The food and beverage industry landscape is one of the most active and dynamic in the world. With a global revenue of over 2.75 billion and an annual CAGR of 11.38%, this sector is rapidly expanding.
As food and beverage suppliers continue to expand across the globe, it becomes even more important to obtain full visibility over their supply chain. Over recent years, changing geopolitical factors, economic uncertainty, and disruptive circumstances like the COVID-19 pandemic have made supply chain management a deeply complex field.
Food and beverage businesses must take additional steps to secure their supply chain, creating and employing effective structures that enhance their resilience and build stronger supply chain links.
Especially as the global population continues to grow, there has never been a more important time to look inward, assess risks, and conduct vigorous compliance assessments to test the strength of the food and beverage supply chain.
Source: Total market revenue of the food and beverage industry worldwide, 2017-2027.
Identifying Key Risks in the Food and Beverage Supply Chain
Food and beverage supply chain management includes an additional layer of risk. Working with live products, crops, and other potentially unpredictable factors can create numerous disruptions that businesses in this sector have to contend with.
When working in this sector, food and beverage vendors must constantly contend with the following key risks:
- Climate change: From rising sea levels to changing climates, the agricultural harvests of tomorrow could be completely distinct from those we currently understand. A dramatic rise in sea level could completely disrupt entire key growth areas, creating scarcity for those that have not adapted ahead of time. Identifying potential risks of climate change and taking mitigating steps to build supply chain resilience is vital.
- Contamination: Whether caused by pathogens, allergens, foreign substances entering into an area, or viruses, contamination is a constant worry in the F&B industry. Contamination of any format can directly impact consumer health, which can create major legal and fiscal consequences for businesses that do not take enough precautions.
- Labour issues: Major growth areas, like the United States, face considerable labour shortages. Without enough workers to effectively manage growth and harvest, some vendors are unable to reach targets and keep up with the demand that consumers place on them. On the other end of the spectrum, human rights violations are increasingly becoming the responsibility of vendors, creating potential human risks in your supply chain.
Mitigating these issues isn’t about making one or two small changes to your business. On the contrary, they encompass the entire scope of food & beverage supply chain management, creating disastrous consequences for those who are unprepared.
Beyond just monitoring, businesses need to create stringent food safety measures, publish quality control standards, enforce regular vendor testing, and conduct inspections.
Key Risk Factors in the Food and Beverage Supply Chain
In any supply chain, a key risk factor is a circumstance that would create unforeseen disruptions. Any disruption to the supply chain would then create a knock-on effect, decreasing production, reducing delivery percentages, and harming the overall integrity of the supply chain.
In recent years, we saw the White House release an executive order on the widespread shortages that the pandemic caused. In 2020, the total number of inventory plummeted, with demand far outweighing supply as core links in the supply chain were disabled.
Source: Total inventory-to-sales ratio for Businesses and Retailers, 1992-2021.
With any disruption potentially leading to major consequences for business, it’s important to know what factors could create an unfavourable circumstance. Here are some of the leading risk factors in the food and beverage supply chain:
- Unforeseen events: Sudden natural disasters, political changes, and major health crises (like the pandemic) can have a dramatic impact on supply chains.
- Regulatory compliance: Businesses that operate on an international scale must keep a constant watch on evolving regulatory compliance standards. Changes like the Corporate Sustainability Due Diligence Directive (CSDD) create new obligations that companies have to follow, which can interrupt the flow of goods if not taken into consideration ahead of time.
- Operational risks: In many agricultural and food production environments, inadequate staff knowledge, equipment failure, and inventory management issues can create delays and major disruptions.
- Sustainability and brand image change: Published data on a brand and its compliance or non-compliance with sustainability directives can change how consumers see a brand. Brand perception can dramatically impact demand, with 44% of global customers being more likely to buy from a sustainable brand.
- Digital Security: Cybersecurity risks are an ever-expanding problem that businesses must know how to face. Employing effective security architecture and creating a robust security posture begins with full visualisation of a company’s attack surface and the defences of its partners.
Each of these factors can create significant changes in the flow of materials, products, and overall food and beverage logistics pathways.
Strategies for Mitigating Food and Beverage Supply Chain Challenges
Naturally, contending with all of these factors at once is easier said than done. Organisations around the world are turning to technology, collaboration, and diversification to decrease the complexity of food and beverage supply chain management.
Let’s break down how each of these factors helps businesses mitigate supply chain disruptions in the F&B industry:
- Technology: Real-time risk intelligence platforms like Prewave can leverage artificial intelligence technology to monitor, identify risk, and suggestive mitigating steps a business can take to enhance supply chain resilience. Powerful risk-management platforms simplify risk identification, using the above risk factors to create vendor risk assessments.
- Collaboration: As digital solutions continue to enhance supply chain visibility, strong relationships with suppliers become vital. When suppliers and partners can actively communicate, they can leverage digital solutions to mitigate disruptions ahead of time, working together to secure a supply chain.
- Diversification: When tools like Prewave identify several major risks in a supplier, sometimes a more practical solution is to diversify to other vendors. This reduces risk as you back backup systems in place to source from several suppliers, removing single points of failure from your system.
