ishida is gradually pushing its engineering expertise further into secondary packaging. The company recently introduced its Total Packaging System for snack foods, integrating the scales and f/f/s machines with downstream checkweighers and seal checkers (see “Bend, Fold and Close,” p71).

“Manufacturers want more data and information, and using equipment from a single vendor means those units can easily com-municate with each other and provide real-time data,” says Almond. But Pretzels Inc. is unlikely to automate casepacking that straddles those downstream functions and the f/f/s machines, and the reason is not simply economics, Huggins emphasizes.

“Because of the flexibility we need to have, we have found that it doesn’t make sense to automate casepacking,” he explains. “It would just be another machine that has to be changed four times a day, when we change packaging films. And we like having the operator look at the bags. It allows that final opportunity to detect any defi-ciencies.”

Riding the railsLean manufacturing principles have been front and center in many food companies’ continuous improvement efforts, and some lean adherents denounce accumulation zones on packaging lines “as a crutch,” notes Stellar’s Kolodziej. He is not among them: “You have to build in accumulation or you’re shooting yourself in the foot.”

Mike Weikert concurs. As director of applications engineering at Nercon Engineering & Manufacturing Inc. (www.nercon.com), Osh-kosh, Wis., Weikert recommends various packaging line ac-cumulation options, including Nercon’s buffering solution that in-corporates a movable carriage attachment to expand container travel paths as needed. “People often have a wish list of what they want accumulation to accomplish,” he says, “but if they want to buffer 10 minutes of production, we listen but then show them they don’t have the floor space to sustain that.”

Inevitably, the conversation turns to minimizing change-over time, and that provokes an examination of alternatives to guardrail adjustments. From slotted brackets with carriage bolts requiring tools to fully automated, one-button solutions that activate pneumatic air cylinders or electric actuated cylinders, manufacturers crunch the numbers for time required, labor costs and changeover frequency. If extended changeover times result in

upstream production interruptions, “the cost justification is a lot lower,” Weikert understates.

Red Gold employs a quick set-point method that uses color-coded spacers to position railing for the next run. “The simpler you can make it, the fewer mistakes you’re going to have,” says Rick Jones, director of quality. If fine tuning is needed, operators are empowered to tweak the set-up when the line is running.

Cooked batches can flow to multiple packaging lines, lowering the likelihood of a processing interruption. While three changeovers in an hour constitute “an extreme event, it can happen and it does happen,” says Jones.

To minimize downtime, the types of products being manufac-tured determine equipment selections. For example, positive dis-placement pumps drive CIP systems in Red Gold’s Elwood plant, where ketchup is produced, while progressive cavity pumps are used

One of the 20th Century’s closing acts was the shuttering of Sara Lee Corp.’s massive bakery in New Hampton, Iowa. It was a brawny, high-volume facility capable of turning out

more cheesecake than Americans were willing to buy. Therein was the problem: The plant only excelled at making cheesecake.

It was a one-trick pony. It was vanilla in a 31-flavors world.Mainstream America had an appetite for mass-produced prod-

ucts 40 years ago when Sara Lee set up shop in New Hampton, but not anymore. Today’s market is fragmented, and even iconic food brands come in variations of the basic recipe. Throughput still deter-mines cost of production, but optimum has replaced maximum in establishing throughput rates. Production and packaging lines can’t simply be high speed; they must be sufficiently flexible to produce multiple products in a growing assortment of container options.

This is especially true for copackers, the manufacturers whose production schedules are dictated by incoming orders from private label and branded-product customers, as well as their own brands. How quickly they can switch from one product formulation, or one label or package format, to another can determine if they turn a prof-it or operate at a loss.

“The key to survival and cost control is keeping our ovens run-ning,” believes Steven Huggins, CEO of Pretzels Inc. (www.pretzels-inc.com) in Bluffton, Ind. “Changeovers are killers.”

Multiple production facilities can spread risk and ease site-spe-cific changeovers, although the philosophy at tomato processor Red Gold (www.redgold.com), Elwood, Ind., favors a product-specific fo-cus at its three plants. “It adds manufacturing complexity, but it also allows the plant management team to sharpen its focus” and be the best at its assigned products, explains Mike Crooks, vice president of manufacturing.

“You could probably buy your way into flexibility with completely automated changeover,” muses Bill Schiel, director of global busi-ness development-food & beverage for Invensys Plc (www.invensys.

com), a London technology firm with offices in Houston, Texas. As a practical matter, food processors don’t operate with an open-wallet policy, so the challenge is to balance throughput requirements with the ability to produce multiple products. “Copackers have the ulti-mate need, because their plants must produce the orders their sales-people can get,” adds Schiel.

