The food and beverage industry is enduring some of the most dramatic and sudden fluctuations in customer demand and shopping habits of any other market during the coronavirus pandemic.
As supermarkets manage an influx of panic-buying, yet a drop in physical storefront visits, they’re also tasked with keeping pace with the insatiable demand for online grocery order, delivery and curbside pickup.
All of this, of course, initiates a ripple effect far beyond the supermarket itself and down through its supply chain. As a result, industry players are seeking supply chain management technologies that excel beyond traditional supplier and inventory management capabilities.
In a recent conversation with PYMNTS, Blue Yonder Vice President of Industry Strategies Shri Hariharan explained that supermarket supply chain management strategies today are about far more than keeping the shelves stocked. From procurement to logistics, grocers today have an opportunity to optimize operations while strengthening cash flow — both for themselves and for their suppliers.
Driving Supplier Competition
Before the pandemic, signs of a shifting food and beverage industry were afoot. Hariharan highlighted the growing demand among shoppers for a mix of name brand and local products, as well as top-of-the-line items and store brand value.
With a sudden surge in online grocery shopping, supermarkets are tasked with offering shoppers a concept Hariharan described as the “endless aisle,” offering consumers this variety in product choice while enabling fulfillment and delivery of those products.
“This creates tremendous pressure on the supply chain,” he said. “How do you manage an assortment of products and suppliers, and how do you bring this variety online while also curating a local assortment?”
As grocers navigate this challenge, he noted that suppliers themselves are facing pressure to innovate, while also gaining an opportunity to secure a competitive edge. Everything from product packaging to price can address their supermarket buyers’ need for unique product offerings, a reality that is particularly valuable for smaller suppliers looking to compete with industry leaders like Kraft Heinz, Nestle and others.
With consumers seeking to cut costs and buy items that have been securely wrapped, today’s food shopping environment is exacerbating these pressures even further.
Supply Chain Optimization
As suppliers work to boost B2B sales, grocers’ own supply chain management strategies are increasingly able to both optimize supermarkets’ procurement strategies, as well as help vendors become more strategic about the products they offer.
Artificial intelligence (AI) has become a prominent technology in advancing these strategies, said Hariharan. For instance, AI’s ability to forecast demand more accurately and quickly — particularly in response to sudden market disruptions like those of today — means supermarkets can procure what they need and relay their forecasting data on to vendors so that suppliers themselves can prepare.
“What this means upstream is you can make better decisions about replenishment and allocation,” he said. “Depending on the product category, this means being able to position the right product with the right freshness to the right customer, minimizing lost sales and waste. You’re able to give better predictability to your supplier to say, ‘Here is the demand model, here’s what I expect and project to buy from you.’ The supplier can make better decisions because now they have a predictable demand pattern.”
For vendors, that means not having to overload their inventory — again, a common source of wasted spend. This promotes a leaner supply chain, enabling supermarkets to more quickly address shifting consumer needs while empowering vendors to prepare for those changes, too.
Cash Flow Impacts
Inventory management is critical to the food and beverage industry’s overall supply chain management strategy. Too little product, and potential sales are lost. But too much, and products become at-risk for spoilage.
The cash flow optimization that results is another impact that ripples through the supply chain.
While many organizations have been lengthening supplier payment terms in an effort to manage cash flow, the supermarket industry has done just the opposite, with major players including Publix Supermarkets, Walmart, Stop & Shop, Trader Joes, and in the U.K., Morrisons, Sainsbury’s, Aldo and others all vowing to accelerate vendor payment terms to support their partners’ cash flow needs. A recent report from Creditsafe found that average Days Beyond Terms (DBT) for the U.S. supermarket sector is now nearly half what it was last year.
Hariharan explained that the sector’s supply chain optimization effort has a lot to do with its ability to strengthen cash flows.
“Making the supply chain leaner automatically starts to support cash flow and better working capital models,” he said. “This is the intersection of the procurement department and treasury. We’re seeing larger grocery chains to help out suppliers with payment terms, and even with supply chain financing, using their creditworthiness as opposed to their supplier’s to drive decisions.”
Again, AI will continue to play an essential role in accelerating cash flow and optimizing the industry’s overall supply chains during the pandemic. There are opportunities to more efficiently match up inventory levels with staffing capabilities or wield application programming interfaces APIs to aggregate Center for Disease Control & Prevention (CDC) data on the spread of the coronavirus and superimpose those data models on top of supply chain projections, as Blue Yonder is doing.
But post-coronavirus, Hariharan said the grocery industry’s supply chain optimization efforts are likely to stick around because industry players understand the importance of cash flow management and strategic buyer-supplier relationships to weather disruption.
“When you start thinking about the extended supply chain, it’s not only about today,” he said. “As we come out of this process, being able to have a reliable supplier base is key because with collaboration, you need trust, and in times of difficulty, you need to think bigger than yourself.”