Supply Chain Pressures Cause for Conflict

Who’s managing whom? In a year of unprecedented pressures, our exclusive joint survey finds a tug of war between food processors and their suppliers.

By Dave Fusaro, Editor in Chief

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Late/wrong deliveries may not be the biggest problem for food and beverage manufacturers, but it is easy to see why some companies are concerned by this poor service. Only 7 percent of food and beverage manufacturers indicate that deliveries are 100 percent on time, with the vast majority (69 percent) indicating that deliveries are 76-99 percent on time.

That still leaves one-quarter of food and beverage manufacturers that report deliveries of 75 percent on time or less. The quality of performance by suppliers is slightly better; 8 percent of food and beverage manufacturers report that quality is 100 percent to specifications, 78 percent report at the 76-99 percent range, and 14 percent at 75 percent or worse.

No issue is more prominent in the food and beverage industry than food safety. Most food and beverage manufacturers (and the public) are highly aware of this as they strive to improve internal processes and pursue a variety of practices to ensure the safety of purchased ingredients (see Table). Sixty percent conduct testing of incoming ingredients at their own site, 53 percent prequalify/precertify suppliers, and 44 percent conduct periodic on-site audits of suppliers using company staff .
What is surprising, given the broad awareness of food safety issues, is that 10 percent of food and beverage manufacturers report having “no systems in place” to ensure the safety of purchased ingredients.

Many survey participants expressed confidence in quality and safety throughout their supply chains, such as, “We have a good commercial relation with our supplier because they are our partners to increase the safety and quality in our goods” and “Certified suppliers ensure that the quality of products meet specifications before shipment to us.”

Yet some manufacturers are concerned and looking for regulatory answers: “I wish at my level there was a lot more [involvement by] the government FDA/USDA [for] safety, security and oversight. I know this sounds odd to global business corporations, but I would welcome my government to be able to protect me and my clients.”

About suppliers

Survey participants report that a median 80 percent of suppliers (average 70 percent) are located in North America (U.S., Canada and Mexico). The next highest location of suppliers is Europe, with an average of 11 percent (see Table).

Surprisingly, food and beverage manufacturers with the lowest revenues ($100 million or less) were slightly less likely to have their suppliers located in North America than large companies (more than $100 million): median 80 percent (average 67 percent) vs. median 83 percent (average 77 percent).

Most food and beverage manufacturers have not yet consolidated their supply bases. Only one-fourth indicate that 25 percent or less of their suppliers account for 80 percent of materials/ingredients (modern manufacturing theory suggests that 20 percent of suppliers should provide 80 percent of materials). Approximately 31 percent of suppliers report that 76-100 percent of suppliers account for 80 percent, indicating that most suppliers in the industry are highly specialized.

In the end, food and beverage manufacturers must resolve problems with suppliers and optimize supply chain management or face larger business issues. One small-firm executive outlined both the challenges and opportunities: “The price of my ingredients and packaging has gone through the roof! As a boutique, relatively new company, I am having a very hard time keeping it all going. All in all, the name of the game is perseverance, tenacity and good attitude.”

Methodology
This was a web-based survey initiated with an e-mail invitation in June and July to subscribers of Food Processing. A diverse group of food and beverage manufacturers are represented. While a majority of companies (51 percent) have revenues of $25 million or less, 17 percent report revenue higher than $500 million. Approximately 40 percent of companies produce processed foods, the largest food group represented, followed by meat, poultry and seafood (33 percent), bakery products (29 percent) and beverages (29 percent). Analysis provided by Food Processing, MPI Group and Grant Thornton LLP -- the audit, tax and business advisory firm (www.foodprocessing.com/management) This is the first of six surveys.

 

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