How food and beverage businesses can navigate today’s fragile supply chain

Modern supply chains are becoming increasingly vulnerable, despite the resilience of many Canadian food and beverage companies. This creates persistent challenges for businesses that depend on shipping and distribution networks to source raw materials and deliver their products to market.

To succeed in the years ahead, your food and beverage business needs adapt to the recent persistent and emerging challenges. In short, it’s a good opportunity to re-evaluate how you do business.

That process of change can begin with the following seven strategies.

Get clear on your numbers

The days of getting by with a general understanding of your margins and other financial metrics are no longer an option. You need to be dialed into — and continuously updated on — what your products cost to make and how recent pricing trends have impacted your gross margins.

Specific trends and targets you’ll want to focus on include:

Input price changes: To what degree have your raw material prices increased through inflation, tariffs, or supply chain pressures? Can you pass these price increases along to your customers or will you need to focus on cost containment to manage margins? Small swings in price at the unit level can magnify at scale to significantly impact profitability and cashflow.

Overhead: How is it increasing? And how does it impact your free cashflow? Cash provides certainty in unpredictable times.

Buying power: What resources can you deploy to generate revenue and reduce costs?

Supply chain measures: What steps can you afford to offset the impact of an unpredictable supply chain? For instance, can you manage higher levels of stock without unduly harming your cashflows?

Your answers will help you to forecast your operational costs and how best to use cash resources to mitigate supply chain issues.

Prioritize your top-performing SKUs

If you manufacture multiple products with many of the same fundamental ingredients, consider temporarily discontinuing some low-performing items to improve your return on investment. While this won’t directly solve the challenges you have with sourcing inputs, it can help curb production delays and lost revenue.

Every product you make has a purpose, so this may not be the most palatable option. Still, keeping your most profitable and popular items in stock will help to keep customers happy and hold your position on store shelves. More importantly, it will keep revenue flowing into your business.

Shorten your supply chain

This is a great time to reassess whether the benefits of producing goods and purchasing inputs from international vendors outweigh the drawbacks. The savings are becoming increasingly marginal as the global supply chain shifts. Your costs increase if orders are continually delayed and you can’t manufacture enough product volume to cover your overhead costs.

Manufacturing businesses in all industries, including the food and beverage sector, have started to assess the upside of reshoring parts of the supply chain. Particularly as Canadian organizations rely less on cross-border logistics with the U.S., reshoring could become a long-term advantage. However, it’s not a silver bullet — some costs will increase, and you may still experience delays.

Another factor favouring a shorter supply chain that you should consider is greater environmental scrutiny and consumer demand for more eco-friendly products. Keeping products consistently stocked with a lower carbon footprint could help you carve out a sizable competitive advantage over the coming years.

Diversify your supplier network

Expand the number of suppliers you work with to create more flexibility in your supply chain. The benefits of diversifying your network are threefold:

1. It increases the likelihood that one of your vendors will be able to deliver the inputs you need when you need them. Your business will be less vulnerable to supply shortages and delivery bottlenecks.
2. It gives you more leverage to negotiate competitive prices.
3. You are less likely to suffer from quality control issues which have become symptomatic of the current supply chain crisis.

Having options gives you more leverage to ensure your finished goods reflect favourably on your brand and meet your customers’ discriminating expectations.

Reduce product waste

It won’t directly solve the difficulties in your supply chain, but reducing waste on your manufacturing lines can stretch your dollars and raw materials much further. The current challenges you’re facing externally could be the push you need to optimize your business from the inside out.

Creating and undertaking a performance improvement plan can uncover any number of cost-effective changes to reduce product shrinkage and waste. This may include automating portions of your production, implementing new processes and procedures, and/or adopting new digital tools such as an enterprise resource planning system.

Consider an e-commerce option

As with the above, controlling more of your sales and marketing will not directly solve your upstream supply chain issues. Instead, it can help you offset some of the punitive impacts of those challenges by allowing you to earn a higher margin from the products you sell — and free you from some of the requirements (e.g., delivery quotas) that retailers may impose upon you.

Adding an e-commerce channel does not necessarily require that you abandon retail. In fact, like diversifying your supplier network, your ability to reach customers directly can help to build your brand and provide leverage to negotiate more favourable terms with the store you want to be in.

Be prepared for more changes to come

Like many aspects of business and life, many of the kinks in global supply chains will continue to normalize — giving way for other issues to evolve.

You can prepare by thinking now about the looming impacts of net zero commitments on global shipping and logistics, the effects of climate change on access to raw materials and input costs, and more.

Technology, particularly AI advancements and analytics capabilities, has been essential for navigating supply chains. For instance, automation can improve efficiency, predictive tools can analyze behaviours and patterns, and smart packaging keeps freshness and sustainability in mind. These powerful solutions can help your business forecast demand, reduce waste, and keep you agile and flexible as market conditions evolve in the years ahead.

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To learn more about how you can navigate today’s supply chain challenges, contact: