The food industry has been consolidating for the last decade with a big impact on its supply chain. Traditionally, the supply chain has been a combination of small suppliers producing ingredients that are combined by the manufacturers and then sold to food service and retail distribution channels. In my opinion, consolidation, regulation, increased cost of doing business, demand for additional inspection, demand for longer payment terms, just in time production systems and drive for lower cost has driven many suppliers out of the business.
Consolidation has also caused issues for the industry leaders since there are fewer suppliers, reduction of capacity, increased risk and increased costs and fewer choices for key ingredients. Many of the key ingredients and specialty packaging solutions come from only one or two suppliers. As companies like Heinz and Kraft merge and focus on homogenizing specifications and the supply base, it is essential that attention remains on maintaining a strong supply chain that can deliver in the ever-increasing demands of the industry.
For the suppliers in the industry, it will be essential that they maintain a healthy bottom line, innovate new products, remain lean and align with strategic partners both up and down-stream in the supply chain. The ability to continuously improve, remove risk and compete will be an essential factor in the ability to survive in an age of massive industry consolidation.
No one can predict the future, but understanding the ever changing environment will be the key to survive and thrive.
Will your strategic supplier get “voted off the island?”