Mitigating challenges in the food supply chain

The supply chain is essential in every organisation but food businesses face unique challenges above and beyond the norm. Mitigating these factors requires a strategic approach to supply chain planning and execution that takes into account the needs of the business, potential risks and customer demands, as well as regular reviews to ensure processes remain fit for purpose.

Hassan Behcet explains the challenges facing food supply chains and how business owners can plan around these and adapt their business to changing conditions.

Challenges in food supply chains

For every product-focused business, the supply chain is the core means of getting the right product to the right place at the right time. No products means no sales, but for food businesses the consequences can be more serious. Major challenges in the food supply chain include:

• Perishability: Food is highly sensitive to environmental conditions. If not stored properly, it can spoil or degrade in quality. This could lower its value or lead to the shipment needing to be disposed of. Worse is the possibility of issues that go unnoticed that could pose a health risk to consumers, which puts a high burden of safety on food vendors.

• High-turnover: Many food products have a limited shelf life, requiring a regular supply of goods and limiting the ability of business owners to bulk order inventory to hedge against supply chain issues.

• Regulation: Given the health risks posed by sub-standard supply chain processes, food businesses are highly regulated. Supply chain issues or product faults can expose a business to lost sales, reputational damage, product recalls, refunds or fines.

• Complexity: For food and agricultural products, supply chains can be exceptionally complex. Raw materials, such as flour or fruit, might be grown in one part of the world, processed in another, and combined with other elements somewhere else. This raises the likelihood of one node in the chain experiencing issues and complicates supply chain visibility.

• Uncertainty: Food supply chains are highly vulnerable to external factors such as weather patterns, trade quotas, currency fluctuations and transport issues, which can risk stock outs and harm margins.

What does a high-performing food supply chain look like?

As with many supply chains, food businesses rely on goods arriving in the right place at the right time, in the right condition and in line with other processes. To this end, the best performing food businesses seek to build reliable, repeatable processes that have enough flexibility to cope with fluctuations in market and transport conditions.

This is leading more and more businesses to move towards ‘Just in time’ supply chain models. Originally conceived for industrial manufacture, these models are now becoming commonplace for many types of organisation. This model aims to move material just before it's needed in the next stage of the production process. This reduces the need to store high levels of inventory but also requires that operation is closely synchronised with the subsequent operations.

This provides multiple benefits for food businesses:

• Reduced risk of spoiling from long storage

• Improved working capital from not storing large amounts of stock

• The ability to align stock levels and production with sales volumes

However, this strategy requires a higher level of precision and coordination than high-inventory, low agility systems.

De-risking your supply chain

Given the complex, international nature of many food supply chains, as well as globalised trade in general, it’s impossible to remove all risk. However, by planning in advance and building flexibility into your workflows you can build a system that can adapt to changes and minimise disruption.

• Formalise agreements: Advance planning requires certainty. The best way to enforce this is contractual agreements with transporters, producers and partners. For example, working with a freight forwarder or directly with carriers, pre-book space in advance to ensure the best price and reliable capacity.

• Benchmark performance: For suppliers in at-risk industries, such as farming, research partners who have a reliable record of delivering on agreed volumes, as well as implementing responsible farming methods that minimise risk. In some instances, these may not be the cheapest.

• Mitigate risks in advance: When conditions are favourable, set processes that will protect your future success, such as advance buying currency at reasonable rates or creating space agreements with carriers.

• Track your costs: With multi-element supply chains, it can be challenging to track the real landed cost of goods. This prevents accurate margin tracking and makes it harder to find bottlenecks in your supply chain. A digital supply chain management system that integrates with your accounting, ERP, procurement and warehousing systems can give you a holistic view of your costs, supplier performance and efficiency at scale to help you make better supply chain decisions.

How we can help

For processes as critical as your supply chain, having the right support is key. At Haines Watts, our team in North London work with hundreds of businesses across the food sector to build value-driving workflows that protect your long term interests.

Our cross industry experts can help you benchmark performance, ensure you get the best rates and help you work out your true margins.

Get in touch with us to find out how we can help you drive more value from your supply chain.