How to de-risk food and beverage’s procurement and supply chain functions

The role of procurement is about ensuring that business operations continue like clockwork and involves understanding the current environment as well as foreseeing the potential future environments. COVID-19 has demonstrated how market changes can be challenging and the importance of reducing risk along the food and beverage supply chain. The challenge is that all businesses currently operate under the pressure of market volatility, uncertainty, complexity and ambiguity. Going forward, food and beverage manufacturers are likely to operate with more uncertainty and face more unexpected crises, placing extra burden on the Procurement and Supply Chain functions.
According to a recent McKinsey report Risk, Resilience and Rebalancing in Global Value Chains, “companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.” McKinsey analysts also calculated the damage associated with a severe and prolonged disruption (100 days) and used probabilities to estimate the financial impact that companies can expect over a decade. The report predicts the global food and beverage sector can, on average, expect losses equal to almost 30 percent of one year’s profits over a decade.
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To help manage the disruptions caused by the pandemic and plan for the unexpected, food and beverage manufacturers should look at a four-step strategy to de-risk procurement and supply chain functions in the wake of global vulnerabilities.
Step 1: Anticipate and plan for uncertainty
Today, the rigorous process of gathering information is being replaced with a data-driven approach. This enables real time decision-making with businesses building AI-driven integrated data ecosystems that are underpinned by predictive analytics and can then be applied in forward planning on both strategy and performance.
Food and beverage manufacturers and distributors can also use technologies such as Enterprise Resource Planning (ERP) to accurately forecast items like demand, stock availability, supplier lead times, cost, raw ingredients and contingency stock requirements; and integrate this into their unique business model. ERP can help procurement de-risk as it provides a single integrated platform that shares all the information across all functions. This allows manufacturers to optimise inventory forecasting capabilities and improves the quality of the decision making within the organisation.
By making a direct link between supply and demand, food and beverage manufacturers and distributors can anticipate and better plan for uncertainty and ultimately improve the cash flow of the organisation.
Step 2: Embrace the limitless potential of digitalisation
With the pandemic, many manufacturers now realise the true potential of digital transformation in the procurement process.
Digitalisation can assist strategic sourcing to become more predictive, transactional procurement more automated, and supplier relationship management more proactive. Digital procurement solutions are enabling the future by providing access to previously unavailable insights or bringing order to massive (but unstructured) data sets, ultimately driving more complex analysis and better supplier strategies, enabling more efficient operations.
Step 3: Enable end-to-end supply chain visibility
World crises have resulted in procurement teams scrambling for alternative and locally based suppliers to ensure that they can still fulfil existing orders and continue to produce with new orders. End-to-end supply chain visibility is therefore a necessity to ensure procurement accuracy and resilience. Such advanced insights are needed to improve customer service, reduce costs and mitigate interruptions that will affect supplier inventory levels and product delivery. With customers demanding better service, embedded AI capabilities provide real-time intelligence, actionable insights and recommendations that reduce disruption time from days to hours, improving customer service in line with expectations.
Step 4: Focus on building a robust procurement model
There are no standard business models to help food and beverage manufacturers manage what we are currently facing.  This pandemic has exposed the fragility and thin margins on which many businesses run. Highly indebted companies, working from lean inventory, supported by just-in-time supply chains, and staffed by short-term contractors are suffering the longer-term impact of market unpredictability.
Food and beverage manufacturers and distributors need to identify their own business model that will suit their business and consider how to reengineer their supply chains to reduce risk through design, factoring in increased complexity and uncertainty as the new normal. In future, effective supply chain management will be all about agility and finding the perfect balance between just-in-time processes and just-in-case scenarios, while reducing risk as much as possible.
Global crises are an inevitable factor of life. By planning for the unknown, implementing the right technology for end-to-end supplier visibility and building a robust procurement model, food and beverage manufacturers and distributors can de-risk procurement and supply chain functions and enable resilience in an uncertain world.

