SUPPLIER RELATIONSHIP MANAGEMENT STREAMLINES FOOD AND BEVERAGE SOURCING

Ongoing COVID-19 outbreaks and the rising frequency of natural disasters are forcing today’s food and beverage (F&B) manufacturers to accept a reality in which supply chain disruption occurs more often and with little warning. There is no end in sight to this New Normal of nearly continuous disruption. How can F&B companies better streamline their procurement approach to ensure more resilient supply chains in the face of such uncertainty? The ability of F&B manufacturers to forge, manage and nurture stronger relationships with suppliers will be critical in light of lockdowns, ingredient and labor shortages, ever-changing regulations associated with food safety, logistical logjams and natural disasters. In the past, procuring based on price was the primary technique used to source ingredients, but that approach only worked because of similar delivery in full/on time (DIFOT) outcomes and availability between suppliers. No more. To be considered best-in-class today, F&B companies must develop and execute more strategic sourcing techniques. Supply chain measurement, visibility, collaboration and risk management are more important than ever. How egregious is the problem? How are best practices changing? And how can manufacturers take advantage of today’s tools to apply the best practices of supplier relationship management to address the problem?

More disasters than COVID-19?

Consumer buying preferences and tastes may have irrevocably changed because of the pandemic. Manufacturers soon found that their standard product offerings were being outsold by more flavorful and “seasoned” items in their product mix. This left many searching for new suppliers who could deliver, in appropriate quantities, the necessary spices, seasonings and ingredients required to meet demand for products that previously weren’t as popular. These companies discovered that the ability to shift quickly to new bill of materials, SKUs, specialty products (e.g., gluten-free, Keto, etc.), alternative ingredients, packaging designs and recipes created a need for working with alternative suppliers and distributors.

Paired with these demand quirks, the rising costs of everything from animal feed to meat and fuel has guaranteed that today’s F&B companies have been served a veritable smorgasbord of disruption that they will be forced to reckon with for a long, long time.

Changing procurement

To a manufacturer, the supply chain acts as the “blood” that keeps the heart of the factory pumping. Without raw materials, key components or ingredients, nothing can be produced; the machinery stops and the business fails. Today, in order to be successful, plant managers need to take advantage of technologies that help them gain transparency into their relevant supply chains. And, for many in procurement, they must accept that the supplier-buyer relationship has changed as it pertains to strategic sourcing. It doesn’t quite end there either. Visibility into manufacturing processes and orders likewise is part of the supply chain puzzle.

Those F&B companies that have made progress toward digital manufacturing are in an advantageous position.

Insight into the availability of materials is critical—do suppliers have anything to ship? If so, what’s their pricing and quality? If one supplier can’t deliver, what’s the reputation of your backup? Sadly, many manufacturers still lack visibility into the supply chain, simply because they still employ archaic, limited legacy software systems.

Supplier management

Manufacturers must realize that, in a world of bottlenecks, supply chains that are quicker to alternative solutions will win out over those that are slower. While sourcing materials at competitive prices is important, the “old world” model of procurement no longer makes sense with multiple companies competing over providing the same materials. Secondy, in today’s New Normal, developing and nurturing relationships with suppliers vs. pitting them against each other is paramount. Understand that post-pandemic supply chains require collaboration at many levels and from various functions. Supplier relationship management (SRM) connects an organization’s interests with that of its extended supplier network. It serves to identify and engage the right stakeholders to create ownership of these relationships, driving effective communications among all parties and aligning everyone’s strategic objectives. The result is a foundation for continuous efficiency improvements such as cost reductions, risk mitigation or improved go-to-market times. Most important of all is the improved potential for pivoting around disruption since everyone’s working together for mutual success.

Moving the strategic procurement needle

Nobody will successfully move toward a more strategic approach for sourcing armed with just spreadsheets and a smartphone. Visibility requires data, preferably in real-time or near real-time. Collaboration requires shared applications that support a wide variety of information and process exchange. Decision-making based on data requires modern analytics to spot trends, measure trade partners, adeptly deal with exceptions and to constantly reorient supplier relationship strategies. Key pieces to look for in a successful supporting solution include strategic sourcing, supplier self-service, measurement, data richness and integration.

Preparation surmounts uncertainty

The good news is that the solution investments to improve visibility and to better manage supplier relationships and related risk have long-term benefits beyond dealing with the nearer term supply chain issues. A strategic set of best practices and supporting solutions also pays off over the long run. The New Normal of supply chain management best practices will last for quite a while, though it will continue to evolve. A solution that supports the requirements of today, but also in the future, proffers long-term competitive advantage.

We don’t know what comes after the pandemic. We can’t foresee the long-range impact of climate change. We do not know which way the global geopolitical pendulum will swing. We cannot predict what consumers will be loving in a year. We should, however, expect radical change and therefore provide ourselves with the techniques and tools to optimally deal with whatever may come.