The global food supply chain is in disarray. For companies that operate in this complex network, food shortages, labor challenges, geopolitical events and shifting consumer demand are threatening to upend critical business operations. To make matters worse, the summer season is here, which presents an entirely different set of annual complications for the refrigerated season.
The bad news is that supply chain upheavals show little sign of lessening. The good news is there are solutions to ease headaches and minimize costly risks associated with these market disruptions.
Here’s a look at the current state of the food supply chain, what’s to come and how you can elevate your internal processes to respond with speed, agility and efficiency.
Summer food shortages
A food shortage is here. Currently, more than 20 million tons of grain are stuck in silos near Ukrainian ports. Other popular products, like olive oil and sunflower seeds, are also becoming increasingly more difficult to purchase. Russian ships are blocking critical Ukrainian ports in the Black Sea, creating more bottlenecks, and further damaging already fragile global supply chains.
These converging disruptions are creating a ripple effect for businesses around the world, especially for those operating in the food sector. Organizations that rely heavily on scarce products are over-purchasing in a short-term bid to protect themselves from potentially severe financial repercussions. While seemingly logical, this quick-win mindset only intensifies the issue and ends up hurting organizations in the long run – including the potential for spoilage.
With $18 billion per year in lost value due to overstocked goods, there needs to be a shift in the “more over less” business mentality. However, the strategy change doesn’t mean food distributors should purchase less than they need either. The key is finding the appropriate balance.
Instead of relying on simple technologies or countless Excel documents, intelligent supply chain planning and inventory management solutions leverage thousands of data points to filter, clean and process valuable analytics within a company’s systems. From there, the technology can smartly calculate the fine line between overstock and understock, presenting businesses with exact quantity totals to guide buying decisions.
With better-optimized inventory, organizations not only save up to millions in profit margins but their efforts to reduce overstock impact the greater good. Today businesses need to address their bottom line but also reflect on how their decisions impact their environmental, social and governance (ESG) goals – in this situation decisions need to consider humanitarian risk and critical food shortages across the globe. Smart planning and pricing tools make analytical and formula-based recommendations that take the risk out of seasonal, low-stock or slow items that may be stuck in the congestion of our supply chains. Meeting inventory goals head-on also means organizations have fewer products on hand, freeing up cash to optimize other areas of the business that may be struggling in our current market conditions like investing in more strategic hiring strategies.
Shifting consumer demand
Consumer demand is constantly shifting. Right now, inflated prices are causing consumers to rethink what they’re buying, and, in most cases, that means cutting back on non-essential items. On top of bloated costs, consumers often shift their spending towards seasonal items like fresh produce and need to counterbalance the increase in costs during the summer months.
However, the why behind shifting consumer buying patterns doesn’t help a business if they can’t pinpoint when the change in buyer spending will occur and understand what products it will affect.
Today, the ability to accurately predict consumer demand can be the difference between high profits or steep drops in revenue. Walmart, Target and other major retailers recently reported massive profit hits due to miscalculating forward-looking spending trends. Now, due to ballooned inventories, these companies are planning massive discounts to rid themselves of products. Adversely impacting food, gas and other prices.
The warning here is the same - no matter what industry a business operates in - equip your organization with the tools needed to accurately forecast future buying patterns and adjust your inventory accordingly. For food brands, this is even more critical given the refrigeration requirements and perishables. Without properly understanding which items to buy and when your bottom line will rot away along with your inventory.
Consumer forecasting coupled with supply chain planning solutions allows food distributors to embrace change, not run from it. These systems can identify lower-risk profit opportunities and pricing gaps along businesses’ supply chains to continually improve financial results. The ability to run “what-if” scenarios also helps teams know exactly how to respond in the case of a dramatic drop in consumer spending like we’re seeing now. If a disruption occurs in real-time, you’ll be aware of it as soon as it happens and can adjust inventory levels as needed. With accurate consumer forecasting tools, you can continuously stay one step ahead of the competition.
Rising food costs
Inflation is creeping its way into all facets of the food supply chain. According to the U.S. Bureau of Labor and Statistics, prices for food increased 10.8% YoY in April – the largest 12-month percent increase since 1980. These sky-high prices are creating problems for consumers and the businesses that cater to them.
For food brands, pricing and supply chain operations often exist in silos. When costs are inflated and the global supply chain is in disarray, the last thing an organization needs is a gap between these two critical functions. Combining pricing and supply chain planning is a holistic approach that allows businesses to continue making a profit, despite elevated costs, while also offering consumers competitive prices on food products.
Pricing optimization in combination with supply chain planning solutions allows organizations to quickly identify overpriced or underpriced products to improve financial results for themselves and their customers. These tools in tandem offer price simulation capabilities allowing organizations to run “what-if” pricing scenarios to understand the financial outcome of price changes before they happen. This offers an invaluable competitive advantage in an inflated environment like the one we face today. Overcoming these siloes leads to a pricing strategy that shapes demand in a predictable way that puts food distributors in the driving seat.
Pricing and supply chain are intrinsically connected, but too often they are treated as separate pieces of the puzzle. Connecting the two takes an organization from a reactive position and puts them in a place where they can proactively navigate ever-changing markets, supply chains and economies.
The competitive advantage: Supply chain optimization
A new season means new business risks. For organizations that exist in the food supply chain, this means balancing seasonal challenges on top of global instability.
More organizations are up leveling their supply chain processes to ensure strategic decision-making in the face of adversity. They’re moving past outdated systems and embracing intelligent solutions that enable end-to-end visibility and break down silos throughout their food supply chains.