Toolless machine modifications are helping manufacturers tame the changeover beast. “Machinery has come a long way in terms of simple set-ups,” suggests Bob Kolodziej, senior project engineer-food & beverage at Stellar Group Inc. (www.stellar.net), a Jacksonville, Fla., architectural/engineering/construction firm. “Most companies are targeting a return to full production in less than 30 minutes. I think that is reasonable.”

pretzel logicPretzels Inc.’s facility was built in 1998, replacing a plant destroyed by fire. As its business-to-business and private label sales grew, own-ership invested in automation that integrates raw materials delivery to high-speed mixers that feed eight ovens and two extruded corn lines. About 900 products are made, requiring about 20 die changes a week for different shapes and sizes. Each change means oven down-time, and Huggins compares the mechanics’ choreography to “a race team during a pit stop.”

Changeover complexity increases in packaging. The original 23 packaging lines, which integrated Heat and Control conveyors with Ishida scales and Hayssen form/fill/seal (f/f/s) machines with inter-mittent sealers, have expanded to 32. Robotic palletizing also was added.

Hayward, Calif.-based Heat and Control Inc. (www.heatandcon-trol.com) has served as Ishida’s North American distribution partner for decades, and that relationship helped it deliver a system that more easily adapts to multiple package changeovers every day, believes Jeff Almond, Heat and Control’s snack food industry manager for packag-

High-speed fill lines have been installed in recent years at all three Red

Gold plants, including in October at the Geneva, Ind., facility, where

fill rates of up to 500 bottles per minute represents a 50 percent in-

creased throughput. Photo: Northeast Indiana Regional Partnership

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in the Geneva, Ind., facility, because they shorten CIP cycles to evac-uate products with particulates.

Both Red Gold and Pretzels Inc. underwent upgrades to their data management systems in recent years, an often painful but neces-sary process if manufacturing flexibility is to be maintained. “Super-visory control software enforces the production rules that give you flexibility,” Invensys’ Schiel suggests. The accuracy and accessibility of the information it yields determine how productive shift change meetings will be, he says.

Rules enforcement is important, Jones allows, but off-the-shelf software must be modified to meet the specific requirements for a plant’s line flexibility. “The integrator or the software company can’t define the problems you’re trying to solve; you must do it,” he empha-sizes. “Because of our continuous improvement focus, we’ve become a lot better at narrowing the gap between what the system delivers and what we need.”

Thanks to Red Gold’s focus on lean, managers have become more adept at querying the database about the true impact of changeovers and other metrics beyond turns and line efficiency, adds Crooks.

Pretzel Inc.’s legacy ERP system no longer was supported, forc-ing a new installation. “It’s always a challenge to go through that process, but I’m very confident in the numbers we’re getting now,” says Huggins. “We’re always looking to increase the amount of usable information that we get, and the new systems give you much more information.”

Spaghetti schedulesProduction scheduling has become more complex in the past 20 years as manufacturers have sought to minimize inventories while meeting more diverse customer needs. “We’re always responding to customers’ needs to be slightly different than the leading brand,” says Red Gold’s Crooks. Besides managing a growing selection of package formats, his colleagues must respond to requests for “a special twist” to help customers’ products stand out.

Allergens add another layer of complexity, and the conventional approach is to run those products at the end of the schedule. Dedi-cated lines would add flexibility, though most reject that as an unat-tainable extravagance. However, Pretzel Inc.’s purchase in 2011 of the Philly Soft Pretzel factory in Canonsburg, Pa., effectively is add-ing that flexibility.

Acquiring sales and customers drove the original purchase, but recently a process for peanut butter-filled pretzels was perfected. The new item did well in market tests, and the Pennsylvania plant is be-ing dedicated to its production. “We wouldn’t do that product (in Bluffton) because all are other products’ packaging would have to say, ‘Made in a bakery that uses tree nuts,’” Huggins explains. If ad-ditional allergen-bearing products are developed, Canonsburg is the logical production point.

Managing multiple facilities adds complexity, but added flexibil-ity is an attractive offset. And whether a food company is dedicated to its own brands or processes for multiple clients, more flexibility is a good thing.

Integration of conveyors, scales and vertical form/fill/seal equipment

turns packaging into a semi-continuous process for snack food

processors such as Pretzels Inc. in Bluffton, Ind. Photo: Northeast

Indiana Regional Partnership

A continuous mixer feeds Pretzels Inc.’s newest production line,

commissioned in fall 2011. Die changes for different snacks stop

throughput, just as they do on batch-fed lines, however. Photo:

Northeast Indiana Regional Partnership