What positive changes might we see post-pandemic?
By Henry Canitz
Director of Product Marketing
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.