Food procurement, strategic sourcing and supply chain management may be in for shake-up if these five food procurement trends take hold.
For many companies, procurement is seen as the window on the outside world. And increasingly it is where big decisions influenced by economic, social and political trends get made - as well as paid for.
For procurement leaders implementing Digital Transformation in Procurement and delivering data-driven insight are central to maintaining margins – especially with inflationary headwinds.
With increasing demands on controlling costs, driving increased efficiency and managing the company’s exposure to risk, it’s an area of the food sector which is facing considerable change.
To be successful, food procurement teams will need to get on top of new technologies, harness messy big data and improve performance visibility. Whilst at the same time respond to changing social perspectives that could impact the company reputation.
We’ve highlighted five top trends that leading procurement professionals should follow.
- Lack of time & resource
Today there is endless information available in near-real time. This can often be overwhelming for food procurement teams resulting in missed opportunities and poor decision-making.
It frequently takes too long for category managers to collate market research and price data into the actionable insight needed to understand a commodity market and prepare for supplier negotiations. Using technology, including Robotic Process Automation (RPA), is one of the technologies with the greatest potential to transform food procurement teams right now. Although, machine learning, AI and blockchain are all in the mix.
With data sources so disparate and disorganised the category buyer or procurement analyst is frequently forced to focus on the top 5 or so food spends; the rest are often ignored. As a result, significant savings are missed in the tail spend.
This situation is further compounded by the frequent inability for analysts and buyers to bring all the necessary analysis and price information together. Multiple data sources and platforms hinders the creation of category dashboards which restricts their ability to visualise data together.
- Trends, tariffs and regulations
Change is in the air, with new consumer trends from veganism to increased environmental awareness. These combined with a changing trading environment which is on the horizon, is bringing the threat of new global trade tariffs and new regulations.
Changing social trends are influencing the products and ingredients that need to sourced, such as the increasingly topical plant-based proteins. Whilst uncertainty surrounding Brexit and its effect on the trading relationship between the UK and EU, continues to be unresolved. This is however, likely to result in regulatory changes for business and procurement teams in general.
Other, recent trade agreements between the EU and Japan, and more recently between the EU and Mercosur, demonstrate progress for the EU in widening tariff reduction. Any tariffs, counter-tariffs and regulations levied against food stuffs and associated raw materials could quickly see additional costs enter the global supply chain. As such procurement teams will need to be alert to how the sources and origins of the materials they buy may influence their costs.
The increasing role of technology remains constant with its disruptive influence. So how are procurement leaders responding to disruption?
One way is by embracing the benefits that technology can bring to help drive the automation of routine tasks and help free up valuable resources. This is important, as procurement teams are increasingly being asked to do more, with less. While companies continue to look for ways to make repeatable processes faster. One such option is using robotic process automation or RPA, which is helping to automate workflows and enhancing digital search capabilities. This enables data to be accessed and shared faster and more effectively than ever.
- Data access vs data application
Companies need to be better prepared to respond to the increased complexity and ambiguity that comes with greater product diversity. This in part is being driven by the need for companies to determine how to deal with “big data” and analytics. Whilst this can improve procurement decision making, when embarking on their digital transformation journey, its complexity can be overwhelming.
As companies adopt electronic purchasing systems, it is increasing important for category managers to be able to access relevant data on price, market and sources directly. Enabling them to quickly understand how market events may influence price changes affecting them.
Although access to data remains a key concern, access to the right data is still often overlooked. It’s often the less transparent raw material markets that have the greatest effect on business costs. Understanding the impact on costs due to price volatility, associated with non-exchange traded commodities, helps to uncover the best cost-saving opportunities.
- Sustainable sourcing & supplier management
This places pressure on the entire supply chain to ensure transactions can be measured against high ethical standards to ensure their organisation’s reputation is maintained.
Understanding the market price of the widest range of raw materials as well as substitutes and alternative ingredients can assist in the strategic sourcing process.
- Digital procurement
The introduction of evolving digital technologies into procurement is helping companies to buy smarter and more efficiently. This is enabling them to improve purchasing performance and help them to realize wider business goals. New analytical tools are enabling procurement teams to increase their productivity and performance, whilst also realizing cost savings in supplier negotiations. Whist at the same time providing greater visibility of what is driving their costs and increasing the competitive threat.
The ability to create “should cost models” is providing the opportunity to understand and compare the costs of different finished products based on the raw material input costs based on the most current market prices. This can help category managers respond to changing market prices as well as make more informed purchasing decisions around inventory levels and supplier contracts.
These are vital to the continued transformation of the traditional procurement function. When successfully implemented companies can buy better products, for less, while reducing operational costs. If equal attention could be paid to all areas of spend, organisations would be able to realize significant cost savings. To achieve these benefits the food sector will need to adopt these techniques and push digitisation deep into the food commodity supply chain.
Should Cost Models
"compare the costs of different finished products based on the raw material and associated input costs."