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FDA Compliance

The Sugary Drink Tax

How to keep your profits from going flat

Published: Wednesday, July 19, 2017 - 12:01

On Jan. 1, 2017, Philadelphia became one of the first U.S. cities to pass a tax ($0.15 per oz) on sugary drinks, including artificially sweetened beverages, such as diet soda. In California, San Francisco, Albany, Berkeley, and Oakland have joined Philadelphia in this initiative, as well as Boulder, Colorado; Cook County, Illinois; and Seattle.

Even those across the pond are starting to take notice in the benefits of the tax, and on March 8, 2017, the British government confirmed that it, too, would establish a new sugary-drink tax, known as the Soft Drinks Industry Levy (SDIL). This measure will pass two separate taxes of 18 pence and 24 pence per liter ($0.23 and $0.30 per 33.814 oz) for sugar-added drinks. Other countries that are following suit include Denmark, France, Hungary, Ireland, Mexico, Norway, and South Africa.

It’s not surprising that the beverage industry will feel the sting from these taxes, especially since the demand on sugary drinks has been in steady decline for the past 10 years. However, this will likely have a beneficial impact on the health of nations worldwide. In fact, according to a 2012 study in the journal HealthAffairs, it is estimated that a penny-per-ounce tax on sugared beverages could prevent 2.4 million cases of diabetes per year, 8,000 strokes, and 26,000 premature deaths over 10 years. And, besides the immediate health benefits, the tax money will be put to good use toward funding universal preschool (pre-K) education, jobs, and development projects.

But for manufacturers, these taxes, combined with the gradual consumer shift toward flavored waters and nonsweetened juices, are slowly draining soft drink companies’ shares of the beverage market. Data from Beverage Marketing Corp. show that companies are expected to ship 13.5 million gallons of water this year (an increase of almost 1 million since 2016), compared with 12.2 million gallons of carbonated beverages (a decrease of 200,000 since 2016). In Europe, sales have dropped by more than 5 percent, and by 10 percent in the United Kingdom alone, BBC reported. In Mexico, sales have diminished by 12 percent after the country introduced a $0.05 tax per 35 oz on sugar-sweetened beverages in 2014, according to the British Medical Journal.

For the last 10 years, it has become increasingly clear that manufacturers must absorb some of the sugary drink taxes in their major markets or invest in new product development to avoid being subject to the taxes. Either way, money is being lost, and these companies are looking for ways to recoup the losses. Fortunately, the manufacturing process offers ways for organizations to keep potential losses to a minimum.

To start, these companies need to refine their manufacturing operations and invest in an effective enterprise quality-intelligence solution to help safeguard profits. With a quality-intelligence solution, beverage manufacturers can leverage statistical process control (SPC) methodologies to not only improve product quality, but also optimize manufacturing processes to positively impact the company’s bottom line. The analyses will help manufacturers to quickly identify opportunities to increase efficiencies and control filling processes across operations, resulting in reduced overfill and millions in cost savings on ingredients. These savings can offset, if not supersede, the cost of the sugary-drink taxes, enabling manufacturers to maintain their competitive advantage in the beverage industry and avoid the negative effects of the taxes, such as employee layoffs.

Quality intelligence: A refreshing solution for beverage manufacturers

Product overfill is one area where beverage companies are metaphorically pouring money down the drain. While underfilling is not acceptable and would open a beverage company up to consumer lawsuits or government fines, adjusting specification limits closer to target fill heights—even a minuscule amount—can produce notable savings. Applying the same strategy across production lines and facilities throughout the enterprise adds up to millions in cost savings each year. But, companies continue to unnecessarily give away product through overfilling because many don’t have the right technology, or the time or resources available, to take advantage of cost savings at this level.

