7 Food and Beverage Supply Chain Challenges in 2020
In the old days, food manufacturers didn’t sweat the issue of finding food suppliers. They looked local and went with the lowest prices. Often, they would build a processing factory right near the fields where they sourced their raw ingredients. Canning and bottling plants were built nearby, so the entire process was often run within a small geographical area.
The picture today could not be any more different. We can source ingredients for food products from all over the world, distributors can ship end products across the country or globally, and the regulatory environment is far stricter.
Let’s dive into the many challenges that Food and Beverage sourcing teams face:
1. Sourcing Raw Materials Globally
Most food manufacturers today don’t source every ingredient locally. They may come from countries all over the globe. That leads to a flood of specific challenges that are listed separately. But just think about the overall complexity this creates for the food producer’s sourcing team.
- There are timezone and language differences to deal with
- Different growing seasons
- Different local rules and regulations
- Competition for raw materials on a global scale, with other food manufacturers across the world bidding against you
The big takeaway here is that the management of food suppliers is critical.
2. Transportation and Warehousing Requirements
Food raw materials are notoriously perishable. A load of iron ore can sit on a barge for an extra three weeks, and it has no impact on the cargo whatsoever. Just a few additional days in transit can mean a shipment of oranges or tomatoes is spoiled. Meat needs to be refrigerated at a specific temperature not only during transport but also when in a warehouse.
The logistics of transportation and warehousing of raw materials often fall under the umbrella of the procurement department.
3. Different Production Formulations for Different Markets
It’s not just food suppliers who can be spread across the globe. Food manufacturers can also distribute their products globally, not only to a local market. That can mean different formulations of a product for various markets due to diverse consumer tastes and preferences. That is a challenge not just for manufacturing but also for procurement teams that have to track multiple suppliers for multiple variations on the product.
4. Weather, Pests, and Climate Change
With ingredients coming from across the globe, weather and climate change are variables that manufacturers must account for. A flood or storm can wipe out a crop, leaving the sourcing team scrambling to find an alternate supplier. Climate change can cause long-term challenges as suppliers find their local climate is less suited to growing a crop. A good example of climate change is the stress on coffee crops as South America temperatures rise, and more droughts hit the region.
If you need a visual on how badly an unexpected regional event can impact food supply, imagine the freak swarm of locusts that desecrated crops in 1930s America, and how not having an alternative supplier impacted the Great Depression.
5. Currency Fluctuation
When you deal with food suppliers from different countries, currency fluctuations can change the value proposition overnight. The procurement team needs to be on top of exchange rates and currency valuation trends to ensure they don’t end up accidentally overpaying for raw materials.
6. The Need to Meet FDA and Other Regulations
In addition to all the logistical and sourcing issues faced by food manufacturers, the regulatory environment has become far stricter. In the U.S., that means satisfying Food and Drug Administration (FDA) rules, along with a wide range of state and local laws. The FDA spells this out in its food industry guide:
“If you are thinking about opening a food business, there are many regulatory requirements that you will need to meet. Some of these requirements apply to all food businesses, and some are specific to the particular food product, such as low-acid canned food, seafood, or juice. In addition to the Food and Drug Administration’s (FDA’s) requirements, your food business will be subject to other federal, state, and local requirements.”
Food manufacturers need to be able to prove they meet these regulations, from the point of raw ingredients right up to the final product. The paper trail can be long, complicated—and required on short notice.
7. Environmental and Ethical Requirements
Increasingly, consumers are also choosing products based on environmental and ethical factors, which can be very relevant to food manufacturers. Were crops grown on large-scale factory farms or cultivated by local farmers? Were ingredients grown from genetically modified seeds? Was meat slaughtered in a way that meets religious requirements? Did “free-run” chickens produce those eggs? Food manufacturers must be able to verify this information from their suppliers as a competitive advantage.
Adding to the complexity of modern food manufacturing, consumer tastes have become notoriously more educated and opinionated. All it takes is a viral video, and what is popular today gets supplanted by the next big thing—time to pivot and start production on a new flavor or food trend.
Sourcing teams working for food manufacturers face many challenges. Far more now than ever before. That raises a very fundamental question. Given the number of variables in play and the need to make decisions quickly, how do food manufacturers look for food suppliers? The real question should be how do food manufacturers manage food suppliers because that’s what it really comes down to.
The successful food and beverage companies leverage technology and employ strategic sourcing software — but which? Arkestro is an AI-powered Predictive Procurement Orchestration platform that is ideal for food manufacturers and those in the food industry. It incorporates all the advanced features needed to optimize the food sourcing process, including the all-important supplier management, the transparency required to meet FDA regulations, and the speed to bid against global competitors. Since we can’t rely on fields conveniently being adjacent to processing facilities, or consumer demand being solely for what we can grow in our regions, we need the correct tool in our toolbelt to tick these boxes.
Request a demo today to see what an impact Arkestro will make for your organization.