When the COVID-19 crisis initially hit, many of us thought it would be 1-2 months of impact, and then we would get back to normal. However, almost two years later, we’re still experiencing significant disruption across every part of the supply chain, with increased logistical challenges compounded by ongoing labor shortages.
Despite the added stress, food and beverage manufacturers have experienced unprecedented demands. Product availability shortfalls paired with enormous cost increases for both products and logistical services have been difficult to navigate—even more so when the supply chain is global. While there have been recent signs indicating that pricing is starting to stabilize, the sudden onset of Omicron served as an immediate reminder that unexpected challenges could continue to surface in the months ahead.
As with any crisis, the benefit of going through it is that you can learn from it and identify new ways to address it when uncertain times occur. Those who learn fast can set themselves apart and potentially gain a competitive advantage during difficult times—or, at the very least, achieve a level of resiliency required to remain stable. To help food and beverage manufacturers assess some of the key lessons learned throughout the pandemic, I’ve put together a list of my top four recommendations for improving and strengthening your supply chain.
It’s Important to Assess Your Critical Supply Chain
The pandemic uncovered significant flaws in the supply chain that resulted in unexpected shortages of critical materials. While many companies procure large numbers of products and services, not all components have the same criticality. A critical component is any product or service that will keep you from having your product reach your customer on time. Critical components can extend beyond actual ingredients, including items like packaging, pallets, and transportation. When assessing critical components in your supply chain, there are three unique areas to consider:
Custom vs. Standard Products:
Make sure to evaluate if elements of customization are really needed during times of crisis. Can you temporarily substitute with standard products when needed? For example, one of our customers used a specialty printed box as part of their marketing strategy, however, the production process for these customized boxes created complex workflows and inflated lead times during challenging times. During the crisis, they decided to switch to a standardized box design with printed labels which allowed them to increase volume, reduce lead times, and significantly lower procurement and administration costs.
Single Source vs. Multi-Sourced:
By design, customized products are typically sourced by a single provider, which creates vulnerabilities for your company during times of crisis. A limited volume of certain products dictates using a single source. It could be beneficial to identify alternative sourcing methods that you can turn to if a disruption occurs. Taking a full inventory of your supply chain to identify how many items are single-sourced vs. multi-sourced is also a recommended best practice.
Current Lead Times vs. System Reorder Points:
Lastly, it’s critical to keep in mind how your lead times will be impacted if there are disruptions to your supply chain. Your current re-order timelines may no longer be relevant if lead times are stretched. Do you have a process in place to re-evaluate lead times during times of uncertainty?
Take Stock: What does your critical supply chain look like today vs. pre-COVID?
Strengthen Your Critical Supply Chain—Internal Actions
There are some simple but essential internal actions you can take to strengthen your critical supply chain to mitigate risk. Ways to Improve your adaptability through these actions include:
Product and Packaging Simplification:
Earlier, we addressed the concept of re-evaluating customized packing needs and considering more standardized options. In addition to this, many of our clients will also re-evaluate their product line-up to focus only on top-performing best-sellers versus seasonal, short-life products. This prioritization approach helps simplify the supply chain and reduce operational complexity.
Multi-Sourcing and Local Sourcing:
Having a tested backup plan for sourcing your items is highly recommended. If available, you will want to consider multiple options, including local ones. Testing will validate the impact the alternative sourcing has on your supply chain. Then, when a disruption occurs, you will be ready for it and will have the ability to move quickly.
Buffer Inventory:
“Just in time inventory” or “JIT” has been the motto for the last two decades. We recommend factoring in a healthy buffer time when lead-time fluctuations become larger than normal. If you do this, it’s important to have your finger on the pulse so you can quickly adjust inventory times back to normal when needed. This way, you’re not overbuying if demand suddenly drops.
Be a Good Customer:
You can do small things to make yourself a preferred customer with your suppliers. For example, the recent trucking shortage has left truckers strapped for time. Think about offering truckers cold drinks or snacks when they arrive at your facility— and have your goods ready to go when they arrive, so they don’t have to wait longer than they should. Pay your bills on time, and if you have challenges paying them on time, immediately communicate with the supplier. These seemingly small steps can help build positive relationships with your suppliers—and goodwill that could be beneficial during times of crisis.
Take Stock: Does your critical supply chain ensure availability and flexibility?
Assess Your Supplier’s Risk Management Plan
Your critical suppliers are an extension of your manufacturing. Therefore, it’s essential to evaluate their capability to deliver products and services on time—especially during a crisis. Two areas to examine here are communication and risk.
Evaluate Your Critical Supplier Communication:
Ask yourself, has regular communication been established, so do you fully understand lead times implications and production constraints? Are you frequently communicating your needs and forecasts so the supplier can better plan to meet your goals? What does your communication strategy with critical suppliers look like— and is there room for improvement?
Understand Supplier Risk Mitigation Plans:
Despite the best planning efforts, it’s challenging to predict unforeseen instances—and their resulting impact on an already stretched supply chain. Review your contract terms to see if the supplier can hold some inventory in finished goods or essential raw materials that you can use for a quick turnaround. Ensure you thoroughly understand your supplier’s capability to process any rush orders.
Take Stock: Do your suppliers meet your performance needs and risk management criteria?
Periodically Evaluate the Supply Chain Landscape
At some point—hopefully, in the near future, the supply chain will stabilize. However, because of excess buying, there will likely be a sudden shift in the supply-demand balance, which will impact the pricing of commodities, packaging, and freight. Additionally, we should expect to see new changes in the supplier landscape due to technological advancements and the resulting implications for their performance during challenging times.
Stay in Communication with Backup Suppliers:
In addition to keeping the relationship warm, sometimes the best information about your supplier and the supplier’s industry comes from competitors. Sometimes, they are willing to share more information in the hope of getting business—so use this to your advantage.
Participate in Industry Organizations:
Industry organizations typically sponsor speakers who can provide broader perspectives on specific areas of the supply chain. Additionally, peer conversations during challenging times can provide a wealth of information and ideas.
Take Stock: Do you understand the landscape of your critical supplier’s industry?
Final Thoughts
The COVID-19 crisis has revealed many shortcomings in the supply chain. By implementing these best practices in your organization, you can strengthen your supply chain and gain a competitive advantage. This will help you manage through this continued crisis and position you for long-term success.
About the Author
Dileep Kulkarni is a Senior Principal Consultant with Expense Reduction Analysts (ERA). ERA is a global expense management consultancy that leverages specialized experts, industry benchmarks, and practical supplier industry knowledge to identify and deliver costs savings to clients. Based in the Portland, Dileep specializes in the Food & Beverage Manufacturing sector and is committed to making middle-market companies more competitive. His clients include multiple well-known breweries, frozen and shelf-stable food manufacturers, and confectioners.