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2021 will be digitally transformative for Food & Beverage procurement

Posted by Mintec Team on Jan 29, 2021 12:32:58 PM

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Digital Transformation in Procurement

Last year bore many lessons for procurement teams in food and beverage, not the least of which was a reminder that opportunities for cost savings are a crucial consideration for companies looking to work past the tumult of previous months and regain their footing through forward-looking purchasing strategies. From supply chain consolidation to the integration of automation in price comparisons, decisions surrounding not only what to buy but when and where to buy it have become central themes for professionals responding to shifting dynamics and consumer trends while continuing to promote cost efficiencies in an increasingly competitive environment.

To accomplish the lofty task of finding the best value for the price, procurement analysts need to rely on data. However, data as a raw material can cause ambiguity and uncertainty rather than deliver clarity in decision making. Digital transformation in procurement requires tools that aid in defining the future course for an organization. These must account for unpredictability and use advanced analytics to circumvent potential issues and capitalize on trends. But with hundreds of thousands of inputs that are subject to external factors, how does one understand supplier prices, manage market risk, increase efficiencies and reduce costs?

Too Much of a Good Thing

More data used to be the answer to nearly every question levied by a procurement professional looking to increase clarity and create a more complete picture of a company’s overall spend. However, terabytes of fragmented data have begun to stagnate decisions due to the limited insight that one can glean from an uncontextualized byte of information.

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While sophisticated in-house analytics are an admirable starting point, Mintec found in a 2019 survey that only 38% of companies have access to automated systems comparing real-time prices across markets – a figure that led to 35% of respondents acknowledging they had lost out on revenue or incurred increased costs due to the lack of comprehensive insight.

Commodity prices are not the only component of a pricing strategy that manufacturers can refine when integrating automation. Sourcing locations and the environmental and geopolitical factors that can influence regional prices are also necessary to take into consideration when looking to control costs.

Data Drove Corporate Response to the Pandemic

Major corporations, including Nestlé, Danone as well as smaller startups like Califia Farms are tightening up their supply chains and reconsidering sourcing strategies and portfolio profiles. Danone SA recently announced it will reorganize the company to save €1 billion ($1.2 billion) by 2023 with 300 million ($357 million) of these savings generated from reducing the costs of goods through shortening the supply and decision making chains. The company noted that focusing on local business units allows for flexibility and quicker adaptation to changes in the market whereby Danone can more adeptly respond to a major market change, like a pandemic, and continue to serve customers.

Last year, Nestlé Waters similarly said it would restructure its globally managed business into one that is run by three local geographic regions in an attempt to more readily respond to regional trends and focus its portfolio in a more targeted manner.

Other major corporations, including Unilever, PepsiCo and Coca-Cola channeled the challenges of the pandemic to their benefit, choosing to optimize production efficiency by doing more with less and focusing on their best-selling SKUs. This data-driven move proved successful at boosting sales margins because it allowed for an emphasis on production efficiency that reduced the complexities of the supply chain thereby offering additional cushion to companies’ that were facing future market uncertainty.

Doing more with less can be accomplished by more than just reducing the number of SKUs in an inventory. Investing in data-driven technologies that improve decision making can direct responses to questions ranging from inventory management to lead time disruptions. Mintec Analytics contributes to resiliency by working with a wide range of global and national brands of varying sizes and complexities to design digital strategies that allow organizations to analyze individually-tailored data sets against wider market pressures to offer procurement teams solutions that help manage organizational costs as well as increase decision efficiency.

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With efficient decisions contributing to stabilization and recuperation in 2021, companies will find that there is then room to explore and innovate with products as they look to grow. 

Innovation Driven by Digital Insight is the Next Frontier

Innovation underscores many of the decisions made in the Food and Beverage industry today. From in-house R&D to bolt-on M&A, companies are searching for new offerings to continue to bolster their bottom lines.

Despite the appearances of the coronavirus pandemic slowing down many aspects of business, innovation was far from taking a back seat. In July, Mattson found 65% of companies were working on new products during the spring lockdown. A good portion of this innovation stemmed out of necessity to respond to severe disruptions in supply chains and altering consumer demand for products.

These disruptions made value chains vulnerable and left companies preparing for a future with lean global supply chains optimized for efficiency and more reliant than ever on forecasting that incorporates historical data and scenario planning.

Companies like the plant-based dairy manufacturer Califia Farms that are dependent on ingredients that are vulnerable to shifting markets – seemingly ubiquitous materials like carbon dioxide, garlic, yeast and mushrooms faced severe shortages during the pandemic – have turned to work on reducing the risk associated with potential supplier shutdowns in order to protect inventory levels.

However, the ever-increasing criticality of forecasting that incorporates a holistic view of the global market requires up-to-date data that is responsive to change. Mintec research confirmed that market volatility is the biggest challenge facing procurement teams and results in a lack of confidence in supplier negotiations.

Instead of relying on cost models drawn using information from out-of-date indices, Mintec provides targeted cost models for 14,000 different commodities to help procurement teams build resilience in their organization and prepare themselves for future disruptions resulting from a changing world.

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Topics: Procurement

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