It’s safe to say we’re all getting a little weary of hearing the words "supply chain." Despite that, they’re the words on everyone’s lips, which have transcended from industry niche to everyday conversation.
Why? The current issues in supply chains are global, affecting all industries and having very real and lasting impacts on businesses and consumers.
There are multiple reasons for supply chain slowdowns, including labor, transportation and container shortages – and inflation-fueled cost increases. However, the current supply chain issues became truly out of control when another hot topic took hold: the pandemic.
Feast and famine
Industries were affected disproportionately. Demand for products and services in certain sectors skyrocketed, while it plummeted in others.
Across the food & beverage industry, the grocery sector grew as consumers settled into cooking at home, rediscovering baking and relying on comfort foods. That’s not to mention the surge in panic buying causing the Bullwhip Effect (Forrester Effect) to take hold. All this meant forecast planning errors increased by 59% from pre-pandemic levels, according to a study by E2open, whereas the supply needs for dine-in restaurants all but evaporated.
As our understanding of COVID-19 developed, consumers became more comfortable with their food being prepared by other people. Take-out businesses and QSR restaurants offering curbside pick-up found themselves busier.
However, the food industry as a whole has met widespread challenges. There was a general shortage of labor in packing plants and processing areas due to COVID-19 infections, employee welfare (social distancing) and low pay rates. There was a labor shortage even prior to the pandemic in domestic transportation (trucking transporting goods from ports or warehouses to stores). All this adds to delays and uncertainty in supply chains.
Across the world, actions taken by people are also playing a part in the supply chain chaos. There were blockades across the U.S.-Canada border in protest at Canadian policies, meaning a 14-day quarantine for truckers who weren’t double-vaccinated, causing havoc for trade and threatening Canadian food supplies. With up to 90% of fruit and vegetables being imported from the U.S. into Canada during the winter, the delays lead to supply shortages in grocery stores.
Of course, the invasion of Ukraine by Russia has put a multidirectional strain on supply chains for the food & beverage industry. Oil and gas prices are skyrocketing, impacting agricultural supply chains, production and transportation. Not only that, but Russia and Ukraine are some of the main global exporters of food such as wheat, corn and sunflower oil, as well as raw materials including key ingredients for fertilizers such as phosphates and potash. If the conflict continues, then supply issues for fertilizers and other raw food ingredients will worsen, with dire international consequences, especially for some African countries.
Functional ingredients and more
On the ingredient side, processed foods often use specific functional ingredients that may come from overseas. It could be a specific emulsifier used to keep ice cream smooth or an anti-mold additive used in bread. These ingredients, like anything that must travel great distances, are taking longer to arrive at their intended destination.
The buck doesn’t stop there, however. Long backups exacerbate delays, including in North America, where ships have sometimes had to wait days and even weeks to offload their cargo. Additionally, labor shortages at the ports are compounding the delays. President Biden made an announcement in October 2021 that the port of Los Angeles would be open 24/7 in an attempt to reduce some of the backlog. Diverting some of the volume to the east coast finally brought relief.
Disruptions in manufacturing and a disparity in imports and exports with China have exacerbated container imbalance. Empty containers are piling up on the U.S. side of the ocean, leaving containers in short supply in Asia. The subsequent imbalance has resulted in a dramatic rise in costs and shipping times. The amount can be anywhere from $5,000 to $25,000 per container – that’s up to a tenfold increase in shipping charges.
The container imbalance has also created packaging issues for manufacturers. Some packaging materials – like styrofoam for meats and films used to package foods – also come from overseas. So even when all ingredients are available, not being able to package the products still prevents them from being produced.
Natural disasters like drought, fires and flooding are also affecting crops and commodities. Then there are stricter regulations surrounding coal usage, which have resulted in power outages in locations where packaging materials are produced.
Shore up your technology
Keeping up the core offering while developing new products in a changing marketplace needs flexibility and adaptability. So being on top of your entire product management and development process is an absolute if you want to keep up with evolving industry challenges.
As a manufacturer, you may have to pare down the number of SKUs and focus on producing your main ones in the short term. As a retailer, you might need to diversify your supplier base, make formulation changes or even adjust your assortment as manufacturers scale back and put their customers on allocation.
Food & beverage brands, retailers and manufacturers need more than food supply chain software: they need a digital solution that provides visibility across supply chains and streamlines the entire product lifecycle, from concept to consumer. A modern product lifecycle management (PLM) system centralizes all product data and workflows into a single, actionable source of the truth. It boosts transparency throughout supply chains and empowers businesses to become agile enough to meet market demands.
But as well as overcoming industry challenges, food & beverage businesses need to stay innovative and keep pace with consumer demands, developing new food products for a changing marketplace. It makes sense to compress product development timelines to stay close to consumers. Systems like PLM speed up time-to-market so products make it to store shelves while they’re still relevant. Make sure your technology is up to the task. Manage ingredients and specifications, finding alternate functional ingredients or domestic substitutes by putting out a call to several suppliers at once – and tracking responses through a portal.
Food for thought
As supply chain difficulties evolve, the future of the food & beverage industry remains unclear. There has never been a more important time to secure your company’s future against current and future challenges – and digital transformation is the answer to overcoming hurdles and keeping pace with consumer demands.
Frederic Van Roie is a director at Centric Software and a business solutions expert in the global grocery industry.