Analyst Insight

Lean initiatives are often narrowly defined based on a market snapshot rather than an understanding that market conditions continuously change, and market events can occur that can disrupt existing plans. These initiatives result in excessive trimming in an attempt to take out inventories from the entire supply chain, which makes it difficult to react quickly to market events. Companies should adopt agile strategies to be responsive to market events.
-Nari Viswanathan, research director at AberdeenGroup

Aberdeen research found in 2007 that 60 percent of food and beverage (includes retail and food service) companies take more than one month to sense changes in demand. This is unacceptable in today's dynamic business environment. Demand fluctuations can result from any number of market events. These can be defined as uncontrolled incidents (such as weather) as opposed to artificial events (like promotions) that stimulate demand. There are six key uncontrolled market event categories: rapid changes in customer affinity, sudden natural disasters, unforeseen contamination and disease, new product innovation, changing economic forces, and expanding international markets.

The three critical assets that companies can leverage to respond to market events are:

• Inventory: 63 percent of respondents indicate that they leverage inventory as a key asset. For example, they adjust inventory targets based on demand and order lead-time fluctuation, and/or they have the ability to track inventory from the consumer to source in the event of contamination and recall.

• Supply chain network: 71 percent of respondents indicate that they leverage the supply chain network as a key asset. For example, they have a flexible supply chain network to be able to source from internal and external sources, and/or they have the right mix of common carrier and dedicated fleet.

• Products: 41 percent of respondents indicate that they leverage their products as a key asset. For example, they have the ability to introduce new products and phase out old products based on changes in customer brand affiliations.

The Outlook

Food and beverage companies have the opportunity to become market responsive in 2008 by learning from the mistakes from 2007. The future can be bright if the right processes and technologies are in place to enhance market responsiveness. In 2008, best-in-class companies need to focus on holistic approaches by leveraging their key assets like inventory, product, and supply chain networks. For example, they should adjust inventory policies rapidly in response to demand spikes, product recalls and contamination issues; swiftly shift to alternate supply chain networks when faced with regional disasters, logistics costs increases, and other supply network related issues; and rapidly implement product changes and introduce new products when faced with customer affinity changes.