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?”
We have been saying for quite some time that suppliers won’t give their best stuff to their worst customers, and here’s another voice chiming in with the same message. Smartblog on Food and Beverage with supported research from SCM World indicates that innovative ideas and marketing only come when there is a targeted audience that will respond/engage. It is difficult to harvest creativity for customers that won’t notice or care — which is another way of saying, “listen to your suppliers because they are listening to you.” SCM World also states that collaborative relationships between brands/businesses for great ROI are only successful when there is the right market. Their tips for successful business relationships range from sharing strategic information to measuring and rewarding success.
When something goes wrong deep in your supply chain — you can never find out the precise source of the trouble too fast, or in too much detail. Time spent creating a chain of custody is well spent when a crisis breaks. Even when the problem is minor, it can have a big impact. Case in point: according to “Baking Business,” Jeff Sobell, senior manager, global packaging, Kellogg Company, Battle Creek, MI, recently told a panel at Pack Expo that the company’s quarterly net income dropped 15% last year when it had to pull 19 million cereal boxes from stores shelves because the packaging had an odor.
He was making a point about how important packaging standards are to food products, but there’s also a lesson there for a tight chain of custody. Kellogg is a global corporation and an industry leader in supply chain practices. However, this relatively minor issue that had no impact on the quality of the product inside the boxes, nevertheless, hit Kellogg’s bottom line. I am pretty certain Sobell mentioned the case only because Kellogg had learned from it. You can, too.