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The Food & Beverage Supply Chain is Stressed to the Breaking Point by COVID-19

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What positive changes might we see post-pandemic?

By Henry Canitz

Director of Product Marketing
Logility Inc.

There is no shortage of doom and gloom these days when it comes to the food and beverage industry. Since early spring, Covid-19 has rapidly spread across the world causing consumers to engage in an unparalleled wave of panic buying and stockpiling leading to empty retail shelves. Stay-at-home and shutdown orders have led to restaurant bankruptcies, pouring milk down the drain and fields full of rotting produce that was slated for the food service sector. Plant shutdowns due to outbreaks of Covid-19 and widespread shortages of imported products have further aggravated an already fragile food supply situation. Just open any newsfeed and you are likely to find many more examples of supply chain issues in the F&B industry caused by the Coronavirus pandemic.

However, the situation for the F&B Industry could be worse. According to Euromonitor International, food & non-alcoholic beverages will be the only spending category expected to show positive growth in 2020 (Figure 1).1 Today, the food and beverage industry is one of the largest marketplaces, estimated to generate US$ 224,815M in revenue in 2020. 

Euromonitor International, “Coronavirus Will Transform Consumer Behavior” by An Hodgson 05/25/2020

Figure 1: Global Consumer Expenditure Growth by Category: 2019/2020. (Data for 2020 are forecasts)

The F&B industry has undergone significant change in the last 10 years due to evolving customer demands, ongoing product innovations, globalization, and stringent regulatory oversight. Consumers want more nutritious products and are more concerned about the environmental impact of the products they buy. The Covid-19 pandemic has sped up customer demand for plant-based meats, product traceability and fresh-made meals. Widespread fear of contracting the coronavirus has led to significantly more direct-to-consumer food and beverage delivery with shopping services experiencing growing pains. Industry experts seem to believe that many shoppers will continue to rely on online grocery services even after the pandemic is over.Post-pandemic food and beverage companies will need to invest in advanced supply chain technologies to move the industry toward supply chain maturity.

Higher adoption of advanced supply chain data management capabilities will improve the availability of actionable data and power positive changes in the F&B industry. Clean, complete, consistent, current, controlled and convenient data is required to enable end-to-end supply chain visibility and to lay the foundation for advanced supply chain capabilities like digital twins, machine learning, and cognitive analytics. The global data sphere will grow from 33 Zettabytes in 2018 to 175 Zettabytes by 2025. In 2020, 460+ Exabytes are expected to be created every day. For us more experienced supply chain practitioners, that is roughly 200 Million DVDs of data per day. Robust data on customers, products, locations, lanes, partners and orders is needed to develop insights and make timely decisions. More mature supply chain processes thrive on digital data, a fact that has been mostly overlooked and underfunded in the F&B industry.

Figure 2: Standard units of measurement used for data storage

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. As Yogi Berra once said, “The future ain’t what is used to be.” When demand variability is high you need to leverage additional forward-looking data to sense, react and adapt to what is actually happening. What is needed are demand sensing capabilities. 

Demand sensing is the translation of demand information with minimal latency to detect who is buying what products, what 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 intel, social media and weather. Demand sensing will help F&B companies respond to micro-market changes, helping to improve fill rates and reduce distressed product.

Figure 3: Demand sensing and typical inputs

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 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. These disconnects and misalignments lead to missed opportunities, higher costs and increase operational risks. What’s the answer? 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. Forecast and capacity plans become more accurate and synchronized. Alerts highlight plan deviations, collaboration compresses process times and trust in the integrated plan improves. 

Figure 4: Integrated Business Planning Diagram

Food and beverage company CEOs expect their supply chain leaders to prepare their operations for digital business and want to know how they intend to develop capabilities that take advantage of artificial intelligence to create a resilient, agile and responsive supply chain. Embracing advanced analytics to not only determine what happened and why but also, to predict what will happen and decide what should be done to minimize the risks from disruptions and fully embrace opportunities will add significant value to the F&B industry. Automation of routine supply chain tasks and speeding up decision making through the application of purpose-built artificial intelligence and machine learning is essential if the industry is to evolve to accommodate much higher transaction volumes from direct-to-consumer business. 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.

Additional technology investments that will lead to positive post-pandemic changes in the food and beverage industry include:

  • Higher adoption of supply chain optimization technologies like Multi-Echelon Inventory Optimization, Supply Planning Optimization, and Finite Scheduling at manufacturing plants leading to fresher product, less inventory and better product availability.
  • Widespread adoption of supplier on-boarding and management capabilities to facilitate more resilient and agile procurement.
  • Wider adoption of continuous planning to sense, analyze and respond faster to demand and supply variations.

