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How Strategic Sourcing Reduces Spend in the Food and Beverage Industry

The food and beverage industry is a massive one, especially in North America. According to the United States Department of Agriculture (USDA), in 2019, U.S. consumers, businesses, and government agencies spent $1.77 trillion on food and beverages in grocery stores and other retailers. Generally speaking, food and beverage prices remain fairly stable, increasing just 2.3% per year over the past decade. Consumers are resistant to big hikes in food prices. At the same time, the food and beverage sector tends to operate on razor-thin margins. 

NYU’s Stern School of Business published data showing that in the first quarter of 2020, the net profit margin for the food processing industry was just 1.31%. In comparison, computer makers averaged net margins in the 13% range during this time, while restaurants averaged a net margin of over 10.5%.

Consumer Resistance to Price Hikes and Thin Margins

Put these two conflicting trends together, and it’s clear that companies in the food and beverage industry face challenges in remaining profitable. Making the situation even more challenging, there is a constant fluctuation in the prices of raw materials used in the production of food and beverages. Supply and demand can cause rapid price increases, weather-related events can wreck crops and cause shortages, and currency fluctuations can cause a rapid rise in prices.  

 

One more issue, food is perishable. The USDA published figures dating back to 2010 that pegged U.S. food waste at between 30% and 40% of the food supply—$161 billion worth of wasted food. And that was a decade ago. Consumers and retailers generate much of that waste. However, industry suppliers and manufacturers are also major contributors. The USDA, the EPA (Environmental Protection Agency), and the FDA (Federal Drug Administration) formed a joint task force to reduce food waste in the U.S. in 2019. One of the priorities identified by this task force was collaborating with private industry to reduce food waste across the supply chain

 

Companies in the food and beverage industry are under more pressure than ever to reduce their spend and boost those margins. And they have to do so while dealing with end customers (consumers) who are highly resistant to price hikes. Perishable food and raw materials cut into margins, and now there is an extra incentive to address food waste in the form of government involvement. 

 

How can companies meet these goals? All eyes are on the sourcing department, which plays a pivotal role in this industry. Procurement teams are seen as being the key to success, and the biggest tool in their arsenal is strategic sourcing. Here’s how procurement teams can leverage strategic sourcing and predictive procurement tools, such as Arkestro’s Predictive Procurement Orchestration platform, to reduce spend in the food and beverage industry.

Track Global Pricing Variables

Most food and beverage companies rely on a global supply chain for raw materials. While this opened up a huge variety of ingredients and the opportunity for competition that could drive down the price of some raw materials compared to local supplies, it comes with challenges. 

There are variables that procurement professionals absolutely must track and account for—ideally in real-time. Factors that can affect both availability and cost are currency fluctuations, blights, and storm damage. 

Also, crucial in all this is consumer behavioral data. We’ve seen that in play this year when the global pandemic triggered panic buying among consumers that led to shortages for food products such as flour. Sudden popularity can cause ripples through the supply chain as well. Last year, a fad diet trend for drinking celery juice resulted in the cost of celery skyrocketing by 300%. Celery wasn’t just suddenly more expensive and difficult for consumers to find in stores. As a raw ingredient in many food products, it also caused price and supply disruptions for many companies in the food and beverage industry. 

Evaluate and Manage Suppliers

One of the most critical elements of strategic sourcing is effective supplier management. It’s all but impossible to achieve this goal when using multiple systems. Consolidating all the supplier information in a single system, including the capability to track and manage communications and messaging, is a huge win. By doing this, the procurement team can effectively manage their relationship with all suppliers globally—and it helps the suppliers to have a better relationship with the company as well. 

Having centralized and up-to-date supplier information also makes it possible to quickly evaluate suppliers based on their performance, creating an award decision easier and not based purely on price.  

Evaluate and Manage Transportation and Storage Partners

Food and beverage companies must also carefully manage their transportation and storage partners. In this industry, the raw material is critical, but transportation and storage can be just as important due to the perishable nature of many ingredients. One of the easiest ways to lower spending is to reduce waste, and that means picking the best transportation and storage partners. When avoiding spoilage is a requirement, “best” isn’t necessarily the least expensive. 

A strategic sourcing approach with a centralized system also makes it far easier to audit these partners to ensure they comply with applicable regulations for food handling.

Source Quickly

Above all, strategic sourcing offers food and beverage companies the ability to move quickly and confidently when it comes to the bidding process. Raw materials can change in value dramatically overnight because of a storm or a sudden surge in popularity. Taking too long to enter into the bidding process or rushing in without being fully prepared all but guarantees paying too much. 

There are an incredible number of moving pieces for procurement in the food and beverage industry. Arkestro—Predictive Procurement Orchestration platform powered by AI—is the secret ingredient to successful sourcing. Schedule a demo today to see how Arkestro will revolutionize your company’s procurement capabilities.

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

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