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Investor Relations

Operations: competitiveness through cost savings and efficiency

Shankar Rao, Senior Vice President, Manufacturing & Technical Services

Olam’s end-to-end soluble coffee capability now includes 2 soluble coffee manufacturing plants, strategically located in Vietnam and Spain.

Just 2 years after our decision to enter the segment, we set up a greenfield 4,000 MT per annum plant in Vietnam. Successful production and increased demand led to the expansion of our capacity to 12,000 MT per annum. Now, the plant produces an extensive array of soluble coffee including spray dried, agglomerated, freeze dried and frozen extract forms, which are packed in bulk format.

Our other plant in Spain, which we acquired in end-2012, has a capacity of 10,000 MT per annum. Besides producing soluble coffee in spray dried, agglomerated and freeze dried forms, it has the added capability to pack both in bulk and in retail private label formats like jars, pouches, sachets and stick packs at a world class packaging facility.

Track record in project management 

As in other high asset intensity processing businesses, strong project management capability is key. Our commitment to the soluble coffee production business included a significant amount of fixed capital to build the Vietnam plant during phase 1 in 2008-09; phase 2 in 2011-12 as well as continual quality improvement and cost savings initiatives across the development cycle. Similarly in Spain, we have undertaken several medium size capex projects to address quality, environmental, health and safety (QEHS) infrastructure bottlenecks and cost savings.

Having the right physical assets is only one aspect of successful industrial processing. We also paid close attention to developing “soft” assets by assembling and training a world-class in-house project management team. Their collective experience and track record in project management continue to enable us to deliver on all phases of our projects on-time and within budget.

Focus on ongoing operations

The processing of soluble coffee requires rigorous attention to minute production details to optimise quality. It consists of 5 steps:

  1. roasting of green beans;
  2. extraction of roast and ground coffee;
  3. aroma recovery;
  4. evaporation of weak extract; and
  5. drying of concentrated extract to produce spray dried or freeze dried coffee.

Agglomerated coffee is produced by steam wetting and drying the spray dried coffee. Frozen coffee extract is produced by freezing the concentrated extract.

SolubleCoffeeProcess

In both plants, we keep a razor sharp focus on continually improving and optimising production.

In Vietnam, we began operations in our greenfield plant in 2009 with challenges in achieving the targeted capacity, quality and efficiency to overcome. To do this, we strengthened the operations team and developed a clear roadmap with incremental targets to implement progressive work practices. This included workplace organisation, basic equipment condition maintenance and preventive maintenance (5S/AM/PM), shift meetings between operators and supervisor, a daily operations review meeting on the shop-floor and quarterly communication meetings where targets and results were shared. Over time, these strong engagement initiatives coupled with world-class plant infrastructure have resulted in significant improvement in plant performance across all fronts, including quality, cost, service, safety, sustainability and staff.

In Spain, the focus after our acquisition was to integrate people and processes and simultaneously address QEHS infrastructure bottlenecks. This integration plan has been successfully implemented, and capacity utilisation is now close to 100% with best-in-class resource efficiencies. Regular communication between the operations and sales teams has helped in delivering a changed product mix which was a critical business imperative. With these encouraging results, further investment for enhancing capacity, quality and efficiency is in the pipeline.

Our success in maximising capacity utilisation is rooted in our focus on operating the plants at best-in-class machine efficiencies (OEE or overall equipment effectiveness), improving yield to industry leading levels by adopting innovative technologies and reducing specific energy consumption by more than 18% through implementation of energy audit recommendations. All of this has been possible only through the collective efforts of our 530 colleagues at our plants in Vietnam and Spain.

How we have optimised processes:

Case study 1: improving yield

In soluble coffee processing, raw material cost accounts for 75% of the cost of sales. Typically 2.5 MT of green coffee beans are required to produce 1 MT of soluble coffee. In industry parlance, this ratio is referred to as ‘yield’. At current prices, every 1% improvement in yield results in savings of US$45 per MT. Yield depends on maximising extraction of soluble solids by optimising 3 key parameters, namely time, temperature, particle size at extraction step and minimising losses of soluble solids post extraction step by recovering and recycling the soluble solids.

During phase 2 capacity expansion in Vietnam, we selected an innovative technology which helped in achieving both objectives and improving the yield to industry-leading levels. After achieving this success in Vietnam, we replicated the initiative on an existing line in Spain and have achieved similar success in improving the yield to industry leading levels.

Case study 2: reducing energy use

Soluble coffee processing is an energy intensive process and requires 62 GJ of energy to produce 1 MT. In Vietnam, over the last 3 years, proactively implementing energy conservation measures has helped reduce energy consumption by 18% from 62 to 51 GJ per MT. These measures include heat recovery from roasting, extraction, air compressors exhaust streams, energy efficient lighting, variable frequency drives and auto cleaning of chiller condensers. This energy use reduction has in turn helped to reduce carbon emissions as well as generating cost savings. In simple terms the annual energy reduction achieved is equivalent to about 4,600 households’ annual electricity consumption. Similarly in Spain, we have conducted an energy audit, to identify several energy conservation measures which will help in reducing consumption by 13%.