Manufacturers in the food and beverage industry are operating under unusual circumstances regarding the supply chain, which has been affected by customers’ preferences, the pandemic’s lasting impacts, political tensions, and inflation. Pressure has been aggravated by the escalating costs and the threat of a recession that tests any business’s endurance and success. Some challenges that affect cost leaders are deficiencies in resources, erosion of profit margins, and changes in customer demands.
Furthermore, the demands to boost nutrient value while reducing costs result in most manufacturers acquiring Food and beverage GPOs (Group Purchasing Organizations).
Major Challenges in Food & Beverage Supply Chains
The food and beverage industry faces several key challenges:
1. Resource Shortages
Food and beverage manufacturers’ biggest concerns are the raw materials and labor shortage. For example, the conflict in Ukraine — a major agricultural exporter — has caused fluctuations in the prices of key commodities like wheat, corn, and sunflower oil. This has resulted in higher production costs and delivery delays for food manufacturers, affecting margins and customer satisfaction.
This situation has been worsened by the scarcity of labor in the market and, in particular, a dearth of qualified personnel in some key areas, such as delivery and warehouse personnel. Talent retention was also observed, and a 2021 Deloitte survey showed that nearly 50% of food and beverage product suppliers noted this to be a challenge for the industry, which only intensified supply chain challenges.
2. Tight Margins and Rising Costs
Issues such as the rise in fuel prices, inflation, and the implementation of hi-tek supply chain solutions add to this, which pressure food and beverage manufacturers to produce food and drinks at reasonable prices to maximize their profits. Minimizing costs across the organization while avoiding disrupting the business center is a key strategic imperative that is always hard to implement.
Concurrently, demand for working capital solutions, including the SCF, is rising since manufacturers constantly search for better ways of handling their cash flows. Companies are also expected to adhere to other traditional finance performance objective standards, such as financial reporting standards like the IFRS.
3. Evolving Customer Demands
Consumer preferences have evolved significantly due to pandemic lockdowns. Today, consumers demand:
- Same-day delivery
- Digital and omnichannel purchasing options
- Personalized products and experiences
- Health-conscious and traceable food products
Food and beverage manufacturers must address these demands and tackle the ever-rising SKUs and order fulfillment challenges to survive competitive pressures. However, technologies continue to evolve, and new markets, especially the Asia-Pacific (APAC) markets, must be addressed for manufacturing to take advantage of. However, supply chains should be flexible to local law and culture.
4. Supply Chain Resilience
All these factors have made supply chain resilience a top priority. Manufacturers must adapt quickly to changing customer needs while minimizing disruptions caused by resource shortages, financial instability, or food fraud—a growing issue in the industry that costs approximately $40 billion annually.
Solutions to Strengthen Food & Beverage Supply Chains
Innovative food and beverage companies are adopting new technologies and strategies that enhance visibility, streamline processes, and ensure nutritional optimization to address these challenges. Below are three key approaches leading the way:
1. Citizen Automation and Development
By adopting concepts such as machine learning and automation, innovative food and beverage industries minimize their sources of time consumption. It can be easily implemented in companies since it involves giving employees with little programming knowledge an easy way of designing new operational supply chain processes through low-code or no-code tools.
This relieves pressure off IT departments and makes employees responsible for dealing with most of the issues as and when they happen, thus making the supply chain more adaptive.
2. Real-Time Transportation Visibility (RTTV)
Specifically, RTTV software for the food and beverage industry helps monitor transportation information within supply chains and facilitates better management of delivery time and fleets. When RTTV tools are connected to ERP systems, manufacturers can manage transport resources with less spoilage and fewer manual procedures.
These tools are very valuable in avoiding such incidences of delay, guaranteeing the quality of the products, and serving the customers better in delivery time.
3. Early Payment Programs
Early payment programs are fast becoming common with food and soft beverage manufacturers since they can help suppliers in case of financial stress. These programs still enable suppliers to seek early payments with reduced prices from buyers, enhancing the relations between the Chain of Supply.
Compared to supply chain financing, the early payment program does not involve banks or lenders and thus is favorable for small-scale suppliers. This makes it possible for manufacturers to use a flexible approach that will increase key performance indicators like EBITDA and enhance the quality of their relationships with suppliers.
The Role of GPOs in Cost Optimization
As supply chain issues continue to rise, food and beverage manufacturers depend more on partnerships with Food and beverage GPOs on cost issues. The principle of bringing numerous facilities together to consolidate their purchasing needs enables manufacturers to reduce overall procurement costs and negotiate better with suppliers and supply chain management.
The involvement of a GPO’s services in a company supply chain management system can also help manage costs. These organizations provide specific services like contract management, supplier diversification, and mass purchasing, which results in better working and improved financial position.
Partnering for Success
Supply chain management remains one of the critical success factors for the company since it has to focus on supply chain risk and vulnerability, cost, and technology issues. Today’s top food and beverage manufacturing companies effectively manage all these risks by implementing new technologies such as automation, real-time visibility, and an early payment program. Also, many of them are using GPOs to help them fine-tune their procurement functionality and minimize costs.
Prime Source’s expense control specialists are acknowledged as the industry’s leading source for inventory and long-term care budgeting. We have specific and effective approaches to enhancing the supply chain, maximizing efficiency, and minimizing costs while guaranteeing organizational success in any economic climate.
