From uncertainty to stability: strengthening food and beverage supply chains with PLM

The fast-moving consumer goods (FMCG) sector is facing unprecedented challenges. Constant shifts in the industry landscape, driven by inflation, geopolitical tensions and climate change, create an increasing number of complex hurdles for retailers and manufacturers. Adapting to these changes requires agile decision-making and strategic planning.

Food and beverage companies are uniquely vulnerable to disruptions. A poor crop harvest or geopolitical crisis in a previously reliable region can throw food supply chains into chaos, impacting businesses worldwide. While food price inflation for certain products is set to slow through 2024, consumers will still feel the pinch while global instability and labor shortages continue to squeeze margins.

Let’s take a closer look at current challenges facing the industry and explore proactive strategies to overcome immediate obstacles and future-proof supply chain capabilities.

Raw ingredients, rising costs and consumer pressure

Managing raw ingredient supply chains has become increasingly complex for food and beverage businesses.

To take just one example, the scorching summer of 2023 in Europe severely impacted olive oil production, leading to shortages and price increases globally. Mediterranean countries, traditionally major producers, saw their harvests devastated by heatwaves and droughts, necessitating imports from South America to meet demand.

Where genuine producers have been struggling to meet market demand, the Mediterranean regions have seen the “agri mafia” illegally marketing counterfeit olive oil as a genuine product. This poses health risks and floods the market amid genuine product shortages, threatening both consumer trust and brand reputation, and underscoring the need for robust supply chain management strategies.

Similarly, cocoa prices have skyrocketed following severe droughts in West Africa, which grows 80% of the world’s cocoa supply. This crisis has not only inflated chocolate prices but also heightened scrutiny on ethical sourcing practices within the industry. Brands are under increasing pressure to ensure transparency and fair treatment throughout their supply chains.

Meanwhile, coffee production faces dual threats from environmental concerns and ethical controversies. The expansion of coffee farming often leads to deforestation, while reports of child labor in some supply chains further tarnish the industry’s reputation. Climate change exacerbates these issues, with rising temperatures projected to shrink viable coffee-growing regions significantly.

Strategies to tackle current and future challenges

Food and beverage retailers and manufacturers are responding to supply chain pressures and commodity market uncertainties through various strategies, other than price increases, to avoid deterring budget-conscious consumers.

Forward Purchasing

With the current volatility in raw ingredient and material prices, and more stringent private label co-packing agreements, retailers are implementing stricter regulations on when co-packers can raise prices. Eliminating reasons such as commodity price fluctuations and imposing high penalties for contract breaches adds tension to retailer-supplier relationships. Advanced sourcing management and refined vendor agreements are essential strategies for managing supply chain pricing and improving retailer-supplier relations.

Reformulation

Reformulation is a long-standing practice used by R&D teams to adjust product formulas to align with new health trends, regulatory changes and cost-optimization needs. It is also a strategy for addressing long-term supply chain issues. By updating recipes to reduce or eliminate ingredients affected by supply chain disruptions, manufacturers can navigate ongoing raw ingredient shortages.

Shrinkflation

Shrinkflation, a relatively new term, refers to the practice of reducing the size or quantity of food and beverage products while maintaining the same price point. This strategy is widely adopted in the industry to counter rising raw ingredient and material costs, as well as shortages, without compromising product quality.

Leveraging technology for agility

Centric Software’s flagship Product Lifecycle Management (PLM) platform, Centric PLM™, is a comprehensive, AI-powered solution to drive efficiency and productivity at every phase of product development.

Enhanced Supplier Collaboration

PLM enables sourcing and procurement teams to efficiently send and receive RFP responses, facilitating swift decision-making and seamless collaboration with pre-vetted suppliers who prioritise fair practices, ethical sourcing, low carbon footprint, transparency and compliance.

COGS Optimisation

PLM helps businesses increase product margins through recipe optimisation and manufacturing efficiency. Teams can directly collaborate with suppliers to select cost-effective options, reducing costs and improving efficiency. The platform provides a holistic view of all costing options, allowing companies to quickly find alternatives when supply chains are disrupted or raw material prices rise, enhancing agility.

AI-Driven Reformulation

AI-powered PLM enhances reformulation capabilities, saving time and money on product iterations. Least Cost Formulation (LCF) algorithms use ingredient libraries to create cost-effective formulation options. When supply issues arise, the platform allows for quick and efficient reformulation, helping businesses navigate supply chain challenges.

Smooth Change Management

PLM’s end-to-end workflows support effective change management, essential for packaging design, ingredient and allergen declarations and nutritional labels. The concept-to-consumer nature of PLM ensures changes flow smoothly through the system, reducing errors and avoiding potential litigation and product recalls. Ingredient and artwork labels are automatically updated to reflect changes in formulations, including adjustments for shrinkflated products.

The bottom line

The environmental, political and economic supply chain issues experienced by food and beverage businesses today are unlikely to disappear any time soon. By investing in advanced solutions like Centric PLM, businesses can not only mitigate risks but also capitalize on opportunities for growth and sustainability. Embracing these tools enables companies to maintain agility, uphold consumer trust, and achieve long-term success in a rapidly evolving market.