Fortunately, there are ways to use quality data that have already been collected to find and act on these opportunities. An effective quality-intelligence solution helps to quickly pull quality data from across operations into a centralized repository for analysis. Accessed via an internet browser, cloud-based software, or software-as-a-service (SaaS), solutions provide flexibility, reliability, mobility, and control while supporting hybrid cloud environments, automated and manual data collection, and a variety of existing infrastructures and databases.

The resulting “big-picture” visual of data from across the entire enterprise highlights opportunities for improvement that were invisible from a single-plant perspective. Instead of viewing quality data as just a means to identify and fix problems, manufacturers can dig deeper to determine which overarching trends contribute to a steady drain on profits. Adjustments to reduce variation, increase production, or decrease overfill directly impact the quality of the final product and thus generate massive savings when applied across the enterprise.

Beyond improvements within their own organizations, beverage manufacturers can also use quality data to collaborate with their suppliers, packaging companies, and other partners. Together, these parties create supply chain-wide visibility that enables them to streamline the product life cycle, eliminate the risk of recalls, and reduce costs.

Beverage manufacturers must invest in quality control efforts to intuitively process the overwhelming amounts of data that today’s modern manufacturing industries generate. The resulting enterprisewide visibility and operational insights will help them identify new and unique opportunities to improve operations and significantly increase cost savings that surpass the fees imposed by the sugary-drink tax and contribute to the company’s bottom line. Global transformations of this magnitude generate a competitive edge in the marketplace and ensure viability and profitability for the future.

Quench the beverage financial strain with quality-intelligence ROI

However, many beverage manufacturers don’t take advantage of these benefits because of the potential cost and resource constraints of deploying new software. This should never stand in the way. Beyond the fact that cloud-based quality-intelligence solutions are inherently affordable and won’t overburden IT departments, they also offer manufacturers the ability to generate immense returns on investment (ROI).

Reducing overfill is the first way to improve operations, but there are three other key areas that beverage manufacturers should consider when weighing the cost vs. benefits of a quality-intelligence solution:

Mislabeling risk detection: By implementing checks to verify that the correct product is marked with the correct label, manufacturers can reduce risks associated with mislabeling. Avoiding this type of mistake lessens waste and avoids brand-damaging recalls—generating both tangible and intangible ROI.

Blow molding: Like mislabeled products, defective or nonconforming bottles also end up as scrap or rework. Unfortunately, defective bottles require that production of their associated product be put on hold until the issue is resolved. This slows down throughput, which translates to fewer bottles sold. To prevent these costly glitches, manufacturers must look for opportunities to improve the efficiency of blow-molding processes, and implement quality checks to optimize use of the produced bottles.

Compliance risk detection: With real-time access to quality data, plants can monitor a variety of information that contributes to the overall quality of the product. This includes the pH of the product, air content, and even whether the bottle caps are too tight. By proactively making sure the product is correct before it leaves the manufacturing facility, manufacturers are limiting the risk of market actions/recalls and production delays.

These opportunities generate ROI on a plant level, but there are greater potential savings and new efficiencies for beverage manufacturers from an enterprise perspective. Quality-intelligence solutions allow manufacturers to “roll up” data and view all operations at once, identifying areas for improvement that will positively impact the global organization.

An effective quality-intelligence solution helps streamline the analysis of quality data by quickly generating reports—saving plants and quality professionals time and money, and helping them meet beverage manufacturers’ rigorous data requirements.

Opportunities to uncover ROI are endless, bound only by the data that manufacturers can collect. This not only nullifies the objection that a quality-intelligence solution is too expensive, but also creates a strong argument to elevate the importance of such a system by pointing to the ways to prevent risk, create new efficiencies, and drive continuous improvements across the enterprise.


About The Author

InfinityQS’s picture


InfinityQS is a leading provider of statistical process control (SPC) software and services to a broad array of companies, from multinational giants to smaller, more specialized manufacturers. InfinityQS develops software solutions to help manufacturers monitor, control, and improve the quality of their manufacturing operations across a site, an enterprise, or an entire supply chain, continuing to provide significant returns on their initial investment and increase productivity.