The term “supply chain” has transcended its industry niche to become part of everyday conversation.
The reason? Today’s supply chain issues are global in nature, affecting all industries and having very real and lasting impacts on businesses and consumers.
Recent supply chain slowdowns have multiple causes, including labor, transportation and container shortages, and inflation-fueled cost increases. But it took the COVID-19 pandemic for supply chains to truly spin out of control.
Industries were affected disproportionately, with demand for products and services skyrocketing in some sectors and plummeting in others. Across the food and beverage industry, the grocery sector grew as consumers settled into cooking at home. At the same time, supply needs for dine-in restaurants all but evaporated. Then came waves of panic buying, resulting in the bullwhip effect. All this contributed to a 59% increase in forecast planning errors from pre-pandemic levels, according to a study by e2open.
As our understanding of COVID-19 developed, consumers became more comfortable with their food being prepared by others. Takeout and quick-service restaurants offering curbside pickup found themselves busier.
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, social distancing and low pay rates. Labor was in short supply even prior to the pandemic in domestic transportation) All this added to delays and uncertainty in supply chains.
Actions taken across the world are also playing a part in the supply chain chaos. There were blockades along the U.S.-Canada border in protest of a Canadian mandate of a 14-day quarantine for truckers who weren’t double-vaccinated. With up to 90% of fruit and vegetables being imported into Canada from the U.S. during the winter, the delays lead to supply shortages in grocery stores.
Russia’s invasion of Ukraine put a multidirectional strain on supply chains for the food and beverage industry. Oil and gas prices skyrocketed, impacting agricultural production and transportation. Russia and Ukraine are among of the world’s main exporters of wheat, corn and sunflower oil, as well as raw materials such as key ingredients for fertilizers such as phosphates and potash. If the conflict continues, supply issues for fertilizers and other raw food ingredients will worsen, with dire international consequences, especially for some African countries.
On the ingredient side, many processed foods use functional ingredients sourced from overseas. It might be an 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. In North America, ships had to wait days and even weeks to offload their cargo. Labor shortages at the ports compounded the delays. President Biden announced in October 2021 that the Port of Los Angeles would be open 24/7 in an attempt to reduce the backlog. Diverting some cargo volumes to the East Coast finally brought relief.
Disruptions in manufacturing and a disparity in the volume of imports and exports with China have exacerbated container imbalance. Empty containers piled up on the U.S. side of the ocean, leaving containers in short supply in Asia. The subsequent imbalance resulted in a dramatic rise in costs and shipping times. The amount could be anywhere from $5,000 to $25,000 per container —up to a tenfold increase in shipping charges — although more recently prices have begun to come down.
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.
Shoring up Technology
To keep up their core offering while developing new products in a changing marketplace, manufacturers need flexibility and adaptability. That might mean paring down the number of SKUs and focusing on production of the main ones in the short term. Retailers, for their part, might need to diversify their supplier base, make formulation changes or even adjust assortment as manufacturers scale back and put their customers on allocation.
Food and beverage manufacturers, brands and retailers need more than supply chain software: they need digital technology 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 source of the truth. It boosts transparency throughout supply chains and enables businesses to become agile enough to meet market demands.
In addition to overcoming industry challenges, food and beverage businesses need to keep pace with consumer demands while developing new products for a changing marketplace. It makes sense to compress product-development timelines to stay close to consumers. PLM systems speed up time to market, so that products make it to store shelves while they’re still relevant. Producers can secure alternative ingredients or domestic substitutes by putting out a call to several suppliers at once, then tracking responses through a portal.
As supply chain difficulties evolve, the future of the food and beverage industry remains unclear. There has never been a more important time to prepare for current and future challenges — and digital transformation is the answer to overcoming hurdles and keeping pace with consumer demands.
Frederic Van Roie is a business solution expert with Centric Software.