Why removing bottlenecks can be the difference between a food and beverage business surviving and thriving

Competition in the food and beverage sector in Asia Pacific is intense, which puts pressure on producers and distributors to become more efficient if they want to stay both competitive and profitable. In a sector of high-volume and low-value perishable goods, having accurate insights into costs, margins, inventory, production and the supply chain can be the difference between surviving and thriving.

Consumers are more demanding too, calling not only for greater variety but for more information on the product they are consuming, where it was produced and where its ingredients are sourced from.

Manufacturers in the food and beverage sector are faced with the challenge of providing a wide range of goods that are safe to consume and are compliant with mounting regulations. With short ingredient expiry dates, tight timelines and the need to be price competitive, even quite minor bottlenecks can have a significant impact on profitability. Therefore, it is essential that bottlenecks are quickly identified and removed to ensure the long-term viability of the business.

When the solution becomes a bigger problem
For many companies in an effort to reduce bottlenecks and become leaner, their instinct is to minimise, minimise, minimise, reducing cleaning and changeover time. However, in the rush to eliminate extra steps, food and beverage producers can sometimes cause new bottlenecks to occur. These can severely reduce throughput, impact product quality, cause delays and annoy customers, resulting in orders being cancelled.

Typical bottlenecks in a food and beverage plant could involve a fault in critical machinery requiring urgent maintenance or a key worker getting sick or going on holiday. These long-term bottlenecks are unpredictable, and their impact can vary from fairly minor to major delays. Australian manufacturers must deal with long-term bottlenecks regularly and should strive to eliminate them.

Systemic bottlenecks that are causing persistent production delays, such as specialised equipment with consistently long queues, need to be dealt with. Some producers will experience significant downtime due to breakdowns and other than regular planned maintenance schedules to keep machinery operational, factories must have contingency plans in case of a worst-case scenario.

With lean manufacturing, it is all about finding the constraint, which is the piece of equipment on the production line with the lowest net output. No matter how fast the other machines can run, the entire line will never be able to run faster than this machine. That is why we call it a constraint, because it constrains the output of the line and this issue needs to be resolved as it will significantly impact profitability.

How bottlenecks impact profitabilityThe main way bottlenecks impact profitability is by compounding the effect of downtime along the production line. Downtime costs manufacturers a huge amount of money. By one estimate, companies in the food and beverage industry experience as much as 500 hours of downtime every year.

Fortunately, it is easy to calculate exactly how much this compounding effect is costing producers. They should determine the difference between what they are producing and what they could be producing if the bottleneck did not have to stop every time another machine on the production line went down.

ERP software provides manufacturers with a structured view of how their processes, systems, data and people are designed, so they can identify ways to be leaner and remove these types of bottlenecks. This can be critical especially when dealing with increased complexity and growth, therefore manufacturers need a way to review, revise and revamp operations right down to the individual process level.

Supply chain visibility & traceability
With the rise of global food and beverage product recalls, more regulations than ever before have been implemented to protect the end consumer and here food safety is covered by the Australia New Zealand Food Standards Code. This aims to lower the incidence of foodborne illness by strengthening food safety and traceability throughout the food supply chain.

When a food product is found to be deficient or contaminated, the first vital step is to trace and account for every suspect item throughout the value chain. This requires an ERP solution with traceability capabilities which must be able to track several units of a stock item from the same lot or batch number. Once these have all been found, manufacturers can then implement product recalls or quarantine suspect goods.

Most food products are made up of a wide range of ingredients that come from different providers, often located around the world. Additionally, most food and beverage finished products and ingredients have a limited shelf life and can quickly perish.

The food and beverage sector supply chain is incredibly complex and presents many challenges. Complete visibility of location and status of shipments is therefore essential for freshness and just-in-time-arrival of ingredients needed for the processing schedule. An advanced supply chain system that allows producers to make real-time adjustments can be a clear advantage and will help manufacturers to avoid supply chain bottlenecks and surplus stock.

Surplus stock management
When sales teams do not have clear visibility of surplus and expiring stock, companies tend to end up with a combination of fire sales and price erosion. Customer service takes a hit as well due to a lack of understanding of available stock. With an ERP system that provides forward visibility of any excess and expiring inventory, sales can put the right plans in place to maximise sales and minimise waste and heavy discounting.

The agility to make changes
To minimise the stress associated with eliminating either production, people or supply chain bottlenecks, food and beverage manufacturers need strong ERP project management with careful planning to steer the change management process. For most businesses in this sector, irrespective of size or structure, change is not easy, but this can be done more effectively if they have a structured view of their entire business. This will enable them to see the logic of how processes, systems, data and organisational hierarchies are designed and can easily make changes.

Eliminating bottlenecks in the food and beverage industry to avoid disruption

To remain competitive, food and beverage manufacturers need to continually improve their products and optimise their manufacturing processes, but bottlenecks can be the bane of their existence.

Bottlenecks are caused by processes in the system that limit its entire capacity, delaying subsequent processes and often causing a knock-on effect that impacts downstream productivity. There are a countless number of issues that can cause bottlenecks for a food and beverage manufacturer, so how can these be identified and overcome?

Please note that you can register for the complimentary Webinar: A no fail recipe to fix bottlenecks in food and beverage manufacturing hosted by Food & Beverage Industry News on this topic, Wednesday 12th August, 3pm-4pm AEST.

Types of bottlenecks
Understanding the type of bottleneck causing the disruption is the first hurdle and they usually come in three forms: production line bottlenecks, supply chain bottlenecks or employee bottlenecks. Each one of these bottleneck genres can severely reduce throughput, cause delays, annoy customers and impact employee morale.

When attempting to eliminate bottlenecks, it is important to differentiate between the short-term and long-term types. Short-term manufacturing bottlenecks are often temporary and avoiding them is futile. In a food and beverage plant, this could be a key technician getting sick or going on holiday, or a critical machine requiring urgent maintenance. They are unpredictable in nature, and their impact can vary from negligible to significant delays.

The focus should be on working towards eliminating long-term manufacturing bottlenecks. These are systemic bottlenecks that are causing persistent production delays, such as specialised equipment with consistently long queues.

Many small-to-medium enterprise (SME) manufacturers in Australia must deal with long-term bottlenecks regularly. Many will experience significant downtime due to breakdowns and other than regular planned maintenance schedules to keep machinery operational, factories must have contingency plans in case of a worst-case situation.

Overcoming supply chain bottlenecks
When the entire production line is reliant on a company’s resources, material bottlenecks can appear due to poor management of inventory that creates situations where factories are waiting on supplies, inadequate forecasts of production that create unexpected problems, incomplete financing, or changing the mix of products.

Any number of factors can contribute to a poor flow of materials through the supply chain, and while it may be impossible to eliminate unexpected disruptions, creating and sticking to a comprehensive supply chain disruption monitoring and response program can prevent extreme bottlenecks from arising.

Resource management
Manufacturers need to apply the same discipline to planning and orchestrating their employees’ work as they do to optimising their supply chain and production lines. This starts with realising that, just like the machines on the production line, employees are constrained resources and can only do one thing at a time and are capable of only so much output in a fixed period.

Regardless of where a new product idea originates, the “heavy lifting” to make it happen isn’t done on the manufacturing line; it’s done by the engineers, designers, technicians and other skilled professionals whose work supports and feeds into the production line. This is where the problem lies with many manufacturers as this development process can be complex, time consuming and fraught with challenges. Often, this is due to poor resource management and many companies still use spreadsheets to plan and track peoples’ work.

On the production line, this type of resource management quickly falls apart with tasks taking longer than estimated; customers submitting change requests; team members getting pulled off projects; budgets changing; corporate priorities shifting; and so on. Regardless of the specifics, without proper project management, as things change, people waste time spinning their wheels, and decisions are made without full visibility into how these may affect other commitments.

