Supply chains are often a weak link for drinks companies seeking to take advantage of demands from retailers to increase their product range, a procurement consultant has said.
Crispin Mair, director of Crimson & Co, said that historically the drinks market product range had been fairly stable compared to other parts of the fast moving consumer goods market. But that is changing as UK retailers increasingly seek different configurations of pack sizes and flavours.
“Retailers want to be seen to be offering the best-priced deal on a set configuration of beer packs at a given time. Some might want four packs of 375ml while others might want six packs of 500ml,” he added.
While many producers had optimised production lines in order to be able to respond rapidly to this changing demand, supply chains were often not able to keep up, Mair said. “When we’ve done diagnostics on a company supply chain we’ve found this to be the root cause of many problems within drinks companies,” he said. “It's all very well a company saying it can alter its production line in five days. If you have a supplier with a two-week lead time then you don't have that flexibility at all.”
For many companies the answer was to keep increasing stock to meet variance in demand, which raises costs. And negotiations with suppliers often proved unfruitful. “Historically what we find is procurement departments have bashed suppliers down on cost so they’re reluctant to engage in conversations about how to reduce costs further within supply chain,” Mair said. Looking only at cost was short-sighted, he added. He advised drinks company procurement teams to consider the full cost of a product, including transport and storage.
“Drinks companies might find that paying a premium to a supplier might give them the freedom to run production lines and schedules in a completely different way and to be able to produce to order rather than to forecast,” he said.
Last week, Crimson & Co hosted a drinks industry forum in London to look at how the sector can respond to consumer demand for more variety across its product portfolio.
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