What-if analysis for F&B is quickly becoming a tool of choice to coordinate sales and operations planning (S&OP), align with supply chain partners, and track the effectiveness of the overall network.
Just like every aspect of our modern society, the COVID-19 pandemic has tested how food and beverage (F&B) networks navigate continuous and dramatic changes. Demand shifts were anticipated, but the degree to which they happened was surprising. Who knew that baking bread would become a household phenomenon and consumers would be willing to spend more on feeding their pets than on their daily Starbucks habit?
The equilibrium between supply and demand in most F&B networks also proved to be too delicate to handle such unexpected shocks. Most processors struggled to secure enough ingredients and materials to continue production. Additionally, labor shortages and forced plant shutdowns due to COVID-19 outbreaks generated concern over supply chain continuity and lost sales.
To follow are questions typical of those we address in the area of what-if scenarios and what value they can bring to the F&B industry in a post-COVID world.
Q: How can F&B supply chains keep up and regain their foothold?
A: Whether they produce commoditized or niche goods, F&B companies have certainly learned a lot about their supply chains and consumers. And now it’s time to take all those lessons learned to create a more resilient network that can balance the delicate equilibrium between supply and demand in real time.
According to Deloitte, “maintaining transparent and integrated partnerships is critical to sustaining a well-functioning and agile food value chain.” We couldn’t agree more. And for an increasing number of companies, what-if analysis for F&B is quickly becoming a tool of choice to coordinate sales and operations planning (S&OP), align with supply chain partners, and track the effectiveness of the overall network.
Q: What is what-if scenario analysis?
A: What-if scenario analysis is a supply chain management process that evaluates different events and predicts their impact across three realities: market conditions have changed, will continue to change, and must always change.
With a combination of data-driven trending, analysis, and simulation capabilities, decision-makers can better shape their go-to-market strategies to address challenges and opportunities. They may include ingredient shortages, changes in production capacity, overstocks or stockouts, and rising or declining consumer demand.
By asking themselves “what if?” within a structured framework, supply chain managers and other organizational leaders can explore a wide variety of strategic alternatives without negatively impacting their existing operations. And in most cases, such a deep analysis can help F&B companies challenge the industry’s status quo by exploiting new opportunities for differentiation, increased sustainability, and market expansion.
Beyond being predictive, what-if analysis for F&B must be accurate, flexible, nuanced, and responsive enough to allow companies to adjust to market dynamics and act rapidly. Technologies that automate and accelerate this entire exercise help ensure forecasting and decision-making deliver this requirement, opening the door to a continuous cycle of integrated business planning.
Q: How does this predictive approach help address current and future challenges?
A: One of the most critical advantages of what-if analysis is the ability to overcome uncertainty. Even in the most stable F&B networks, the unexpected can happen at any moment. What-if analysis allows businesses to thrive despite such insecurity.
For example, waste is a massive issue that has received substantial public attention. The Food and Agriculture Organization of the United Nations reports that the total wastage of edible food amounts to 1.3 billion tons. As a result, companies are increasing their carbon footprint, overusing water resources, and losing land productivity. Meanwhile, most of this waste ends up in landfills instead of being composted back into the fields.
“What if” companies could get ahead of the overproduction of food supplies and ingredients, diverting them to new manufacturers or product lines? This is undoubtedly one of the questions that what-if scenario analysis can answer long before crops are harvested and delivered.
What-if scenario analysis enables businesses to quickly test all possible strategic and operational scenarios with a predictive, data-driven model, make decisions based on those findings, adapt their model, and act proactively. But this exercise is much more than generating recommendations on next steps. It also provides insight into how one action impacts farmers’ processes, the productivity of production plants, warehousing and logistics services, retailer shelf space, and consumer buying habits.
Understanding this dynamic allows businesses to gain the control and foresight they need to address current and future conditions in record time and discover more creative – and profitable – ways to mitigate the risk of lost resources, money, and time.
Q: What are the benefits of what-if analysis for F&B companies?
A: To say that the benefits of what-if scenario planning outweigh the technology investment to support it is an understatement. We have seen businesses improve their performance, turnaround time, and future planning to the point where they can turn market changes into sales opportunities in ways that surprise even their biggest competitors. But more importantly, they are delighting consumers and earning their trust – even during times of extreme disruption.
Tillamook County Creamery Association is a prime case of a brand that accomplished this goal during the volatility of the COVID-19 pandemic. In a matter of days, demand for ice cream soared as consumers stocked up on comfort food – forcing the 112-year-old manufacturer of high-quality dairy products to increase its production capacity by 45%.
The company has already spent the better part of a decade driving greater efficiency by replacing its legacy ERP and Excel-based planning processes with Logility supply chain management (SCM) software. By improving forecast accuracy by 25% with what-if scenario analysis tools embedded in the SCM software, Tillamook achieved a 98% increase in fill rates and 75% reduction in finished goods in inventory. Plus, it saved US$4.2 million worth of foodstuffs from spoilage and obsolescence.
But the pandemic put all those improvements to the test. For example, demand planners were running scenarios to determine how to produce more with fewer resources. The results of their work allowed the company to carry seven to 13 days of inventory, down from six to eight weeks previously.
More impressive is Tillamook’s ability to go beyond just improving its control over inventory by increasing visibility. It also gained a single version of the truth that allowed planners to become predictive innovators, aligning other lines of business around a common set of goals and outcomes.
Tillamook’s achievements during a highly volatile time are certainly reflective of what our global ecosystem of Logility customers experiences every day. And with the impact they are making on the industry, their consumers, and our planet, it’s clear that what-if scenario planning amplifies the true value of the F&B networks.
For more information on what-if scenario planning and how Logility can help, read the analyst report, “Beyond ERP: How Logility Extends the Value of Supply Chain Planning by Supporting the Entire Enterprise,” from Enterprise Applications Consulting.