Supplier collaboration
Food and beverage supply chains have unravelled in just a couple of months during the pandemic, as has the trust and goodwill between many buyers and manufacturers. And whilst it caused severe shortages of some food and beverage products, the food and beverage companies that specialise in supplying the restaurants, bars and pubs now have excess or spoilt inventory to contend with.

As Australia starts opening its eating and drinking establishments, carefully tuning inventories to slowly returning demand will require supplier collaboration. Working with these vendors to adjust and delay orders will be a strategy in use for a while yet, and implementing network inventory management using their Enterprise Resource Planning (ERP) system will help to predict and avoid future shortages as well as help to reduce excess supply.

Warehouse optimisation
Warehouse optimisation is the key to an efficiently run warehouse – big or small. It is a highly specialised process that involves automation and identifying ways to save time, space and resources while reducing errors and improving flexibility and communication. Achieving this improves customer satisfaction due to getting shipments out faster.

The automation of material-handling in a warehouse should be a key priority, with the right warehouse management software, materials and products can be automatically grouped by type and storage requirements. Automating much of the stowing and picking process means a greatly reduced likelihood of pallets and cartons going missing due to human error.

Removal of bottlenecks
The best way to solve this issue is to identify what areas have become bottlenecks by evaluating metrics such as throughput, capacity, and wait time. Then evaluate the consequences of those bottlenecks. What operations are being delayed as a result? Thirdly, manage those bottlenecks. What can be done immediately to solve them? And finally, work towards preventing future bottlenecks from arising.

This article complements the Webinar: A no fail recipe to fix bottlenecks in food and beverage manufacturing which is hosted by Food & Beverage Industry News on: Wednesday 12th August, 3pm-4pm AEST.

SYSPRO gives back to the manufacturing sector

SYSPRO a provider of industry-built ERP software is stepping up to support the Asia Pacific manufacturing and distribution sector through the global pandemic and is showing its appreciation through a number of skills development initiatives.

Supporting customers through the pandemic
To support customers, for a limited time, SYSPRO is offering the opportunity to have free access to courses on the SYSPRO Learning Channel Plus platform. The SYSPRO Learning Channel Plus offers a list of courses for all SYSPRO users regardless of their role within an organisation. As further support for its customers, SYSPRO staff and partners will promote customer products through SYSPRO owned channels in APAC.

Bolstering the industry in preparation for the upturn
In order to bolster industry resilience, SYSPRO has kicked off an initiative to provide 500 recently unemployed individuals in the manufacturing and distribution sector with unlimited access to the online SYSPRO Learning Channel at no cost until the end of October.

This initiative aims to increase a candidate’s chance of being successful in today’s exceptionally competitive market adversely impacted by COVID-19.  S&P Global estimates that unemployment rates across Asia-Pacific could rise by well over three per cent, twice as large as the average recession. By applying, candidates will learn new skills and improve their knowledge of ERP and increase their chances of becoming more marketable.

“The impact of the pandemic has been felt by all sectors and industries globally. SYSPRO would like to take this opportunity to thank manufacturers and distributors around the region for continuing to work and support the economy. We hope that by offering skills development opportunities to the industry at large that we will bolster industry resilience in preparation for the upturn,” Rob Stummer, chief executive officer at SYSPRO APAC said.

How to apply for the initiative
As a global initiative, the SYSPRO ‘gives-back’ initiative for unemployed individuals is aimed at all of SYSPRO’s operating regions including the US, Canada, Africa, UK, Asia and Australasia. To qualify for this opportunity:

  1. The candidate must be currently unemployed and have recently lost their employment due to the global COVID-19 pandemic.
  2. The candidate must have work experience in the Manufacturing sector.
  3. Preference will be given to candidates who have experience working in one of SYSPRO’s Target Market industries ( please refer to below link for further details)
  4. Preference will be given to candidates who have ERP experience.