By Scott Deakins, Chief Operating Officer, Deacom
Food and beverage companies have faced a number of unexpected challenges over the last year and a half – from the Coronavirus restrictions to the Suez Canal blockage and Texas freezing over – and manufacturers have learned to pivot and prep for future black swan events which are becoming more common. Restaurant closures represented one of the biggest challenges. According to a report by McKinsey, outbound orders for food ceased the moment the world shut down. However, inbound orders from farmers, food service producers, and processors continued to come in, causing logistical bottlenecks and a lack of storage space. As unwanted food piled up, farmers were forced to lower their prices or simply destroy perishable products they could not sell.
With several black swan events over the last year, what changes do businesses have to make to mitigate these challenges in the future? As we emerge from the pandemic, we see four trends developing within the food and beverage space.
1. A major shift from just-in-time to just-in-case
The challenges F&B companies faced were partly the result of just-in-time (JIT) operations, which for decades enabled organizations to be more efficient and reduce costs. Instead of ordering a large number of supplies that would need to be stored, JIT allows organizations to order and receive supplies when needed. Most F&B companies relied on JIT until the pandemic hit, but many have since moved on to just-in-case (JIC) operations, a strategy in which supplies are stockpiled just in case they are needed at a later date. While JIC is more expensive and requires larger warehouses with greater storage space, it provides a cushion of supplies during black swan events when the most severe shipping delays and other issues occur.
F&B manufacturers were some of the first to make the switch to JIT during the pandemic, preparing for both potential challenges as well as increased consumer demand. But JIC is just one important step in dealing with future black swan events. F&B companies also need the right technology to conduct trend analysis and forecasting to ensure that their material requirement planning (MRP) processes allow for unknowns. In other words, they’ll be able to better prepare for changes and know how much stock to hold onto with real-time updates of any situation.
2. New packaging for an evolving marketplace
COVID-19 also impacted the way items are packaged and sold. Bulk food providers like Bergin Fruit and Nut Company were forced to rethink their product lineup in the face of a global pandemic. With a product mix consisting of 60% packaged product, Bergin pivoted with specific customers and market segments within weeks of regulatory environment changes in Illinois and other locations. By relying on ERP software designed for global manufacturers and distributors, Bergin was able to obtain granular lot-level information and predictions about possible issues with perishable products.
The company then successfully moved to 90% packaged product and shifted nearly half of its bulk business to other product lines utilizing new labeling and packaging. Not surprisingly, this changed the overall environment and shifted how the company looked at relationships with customers, vendors, and employees. As a primarily made-to-order, private-label manufacturer, Bergin invested in a brand-new distribution facility to handle just-in-case and now stocks enough inventory to ensure the company can keep shelves full at the retailer level.
3. Diversifying shipping carriers for improved resiliency
The need to diversify shipping carriers and improve resiliency with more options – relying on not only USPS or UPS but also FedEx, DHL, and others – has become apparent in the last 16 months. F&B companies have had to adapt to eCommerce pricing and delivery rules to meet evolving carrier pricing changes and volume restrictions, but they must also consider whether or not consumers will pay a premium to ship a low-priced product. If not, they may need to consider absorbing some of the shipping costs. By investing in the right eCommerce technology, enterprises can obtain the flexibility they need to adapt and become resilient when faced with carrier cost increases and limitations.
F&B manufacturers should also consider improving their supply chains with geographic diversity, for example, bolstering their lineup of traditional suppliers in China and Europe with two JIC suppliers in the U.S. This makes it easier to adjust to black swan events should their standard suppliers run into issues that could cause a delay.
4. Embracing more vendors to meet every need
In addition to using multiple carriers, businesses have started to utilize multiple vendors. F&B companies had to quickly respond to changes in supply and demand, particularly as manufacturers looked to source more raw materials locally. That required F&B manufacturers to expand local and regional vendors.
Local and regional supply chains require more players – this increases complexity and costs but allows for more control over inventory and moves the product closer to the end consumer. Many companies have successfully improved their supply chain resiliency by revisiting their sourcing strategies to source ingredients from multiple vendors instead of relying on just one. While this does not work for all businesses, it can be another useful tool for diversification, when applicable.
Stay ahead of black swan events
F&B companies are coming to recognize the benefits of JIC, just as they are recognizing the need to adjust their packaging to meet the changes in shopper habits over the last year. They are also starting to diversify their shipping carriers and vendors to improve resiliency. By taking note of these trends, F&B manufacturers can plan for the months and years to come and stay ahead of black swan events.
