1 Food for thought: Are you prepared for Industry 4.0? - [Speaker 1] Welcome to Food For Thought, a podcast series designed to bring you bite-sized information on the latest trends and hot topics within the food and beverage industry. Are you ready to implement 4.0 and transform your competitive advantage? Today, we discuss Industry 4.0, operational strategies, and keys to protect your intellectual property. - [Paul] I'm Paul Edwards, the leader of our food and beverage practice, and I'm joined today by my colleague Dave Plomin from Plante Moran's consulting group, and Janet Garetto from Nixon Peabody. Janet and Dave, thanks for joining us today really excited to have you here with us. - [Dave] Yeah, thanks for having us, Paul. - [Janet] A pleasure to be here today with you, Paul. - [Paul] Very excited to be here and talk about Industry 4.0 with you. I think that this is going to be a very insightful discussion for our audience, and, Dave, I'm looking forward to hearing you share some insight about the operational trends that you're seeing and operational benefits you're seeing from 4.0. And Janet really interested to hear your legal considerations associated with 4.0. I'll kick us off by just an overview of 4.0 within the food and beverage industry. I don't see it being widely accepted and implemented by most middle-market food and beverage companies at this point. I think many of the food and beverage companies are embracing big data in an effort to monitor consumer habits via social media and using it more for marketing purposes. But I haven't really seen them embrace it to the point where they're implementing it in their manufacturing process. So, Dave, in my experience, Industry 4.0 is not widely accepted and implemented by most middlemarket food and beverage companies.
2 - [Dave] Yeah, Paul, I would agree that companies are kind of taking a slow road to implementation. But there are some companies that have made that leap and companies that are adopting the Industry 4.0 tools and technologies are achieving more cost-efficient operations, improving quality and responding faster to their customers. For instance, we have a client who's using the data from their molding machine, and they're signaling to an autonomous vehicle to come pick up the goods; and that's really streamlining their operations; and it's freeing up their operator to focus on quality issues. - [Paul] Yeah, so that example is outside of food and beverage, but that would be a very I think relevant example of how any food processor might be able to try and implement the 4.0 into their operations. One more follow-up question for you, Dave. Do you think that the perceived high cost to implement 4.0 and the impact it has on the work force is a what I'll call a barrier to entry for implementation of 4.0 in the industry? - [Dave] Absolutely. There's a perception that it is very expensive to take advantage of the tools and technologies, and what we're trying to educate our clients on is that it's not that expensive, in most cases, where you can get simple solutions that will yield great returns for them. - [Paul] That's pretty interesting. And, Janet, from your perspective, what are you seeing from a legal side? Do you think that there are some legal issues that need to be considered and potentially even prohibiting the food and beverage companies from implementing 4.0? - [Janet] Well, we're absolutely seeing that Industry 4.0 implicates a number of legal issues, number of legal questions to consider. These can range from thinking about intellectual property, or IP issues, data security issues, big data as you mentioned, insurance, indemnification, contracts, regulatory anti-trust it can really run the gamut what's out there. I would say that the law is probably lagging a bit behind. And probably, the reason for that is that it's not unlike the situation with the transformation of industry from brick and mortar to the virtual world. It took some time for the law to catch up to what businesses were doing when businesses migrated from brick and mortar to virtual, and here we see the same thing. Companies are not entirely embracing; they're waiting a bit for others to test the waters first. So, we know what the legal issues are going to be, but we're not necessarily seeing the law mature quickly because companies are kind of coming slow to
3 the table to this venture. But when they do, and if you can be ahead of the curve, you're going to be in a great posture for your company. - [Paul] That's interesting insight. Because in my world as a CPA, we often comment that the tax law does not keep up with industry and some of the trends in industry, especially in the internet sales and on the sales tax side of things. It took years for the law to catch up to the conversion over to the more internet-based retail environment that's very interesting insight. Dave, I'm going to ask you another question and just wondering if you could maybe share a little bit deeper into some of the operational trends that you're seeing within 4.0. Even if it's not particularly directly attributable to food and beverage, if you're seeing opportunities outside of food and beverage that might be very relevant to someone who's in the industry love to hear your insight. - [Dave] Sure. What we're seeing is companies are taking advantage of Industry 4.0 in three ways. The first way and the most prominent way, or the way that we see most frequently, is that they're improving their internal operations. They're doing this by collecting data from the machines on the shop floor, analyzing it, and then using that data to make better decisions. So as a result, companies are achieving dramatic results, including increasing machine efficiencies, lowering their production cost, reducing their material usage, and improving their supply chain operations. So, for instance, we are working with a client that is using machine learning for when they're drilling metal parts, and so instead of having an operator manage the machine and make changes, the machine is doing it on its own and it's showing that a 50 percent improvement in the machine productivity as a result. The second area that we see companies taking advantage is with product development. Now that companies have better information about how they manufacture products, they can use that data to help them go through new product iterations much quicker, and to make sure those products can be manufactured on their shop floor, which is an important improvement. And the third area is an area that really Janet's comments about the legal changes' comes into play. And that is the data is really breaking down the barriers between a companies internal operations, and their vendors and their customers. And so, new products and services are being developed that blur the traditional lines, and that leaves some questions about who owns the data and who owns the product, who owns the services. It becomes a brand new frontier for companies.
