Executive Briefings

Food and Beverage Companies Take on Safety and Prepare for Growth in 2011

Analyst Insight:  This year, food and beverage industry leaders will see many changes. Key priorities of focus include guaranteeing product safety, lowering costs, investigating new technologies, and improving sourcing and logistics process. If recovery from the Great Recession taught companies anything - it is that "uncertainty is certain." Focusing on top priorities will help food and beverage companies navigate through the uncertainty.

-Steve Simonson, Partner, Tompkins Associates

Push for Fresh and Organic: Consumers are increasingly looking for freshness and organic authenticity in their food and beverage products, but sourcing and quality constantly challenge suppliers, distributors and retailers. Organizations can place greater emphasis on achieving high volume growth while increasing margins in this lucrative market segment.

Demand Growth in Emerging Markets: Growth-oriented companies will successfully enter new markets through strategic acquisitions or partnerships while the increased consumption increases their input costs.

Sustainability: Companies are looking to sustainable practices and waste elimination to reduce costs and improve their reputations as stewards of the environment. Energy consumption, greenhouse gas emissions, packaging, and water consumption will be more relevant in 2011.

Operating Cost Reductions: Businesses will decrease overall landed cost by improving methods and practices for managing suppliers through production, distribution and delivery to customers.

More Reductions in Working Capital: Inventory reduction strategies will shift from simply slashing inventory to improving Sales, Inventory & Operations Planning (SIOP). Brand extensions and packaging innovations will continue to increase SKU count, making the task of working capital reductions even more difficult.

Food Safety: Trends toward global food safety certifications are gaining steam. This is driving new technologies to improve visibility from the field to the store shelf. Improved recall capabilities and stronger regulations to prevent food-borne illnesses will become more prevalent.

Lean Management: Using ever-improving tools, equipment and technology, companies will need to focus on reducing costly process activities that do not add value to the product or enhance the consumer experience.

Procurement Contribution through Sourcing Availability: As commodity prices rise and the emerging markets' demands for higher value and better quality food increase, identifying and securing reliable, cost-competitive sources will become more difficult. Purchasing departments will be pushed to obtain competitive prices and ensure a reliable supply channel.

Distribution Network Rationalization: Many food and beverage companies are operating outdated and inefficient distribution networks. Companies need to ensure that distribution and supply chain strategy is fully aligned with the organization's business growth strategy and that the structure and facilities support anticipated growth.

Integrating Commodity Purchasing and Logistics Strategies: Look for more food and beverage companies to mitigate commodity price increases by taking control over inbound flows. In the coming year, this will enable many new approaches to maintaining a competitive cost advantage and require new thinking on the part of purchasing and logistics managers.

Growing Government Regulation: Food and beverage leaders will need to become even more proactive in understanding and addressing changes in regulations. It is also critical to realize how to maximize hidden benefits; for example, produce traceability will add costs but there could also be benefits in reduced shrink and increased revenue.

The Outlook

With economic recovery and global growth opportunities gaining steam, 2011 will prove to be one of the more dynamic, if not challenging, times for the food and beverage industry. There will be greater pressure to lower supply chain costs as supply chains are growing more complex.

Analyst Insight:  This year, food and beverage industry leaders will see many changes. Key priorities of focus include guaranteeing product safety, lowering costs, investigating new technologies, and improving sourcing and logistics process. If recovery from the Great Recession taught companies anything - it is that "uncertainty is certain." Focusing on top priorities will help food and beverage companies navigate through the uncertainty.

-Steve Simonson, Partner, Tompkins Associates

Push for Fresh and Organic: Consumers are increasingly looking for freshness and organic authenticity in their food and beverage products, but sourcing and quality constantly challenge suppliers, distributors and retailers. Organizations can place greater emphasis on achieving high volume growth while increasing margins in this lucrative market segment.

Demand Growth in Emerging Markets: Growth-oriented companies will successfully enter new markets through strategic acquisitions or partnerships while the increased consumption increases their input costs.

Sustainability: Companies are looking to sustainable practices and waste elimination to reduce costs and improve their reputations as stewards of the environment. Energy consumption, greenhouse gas emissions, packaging, and water consumption will be more relevant in 2011.

Operating Cost Reductions: Businesses will decrease overall landed cost by improving methods and practices for managing suppliers through production, distribution and delivery to customers.

More Reductions in Working Capital: Inventory reduction strategies will shift from simply slashing inventory to improving Sales, Inventory & Operations Planning (SIOP). Brand extensions and packaging innovations will continue to increase SKU count, making the task of working capital reductions even more difficult.

Food Safety: Trends toward global food safety certifications are gaining steam. This is driving new technologies to improve visibility from the field to the store shelf. Improved recall capabilities and stronger regulations to prevent food-borne illnesses will become more prevalent.

Lean Management: Using ever-improving tools, equipment and technology, companies will need to focus on reducing costly process activities that do not add value to the product or enhance the consumer experience.

Procurement Contribution through Sourcing Availability: As commodity prices rise and the emerging markets' demands for higher value and better quality food increase, identifying and securing reliable, cost-competitive sources will become more difficult. Purchasing departments will be pushed to obtain competitive prices and ensure a reliable supply channel.

Distribution Network Rationalization: Many food and beverage companies are operating outdated and inefficient distribution networks. Companies need to ensure that distribution and supply chain strategy is fully aligned with the organization's business growth strategy and that the structure and facilities support anticipated growth.

Integrating Commodity Purchasing and Logistics Strategies: Look for more food and beverage companies to mitigate commodity price increases by taking control over inbound flows. In the coming year, this will enable many new approaches to maintaining a competitive cost advantage and require new thinking on the part of purchasing and logistics managers.

Growing Government Regulation: Food and beverage leaders will need to become even more proactive in understanding and addressing changes in regulations. It is also critical to realize how to maximize hidden benefits; for example, produce traceability will add costs but there could also be benefits in reduced shrink and increased revenue.

The Outlook

With economic recovery and global growth opportunities gaining steam, 2011 will prove to be one of the more dynamic, if not challenging, times for the food and beverage industry. There will be greater pressure to lower supply chain costs as supply chains are growing more complex.