19 March 2018 – Speaking at last week’s AFIA Purchasing and Ingredient Suppliers Conference in Fort Worth, Texas, Dr. John Foley, nutritionist at Format Solutions one of Cargill’s digital businesses – discussed the use of digital transformation of ingredient transactions and its usage in the animal nutrition industry.
Feedinfo News Service was able to speak to Dr. Foley on the sidelines of the event on the topic of digital disruption and how animal nutrition companies should embrace it, rather than fear it. We were joined by Amber McKinzie, Digital Nutrition Advisor, Format Solutions.
[Feedinfo News Service] Dr. Foley, in your talk you argued that key data doesn’t flow freely in the animal nutrition sector. In which cases does this hinder a company’s operational efficiency?
[John Foley] Our industry is increasingly moving toward a precision nutrient approach in the purchasing and use of ingredients to design feeds. Being able to efficiently match nutrient supply with nutrient demand allows for more consistent and predictable feed and animal performance, and higher margins. When we flow accurate data through the network of software we use today, from the time we sample loads of ingredients until the time animals are fed, we scrub out operational inefficiencies that cost everyone in the value chain in terms of animal performance and profitability. Technology is not just confined to the mill, the same flow of data can help on-farm consultants optimize diets for their customers by dynamically matching nutrient supply with nutrient demand.
With the technology available to us today, feed formulators have the opportunity to use nutrient composition data on their ingredients which represents the ingredients in their bins right now. Previously the industry was limited to using book values, or compositions that represent ingredient suppliers that seldom changed and created inaccuracies. Rather than over-formulate to cover for these inaccuracies, we now have the ability to formulate more accurately with up-to-date, lab-verified, statistically-determined nutrient analyses. In other words, we have the ability to manufacture the feeds more accurately and assure the animal performance we are seeking to support. And this should all happen without having to hand enter any data, especially after the nutrient analyses are entered into a laboratory database. Having talent resources manually keying in nutrient, pricing, and formula data leads to errors and the time required could be better spent on higher value activities.
[Feedinfo News Service] You mentioned “digital disruption”. To what extent is Cargill/Format Solutions able to assess the impact of digital transformation across its operations?
[Amber McKinzie] Cargill is recognized for its deep understanding of animal nutrition, which Format Solutions has now leveraged to develop a digitally connected product suite called Digital Nutrition. These tools help our feed mill and animal producer customers, make smarter purchasing decisions and formulate with greater precision. Digital Nutrition can deliver more consistent and predictable product and animal performance along with significant year-over-year cost savings.
We have the opportunity as incumbents in our industry to drive digital transformation of our businesses before an organization from outside of our industry comes in and does it for us, or perhaps more accurately, to us. This this type of change can be overwhelming , but digital transformation doesn’t have to be daunting. Format Solutions works with customers as a technology partner to demonstrate and realize the value of implementing new technologies in a step-by-step approach.
[Feedinfo News Service] What do you suggest can be done at feed formulation and ingredient sourcing levels?
[Amber McKinzie] Feed companies that apply a more nutrient driven approach to feed formulation and ingredient sourcing have the opportunity to be more profitable and deliver more value for their customers. We have the technology today to understand the nutrient composition of ingredients, in some cases, even before a load of ingredients arrives at a plant. We also have available, the most accurate phase-specific animal nutrient requirements and how changes in nutrient supply affect animal performance.
Let’s consider ingredient sourcing. The laboratory analyses, databasing, analytics and software exist today to help ingredient buyers make more informed decisions about who to buy from. And the best way to determine which ingredient to buy for a company’s specific mix of products is to evaluate those ingredients – with accurate and precise nutrient composition data and the current market price – in the formulation of the entire product mix to determine the financial impact overall. We have tools to manage this available today. Perhaps not everyone knows they are available, some don’t know how to use them, and some simply haven’t committed to using them, but they’re there and they can have a huge impact on cost-of-goods-sold.
[Feedinfo News Service] How can a small to medium-sized feed or livestock operator manage digital disruption alongside its already time and resource-consuming existing business management?
