In Strategic Sourcing, Food and Beverage Have a Lot to Chew on

Concrete suggestions for how to use your strategic sourcing platform to generate real business value this year - Part 1.

Wednesday, September 2, 2015
BY: Ole Nielsen, Chairman and Founder

There’s a good reason that the Food and Beverage industry was one of the first adopters of technology-enabled strategic sourcing and continues to this day to push the envelope in both adoption and innovative uses of everything from Spend Analysis to eAuctions to Supply Base Management.

Probably every one of us has at least a few products in our cupboard from companies like Associated British Foods, Birdseye, Molson Coors or one of the other global manufacturers. That said, it is seldom smooth sailing in this industry. There are few global industries with a more diverse set of challenges due to the complexity of the supply chain, customer expectations, and regulatory requirements. Thankfully, online strategic sourcing platforms are well-suited to help address each of the primary supply chain challenges. In these two articles, we will review some of the actionable tactics you can employ in your organization:


1. Supply Risk

  • Challenge: The typical large food company will have tens of thousands of suppliers spread around the world. Any shock to the global supply chain can impact your operations. When this happens, you need to be able to react quickly, find out which suppliers are impacted, and communicate with the right person to fix the problem.
  • Best Practice: Implement and automated supply base management platform. The combination of efficient communication (e.g. contacting all your sweetener suppliers at once with the click of a button) and better information (by having the suppliers maintain their own records) will enable you to respond to events much faster than digging through the hard drive of a departed buyer in search of contact information or certifications.


2. Commodity Price Fluctuations

  • Challenge: Recent turmoil in the commodities markets can undo much of the good work and advance planning done by Food and Beverage commodity teams. With these purchases constituting one of the top two cost centers for a typical food company (along with labor), keeping a lid on pricing can be the difference between profit and loss.
  • Best Practice: There is always a need for spot purchases in commodities, due either to changes in demand or supply chain events. eAuctions are an ideal solution to use for spot purchases in commodities because these buys have good specifications, a competitive supply base, and the platform can incorporate multiple non-price variables such as freight, currencies, quality and taxes. Best of all, you might be able to take advantage of some bargains. 


3. Complex and Globally-Distributed Supply Chains

  • Challenge: Getting the right product to the right place at the right time is a perennial challenge in food and beverage. There is a constant tension between the flexibility of small, local suppliers and the economies of scale associated with using larger entities. As you use more and more suppliers, it gets increasingly difficult to make sure they understand how you do business and what you expect from them. 
  • Best Practice: By implementing and using a robust Spend Analysis program, you can understand where your spend is going TODAY and where to best make improvements. Key value drivers with Spend Analysis include PPV (Purchase Price Variance) to identify where you’re spending different amounts for the same item and aggregation opportunities where it would make the most sense to roll up your volume to achieve pricing discounts. While much of day-to-day supply chain management occurs outside what is typically considered the “strategic sourcing” realm, it’s also important to remember that suppliers are paying the most attention when they’re trying to win your business the first time. Make sure you use your eRFX process to properly set expectations starting with the initial RFI right through negotiations.


As you can see, a comprehensive strategic sourcing platform, properly used, can go a long way toward helping your organization meet its goals.

Look for the second part of this guide next week. For more information on how Scanmarket can help your food and beverage company meet its goals, contact us at www.scanmarket.com.