By Frank Paone, Group Director, Food & Drink, Flexe
Food and beverage manufacturers face continuous disruption
Food and beverage manufacturers are facing supply chain disruptions due to the COVID-19 pandemic. Supply chain bottlenecks collided with consumer demand, forcing manufacturers to change formulations and change SKUs as access to raw materials became difficult. The result: a 59% increase in forecast errors compared to pre-pandemic levels. And, six out of 10 manufacturers changed at least six product recipes or formulations in the past two years. Thirty-seven percent have modified 20 or more.
Consumers face economic uncertainty, shop for cheaper alternatives
The war in Ukraine, rising inflation and uneven access to raw materials are putting pressure on manufacturers’ margins. In addition, many consumers began looking for deals on everyday items to manage costs amid economic uncertainty.
Logistics hurdles still hamper manufacturers
Manufacturers brace for late-season demand peaks and face persistent disruptions.
In 2021 alone, US retailers lost $82 billion in CPG sales due to out-of-stock items. High consumer demand, logistical bottlenecks, lack of ingredients and limited industrial capacity were the main drivers.
If retailers and brands cannot optimize their supply chain functions to meet changing consumer needs, they will lose increasingly important shoppers who are already ready to purchase lower-cost alternatives.
Manufacturers can still maximize production amid constant uncertainty
As manufacturers brace for uncertainty ahead of peak demand, they face:
Inefficient manufacturing: Lack of raw materials, overcrowded assembly areas or logistical bottlenecks can lead to production downtime and high costs. More than 82% of businesses experienced unplanned downtime in the past three years, costing up to $50 billion annually.
Inefficient and expensive transportation: Manufacturers may be forced to underfill trucks and then underfill retail shelves due to manufacturing or supply chain issues. Less efficient truckloads mean wasted space in transit, as well as potential OTIF violations and unhappy retail partners.
Lost Sales: Unanticipated, produced and understocked SKUs lead to lost sales as customers move on to other in-stock purchases.
Top manufacturers balance inventories, maximize production and win over hungry customers. They overcame logistical hurdles with flexible supply chains. Ones that balance transportation and storage costs while leveraging strong distribution networks to get finished products into stores.
Cut risks and boost production with structural flexibility
Leading manufacturers mitigate risks and increase production with structural flexibility. Strategies include:
Boost supplier diversity
Nearly 70% of CPG business leaders plan to increase supplier diversity over the next two years. This includes obtaining security providers. Diversification strategies help manufacturers maintain their product portfolio and reduce short- and long-term risks.
Optimize logistics networks
Distribution success depends on how brands allocate, maintain and ship inventory within logistics networks.
Ideally, retailers should optimize their networks and position inventory for effective distribution. They avoid out-of-stocks, improve customer experiences and increase online and in-store sales.
But traditional supply chains don’t change quickly or cheaply. Retailers can add warehouse nodes, but long-term leases are expensive. Rental rates continue to rise, and the industrial vacancy rate fell to 2.9% in the third quarter of 2022. Costs rose to $9.54 per square foot, up 12.8% from the third quarter quarter of 2021.
Create flexible capacity
While traditional supply chains are static, manufacturing is dynamic, especially during seasonal peaks. One answer: Leverage the flexible capacity to store both raw materials and finished goods near critical manufacturing sites or retail partners. Manufacturers can use flex space to:
Store additional raw materials close to manufacturing plants to maximize productivity and maintain product integrity.
Add capacity to hold finished products and maximize assembly line output.
Place flexible nodes near critical retail partners to reduce last-mile transportation time and costs, maintain compliance standards and OTIF compliance.
Retailers leverage the capacity of secondary and tertiary markets, access lower labor and space costs while serving critical regions. Structural flexibility provides stocked shelves and increased peak season sales.
Win consumers during peak
Consumers want consistency in their food and beverage brands. Especially during the holidays. Manufacturers can meet consumer expectations and gain maximum sales, while maximizing productivity and avoiding logistical bottlenecks. The answer: structural flexibility of the supply chain. The results: happy customers and strong holiday sales.
As group director of Flexe’s account management team, Frank Paone oversees food and beverage partnerships and growth. Frank joined Flexe with over 15 years in various F&B logistics businesses in commercial, operational and strategic roles. Frank also brings extensive technology experience, implementing ERP software for various batch manufacturing and distribution companies within the food and beverage industry and beyond.
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