The recent Suez Canal shipping crisis placed a glaring spotlight on the fragility of the global supply chain. But, that incident is far from the only disruption that producers, shippers and processors are facing every day. Globalization has created a complex web of touchpoints that could disrupt delivery schedules and profitability at any given time. These can range from port strikes and transportation delays to labor shortages and documentation errors. Some disruptions may postpone shipments by days or weeks; others can disrupt the trade balance for months.
Protein commodities are particularly vulnerable to extreme fallout from supply chain setbacks. Any hiccup can quickly lead to spoilage, food waste and escalating costs. Even more challenging is that the $4 trillion a year physical commodity trade of proteins (meat, dairy, fish and vegetable proteins) is an especially fragmented ecosystem comprised of primary producers of protein commodities (sellers), primary processors (buyers) who process/transform these goods into finished food products, retailers, countless intermediaries (i.e., middlemen) and transportation providers.
While studies are sparse on food waste in the supply chain, a BCG report says that 1.3 billion tons of food is wasted or lost annually. One can only assume that the numbers have escalated considerably since then as global trading activity has expanded. According to a World Bank report however, 94% of this loss/waste is a result of the inefficiencies in the food supply chain and marketing system which act as barriers and increase costs.
The line between producing raw commodities and processing groups is a long and winding one. Moving perishable goods through the supply chain as it stands today starts with farmers, buyers and sellers connecting through different communications channels. Once the deal is done, there are the financing, negotiations and shipping arrangements to consider, involving even more intermediaries.
While this is not an unusual process for many sectors, the protein commodities supply chain continues to be mired in less efficient, non-electronic means of connections. Many of the intermediaries in question spend huge amounts of time on the phone or via email trying to match suppliers’ offerings with buyers’ demands. These trades can take hours if not days to transact. The complex post-transaction fulfilment involving finance and logistics processes, documentation generation and dissemination to multiple parties is conducted and tracked on spreadsheets and sent by fax and email using legacy enterprise resource planning (ERP) systems not geared to the global protein trade.
These inefficiencies within a system in which containers of commodities pass through multiple hands, increase the risk of costly mistakes which are passed on to consumers in the form of higher food costs. Take for example the broken telephone game, in which players whisper messages along a chain of people that changes with each transmission until the final outcome is many times removed from the original message. In protein commodity trading, it is rare to find multiple constituents on the same page at any given time. Email responses may be delayed, pricing details changed along the way, or containers held up at docks for lack of proper paperwork or backlogs.
The solution is a simple one in theory, although the execution is complex. That is, a single virtual marketplace platform that allows everyone to be on that same page, sending and posting notifications of events, instructions, etc. to every party that has a relationships with that particular facet of a shipment. At any given time, any constituent can find the status of an order, pricing, shipping dates and location. In other words, transparency.
Virtual marketplaces can play a critical role in flattening the process, automatically marrying producers with processors directly and ensuring fair and equitable pricing. They create the ability for suppliers and producers to drop a price onto the platform and instantaneously be matched with every buyer anywhere in the world in their currency, with pre-negotiated contract terms.
This is not an entirely new concept in other some sectors. We can look to other more consolidated industries for examples of how electronic communications can streamline supply chain efficiency. I would count oil and gas, minerals and electronics among the top performers in the electronic exchange of information.
However, that level of performance and transparency has been slow to evolve within the protein commodities industry. It is an opaque market at best, with far too many touchpoints and a deep rooted unwillingness to change. There have been few if any established technology standards, and little to no pricing transparency. Given these hurdles, coupled with the monumental size and scope of the commodities supply chain, the technology was not robust enough in the past to scale to meet the demands of the industry in an efficient way. It is only within recent years that the infrastructure capabilities have matured to that level, including mobile access. We have now reached a point where constituents in the protein commodities supply chain don’t have to be tied to their desk or office to gain insight into supply chain activities. An especially encouraging sign, which has partly been driven by the additional supply chain challenges brought by the pandemic, is an exponential growth in uptake of the marketplace platform for protein commodities.
While situations beyond our control such as blockages, weather conditions, port delays and strikes will continue to be a part of the supply chain world, what constituents do gain with online marketplaces is clarity into the status and location of goods to adjust planning. With that a processor for example can readjust inventory levels to match fluctuations in supply, reroute shipments, or seek alternative suppliers for the short term. Improved documentation can also help reduce financing costs and insurance claims. Collectively these efficiencies and contingency opportunities translate into lower prices for the consumer and fewer price disparities.
Protein commodities are not the only sector that could benefit from online marketplace adoption. There are plenty of other industries that have yet to make that leap, such as lumber or plastics. But, it will take investment, fortitude and an in-depth knowledge of these industries to do it well.