Supply chain resilience is the sole vanguard of seamless operations within retail chains worldwide. The unexpected contagion has disrupted the supply chain, highlighting the importance of streamlined collaboration to power through the current pandemic. With the change in the world’s landscape and uncertainty surrounding the virus, businesses need to design a food supply chain that is flexible to ensure continuity of business operations in the event of any crisis and even after that.
The onset of the Coronavirus disease (COVID-19) unveiled grave dissonances in the supply chain of major grocery and retail stores that resulted in a loss of revenue, particularly in the food and restaurant industry. The pandemic also revealed the United States’ heavy reliance on China for medicals supplies with 80% of pharmaceuticals sold in the United States hailing from China. This raises an imperative concern with regards to other needs of the hour items, mainly food and grocery. How does the supply chain make up for any shortfalls during a similar crisis like the one we’re facing today? Are we prepared to deal with it?
Coronavirus and the food supply chain
COVID-19 has exposed grim frailties in North America’s food supply chains with the twofold crisis of excess and dearth. At the start of the lockdown, images of supermarkets with empty shelves surfaced online, wrongfully blamed on frenzied buying by people. The problem is more deep-rooted than that and shows the U.S. food supply chain cracking at the edges.
The United States has witnessed the dumping of excess food and dairy items with the “shortage” on shelves in supermarkets. Just recently, a whopping 6,000 gallons of milk were dumped into a manure pit as it was not bought. What this ascertains is that while there is enough food, there is a severe lack of means for this produce to reach the barren shelves of grocery stores and supermarkets. Since most food and dairy items are perishable, they are being wasted and these numbers are expected to rise.
This discord is not a sign of food shortage but a signal that the current food supply chain is too rigid to adjust to unforeseen events. This major logistical failure arises due to the decreased food demand from schools and restaurants and the lack of infrastructure like the limited number of trucks to redirect this food, especially perishable items like vegetables and meat to grocery stores.
Ways to upgrade the food supply chain
With mass closure of non-essential businesses, essential businesses selling food will remain open and need to continue working to keep the supply chain operational. However, many roadblocks need to be addressed even after the pandemic ends for unforeseen circumstances can arise at any time.
The complexity of the food industry supply chain management requires a complete revamp and a streamlined collaboration between the suppliers and the grocery and food retail chains. More than ever, this is the time to scrutinize the collaboration between vendors, farmers, distributors and producers of these essentials and the endpoint stakeholders who transfer the items to the consumers.
Experts believe there will be and more importantly, should be, an upgrade of the food supply chain with the following steps.
Ant colony optimization technique
Effective coordination between the supply chain from start to finish is key to success. This metaheuristic, used in optimization, derives its name from these minor insects that are masters of supply chain management. Ants work in a complex decentralized environment where one ant makes its own decisions while ensuring communication with fellow ants simultaneously.
We can model the dynamics of the ACO, a technique that allows the exchange of information through a pheromone matrix for supply chain optimization. The whole system from the producer to the delivery to the end customer is computationally complex that companies can solve by optimization algorithms.
Lessons to learn
Supplier retailer collaboration is essential to an uninterrupted supply chain, particularly in the event of a pandemic like the one we are facing. There are many aspects of the supply chain that have to be looked into to ensure seamless operations.
· Work for streamlined supplier collaboration and develop alternative sources from the local or more accessible farmers, small businesses and distributors.
· Retrieve metadata on consumption, customer feedback, and insight from every ‘ant’ in the food chain to improve efficiency, reduce cost and the time it takes to reach the shelf, especially after the wave of empty shelves in supermarkets after the outbreak of the virus.
· Improve supply chain visibility modeling the ACO, the technique to strengthen the supply chain.
The current situation pointed to a severe lack of collaboration and data exchange between retailers and vendors in the United States. Without this aspect, a supply chain is bound to crack under pressure. To this date, North America significantly trails several Asia Pacific regions in being the forerunner in digital transformational strategies.
It is surprising to see that a staggering number of retail grocery chains across the country still rely heavily on the use of manual spreadsheets, phone calls and emails to coordinate. With significant digital transformation and advancement, is this even viable in today’s day and age? There is a dire need for automation, especially to reduce human intervention in light of the current pandemic. With many workers falling prey to the virus, coordination between the supply chain is significantly disrupted. Can grocery stores afford that, especially in times of crisis?
Perhaps many of them have invested in in-house enterprise resource planning (ERP) systems or purchased expensive ERP systems from prominent global vendor. While these ERP systems may be improved accounting processes, they lack automation and supplier-retailer coordination that is literally the need of the hour.
With the ramifications of COVID-19, it cannot be argued that there is a need for a new supply chain model, one that can share supply chain information and cultivate improved trade partnerships. Since retail grocery chains rely heavily on vendor managed data, there is a severe dissonance between the actual buyer trends and the supply. In the example of the current pandemic, a business with different SKU’s would not have predicted that while their usual best-selling conditioners will remain on the shelves, their average selling hand sanitizers will be out of stock. Only with an efficient supply chain will the business be able to manage this footfall.
This is even more dangerous when it comes to the grocery markets, for they sell perishable items that do not have a long shelf life. Hence, miscommunication or lack of communication between the supply chain can cause wastage and shortage of food for the producer and the retailer respectively.
In a broader sense, the system has to be intelligent to know what is available at each shelf, in every store, and the velocity of each to optimize supply and demand. There is no doubt that the retailer who gets it right and who has a strong bond between their vendors and distributors will win the competition hands down and sustain this even during the crisis.
Limitations of ERP
One of the glaring shortages of most of the ERP software is that it is more conducive to manufacturing operations. Hence, food and grocery chains need significant customizations for the current software to be of good use.
There are very few programs that are purpose-built for the food and grocery industry. Purchasing and implementing the wrong ERP that isn’t designed for your business can cause significant business loss and takes years to get it right. It is much better to go with an inventory system that is built specifically for grocery with specific consideration for this type of business.
However, this should be done with a few considerations whether the system is applicable for the type of retail business you have, the number of stores, the location of the stores, the size of the business, whether a centralized or decentralized approach is used, the size of the business, the number of vendors, as well as the number of product lines and items sold. No matter what ERP system one chooses, building a best of the breed supplier collaboration system will be of immense help for item management, item introduction, cost and deal management. It also helps in having a reliable, secure and clean vendor and item database with essential nutrition, allergen and ingredients information to enable any digital transformation initiative.
Resilient supply chain
A flexible supply chain is essential to ensuring operations even during unexpected crises. COVID-19 provides the ultimate opportunity for major chains to put their supply chain operations under the lens and derive new ways for effective coordination, cost and inventory management.
In order to achieve this, grocery chains need to shift from single sourcing, as the current crisis displays. This dependence will severely limit the supply chain. Instead, it is recommended that the supply chain system procures groceries from nearby suppliers, farmers, and distributors to prevent wastage and the shortage of supplies as aforementioned.
The platform must also allow integration of artificial intelligence, machine learning, data analytics, shopper experience, customer relationship management and digital marketing tools. With the right application, it will lower operating costs and improve profitability for retailers, helping them ‘win’ the competition.
A well-organized supply chain is the heart of a retail business. Due to its importance, there is a dire need to keep the product velocity smooth, so that the retailer and the supplier are on the same page to respond to the crisis in an effective manner.
A renewed, customer-based supply chain system following the pandemic will change the landscape of how the food and grocery industry operates. With steps to reduce inventory, product shelf time, shelf size and store floor area, grocery and food businesses can mint money by learning valuable lessons from the current crisis.