The Food & Beverage Supply Chain is Ripe for a Digital Transformation

The global food and beverage supply chain has been stressed to the breaking point by the COVID-19 Pandemic. In most countries since early spring, there has been an unparalleled wave of stockpiling by panicked consumers leading to near empty retail shelves. Shelter-at-home and the mandatory closing of non-essential businesses has led to restaurant bankruptcies in record numbers, pouring milk down the drain and fields of rotting produce that were destined for food service businesses. Plant shutdowns due to outbreaks of COVID-19 and widespread shortages of imported food products have further aggravated an already stressed out F&B supply chain.

The F&B Silver Lining
However, it is not all doom and gloom. F&B companies that invested in advanced supply chain planning systems prior to the pandemic have benefited from the ability to quickly pivot through simulations, what-if scenarios, and multi-variable segmentation, revenue and profit-based analysis. (For example, read the recent article in Supply Chain Dive, From Visibility Software to Pallet Picks: How Tillamook Planned Inventory as Demand Soared. Tillamook, a Logility customer, highlights how the right technology, people and foresight can turn this challenge into an opportunity.) These companies can quickly augment statistical forecasts with forward looking, market-based demand signals. During times of crisis, advanced-planning-systems have helped F&B companies gain market share and improve profits despite significant challenges. In fact, according to Euromonitor International, food and non-alcoholic beverages is the only consumer spending category expected to show positive growth in 2020.

So, with continued strong consumer spending on food and non-alcoholic beverages what changes should we prepare for post COVID-19? The pandemic has sped up the adoption of many trends that we saw prior to COVID, has led to the adjustment of existing priorities and the introduction of completely new priorities.

Changing Consumer
In one example, we saw the pandemic accelerate customer demand for plant-based meats due to the short supply of animal-based products. We also saw an increase of home cooked meals. The products and ingredients required to make home cooked meals has experienced a significant, and unexpected, increase in demand. Widespread fear of contracting the virus led to the rapid increase in direct-to-customer deliveries. It is estimated that 40% of essential items are now bought online. For most F&B companies, this amount of e-Commerce business was not normal pre-COVID, but it certainly is during the pandemic and may well be post-COVID as consumer behaviors change.

The Role of Traditional Forecasting
Traditional product forecasting is based on statistical time-series techniques that create forecasts using sales history. Unfortunately, when drastic changes in demand occur over short periods of time, as with the Coronavirus, the past is rarely a great predictor of the future, especially when trying to forecast down to the SKU/location level. A higher priority must be given to forward-looking data to sense, react and adapt to what is actually happening. Some F&B companies have placed more priority on developing demand sensing capabilities. Forward-thinking leaders will benefit post-COVID from these enhanced market-based demand planning capabilities.
Demand sensing is the translation of demand information with minimal latency to detect who is buying what products, which attributes are driving sales, and what impact demand-shaping programs are having. Demand sensing uses forward-looking inputs to augment a historical forecast to improve forecast accuracy and synchronize and align purchasing, manufacturing, and deployment operations to what is really happening in the supply chain. Typical demand sensing inputs that can be used to improve product forecasts include daily sales order history, daily point of sale (POS), syndicated data, market intelligence, social media, location square footage, foot traffic and even weather. Demand sensing helps F&B companies quickly respond to micro-market changes, to improve fill rates and reduce distressed product.

The System Challenge (and Solution)
It’s no secret that most food and beverage companies have fragmented planning capabilities. Longer-term planning (strategic and financial), mid-term planning (tactical and S&OP) and shorter-term operational planning (demand, inventory, purchasing, replenishment, and manufacturing) are not aligned or synchronized. These disconnected planning efforts are run by different groups, use different assumptions, are based on different data and run on different systems. Financial plans are tough to incorporate into S&OP and operational plans, and Financial and S&OP plans often don’t reflect the latest supply chain operational data. Disconnects and misalignments lead to missed opportunities, higher costs and increased operational risks.

What’s the answer? A renewed focus on advanced sales and operations planning, or what some in the industry refer to as Integrated Business Planning (IBP). IBP unites volumetric and financial information into one flexible planning and decision support process over operational, tactical, and strategic planning horizons. IBP drives better practices and closer teamwork among planning teams by creating smoother transitions between supply chain stakeholders. Everyone gets reliable answers faster which is especially important now. Forecast and capacity plans become more accurate and synchronized. Alerts highlight plan deviations, collaboration compresses process times and trust in the integrated plan improves.

For many F&B companies COVID has introduced a new priority to invest in advanced supply chain capabilities that enhance automation, agility and resilience through the adoption of workflow, advanced analytics, machine learning and artificial intelligence. Automation of routine supply chain tasks and speeding up decision making is essential if the industry is to evolve to accommodate much higher direct-to-consumer transaction volumes. F&B C-Level executives expect their supply chain leaders to prepare their company’s operations for the digital age. A new focus on advanced technology is needed to achieve the required digital transformation including in the areas of:

• Supply chain optimization technologies like inventory optimization, supply optimization and finite scheduling
• Supplier on-boarding and management capabilities
• Supply chain digital twins and real-time information to sense, analyze and respond faster to demand and supply variations

Veterans of the food and beverage industry know when times are good people eat and drink in abundance and when times are bad people eat and drink even more. The data seems to support this point of view. However, the COVID-19 Pandemic has shone a spotlight on some major supply chain weaknesses across all sectors of the F&B industry. As a supply chain practitioner, I believe the attention being paid to the supply chain provides a unique opportunity to push for needed improvements. Are you ready to lead the charge for the digital supply chain of the future?

Henry Canitz

Written by

Henry Canitz

Short bio

Product Marketing Director Hank brings more than 25 years of experience building high performance supply chains. This experience includes evaluating, selecting, implementing, using and marketing supply chain technology. Hank’s graduate degree in SCM from Michigan State, numerous SCM certifications, diverse experience as a supply chain practitioner and experience in senior marketing roles with leading supply chain solution providers helps him to bring a unique perspective on supply chain best practices and supporting technology to the Voyager Blog. Supply Chain Brief

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