What you can do to hedge for irregularity in the food & beverage supply chain

If any industry is most affected by the various stay-at-home orders or quarantines across the country, it’s the food & beverage industry. In an April study on the restaurant industry by the National Restaurant Association, restaurants lost $30 billion in March, were on track to lose $50 billion in April, as well as a COVID-19-related loss of more than $240 billion nationwide by the end of the year. This comes at a time when governors closed restaurants and bars in their respective states, leading consumers to purchase most of their food products from groceries or online distributors. From farmers and food suppliers, and downstream to food service distribution and restaurants, everyone has been unpredictably changed by the adverse outcomes of the coronavirus. It’s important to understand the industry impacts and act now to proactively plan for persistent changes in the supply chain.

Unlike our predecessors fighting the 1918 Spanish Flu, we now have an abundance of, and access to, something that they did not: data. Data has helped you forecast, optimize supply routes, and enhance production efficiency. It has helped you better communicate up and down the supply chain system, and now it can help you create an agile supply chain. By using the power of data, analyzing the supply chain, and accessing publicly available information about the current climate, you can and should create a more flexible system overall. Here is how you can use these elements to make decisions that will best manage the extraordinary supply chain impacts.

1. Anticipate higher (and changing) demand for food supply to groceries and households

Until we find a vaccine or transmission of the coronavirus slows down, the reality of food consumption will remain changed due to effects of the pandemic. You may have seen how some large fast food service corporations are making plans to change their food consumption or ordering processes forever. For example, Netherlands McDonald’s is testing a long-term version of post-pandemic ordering that requires social distancing as a part of their queuing process. In the short term, restaurants and bars in states and countries that are opening for business are doing so slowly, with governments requiring only certain levels of capacity.

• Identify products that are primarily sold to restaurants and transition them to be versatile for consumption at home as well. This entails using existing supply chains that feed to household consumption. Keeping products isolated for restaurants and bars is not ideal during this pandemic. By conducting an analysis on your historical sales by products, determine what products are going to be primarily bought by restaurants and bars and see how they can be universally sold across customer sectors versus only to one. If this is not possible, finding ways to change packaging to be more consumer (rather than business) friendly would also be advantageous.
• For products that cannot be easily transitioned to household consumption, create flexible supply chains to distribute those products to areas of the country (or world) that are opening up in the near future. For example, over Memorial Day weekend, many states decided to open up to some capacity in order to generate more revenue. Tourist destinations saw more foot traffic in restaurants and bars than they had since the start of the pandemic. By identifying such locations and responding to consumer demand fluidly, you can create a flexible supply chain that can distribute product to the places that are consuming them quickly. This involves an analysis on areas that are opening up and on what the supply chain can deliver in its current state. Utilizing what-if scenarios or short-term forecasting for where these restaurants and bars will open up quicker than others can open the door for this flexibility.
• Limit products that are falling out of demand (in the short-term) as a result of the pandemic. For example, due to the closure of restaurants, schools, and hospitals (among other large consumers), the dairy industry has been severely impacted. In April, the National Milk Producers Federation acknowledged that the US milk supply exceeded demand by 10% and that this gap is expected to increase. Determining how consumption has shifted is critical. This involves forecasting the effects of short-term closures of large consumers of certain product sectors (such as dairy) and using your responsive supply chain to react to the future demand rise once facilities start the process of opening again.

2. Monitor transmissions in critical demand, supply, or distribution locations

Unsurprisingly, large headcounts of coronavirus cases will affect demand in related areas. Utilizing geographic transmission data across the US will help the food industry pinpoint where changing demand, supply, and distribution will be.

• Geographic analysis of the effects of the disease can be used in order to anticipate demand. Unemployment rates, stay-at-home orders, and physical transmission (among other factors) can determine where demand (or supply issues) may change as a result of COVID-19. This is increasingly important as larger urban areas begin to plateau and more rural towns and cities start to see increased transmissions. A May 7th document released by the White House reported spikes in communities across the middle of the country. Cases in some rural states such as Minnesota, Wisconsin, Iowa, North Dakota, and South Dakota have been going up since the beginning of April. Using such data predictive analytics can be performed to project what the adversely affected demand will be in harder hit areas, especially when considering the recessionary effects of the economy on lower income areas of the country.
• Monitoring cases by geographic area can help determine where to shift distribution paths in the supply chain. A great example of this is how Amazon has been evaluating their number and placement of fulfillment locations. Understanding where new cases are flourishing can help divert distribution to warehouses and processing facilities where cases are not rising. This helps hedge against unanticipated closure of distribution points.
• Likely to be experienced already, suppliers are getting hit immediately by new cases. This is affecting where food service providers are sourcing food, and the types of food that food producers are able to supply. For instance in the meat industry, there have been over 12 closures in the past month at US slaughter plants because of coronavirus outbreaks wiping out 25% of pork and 10% of beef processing capacity in the country. This kind of impact can be expected in other food and beverage segments as well. Seeing where suppliers are located and using coronavirus case data will assist in creating a flexible supply chain in this time of pandemic.

3. Plan for the future, you have the data

Experts, such as Dr. Anthony Fauci of the National Institute of Allergy and Infectious Diseases, say that the novel coronavirus isn’t going away, and we may have a second wave ahead of us in the fall. During 1918, the initial wave of the flu pandemic was a mild spring wave, however, the second wave ended up being more lethal and came back in the fall. The virus is expected to continue spreading for another year and a half, according to Dr. Mike Osterholm who directs the Center for Infections Disease Research Policy (CIDRAP) at the University of Minnesota. The world needs to remain vigilant and flexible to take on another wave and lasting effects of the virus. The silver lining is that we can now better predict the impacts.

• Creating a responsive plan to a future pandemic will be beneficial, especially if we are expecting another wave. All companies have experienced this now; the past has been written. However, using historical data on its effects over the past couple of months can allow companies to learn from it and better prepare for another wave. Now is the time to utilize that data and put together a disaster recovery plan for a pandemic. Here is where a what-if analysis for an upcoming pandemic can also help. We know how something like this will affect food and beverage supply changes because we have seen it play out. Using accumulated data can help plan for the next wave and whatever the next pandemic may be.
• Leverage both structured and unstructured data in forecasting. Yes, we have sales and demand data at our fingertips nowadays, it is structured and known. However, there is a lot of untapped data out there; what is referred to as unstructured data. Examples include social media sentiment analysis, weather, etc. Coupling this unstructured data with structured data (e.g. unemployment numbers, other effects of economic downturn, transmission counts, and hospitalizations) can determine a more accurate forecast. During this time, it is not recommended to act on historical data in the food and beverage industry, it is not coherent with this pandemic. This data is available and waiting to be tapped into.
• Lastly, use the data outlined above (e.g. transmissions, economic measures, historical supply chain impacts from the past few months, government response data) to create a series of scenario plans using what-if analysis to model short and long term scenarios (with and without a second wave built in). This will give you a profound look into the future and allow your organizations to be more proactively agile.

Summary

The impacts of this pandemic will be long-lasting. It is imperative to capture and analyze both the structured and unstructured data now to plan for upcoming waves and future impacts. The food & beverage industry has been the lifeblood of supply chain modernization, and it can continue being notable by using these strategies.

If you would like to have a discussion around the pandemic impacts on the food & beverage supply chain and how to proactively address those concerns using data, we have a team of supply chain and data subject matter experts that are here to help. To learn more, contact CJ.GonzalezJr@slalom.com.