Supply chains – from potato chips to computer chips – have struggled since the pandemic started. And CEOs, investors and other food industry stakeholders should be prepared for another bumpy year. Stockpiling inventory might be acceptable for toilet paper, but it doesn’t work well in the business of selling milk, pork, or other perishable food items. And underproduction of staple household goods is just as bad, leading to out-of-stocks, frustrated consumers, and loss of revenue for suppliers. Understanding the nuances of the food supply chain is more critical than ever to rebalance supply with demand as we head into yet another unpredictable year.
The good news is that 2022 should offer some improvements for food supply chains over 2021. But don’t expect a return to “normal.” We’re in a “new normal” where instability reigns.
Over the last two years, leadership teams across industries have learned more about how to predict and react to market shifts — although much of this learning came from trial and error. Now, collective learning can help food and beverage companies create and maintain more stability moving forward. By understanding what’s to come in 2022, brands can start to reduce the impact of recurring supply chain disruptions and become more agile. Here are five considerations as CPG brands look to the next year.
1. The transport and driver shortage will continue. Finding enough drivers and trucks to move consumer goods was a small but growing problem before the pandemic. It has since been exacerbated by the sudden growth in online commerce. Sources differ, but the average age of an over-the-road driver falls between 45-60 years. Meanwhile, the average annual turnover rate for long-haul truckers at major trucking companies hovers around 90%. Given the incredible amount of turnover, drivers accelerating their retirement plans and other ongoing logistics issues, food and beverage companies need to be prepared for a continuation of significant delays and disruptions.
Unfortunately, there’s no one-size-fits-all plan to manage this shortage. But having the right information at your fingertips can help. This means making sure that demand forecasting is as accurate as possible, systems and data are aligned across the supply chain, and the right teams have access to near-real-time data. Proactive planning, flexibility and accuracy are the name of the game for moving food and beverage products where they’re needed. By getting an accurate forecast earlier, CPG brands can secure needed transportation capacity and reduce their dependence on the ‘spot market’ where prices are volatile, and service is less reliable.
2. Worker shortages will decline. Limited talent is a problem in sectors beyond transportation. The national labor shortage has been widely reported, and while restaurants seem to get the most attention, it has hurt the agriculture and food processing sectors as well. Fewer workers mean fewer people to grow, maintain, harvest and process products. Some larger processing plants even lowered prices for meat, which allowed processors to catch up, but also discouraged farmers from selling their beef cattle and poultry. This strategy translated into less available product, lower prices for already struggling farmers and higher consumer meat prices at the grocery store.
But 2022 may see fewer worker shortages as both food processors and government agencies are taking steps to prevent these issues from happening again.
First, many companies are recognizing the need to treat their employees better. Earlier this year, in August 2021, Tyson CEO Donnie King told shareholders that the company was making changes to make Tyson the “most sought-after place to work in the communities we operate,” including piloting child care facilities at plants and opening on-site medical clinics to make healthcare more accessible to employees and their families.
Second, as more companies mandate COVID-19 vaccines, the number of employees calling in sick has decreased. The labor shortage won’t resolve itself overnight, but companies are making headway.
3. The government will be a strong partner in improving the supply chain. In June 2021, the U.S. Department of Agriculture announced a $4 billion investment in the food supply chain, designed to support food production, improved processing, and invest in distribution and market opportunities.
There is also an additional $100 million dollar loan guarantee program fund, paid for through the American Rescue Plan Act. Companies in the food industry should start to see some of these benefits in 2022. The loans should allow meat and poultry companies to improve processing and food supply chain infrastructure and cold storage expansion, in addition to financing improvements in food supply chain technology and infrastructure. If the supply chain doesn’t improve rapidly in 2022, expect to see more government support.
4. End-to-end supply chain technology will become imperative. While the food industry has been slower to adopt technology than other sectors, there has been an acceleration in the use of digital technologies to improve data-sharing and collaboration across the supply chain.
For instance, PepsiCo is leveraging its visibility into consumer and local retailer data to mine insights across its supply chain and optimize its inventory and product assortment as needed to become more resilient to changes in consumer behavior.
And tools such as artificial intelligence, analytics and robotics will continue to transform supply chains making them more agile and flexible.
Programmatic commerce combines artificial intelligence with smart analytics, allowing CPG brands to gain visibility into upstream and downstream supply chain partner data to understand consumer behaviors as they’re happening and make near-immediate supply chain decisions. Improved data access and insights can inform changes in strategies based on suppliers with available products, empowering CPG brands to quickly adjust production volumes as well as transportation and logistics plans to move product to exactly where it is needed.
When brands eliminate data barriers to effective inventory management and logistical decisions, they can evolve from “just in time “processing (which lately has been “not at all on time”) to something closer to “right on time.”
5. Mastering the supply chain will become an even bigger competitive advantage. Having an efficient supply chain has always been a competitive advantage, but never more so than it will be in 2022. Companies that struggled over the past two years will not be given a second chance as supply chain partners and consumers switch to the brands that can consistently deliver. CPG companies that can master supply chain accuracy, speed, and flexibility to get food in stores and on consumers’ plates will have a leg up on the competition.
Are Traasdahl is co-founder and CEO of Crisp, an open data platform that connects information and companies across the food industry supply chain.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.