By leveraging these three strategies, businesses in the food and beverage industry can build robust, resilient, and dynamic supply chains that can withstand disruptions.
Five-Step Plan to Conduct Effective Risk Assessments
When attempting to gain insight into your supply chain, organisations should endeavour to conduct a comprehensive risk assessment. Each supply chain is different, with the exact links that comprise an extended value chain changing.
In food and beverage supply chain management, organisations can follow these steps:
- Gauge risks and set goals: Identify the main risks that vendors in your supply chain will face, setting clear risk management objectives for each of them.
- Visualise the supply chain: Create a dynamic map of all the individual parts of your supply chain, how they connect together, and which connections would be impacted by certain risks.
- Collect actionable information: After visualising your supply chain, you’ll be able to conduct supplier assessments, measure reliability, test cybersecurity defences, and examine socio-economic, human, and political factors. Aim to understand which suppliers are your most stable bets, while outlining which could pose a risk.
- Engage with suppliers: Contact your suppliers, aiming to build stronger relationships with them and ensure you can rely on them to follow your risk management suggestions.
- Disclose information: Create a transparent flow of information with your suppliers, giving them any information you generate on them and explaining the motives for the mitigating suggestions you make.
The final two steps help forge better business relationships with your partners. From these come extended relationships where your company and your supplier help support one another and create a better collaborative relationship.
As you gain more insight into the current dynamics within your supply chain, you’ll be able to create lasting connections that contribute to a high degree of resilience.
Strategies for Building Resilience in the Food and Beverage Supply Chain
Resilience in the food and beverage supply chain won’t happen overnight. True resilience comes from a comprehensive understanding of how each supplier and logistical partner is linked to certain risks. After conducting risk assessments, there are still several important strategies that businesses can employ to enhance the resilience of their supply chain.
Alongside utilising risk-management platforms, conducting risk assessments, and building relationships with your suppliers, you can:
- Implement sustainable sourcing practices: The past few years have seen a surge in new sustainability corporate directives and compliance obligations. By starting to select ethically sound sourcing practices now, your business can get ahead of highly likely future ESG laws.
- Create end-to-end visibility: Your supply chain is a network of links – if one of those falls, it impacts every other one. By establishing end-to-end visibility with available supply chain management solutions, you can better understand each individual link. Over time, this enhanced visibility will help reduce risk and provide mitigating steps to improve your supply chain resilience.
- Surplus inventory management: If possible, keep a surplus of food and beverage inventory, giving you a small buffer that you can rely on whenever a disruption occurs. Think of this additional store as a backup system that kicks into action when disaster strikes.
- Scenario planning: Based on the risk factors you have outlined, begin to create contingency plans that you can use if a disruption does present itself. Create worst-case scenario preparation to keep your business out of the way of catastrophic operational consequences.
- Insurance coverage: Make sure to find insurance contracts that will protect you against the widest possible selection of disruptions. Even subjective events, like geopolitical instability, should fall under your plan.
- Material flow resilience: Diversifying your suppliers will help enhance your material flow resilience, creating additional sources that you can rely on if a disaster event were to occur. It’s important to build these relationships as early as possible, as you don’t want to be put in a position of desperation when needing swift delivery.
By implementing these strategies, understanding the risk factors that impact the F&B supply chain, and finding innovative technological solutions, your business can create a near-unbreakable global supply chain.
With resilience, stability, and visibility at its core, your food and beverage supply chain management will be measured, accurate, and disruption-proof.
Importance of Transparency and Visibility in F&B Supply Chain
Beyond creating useful and reliable relationships with your vendors, full transparency and visibility into your supply chain are vital for several other reasons.
When a business prioritises transparency and visibility, they are able to:
- Comply with legal obligations: Regulations like the Forced Labour Exposure Analysis and frameworks like the CSDDD make businesses more precise in managing their supply chains and detecting risks. Full transparency allows you to meet these regulations and remain compliant.
- Meet consumer insight demands: Consumers are increasingly looking for sustainable companies that are open about their sourcing, production, and selling practices. Transparency can help win loyal customers for life.
- Ethically source and produce: Without visibility into your supply chain, your business is unable to ensure that it is ethically sourcing and producing.
By leveraging real-time analysis tools and data-driven insights, organisations can maintain a high degree of visibility over their supply chain. As factors rapidly change, real-time insight provides a first line of defence to notice shifts as they begin to occur, giving your business as much time as possible to find a solution.
Businesses that invest in transparency and visibility are making an active contribution to the future stability of their food and beverage supply chain.
Final Thoughts
The food and beverage supply chain is a global network of increasingly complex connections. Over recent years, the number of unforeseen circumstances has skyrocketed, leaving many businesses scrambling to keep up with consumer demand. Better and more effective supply chain management starts with comprehensive visibility.
Prewave helps your business to achieve full visibility over the F&B supply chain, providing extensive management and monitoring architecture to better understand your vendor-related risk. Your organisation can turn to Prewave for a comprehensive partner in food and beverage supply chain management, helping you meet compliance regulations, identify risks, and mitigate them.
Create a resilient supply chain with Prewave by reaching out to our team or booking a demo today.
