supply chains

Food industry faces unprecedented supply chain challenges

By Rick Pendrous contact

- Last updated on GMT

Food and drink exporters and importers are seeking ‘frictionless borders’ with the EU after Brexit
Food and drink exporters and importers are seeking ‘frictionless borders’ with the EU after Brexit
Britain’s food and drink supply chains face unprecedented challenges, which manufacturers will need to tackle if they are to thrive.

The global nature of today’s food and drink supply chain means that, as we head towards Brexit, the focus of concern for many UK food and drink manufacturers – after the haemorrhaging of non-UK EU nationals – is whether borders will be ‘frictionless’ or, like sclerotic arteries, clogged up come March 2019.

While the UK government’s negotiating position has, belatedly, accepted that some transitionary arrangements will be needed to prevent complete chaos, it is still not clear whether this will include the free movement of goods to and from the continent. It is something about which the Freight Transport Association (FTA) is quite exercised.

“The government has recognised that it cannot drive the British economy off the cliff-edge of Brexit,”​ says James Hookham, deputy chief executive for FTA. “But, to secure the best possible deal for British business will take skill and understanding of how trading relationships work.”

The uncertainty surrounding Brexit negotiations is already encouraging an exodus of central and eastern Europeans, who no longer feel welcome in the UK – a situation made worse by a drop in the value of the pound.

As the pound approaches parity with the euro, and falls in value against the dollar (despite the slight recovery recently), it also means imports of raw ingredients and packaging are more expensive. True, it makes UK exports more attractive. But – apart from leaders such as whisky, salmon and chocolate – many other food sectors are starting from a very low base.

Question marks remain about whether the UK will retain EU regulatory controls governing hygiene and production standards of food and drink imports.

This was highlighted recently by fears that a trade deal with the US could open up our market to hormone injected beef, chlorine-washed chickens and genetically modified food and ingredients, currently banned within the EU.

While these may or may not be desirable, if it did happen, it would certainly make trade with the other EU 27 Member States problematic, to say the least.

Traceability will be key (back to top)

As trade becomes increasingly global – with or without Brexit – traceability is going to be key and extend much further than the ‘one-up, one-down’ expected from food and drink supply chains.

The latest incidents involving imports from the EU of chicken eggs illegally contaminated with the insecticide fipronil, brought back memories of the Belgian scare involving dioxin contamination of animal feed in 1999; the 2005 Sudan 1/Para Red dye incidents; and the 2013 ‘horsegate’ scandal.

As the world gets smaller, and food ingredients are sourced from ever-further afield, food companies will need to have more sophisticated traceability systems and procedures for detecting fraudulent and adventitious contamination.

The Food Standards Agency’s chair Heather Hancock has confirmed that the regulator will continue to work closely with the European Food Safety Authority after Brexit.

But, even so, the UK will need to raise its risk assessment and risk management games to meet the many new challenges, such as contamination of crops associated with global warming.

“There are food safety challenges as microbial populations can be expected to change with the climate, perhaps giving rise to problems not seen frequently in previously temperate climates, such as aflatoxins in grains,”​ says Kaarin Goodburn, secretary general of the Chilled Food Association.

But it isn’t only climate change that is driving transformational change within food supply chains. Economic, technological and sociological influences are also playing their part.

Take the inexorable move of global internet giant Amazon into ‘bricks and mortar’ – witnessed most recently by its £10.8bn ($13.7bn) acquisition of US organic grocer Whole Foods Market. This sent shock waves through the grocery retail world.

But, even without this, the UK grocery sector already faces huge change. It comes from increased competition as consumers adopt more promiscuous shopping behaviours, and is compounded by the rise of the limited assortment discounters (LADs) and the growth of internet shopping.

“With shoppers switching between channels – for example, supermarkets to discounters – to complement their online purchasing, it is essential that manufacturers have winning channel strategies in place that are both effective in their own right, as well as allowing for a seamless ‘omnichannel’ shopping experience,”​ says Nick Kirby, e-commerce director at shopper management specialist Bridgethorne.

Supermarkets have been forced to respond to these developments, cutting the number of price promotions and stock-keeping units in an attempt to match the LADs, while raising operational efficiency. This has forced food and drink manufacturers to raise their operational games and cut costs too.

While the major multiples recognise they have to renew their shopper focus, a recent retailer survey by supply chain consultancy LCP (part of Bearpoint), revealed in its report ‘Integrating the retail supply chain’ that only 39% of respondents were actually talking to their customers to understand their needs.

More positively, the LCP report also found that successful retailers were improving their customer offer by integrating and shaping their supply chain to service customers’ needs more effectively. This involves a much deeper understanding of costs in four areas: optimising stock availability; minimising inventory holding; reducing overall fulfilment costs; and more effective returns management.

Food Manufacture survey (back to top)

It is against this backdrop that Food Manufacture​ conducted its second annual online supply chain survey, sponsored by Authenticate Information Systems, during July and August this year. The results are reported in the charts published within this and other articles in this supplement.

From the chart below, we find that 64% of the 228 respondents to the survey report that their companies plan to invest more in their supply chain operations over the coming year. But it is down on 71% reported in last year’s survey.

It also shows that 70% report their firm’s supply chain costs per case/pallet delivered has increased over the past year, up from 64% last year.

However, 58% report their companies are adapting their supply chain for more multichannel/ ‘omnichannel’ sales, down marginally on 59% last year.

The survey also revealed that 51% of respondents report their businesses currently have requirements to map their supply chains and 60% are either preparing (or have already produced) a business response to the UK’s Modern Slavery Act, which became law in March 2015.

This year’s survey also reveals that cost reduction per case/pallet delivered (45%) has replaced on-line, in-full deliveries (now in third position at 37% after forecast accuracy at 40%) as the biggest supply chain challenge facing respondents.

However, respondents this year report their customers’ biggest supply chain needs relate to product and ingredient traceability (49%), followed by price reduction (41%) and longer shelf-life (38%).

Last year, reduced lead times topped their customers’ biggest concerns, followed by product and ingredient traceability and then price reduction. This suggests the growing importance of traceability following recent high profile contamination and fraud scandals.

New research from grocery think-tank IGD also predicts that investment in the much talked about Internet of Things (IoT) and use of interconnected ‘smart’ devices is set to rise.

It reports that 37% of food and grocery companies are already trialling or have successfully deployed IoT products or services, with a further 58% planning to increase their use of technology providers to help them embrace IoT opportunities.

Technological change (back to top)

Interestingly, the research shows that some 61% of those surveyed highlight ‘improved understanding of customers’ in their top three expected business benefits of IoT, with 53% of companies citing ‘reduced costs and increased efficiencies’ and 51% the ‘development of new business models’.

“The pace of change and breadth of impact for technology is such that demand is growing for food and grocery supply chains to deliver innovations that offer speed, transparency, connectivity and convenience,”​ says Chris Irish, supply chain insight manager at IGD.

“The IoT allows each unique product to be tracked and monitored, opening up the possibility for highly personalised and responsive solutions for consumers while introducing a new level of real-time data sharing for businesses.”

It is yet to be seen whether the impact of the IoT matches expectations or proves to be – as in some other areas of technology – more hype than reality.

Times of transition chart

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