Blog > Supply Chain Disruptions for the Food and Beverage Industry

supply chain disruptions

Ignition by TELUS explores the foreseeable impacts of supply chain disruptions and pent-up demand for the foodservice distributor.

Amidst current economic uncertainties, one primary area the Biden Administration is closely monitoring is inflation. For services, the administration expects measured inflation to increase due to differing temporary factors within the next several months, two of which are supply chain disruption and pent-up demand. As the economy continues its move through the stages of recovery, the impact of these two factors is expected to challenge distributors within the food and beverage industry, proving now to be the ideal time to consider food distribution software solutions, such as those in the Ignition by TELUS suite of solutions.

Wall Street Journal recently reported that economists surveyed in July have now increased their forecasts of how high inflation will go and the length of the inflationary period, compared with their previous expectations in April.

According to the article “Higher Inflation Is Here to Stay for Years, Economists Forecast,” “the respondents on average now expect a widely followed measure of inflation, which excludes volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and 2023.”

Supply chain management challenges for the foodservice industry and the effects on the cost of production

Demand for high-touch services, such as hotels and dine-in restaurants, could surge and temporarily outstrip supply, as vaccination levels continue to rise throughout the year (notwithstanding the spread of COVID-19 variants). Partly fueling this surge are the increased savings many households accumulated during the pandemic as well as the relief payments they received from the fiscal responses in 2020 and 2021. While this is expected primarily to be a temporary issue, supply will need to increase to meet this pent-up demand as businesses that had halted or reduced their services reopen.

These factors combine to create supply challenges that will ultimately fall onto the distributor. Distributors need to decrease negative impacts on the supply chain by taking measures such as reviewing critical items for each customer, or their prior purchases, to gain insight into expected increases in demand. Buyers can then add this future expected demand into their reviews with vendors to ensure supply chain demands are being forwarded up the chain.

Supply chain disruptions, such as increases in demand, may also lead to rising costs of materials needed to produce a good or service. Increases in the cost of production, such as those already seen during the pandemic, are a transitory part of inflation and gradually unclog as world economies recover. However, in the near-term, some businesses may temporarily pass on these rising costs into higher consumer prices.

Rising prices may, in turn, cause customers to seek substitute items if prices get too high, which could impact demand for house brands versus named brands, or similar items in the same category with lower prices, which will impact the distributor sales representative looking for alternative products.

Key areas for foodservice distributors to review to prepare for the effects of inflation on ERP systems

With costs still on the rise, do your ERP system settings need reviewing?

Pricing: Regardless of inflation, close attention is needed on SKUs due to frequent price changes on products in the food distribution business. With the uncertainties of today continuously influencing the market, distributors need to be prepared.

  • Is your ERP or host system built with the kind of configurability needed for your business with efficient capabilities to meet your needs?
  • What cost are you using to set pricing, assuming you’re not using the dreaded “fixed” price method?
  • What options do you have?
    • Average inventory, last PO cost received?
    • Highest layer cost?
  • Do you have an automated system to calculate and set pricing?

Another way to streamline your value creation is through exploring pricing rounding options.

  • Do you have rounding rules for your pricing?
  • Could you capture additional margin if you did have that functionality?
  • Can you have different rules based on the dollar range of products preset?

Costs: Costs can come at you from every corner and are changing rapidly.

  • Can you capture them all with a cost element?
  • Are your cost elements based on a dollar amount rather than on a percent?

Freight Rates: Now is the time to make sure you have your system of maintaining freight on inbound goods up to date.

  • Are you keeping up with rising freight rates?
  • Are you leveraging the freight table concept, where freight rates by carriers can be managed, maintained, and attached to purchase orders, to keep freight cost current?
  • Are you capturing fuel surcharges on the inbound?
  • Do you have the functionality to charge customers fuel charges?

Fees: With the cost of doing business rising, adjustments may be needed to order size requirements and order fees. Customers certainly understand costs are shifting, and national distributors are taking advantage of that – you can too.

  • Is now the time to review minimum order sizes or less than minimum order fees?
  • Can you add or modify your current rules?

Software solutions for foodservice distributors

To address these issues, Ignition by TELUS offers solutions that provide the ability to see into and through your business with amazing analytic capabilities that reveal actionable targets to help drive your business. Part of the TELUS Agriculture family, Ignition by TELUS’ solutions can include various modules including ERP, Warehouse Management, Order Management, Direct Store Delivery, and Business Analytics & Intelligence.

G2 Analytics is the analytics and business intelligence software solution, with the highly consumable data analytics that distributors need to prepare for supply chain disruptions, such as inflation. In addition to providing users with the capabilities to monitor the impact of inflation on commodity items, G2 Analytics enables distributors to view sales by dollar amounts with either weight or quantity depending upon the item, which demonstrates the impact on sales dollars versus real growth more than viewing sales by percent with quantity/weight.

Having predictive analytics such as G2 in place can make all the difference in today’s environment, as the software identifies issues based on trends before they become major challenges that could impact top-and bottom-line results.

Ignition by TELUS’ order management system, OMS, enables a full 360-degree view of customer/item costing in a way that it is inherently leveraged.  All pertinent information will point the distributor sales representatives to where inflation could be impacting the price and educates them, enabling them to be confident in their market lift. With OMS, the sales representative will be able to see impacts and act accordingly.

If your systems could be behind the times and unable to meet the needs of today or the near future, then now is the time for a review. For over 40 years, Ignition by TELUS has been developing, supporting, and implementing systems purpose-built for food distributors. Contact a dedicated Ignition by TELUS representative to learn more about the beneficial solutions Ignition by TELUS offers for all back-end processing, production, deal management, procurement, financials, and master data management.

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