Prestige Purchasing’s Chairman, David Read makes the case for Procurement & Supply chain investment
In over 40 years working with food and drink, I can’t remember a time when there has been so much noise around food and drink supply. It seems like every day I look at the national news, and see either how supply has been disrupted in some way by events, or read articles by people like me analysing future risk of problems with negative consequences.
There’s certainly no shortage of causes. Right now, the gremlin is the weather, both in the UK where high temperatures and drought have played havoc with vegetable production and dairy farmers have almost no grass to feed their cows; and globally where furnace like temperatures in many places have been particularly damaging to cereal and oil-based crops such as Soy and Rape.
But there have been plenty of other challenges. Our national media are talking wall-to-wall about the potentially catastrophic consequences for food and drink in the UK as a result of a “no-deal” Brexit. And our exchange rates, which already took a heavy blow because of the referendum vote (and sent food prices up by almost 10%) will be weakened further if we fail to get EU agreement on the terms of our exit.
And 2018 has been particularly notable because of instability within our local UK supply markets. Meat supply had twin crises with first Two Sisters, then Russell Hume having safety/provenance related meltdowns that caused serious product shortages, and price inflation. Then drinks business Conviviality threw the market into confusion as it almost ran out of cash, before being rescued by C&C Group. And yes (I know), no assessment of food supply can pass without reference to the impact of the new trade strategy being implemented by Trump in the United States. Escalation of the trade dispute (we won’t call it a war just yet) between the US and China will have unpredictable impacts on food commodity pricing.
“Political stability, steady economic growth, access to investment capital, predictably growing customers, middle of the road weather, and free trade may be less racy and exciting, but they all make for stronger supply chains that perform well, and they feature a desirable outcome – relatively low price-inflation.”
It’s history now, but in 2013 to 2016 we experienced mostly a deflationary environment in food and drink, yet 2017 saw a high of 10% inflation in foodservice. Whilst this year has been less extreme the prospects of a second burst of price increases are reasonably high during the next 12 to 24 months, dependent upon the ongoing outcomes of many of the issues listed above.
The conclusion of all of this? Well, it’s pretty clear that food and drink supply just adores “dull”. Political stability, steady economic growth, access to investment capital, predictably growing customers, middle of the road weather, and free trade may be less racy and exciting, but they all make for stronger supply chains that perform well, and they feature a desirable outcome – relatively low price-inflation.
I’ve heard quite a few operators recently saying (quite publicly) that when the macro environment is like it is today, that operators just have to suck it up – that they are in effect helpless to control external events, with the only remedy available being to find ways to pass some of the pain on to the customer. A glance through a few financial statements of major catering businesses of late demonstrates some pretty stark contrasts between those proactively changing their supply strategies, and those accepting the status quo.
“Purchasing & Supply generally has a seat at the Board table in Retail because leaders understand the enormous value gap generated by seeing it as a mere tactical operational function.”
So, do we get what we deserve? I would suggest asking any professional who has moved from Retail into Foodservice and they will tell you that Procurement and Supply Chain in the Foodservice sector lags significantly behind its counterpart. Even relatively modest sized retailers understand the places to look and the levers to pull to keep their supply chains operating optimally. Purchasing & Supply generally has a seat at the Board table in Retail because leaders understand the enormous value gap generated by seeing it as a mere tactical operational function.
To be successful a Procurement & Supply function needs investment – in skills, resource, process and technology. But it needs more than that – it requires integration into the decision-making processes that exist at strategy level within corporations.
These are grand words, but at a practical level they concern just two things. Success is delivered firstly by organising what you do internally to make your suppliers efficient, effective and low cost – creating simple requirements that deliver “dull” supply chains that are uncomplicated, stable, economic and work like clockwork. The second route to success is by structuring and managing the markets you buy from with a laser-like focus. You simply cannot do these things without the investment described above. The very large-scale operators in Foodservice do this pretty well, but a significant proportion of the rest of the market are asleep at the wheel in my view, often looking past several % points of margin opportunity.
Not, by the way, that retail is a total exemplar. The one place where retail certainly falls down (in my view) is in the management of their buying and supply people. All too often they allow high staff turnover, and a lack of training and development gets in the way of success – which is ironic when considering the fact that our sector is often seen as being particularly strong on staff retention, training and development.
These are unstable times. Demand is flat, and competition is high, making investment decisions more risky than usual. Procurement & Supply investment is much more certain to generate returns – it could just be the time to invest in “dull”.