How Predictive Procurement Solves Challenges in the Food and Beverage Industry
Food and beverage producers have undergone sweeping changes over the past several decades. Technology innovations have been massive, changing how food is grown, processed, and purchased. There have also been widespread and dramatic changes in how companies work with suppliers, causing supplier relationship management to take a front seat.
With globalization, raw materials may come from across the globe. The final product may also end up on a container ship bound for another continent.
Then the pandemic happened, challenging procurement in new ways. While 2020 was a transformative year for procurement in the food industry, the following years have brought their own challenges. These include a backlogged global shipping industry, spiking fuel costs, inflation, conflict in Ukraine, and extreme weather events—some causing historic droughts and others shutting down ports.
These disruptions have exposed the fragility of global supply chains. Unique obstacles have caused many companies to re-evaluate their sourcing strategies. A shift toward regionalized supply chains and diverse suppliers may be the key to resilience.
Looking forward to 2023, what are some of the challenges procurement will face in the food and beverage industry? And how can predictive procurement bring solutions to the industry’s biggest obstacles?
The Rippling Impact of Inflation on Food and Beverage
Many industries have felt the impact of inflation, but the food and beverage industry has been hit particularly hard. In the summer, inflation was at a 40-year high. According to data released by the Bureau of Labor Statistics in mid-September, food prices have jumped 11.4% over the past year. That’s the largest annual increase since May 1979.
What are some of the drivers for this rise in inflation?
A combination of factors, including climate change, geopolitical tensions, and global competition for limited resources, have overwhelmed the industry.
Extreme weather events—droughts, floods, storms, and more—have caused global food prices to surge. In 2021, drought conditions resulted in U.S. farmers reporting the lowest grain harvest since 2002, with spring wheat yields down 41% from 2020.
This year there’s been droughts across the globe, and in the U.S., harvested wheat is the lowest since 1888.
Raw Materials Shortages
Shortages will continue to be a central theme in 2023 and could come from anywhere in the supply chain. For instance, raw materials like wheat and corn could become more scarce with the Russia-Ukraine conflict. Both Russia and Ukraine are the breadbasket for a lot of the world. According to a McKinsey & Company article, they supply “about 30 percent of global exports of wheat and barley, 65 percent of sunflower seed oil, and 15 percent of corn.”
Other challenges reflect problems throughout the supply chain. For example, grocery stores have had ongoing shortages of canned goods. The cause? It’s not the contents but the cans themselves. There’s been a global shortage of aluminum needed to make the cans.
Supply chain issues will likely continue to impact food manufacturers in 2023, but many professionals say the overall picture is slowly improving. Ports across the globe have been congested for months, causing transportation times and wait times for loading and unloading to go up.
Adding to the transportation challenges have been rising fuel costs and shortages of truck drivers. Though the driver shortage has eased slightly in 2022, it has contributed to higher transportation costs and uncertainty in the supply chain.
Transportation has been especially problematic for the food and beverage industry because many raw materials and finished products are perishable. They need to be shipped and delivered quickly.
Ongoing Labor Shortages
Another issue on this list that many sectors feel is labor shortages. It may sound minor compared to climate change, but this is a big one. Procurement was already feeling the heat of insufficient staff to meet demand, but the pandemic and subsequent events have worsened that problem.
One of the most critical challenges procurement in the food industry will face in 2023 will be a talent shortage. Losing a high-performance team member means a hit to productivity, a lengthy recruitment process, and onboarding costs.
As often happens during times of uncertainty, companies re-evaluate their approach. And procurement in the food and beverage industry can’t afford to be reactive anymore; they must be proactive. This is where predictive procurement comes in.
How Predictive Procurement Helps Teams Prepare for the Challenges of 2023
Procurement in the food industry faces many challenges in 2023. But they have something in common: Predictive Procurement Orchestration (PPO) holds solutions to their problems.
How can PPO help?
PPO Speeds up the Procurement Process
The next year may present unpredictable challenges, but procurement can be agile in its response. Organizations that adopt PPO will be better equipped to meet each of these challenges, and here’s why: many of the issues procurement professionals will face next year boil down to speed.
- The company that can move more quickly will secure the contract for the raw materials that are in short supply.
- It will nail down the shipping contract before rates go up.
- It will source the packaging before inflation further drives up the cost.
Manual processes lack that speed. Even many platforms lack the speed. Advanced, predictive solutions like Arkestro are the answer.
Jean-Michel Dos Remedios, VP of Strategic Sourcing at Bel Brands USA, highlights how Arkestro saves them time:
“In the procurement world, time is of the essence. Arkestro’s innovations make us faster and the faster we get, the more we can accomplish, and the more successful we can be.”
Arkestro helps procurement teams reduce time with no login, training, or dependency on user adoption to create tangible business impact. Organizations using it have seen improved data quality and dramatic cost savings within days of implementation.
PPO Helps Companies Find Local and Diverse Suppliers
Another solution PPO offers is helping companies find local and diverse suppliers. According to Supply Chain Quarterly, “the pandemic has revealed the risks of a globalized supply chain and the need to start shifting to a more regionalized sourcing model.”
Arkestro can help align more spend with preferred suppliers, including every definition of “preferred,” like ESG, local suppliers, and supplier diversity.
PPO Eases the Talent Shortage
Most businesses have seen how technology revolutionizes the way we do business. PPO can help companies mitigate the talent shortage by influencing more spend with the same effort.
Arkestro is a recommendation engine that learns from your organization’s data (and best supplier selection decisions) to eliminate manual validation, approval, and data-entry steps across the entire procurement cycle.
Predictive Procurement: Improving the Future of Food and Beverage Procurement
Here’s a real-life example of how Arkestro’s embedded predictive procurement platform gives procurement teams the needed speed and resulting competitive edge.
Bel Brands, a multinational cheese producer, implemented Arkestro to manage interactions with its 3,500 suppliers.
After rolling out Arkestro, Bel Brands reports a 20% to 25% increase in sourcing velocity. Quoting happened much more quickly, more strategically, and with a corresponding increase in team productivity. In addition, Arkestro delivered a 10% savings on the final quote.
The bottom line is that food and beverage companies need to adopt predictive procurement to meet the challenges of 2023. The easiest and most effective way is to join food industry success stories like Bel Brands in switching to Arkestro.
To hear more about predictive procurement in action, listen to Jean-Michel Dos Remedios at Optimal ’22 Las Vegas.
Book a demo to see how predictive procurement powered by machine learning, human behavior science, and game theory will keep your business ahead of the market and thriving through all the challenges of 2023.