[John Foley] Finding the right partner to manage this change is key. In the big picture, the up-front time investment to implement new technologies is minimal and far outweighs the time savings and value created to fuel long-term growth.
There is no doubt that managing a digital transformation poses a significant challenge and one that requires what some call “dual transformation.” This is one of the challenges of being an incumbent in your industry. You have a business to run, a business that must be profitable if you are to continue in the business. There are some incremental improvements that can be made in that business to transform it for right now. There are technologies that you haven’t adopted yet that can benefit your existing business – maybe you need to convert from using book values to using statistically-valid ingredient compositions. This is where it becomes critical to think about the opportunities that exist and take the first step. Assigning someone in your organization to lead this change, and selecting the right technology partner can help ensure that the appropriate time is dedicated to making the transformation a reality – otherwise it becomes too easy to be distracted by the day-to-day responsibilities of the business.
[Feedinfo News Service] Digital technology has a rapid pace of innovation and new solutions will come to the market faster. How can we ensure that feed and animal producers will not be overwhelmed by the plethora of available solutions and overload of information?
[John Foley] There are many companies that offer components of what is required for a digital transformation. These components can deliver some value in isolation, but implementing an end-to-end connected system that spans the feed production value chain drives considerably more value.
The business environment has changed and what it takes to survive in business has changed. Feed ingredients and IT tools, of themselves, don’t win customers or build strong brands – they are enablers of capabilities. Companies evaluating new technologies need to understand how the solutions will impact their business and have the support required to realize and capture that value.
[Feedinfo News Service] How does Format Solutions strike a balance between open digital connectivity/big data sharing and intellectual property protection, data security, or avoiding outside threats like cyberattacks?
[Amber McKinzie] Format Solutions’ goal is deep customer intimacy. In order to gain that level of relationship with our customers, trust is critical. It is for this reason that Format Solutions takes data privacy very seriously to ensure that any identifiable data customers provide is secure and not shared with anybody without their permission. In addition, we heavily invest in monitoring and protecting our software and data from cybersecurity attacks.
Format Solutions’ newest product, CoreSample, is a web-based sample and ingredient management tool that allows customers to share ingredient analysis data with other participants in the program. Sharing data allows program participants to skip analyzing an ingredient when there is already enough data for a particular ingredient supplier in the system, and provides nutrient data based on weighted averaging of all recent samples in the system for use in formulation. With CoreSample, it is possible to know with a high degree of certainty the expected nutrient composition and variability for a particular load of ingredient before it arrives at the plant. CoreSample is just one example of how Format Solutions is leveraging big data to improve business performance.
[Feedinfo News Service] It seems unlikely that companies in the animal nutrition industry can aspire to have platform business models like those you mentioned in your talk (Facebook, ebay, AirBnB…) But what can they learn and integrate from such platform business models?
[John Foley] Yes, it may be unlikely that animal nutrition businesses aspire to develop a platform business model, but it is necessary that they begin preparing to react quickly if a digital disruptor enters the industry.
Feed producers can safeguard against disruption by partnering with companies like Format Solutions to address opportunities to capture value across the feed production value chain. As an industry we have to keep the pressure on ourselves to do this because no one else can lead the digital transformation of our industry better than us.
[Feedinfo News Service] You talk about “business extinction”. Is digital technology absolutely indispensable for feed and animal producers today?
[John Foley] Our feed industry has been slow to be impacted by digital transformation. Even without digital disruption, the animal nutrition industry has been consolidating for years. Digital transformation will continue to impact our industry and cause further consolidation. Right now, there is an explosion of new technologies that are changing the business landscape quickly and irreversibly – things like sensors, machine learning, artificial intelligence, cloud computing, machine vision, and many more. Looking at the history of other industries, it is clear that digital technologies have had an impact on the split between companies that thrive or fail. All organizations in agriculture have to be thinking about what it’s going to take to thrive in the future. Digital disruption should not be viewed as a negative. Organizations that plan, invest and execute on a digital strategy have a tremendous opportunity to capitalize on this shift and make significant advances in their industry.