4 - [Paul] That's interesting insight because it's very common in the food and beverage industry for a food and beverage company to be what we would call, a virtual company, where they might have a branded product, but they're doing a lot of the manufacturing through outsourcing to co-packers. So, I would imagine that a co-packer relationship could really create some additional barriers to entry for the food and beverage manufacturers and processors. What are your thoughts on that? - [Dave] Yeah, I agree. Again, the traditional barriers between a company just providing orders and then another company doing the work, is rapidly changing. Now they'll be sharing real-time the order history, the orders coming online, looking at where the production stands, and adjusting those orders accordingly. And so, where it was two distinct processes, now becomes one unified process, and that brings new challenges. - [Paul] Janet, do you see, from a legal perspective I would imagine that using a co-packer relationship would just even further extend some of the challenges and considerations that you have to think about for 4.0? - [Janet] Yes, I would absolutely echo that sentiment. I think the key in a co-packer relationship, or really in an arrangement when you're now bringing two parties together that might have perhaps different business interests, but yet, some joint desire to see a successful outcome with whatever venture they're working on together. When that happens, it is very important to have those two parties get together and really give some thought upfront to how the arrangement is going to work, who is going to own any ideas that may come out of that arrangement and that venture where they're working together and jointly, and getting the right contract language in place upfront that specifies ownership rights, what might happen if the two parties decide to part ways all of those things need to be thought about upfront, and that can really save a lot of time and money down the road. - [Paul] Yeah, I would have to imagine that whether you're using a co-packer or doing your in-house processing any intellectual property that you generate through Industry 4.0 could be very valuable and would really need to be protected. Are you seeing any particular trends, Janet, with protection of IP for any clients that have implemented 4.0? - [Janet] We are certainly seeing a bit of delving into the intellectual property space here. I did a quick search prior to this podcast to see what sort of information is out there on the United States Patent and
5 Trademark Office website in terms of Industry 4.0, and there is some information; there are some patent applications and patents that mention the term. I think this is just the tip of the iceberg. So, we're seeing, certainly, a desire to figure out how to use the buckets of intellectual property to protect their rights and these ideas that come out of Industry 4.0. I think we're kind of at the forefront on the patent side. It may well be that some people are using tools to keep the information, perhaps, trade secret, and using that bucket of intellectual property. And others are probably embracing the concept of copyrights to cover what they're doing. Those companies that can figure out how to marry and kind of merge the different buckets of intellectual property, and best utilize the array of tools available to them, they're the ones that are really going to be very, very successful in creating a competitive advantage as it relates to using IP to protect their space. And we're seeing this come up in all different sorts. It might be thinking about a source code; it might be the shareable metadata; it might be algorithms. It might be any of these tools that Industry 4.0 embraces in figuring out ways to protect those buckets of rights. So, we're seeing it we are going to see more and more of it as companies delve into this further. - [Paul] That's very interesting insight. I would of never thought about as deep as you'd have to go to potentially protecting the source code and the metadata. That's pretty good thoughtful insight from that perspective. Dave, I'm just thinking about it. Again, back to food and beverage companies, and maybe any recommendations that you would have about food and beverage companies that are considering looking or taking a deeper dive into the application of 4.0 in their processes? Any recommendations? - [Dave] Yeah, we encourage companies to develop an overall vision for the Industry 4.0, and then recognize you don't have to do it all immediately. And so, having that broad vision helps you with your roadmap. And then you've got to ask yourself, What is most important to me immediately? Do I need to reduce costs? Do I need to increase revenue? And then based on that, you can choose what you're going to implement out of your vision, so you don't have to do everything at once. You can take manageable chunks, implement that, get some benefit from that, that can help fund future investments in the technology 4.0. And so, the key again is to have that overall vision, and then breaking down into manageable chunks.