Food and beverage industry veterans have a saying, “When times are good people eat and drink in abundance, when times are bad people eat and drink even more.” The food and beverage industry in general tends to be fairly stable. The Covid-19 pandemic has shone a spotlight on major supply chain issues across all sectors of the food and beverage industry. The supply chain has never before had as much attention paid to it by everyone from the President to the average consumer.  Food and beverage supply chain leaders should take advantage of the renewed interest in the supply chain to push for improvements to fix weak links in their supply chains. Are you ready to embrace the digital supply chain of the future?

Figure 5: The digital supply chain of the future

Henry (Hank) Canitz

Director of Product Marketing at Logility Inc., a leading provider of AI-powered supply chain and retail planning solutions.

    4 Ways Transportation and Shipping SMBs Can Get Back on Track After COVID-19

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    By Eden Amirav

    C.E.O. and Co-Founder of Become

    Fifteen years ago, New York Times columnist Thomas Friedman proclaimed in a bestselling book that in the age of globalization, The World Is Flat. Among the biggest causes of the world’s flattening? The ability to easily transport people and goods across borders—now under serious threat not only due to the COVID-19 pandemic, but also amid predictions of long-term deglobalization and shrinking supply chains. 

         While the global logistics market is projected to reach $3.215 trillion in 2021, up from $2.734 trillion in 2020, next year’s forecast is 10 to 15 percent lower than pre-pandemic projections. This underscores that while demand for services like e-commerce delivery and online grocery shopping may be flourishing during social distancing, the transportation and shipping industry will face significant challenges even after the pandemic subsides, particularly in the absence of a rapid, “V-shaped” economic recovery. 

    The challenges facing SMBs in the industry are especially formidable—but by following these four tips, businesses can better navigate the difficulties to come and even emerge from the crisis stronger.

    1. Boost revenue by going digital.

    Freight is one of the world’s oldest industries, but over the past decade, it has found its footing in the digital world. Cloud technology, artificial intelligence, and the Internet of Things (IoT) are fueling rapid growth in the freight transport management market, which is slated to reach $41.52 billion by 2025, compared to $23.7 billion in 2019. 

    Embracing transportation and warehouse optimization software can help SMBs in the industry streamline delivery routes, reduce fuel-related costs, optimize operational efficiency, and boost revenue. Introducing shift work and encouraging employees who can do so to work remotely can also help curb office expenses and improve productivity. 

    2. Think outside of the box with new vendors and partnerships.

    As businesses assess weak spots in their supply chains and work toward remedies, many will find that finding suppliers closer to home will make the most sense. Given that many trade shows and other networking opportunities have been postponed until 2021, finding new vendors and partners is more challenging than usual. But, tapping into local contacts and networks can help ease the burden.

    3. Get lean.

    Now is the time to focus on results-driven models and boosting ROI. Accordingly, businesses should keep overhead low and identify new opportunities for cost savings—something that personal accounting software can make easier and more precise. Keeping meticulous records of spending in the event will prove a major help to businesses in the event they need to file for compensation or forgiveness on loans down the line, as many current assistance programs require accurate, up-to-date data.

    To further streamline operations, prioritize efficiency over speed—and yes, there is a difference. Carefully planning out the most efficient methods of delivery—consolidating routes so fewer trucks need to be on the road at once, for example—will do far more to shore up the bottom line than a frenzied quest for expediency, which is bound to make a business less efficient, not more so.

    4. Look into alternative financing.

    SMB owners know all too well the difficulties of securing financing, and while there’s still capital available, lenders are bound to be more selective and risk-averse than they were before the pandemic and ensuing economic downturn.

    Among the criteria lenders will consider is how a business has performed since the doldrums of March and April. Businesses that can demonstrate revenue growth since then will be in much better positions to secure approval for financing, which makes it all the more important to take steps like those outlined above. 

    For freight SMBs, there are unique factors to consider when it comes to accessing capital. It could be a good idea to look specifically into vehicle financing, in which the vehicle itself serves as collateral to the loan, thereby increasing the chances of approval. And while taking out a small business loan to purchase a large fleet may sound especially risky in this economic climate, businesses that are able to expand their fleets and train new drivers will not only be helping to strengthen the economy, but they can also bolster their credit scores by ensuring loans are consolidated and paid in a timely manner.

    Planning for the long haul

    COVID-19’s impact on the freight industry won’t disappear along with the virus. Businesses operating across international borders will continue to be cautious of returning to the flat world of globalization and dispersed supply chains, while companies whose operations are more local will find themselves navigating a weaker economy. 

