Since the first quarter of 2020, there have been more black swan events than could ever have been expected. First, of course, was the Coronavirus pandemic, then the Texas winter storm, and finally, a ship that blocked the Suez Canal for six days. For the food industry, these have all created major disruptions.
The Suez Canal blockage led to speculation that Europe could be without coffee and other food because buffer stocks were low. The Texas winter storm killed or harmed many crops and livestock, creating problems in the food supply chain. The pandemic boosted food sales to retailers by over 25 percent, but at the same time reduced sales at restaurants, fast-food and casual-dining locations by about the same percentage.
These events have interrupted what was the normal life for food and beverage producers. The ones that survived have been those that had the processes, culture and technology that enabled them to be agile and resilient. They either had them already, or they very quickly had to adapt to them. They learnt that the way the industry has to operate now, and in the future, is different to the way it used to operate only a year ago.
Industry pressures
The food and beverage industry may be one of the tougher industries to be in. On the one side, it’s not just consumers wanting food and drink. There are demands for products that are healthier, more ethically and environmentally-friendly, food allergy or intolerance-friendly, locally sourced or fair-trade, and with more acceptable packaging. On the other side, there are increasingly stringent health and safety regulations, and compliance around quality control and hygiene.
It’s therefore fairly obvious that you need to run quite a sophisticated operation if you want to stay afloat as a food or drink company.
Common processes
A process is a specific activity performed to meet predefined outcomes. A leading authority on organizational and supply chain leadership, the Association for Supply Chain Management (ASCM), has for years helped companies evaluate and improve their business and supply chain management processes to achieve reliability, consistency and efficiency. When you look at these in more detail, it becomes very clear that to operate a food and drink company in the 21st century, requires systems and practices that can no longer not be managed using spreadsheets, let alone by hand.
In fact, it looks almost impossible to manage without some type of digital strategy.
The ASCM has developed a high-level process framework consisting of five models.
| Product Life Cycle Operations Reference modelManages the activities for product innovation and product management | Key capabilities: Plan, Enable, Ideate, Develop, Launch, Revise |
| Customer Chain Operations Reference model
Manages the customer interaction process |
Key capabilities: Plan, Relate, Sell, Contract, Assist |
| Design Chain Operations Reference model
Manages the product and service development process |
Key capabilities: Plan, Research, Design, Integrate, Amend |
| Supply Chain Operations Reference model
Manages the business activities associated with all phases of satisfying customer demand |
Key capabilities: Plan, Source, Make, Deliver, Return, Enable |
| Managing for Supply Chain Performance
The process that translates business strategies into supply chain execution plans and policies |
Key capabilities: Align Strategy, Networks, Processes, Resources |
Source: ASCM
Industry functions
This framework might make it easier to relate these common elements to your business, and some of the metrics to monitor performance of these elements.
| Suppliers | Product life cycle operations
Business function: Production planning and scheduling, Quality control Performance metrics: Capacity utilization, Energy consumed |
Customers | |
| Design chain operations
Business function: Product design and development Performance metrics: Materials used, Defect Density |
Customer chain operations
Business function: Sales, Order management, Invoicing Performance metrics: Perfect order fulfilment |
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| Supply chain operations
Business functions: Procurement, Inventory management, Manufacturing, Distribution, Returns and Recalls Performance metrics: Equipment effectiveness and performance, Production downtime, Production costs, On-time delivery, Order fulfilment accuracy and speed, Rate of return |
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Adapted from ASCM
Operating a food or drink company, therefore, means having the most modern systems like an integrated set of processes and activities across the business that do not run in isolation, and share critical information continuously.
Impact of the pandemic
Anecdotal evidence, based on some discussions I’ve had with producers and industry analysts, suggests that many food and beverage businesses were still using the same technology to run the business that they implemented when they moved away from pen and paper.
Companies with isolated, stand-alone systems (e.g., spreadsheets) found it hard to be adaptable and flexible to changes, and even more difficult to run their remote operations. The pandemic highlighted to organizations the value of centralized data. How could a business forecast demand, synchronize that with material procurement and orders, ensure the correct levels of inventory and plan production, and then ship products timeously, unless they had a system that enabled all that information to be shared and accessible across all departments?
In the past, the supply chain was based on predictable scenarios. But in a time of black swans, how can you manage the complexity of your supply chain unless you have a supplier master list that allows a diversified group of suppliers to be managed. If a ship with your raw materials is stuck in the Suez Canal, how can you quickly search for alternative suppliers?
When work became remote, production plants in different locations that had their own systems and some were unable to share their data with the rest of the business.
When product returns occurred, how could the returns department alert the design and production teams that there was a design or manufacturing quality problem, unless they worked with an integrated system? If the problem required a recipe change, how could quantities or ingredients be updated and then quickly communicated to production, without a system that allowed information to be shared?
For the finance department, understanding the cost of doing business means identifying contributing costs – direct and indirect – across the entire organization. A stand-alone accounting system cannot provide this information. What is needed is integration and visibility between accounting, distribution and manufacturing operations so that those cost elements to be easily identified and tracked.
Because so much of a food and beverage product is date dependent, an integrated digital solution can improve the business by ensuring the critical business processes are managed properly. For example,
- item sell-by-date drives
- ship-by-date, which drives
- manufacture-by-date, which drives
- receive-by-date, which drives
- order-by-date
Businesses are increasingly finding that to stay afloat, their processes and operations must be supported by an appropriate digital solution. The right solution can integrate all of these requirements so that your data is consolidated, not siloed, for easier management. With more and more data being created, improved tools are required to analyse the data – consider the move to data lakes and the accessibility to the relevant data.
Moving to the cloud
During the first part of 2020, businesses very rapidly learnt about a digital platform that many hadn’t really tested before – the cloud. Food and drink producers who operate on narrow margins can use a cloud platform to implement new and scalable technology infrastructure without making a large upfront capital investment.
A cloud ERP application provides an integrated solution for business and enables information to be shared. It eliminates the problem of how to centrally manage plants in different locations. Because the data can be centralized, functions like purchasing can have better insights into the overall demand for ingredients that they can use the information to look for lower prices.
What food and beverage producers should be doing in 2021
For many businesses, the period of the pandemic has been one of re-organization and re-evaluation. The two key capabilities that companies have learnt they require is agility and resilience – in the way they manage processes, support their workforce, and use technology.
Companies need to realize that the future post-pandemic world will not go back to what it was before. A digital infrastructure that enables a hybrid of office and remote work will be required, and systems that promote collaboration and information sharing will be paramount.
The pandemic has also reminded companies of the importance of using data to gain insights and drive decision making. The only way to achieve this is to have an integrated system that provides a “single source of truth” that all parts of the business can access, use and share.
