The business management consultants explore why investment in the supply chain for both resilience and environmental benefits looks set to continue…
In the last 18 months, supply chains have been tested by the effect of the Covid-19 pandemic and the challenges around importing and exporting resulting from Brexit. In parallel with these challenges, the environmental impact of operations is increasingly an area of scrutiny.
Libra Europe Consulting have conducted a survey of major food manufacturers and processors to see how these factors are influencing supply chain planning:
The initial strain on food supply chains were caused by panic buying driving significant volume spikes and testing the limits of just-in-time logistic operations. This period was relatively brief and was replaced by new challenges as consumer buying habits changed:
- Increases in internet food sales; November 2020 sales were 107% higher than November 2019.
- Significant reductions in food service; the ONS reported that food and beverage service activities were down 31.7% in February 2021 on February 2020.
- Reduction in the frequency of supermarket visits.
We asked the manufacturers if these impacts of Covid-19 will lead to an increase in their supply chain resilience to manage future risks of disruption; 61.5% either agreed or strongly agreed that they would increase their focus on supply chain resilience.
The remainder of those questioned were neutral about increasing their resilience, though one of those specifically stated that their distribution arrangements showed the resilience required through the last 12 months, vindicating their investment in their supply chain.
As anticipated, there have been challenges associated with importing and exporting resulting from post-Brexit border checks. All the companies in the survey had increased either raw material or finished goods stock levels as a contingency against supply disruption. However, around 70% see increased stocks due to Brexit as a temporary measure.
100% of businesses surveyed increased some element of stock as a result of Brexit, with 70% seeing this as a temporary measure.
Environmental Focus in the Supply Chain
In recent months, major food retailers have announced updates for delivering carbon reduction within their supply chains. Examples include Tesco, whose target is to be carbon neutral by 2035 and Sainsburys who aim to be net zero by 2040. These and other retailers know that targets will only be met through the support of their suppliers.
The first observation from the survey is that those manufacturers who have their distribution arranged by the retailer do not see the distribution service as a matter which they can influence.
The remainder see this as an area they can influence and over 80% would consider a 10-year contract that facilitated carbon neutral distribution services, with this rising to 100% of those questioned when this is reduced to a 5-year term. In an industry that typically has contracts of three years, this increase in contract term length reflects a recognition that manufacturers will have to support their suppliers in achieving carbon neutral distribution.
100% of businesses surveyed would consider a 5-year distribution contract to achieve carbon neutrality; over 80% would consider a 10-year contract.
The challenge of achieving these targets is further acknowledged as nearly 30% of responders would also consider paying a premium of up to 4% in order to achieve a carbon neutral position.
The profile of supply chains was raised in 2020 and was further highlighted by the Ever-Given incident in the Suez Canal. This focus, as highlighted by this survey, shows that investment in the supply chain for both resilience and environmental benefits is likely to continue.