    While the duration of the pandemic and the severity of the economic downturn are factors beyond the control of individual freight businesses, they can strengthen their positions by adapting their business strategies, finding innovative new revenue streams to stay solvent, and most importantly, keep on trucking.

    C.E.O. Insights
    About Eden Amirav

    Eden Amirav is the CEO and co-founder of Become (https://www.become.co/). As a young, non-stop serial entrepreneur, Eden started his first company at the age of 16 and hasn’t stopped moving since. As Become’s CEO and co-founder, Eden brings 13 years of experience in a variety of online businesses, marketing technologies, methodologies and platforms.

    Should U.S. Companies Pull the Plug on China?

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    Sergio Retamal

    By Sergio Retamal, CEO of Global4PL

    Nine years ago, China surpassed the U.S. to become the largest producer of manufactured goods in the world. China’s dominance is under siege, however, and COVID-19 could prove to be the tipping point.

    According to Kearney’s latest Reshoring Index, U.S. companies sourced significantly less manufactured goods from China and 13 other traditional Asian low-cost countries in 2019, with China experiencing a 17 percent drop in U.S. imports of its manufactured goods.

    On the other hand, Vietnam and Mexico are among a handful of countries that saw a rise in U.S. imports of manufactured goods. 

    “Much of China’s loss was Vietnam’s gain,” remarked Patrick Van den Bossche, Kearney partner and co-author of the study. “Of the $31 billion in U.S. imports that shifted from China to other Asian low-cost countries, almost half (46 percent) was absorbed by Vietnam, which exported $14 billion more manufactured goods to the U.S. in 2019 than it did in 2018.”

    While the U.S.-China trade war is clearly influencing a shift away from China as a source of low-cost manufacturing, the current pandemic is giving companies another reason to reevaluate their supply chain strategy.

    “Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs. The U.S.-China trade war brought a second dimension more fully into the equation—risk—as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. COVID-19 brings a third dimension more fully into the mix, and arguably to the fore: resilience—the ability to foresee and adapt to unforeseen systemic shocks,” said Van den Bossche.

    Therefore, should U.S. companies abandon China as a source of low-cost manufacturing once and for all?

    Proponents argue that the U.S. has become too dependent on China. They cite the shortage of facemasks and other PPE manufactured in China as one example of U.S. vulnerability. Of course, the U.S. has accused China of inaccurate reporting and lack of transparency for years, while inadequate protection of intellectual property rights is an ongoing issue in U.S.-China bilateral trade talks. With viable options in Vietnam and elsewhere, now is the time to move out of China entirely, they claim. 

    Nonetheless, there’s more to the story. China’s middle class has grown substantially over the last decade with more buying power and a taste for Western goods, from luxury items and cars to brand name apparel and products, including food (more meat and dairy, for example) and wine. China is a huge market for U.S. exports of goods and services.

    In order to fully realize the benefits of trading with China, we have to address the longstanding issues. There’s no disputing that China’s disregard for IPR protections is serious and needs to be tackled satisfactorily. In addition, China is a frequent offender when it comes to flaunting global trade rules, including production and trade in counterfeit goods, weak and inconsistent protection for the environment and workers, and massive state-sponsored subsidies, to name a few.  

    What’s the best path forward? For starters, supply chain executives must continue to adhere to the fundamentals and reconfigure their supply chains accordingly to mitigate risk and take advantage of emerging opportunities in China. 

    Not surprisingly, risk mitigation is a key topic right now with regards to China. For high-tech supply chains, essential products, and drugs and raw materials that are vital to supporting national security and the health of our country, it would be prudent to look for alternatives outside of China, including reshoring to the U.S. The U.S. government should help companies identified as essential to the national security and economic future to extricate their supply chains from China and bring those companies back to the U.S. 

    COVID-19 is not a reason to pull the plug on China. It’s a wake up call to fix what’s broken, re-balance the power, reimagine something better and repatriate supply chains that are truly essential to the health and welfare of the U.S.

    Sergio Retamal

    About Sergio Retamal

    COVID-19 Clips Airfreight Capacity

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    Severe cuts in international passenger flights are putting a strain on the global airfreight sector, as most airfreight actually moves in the bellies of passenger planes. 

    Reuters is reporting that typical Europe to U.S. airfreight shipments are now being re-routed into Canada or Mexico, which adds time and cost to the shipments. 

    Ocean transport is an option is some instances. However, while it’s more cost effective, the extra transit time is unacceptable for many time-sensitive goods, such as urgently needed pharmaceutical ingredients and other critical cargoes.

    One Germany-based logistics provider said the cost of direct airfreight services out of Europe to the U.S. are now priced between 5 to 10 euros per kilo, versus the less than 1 euro that used to be the norm.

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