1. Cost Pressures: The Need to Reduce Costs and Maximise Productivity
The need to optimise productivity and reduce costs in supply chains has never been greater for F&B manufacturers. While labour costs continue to rise and drive the need to increase productivity, these cost pressures are being compounded like never before by the increasing concentration of the grocery retail market and increasingly price conscious consumers.
A continuing trend toward concentrated grocery retail markets means fewer retailers are becoming dominant. For example, in Australia the market share of the two top grocers is forecast to be 80% by 2020. The grocers have leveraged this market position to drive strong agreements with suppliers, eroding supplier margins and enabling them to offer low store prices that smaller outlets find very difficult to compete with. They are also using their position to drive their own private label ranges at the expense of branded products.
Consumers also remain highly price conscious, and are favouring low-cost supermarkets over convenience stores. Volumes shift toward lower-margin grocery retailers at the expense of higher-margin convenience and small food retailers. Consumers are also increasingly open to purchasing an expanding array of private labels, further placing pressure on F&B manufacturer margins.
2. Consolidation of Production and Distribution: Land Availability
There is a growing trend for manufacturers to consolidate their production and distribution facilities in response to cost pressures. As part of this consolidation, F&B companies are building their distribution operations adjacent to their manufacturing lines, eliminating the costly and labour-intensive process of shipping finished goods from a processing facility to a warehouse. However, the limited availability of land next to manufacturing facilities and the increasing cost of land can make this prohibitive for conventional manual storage and handling solutions.
3. Ensuring superior customer service levels
In such a competitive consumer-driven market it is imperative for F&B manufacturers to get the right product in the right quantity at the right time to customers. Grocery distributors are less tolerant of missed delivery windows or incorrect products that lead to out of stock store shelves, imposing penalties for late or incomplete deliveries. Manufacturers need sufficient redundancy and tolerance to operational disruptions. Just as importantly, distribution functions need to ensure they are not causing bottlenecks for operations, which can lead to production lines being stopped. And all this needs to be achieved in the most cost-effective manner.
4. Dealing with SKU Proliferation and Order Complexity
Consumers are demanding a wider range of products, driven by tastes and food fashion trends, fitness, and health concerns. Just one example of this is the shift away from mainstream beers, milk and soft drinks, and the associated increase in the consumption of craft beers, cider, soy milk and health drinks. Manufacturers are responding by introducing many new products. The impact on F&B manufacturing supply chains is continuing SKU proliferation and the need to stock an ever-increasing variety of product. For manufacturers who are also producing private labels for retailers, this only adds to the SKU complexity they need to manage. In a manual warehouse system, the implications of handling additional SKUs means that everything has to get larger — more pallet storage and picking locations and more travel, which leads to slower and less efficient operations, in bigger, more expensive warehouses.
5. Tracking Requirements
Government food safety agencies require food to be tracked through all stages of production, processing and distribution (also known as farm to fork). The aim is to enable quick and effective corrective action in the event of something going wrong, such as a product recall, and prevent contaminated product from reaching consumers. Supply chain management systems need to capture sources of raw materials, additives and other ingredients and all other inputs, and provide product batch or lot identification, production and expiry dates. Apart from batch and lot tracking, Warehouse Management Systems (WMS) need to effectively manage inventory and FIFO (First In First Out) rules; in many cases, major grocers will only accept consecutively numbered batches and expiry dates.
The solution for F&B manufacturers
Leading F&B manufacturers are investing in warehouse automation to address these challenges facing them today, and to realise significant and lasting competitive advantage. Automated warehousing presents a compelling performance-to-cost ratio compared to conventional manual warehousing. They are taking advantage of the latest developments in automation to increase productivity and reduce costs, improve storage capacity and consolidate manufacturing and distribution operations, and maximise service levels, system flexibility and operational resilience. Making their supply chain a source of true competitive advantage.
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