6 - [Paul] So I would assume it takes a very wide-cast vision, or very strategic thinking process to go through to figure out where could you get the most bang for your buck with Industry 4.0. Would you agree with that? - [Dave] Absolutely. It is a different mindset. Companies have traditionally just been focused on their operations on their plant floor. And with Industry 4.0, you have the ability to look beyond your organization, look to your vendors, to your customers, to really streamline and become more efficient. And that does take some strategic thinking and a completely different mindset. - [Paul] That's interesting insight. Janet, you know, I think that you had mentioned that there are a number of companies that might be sitting back and watching what others do in this area. Would you have any takeaways, final takeaways that you'd want to share with our listening audience? - [Janet] My takeaway probably echoes and is in line with what Dave mentioned, and that is having an overall implementation plan as far as Industry 4.0 goes. Thinking about the types of intellectual property, or IP buckets, and how you might avail yourself of those tools; thinking about patents, thinking about trademarks, thinking about copyrights, thinking about trade secrets, and how they jointly can help create a strong intellectual property portfolio around the technology that you might be developing or you might be developing jointly with vendors or other third parties as it relates to the implementation strategy that you have. And doing that, sooner rather than later, is always important in the intellectual property world, because you can create situations where activities can create bars to securing certain types of intellectual property rights. So, thinking about it upfront, and then having a strategy and a game plan for implementation, and creating of your IP portfolio around this area will really help companies differentiate themselves. - [Paul] So, it wouldn't be all that bad to be a leader in this area. - [Janet] I absolutely think being a leader in this area would be very beneficial. And we are seeing that people, again, are delving, but not fully embracing. And so, you can create a significant competitive advantage by doing and doing first, essentially, or being at the forefront tier.
7 - [Paul] And Dave, how about you? Any takeaways that you'd want to share with our listeners? - [Dave] Yeah, I would just add that for the companies that we've seen, that have taken that first step, they're finding transformational results. And so, it is a little bit intimidating for companies, but breaking it down into manageable chunks, they're going to get great benefit from it. - [Paul] Janet and Dave, this has been a very interesting discussion. And for me, it's really well-timed. I recently had the opportunity, on behalf of the firm, to moderate a panel, private equity investment panel in New York related to food and beverage companies, and then the following week was at the Expo West Conference. And at both of those events, these topics that we've discussed here with Industry 4.0, were very top of mind. It was very interesting to hear from industry experts how it's very important to embrace the new technology and the new data that's available to middle-market companies. And their focus was really more on using that data for new product development like Dave had mentioned, and I think new product development is going to be very important. The retail industry is facing some significant challenges as they're trying to embrace 4.0 from the standpoint of implementing omni-channel distribution, and really addressing the impact that internet based sales are having on their business. So for me, I think the food and beverage companies that really embrace this 4.0 concept and can use it for both new product development and increasing and enhancing their operations, I think if they're ahead of the curve I think they are going to, like Janet said, create a differentiation for their company. If not, I think they risk falling behind their peers. I think that with how quickly technology is advancing, if food and beverage companies are waiting for others to figure it out, I think it's going to be too late. Janet and Dave, thanks for joining us. - [Dave] Thanks for having us, Paul. - [Janet] Right. Yes, thank you. - [Paul] And with that, I'd like to thank our audience for listening. And remember to check out additional Industry 4.0 resources, including our on-demand webinar at plantemoran.com.