By Steve Wells
The food and beverage manufacturing industry has its ups and downs just like all businesses. However, unlike most businesses, it experiences dramatic shifts in consumer buying patterns. For example, the trans fat and the Atkins Diet crazes created tremendous, rapid shifts in buying patterns that caught many manufacturers by surprise. Knowing that the industry is fickle in this way, what can food and beverage manufacturers do to prepare for a future downturn? And what can companies in other industries learn from the F&B sector?
Don't Wait — Prepare Now
The first and most important step is to start preparing your supply chain right now for the future. Don't wait for the downtown to happen to address these issues, because when it does happen (and it will, at some point), it will be the speed of your response that will dictate your ability to remain profitable or even survive. The challenges you could face during a downturn might be daunting without a plan. You may be forced into making decisions without supporting data and you may well be betting the company on those decisions. Expenses such as utilities, plant operations and labor are a high percentage of cost. And despite the push for lean strategies and customer-driven supply chain principles, one of the most common ways of dealing with any type of demand uncertainty in many companies today still appears to be to insure against the uncertainty by holding extra inventory across the supply chain — an expensive and increasingly unacceptable solution.
In the event of an imminent downturn, you need to know how you can best control these factors. To do that, you have to have the technology, such as a strong enterprise resource planning (ERP) application, to gather the necessary information in order to build scenarios so you will know the best way to respond.
Have a Plan
A question that might be difficult to answer without a plan is whether to reduce shifts or reduce lines. For example, if you have multiple lines making your products, which would have a better economic impact; reducing the shifts or hours of operation, or reducing the number of lines you operate? Or perhaps you need to do a stock keeping unit (SKU) review and cut the products whose sales have dropped below acceptable levels. Building several different scenarios based on the information gathered by your ERP system, lifecycles and known lead times could give you the answers you need to create an effective contingency plan.
You should also ensure that your entire supply chain is prepared. Think of every link in your supply chain and ask that they also prepare for any potential downturn. This means all your vendors are aware of your contingency plans and you are aware of theirs. And don't forget to ensure that your purchasing department is ready to adjust to a large fluctuation in demand as well. Traveling around the country, I've seen pallet after pallet of expensive packing material sitting around gathering dust because they are missing the current magic phrase "Zero Trans Fat."
By preparing your supply chain ahead of time for a downturn, you will have the comfort of knowing that you have prepared your company and fulfilled your fiduciary responsibilities, but there are often ancillary benefits as well.
Just reviewing each link in the supply chain and analyzing a dramatic shift may uncover problems you can solve today. For example, we recently had a customer that, after analyzing its supply chain, exposed an issue with corrugated cartons. The company had well over a 60-day supply on hand, based on its current contract. When they reviewed this, they found it would be much more cost effective to adjust the current contract and the purchasing levels, which freed up valuable warehouse space and reduced damage from extra handling.