A perfect storm of demand outstripping capacity

posted by Liam Fassam
6 May 2020

Supply chains are under strain, which has led to a risk of food fraud.

There has been much discussion over recent weeks around keeping supply lines for foodstuffs open, with the media showcasing the state of UK supply with sensational stories of ‘stock-outs’ and queues reminiscent of wartime rationing processes.

However, the reality of the situation is quite different. At the time of all this press-led kerfuffle, procurement and supply chain professionals were busy across the sector, keeping supply lines open for a business-as-usual approach. This was not easy, as air networks had declined by as much as 95%, meaning alternative routes needed to be found at pace for fresh product (including pharmaceuticals).

Much of this diversification of logistics nodes (the means and methods of transportation) meant a switch from air to sea and overland [trucking], which of course equates to extended lead times to an already constrained lead time.

Coupled to this are the overland delays across Europe – meaning, even with changing the method of transportation, there are [still] significant lead time extensions due to additional checks being undertaken at borders.

One example I’d calculated from a review of a Polish-UK stock keeping unit (SKU) indicated that at the height of the stock-out situation, the UK would have required an additional £500,000,000 inventory to smooth the flow, attributed mainly to the significant reliance on food imports (roughly 54% of need) with around 5,500 trucks of foodstuffs imported into the UK daily (Evans & Eley, 2020; Holmes, 2020). In addition, those who switch to sea are suffering because of congested ports and significantly extended lead times, so even when alternative sourcing and logistics means are found, there are still inherent risks to the food supply lines.

In addition, there has been much discussion over the last 10 years relating to food supply chain skills shortages. This has yet again come to the fore, because even when procurement and supply professionals can secure the aforementioned logistics capacity, they may suffer other setbacks – for example, a lack of raw materials. I would suggest that the current staffing situation in the upstream farm sector means a potential wastage of 50% in raw food materials, due to a shortfall of as much as 90,000 in terms of staff to work the farm processes.

Moving further downstream, in the US we are seeing significant closures of meat processing plants, meaning around 100,000 animals per plant not being processed through the food supply chain. This in itself leads to waste – animals will not stop developing due to this situation – so like the agri-chain, the meat chain will develop significant waste. Then we have dairy, where UK farms are pouring thousands of gallons of milk down the drain, not due to plant closures, but a lack of demand – with the foodservice sector ceasing to exist.

All of the above elements led to a ‘perfect storm’ of capacity being unable to meet demand, and where systems were leveraging just-in-time processes to ensure lower-cost operations meet consumer demand, we now find ourselves in new territory with a mix of chase demand, stockpiling (inventory management) and alternative supplier strategies. These are all leading to a ‘firefighting’ mechanism which is creating increased cost, waste and market nervousness.

However, there is one area of risk looming for the food supply chain professional that is not being currently reviewed: food fraud. With talks of border closures, trading agreements [inter-country] being revoked and food operations closing [abattoir closures and agri-sector waste], there will be a rise in black market trading. This will lead to a challenge over the provenance of foodstuffs within our existing food supply chains, and is an area that my research cites can be mitigated against, with procurement business units being the vehicle to manage collaborative food chain resilience-building (Allen, 2020; Fassam & Dani, 2017).

The takeaway for this unprecedented event is: food supply chains have been shown up for their fragility due to their complexity, geographical dispersion and lack of connected data systems. Post-disaster recovery, there is a review required of how businesses can truly collaborate by adopting co-opetitive strategies and build better integration of the SMEs that make up 92% of European food businesses. Only then will true resilience be achieved by food procurement and supply systems.

Liam Fassam is research institute director, asc. Professor, Supply Chain Management at University of Northampton

 

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