Tips to ride out supply chain disruptions and rising costs

3.5 min read

Unprecedented labour shortages and rising costs are challenging food processors to make a profit with increasingly thinner margins.

Every point on a food processor’s supply chain, from the farmer who produces the raw ingredients to transportation, has been disrupted.

Simon Somogyi is the Arrell Chair in the Business of Food and a professor in the School of Hospitality, Food, and Tourism at the University of Guelph. He says the war between Russia and Ukraine is the biggest cause of rising costs.

“The Ukraine conflict has had a profound impact on the cost of goods with skyrocketing grain and fertilizer prices impacting the production costs in almost all areas of food production - meats, produce, dairy and eggs,” Somogyi says.

Diversify to create stability

Limited access to competitively priced local ingredients continues to push food processors to look abroad. However, diversifying suppliers can help protect food processors from potential disruptions.

Diversifying suppliers can help protect food processors from potential disruptions.

"Having numerous suppliers for goods, particularly raw materials, is so important," Somogyi says. "This way, when one supplier shuts down for the ingredient you need or the logistics make it slower to get the ingredient into the processor, you have alternatives.”

It's about finding ways to develop stability in a supply chain constantly in flux.

The current economic climate has forced food processors to examine their entire supply chain to identify potential losses and reduce costs.

"Our clients are finding more and more that they have to focus on their business and do it well,” says Véronic Laliberté, FCC Area Vice President of Commercial Financing.

Lower risks through partnerships

Developing partnerships across the supply chain, including partnering with transportation firms, can help reduce the risk.

Transportation can be outsourced, for example, where food processors can opt to work with companies more adept at maximizing transportation, including making round trips with full trucks and logistics.

There are other partnership opportunities, too.

Scaling is a risky business for a manufacturer. Partnering with co-packers can reduce the risk.

Hamid Asli, CEO of Canadian Co-packing, shares how co-packers can alleviate several of the challenges that food processors face, including labour shortages and ingredient sourcing.

He provided three core benefits that copackers can provide to food and beverage processors:

1. Strengthen connections across the supply chain

Copackers work with several brands and distributors, providing insight into market trends, industry challenges, and potential opportunities. This experience can support processors in several areas of their operation, including marketing and production.

“These connections can help us to understand what’s going on in the market,” says Asli. “We can also help connect the new customer to distributors because they already know the facility.”

2. Navigating the supply chain

Navigating the supply chain has become increasingly challenging for processors, who are faced with price volatility, ingredient scarcity, and supplier fluctuation. Failing to have a stable supplier could directly impact product consistency and quality. Co-packers can help alleviate this stress by assisting with ingredient procurement and providing insight on ingredient availability.

“Because we have a higher production volume, we can often purchase ingredients for a better price and have established connections with several individuals on the supply chain, including manufacturers and farmers,” says Asli.

The co-packers' experience with a variety of ingredients and suppliers can also help provide the processor with guidance regarding the ingredients that would work best for the product.

3. Streamline your costs

Owning your facility requires a significant investment, including equipment, maintenance, labour, and leasing. Co-packing facilities provide processors with the facility, equipment and labour to produce and pack their products.

“You don’t need to pay lots of payments and commit under lots of debt for running a facility, you can work with an established copacker,” says Asli. “That’s the benefit of working with a co-packer, saving you time and money.”

This allows processors to focus their resources on other critical areas of operation, such as product development, marketing, and communication.

Somogyi’s top 3 supply chain solutions

The current food and beverage processing climate requires food processors to look at every area of their supply chain. Somogyi stressed the benefit of adopting lean management principles, including reviewing the entire supply chain to reduce inefficiencies and streamline costs. Here are three ways to focus on management principles:

Review all operational areas—such as finance, human resources, marketing, purchasing, and distribution—to ensure there is no duplication. This review is called an Enterprise Resource Planning (ERP) process and should be done every quarter to ensure the plan's recommendations are acted on.
Develop a business case for robotics and automation and see how it can be integrated into the ERP process. Identify potential areas for automation across the entire supply chain to decrease downtime and mitigate the risk of continual labour shortages.
Integrate predictive artificial intelligence so you can better predict your retailers' demands and, in turn, anticipate the number of ingredients needed from suppliers.

Article by: Anne-Marie Hardie

Marketing & Sales