CASE STUDY

Industry Best Practices – Cost Reduction for F&B Industry | SpendEdge

May 5, 2021

How does Cost Reduction Impact the F&B Industry?

The food and beverage industry is complex, expensive, highly dynamic, and in a constant state of change. Over time, companies have shifted focus to the imperative processes of cost reduction, supplier relationship management, contract management, and demand management to minimize the impact of constantly shifting factors on their profitability, savings, and market share. As the industry has grown, so has variety, demand, and the number of categories of products and services provided, making competition fierce, consumers harder to target, and expenses more difficult to curb. In an industry with the potential for high wastage, spoilage, and inventory challenges, companies need to purchase, procure, and stock practically and responsibly. The amount of waste produced in the F&B industry has caused significant backlash in recent years, and businesses are on the hunt for a solution to avoid customer dissatisfaction and attrition. Many cost reduction best practices help target these challenges, while also improving internal operations, maintaining a highly-trained workforce, finding the right suppliers, and tracking all purchases and performance. The cost reduction effort that has become an imperative part of strategizing in the F&B industry has helped many companies curb unnecessary spend, increase savings, improve performance, minimize waste, and most importantly, improve customer satisfaction.

What are some Cost Reduction Best Practices for the F&B Industry?

Inventory Management: The F&B industry has high turnover rates, and the need for a constant supply-demand balance is necessary. Inability to maintain the required balance can lead to significant losses, high amounts of wastage, and unnecessary costs. Maintaining and managing inventory is an expensive and necessary segment of procurement and sourcing in the F&B industry, and companies often fail to acknowledge the impact of improper inventory management. With proper demand forecasting, procurement market intelligence, and an understanding of target consumers’ needs, the company can mitigate over-stocking, shortages, spoilage, and wastage. Due to the high prevalence of perishable products in this industry, inventory is one of the biggest causes for loss, if improperly managed. Procurement officers must regularly track, oversee, and regulate all inventory matters, and inventory management must be regularly reviewed.

Minimize Waste: The high volume of perishables in this industry make food and beverage wastage a huge source of wasted investment and purchases. Companies can make a plethora of adjustments along the supply chain to mitigate the risks of wastage, including improved inventory management, as mentioned above. Certain steps taken by industry leaders include, ensuring fresh produce from the best suppliers, hygienic handling and packaging of all food items, temperature-controlled transportation, and clear instructions for handling and storage on packaging. Additionally, companies must minimize the possibility of over-stocking due to the expense of inventory, high chance of perishable spoilage, and consequent impact of wasted space, income, and food. Taking these steps can help companies’ cost reduction efforts substantially and enable sustainable growth.

Choose the Ideal Suppliers: Considering the importance of quality, hygiene, price, lead time, delivery time, and coordination in the F&B industry, the most crucial way to ensure operational efficiency and reduce costs is choosing the best fit suppliers for partnership. Evaluating potential suppliers’ raw material sources, prices and costs, hygiene and quality, and ability to cooperate with procurement teams, coordinate purchase orders and delivery times, and minimize wastage is essential. The right suppliers can provide high-quality products, assure hygienic handling, offer competitive prices, mitigate various supply chain and industry risks, and help cost reduction efforts. With reduced levels of wastage, fast delivery times, lower chances of delays or risks, and consistent communication, companies can achieve significant savings that would be challenging with inefficient and slow suppliers.

Continuous Audits: Due to the versatile, rapidly evolving, and high-risk nature of the F&B industry, companies must regularly evaluate and audit all relevant departments along the supply chain. This includes, suppliers’ performance and compliance, procurement, sourcing, inventory management, logistics and transport, and all relevant employees. Maintaining hygiene, minimizing waste, reducing unnecessary expenditure, constantly improving processes and systems, and promoting growth are common expectations from all departments across the supply chain. As companies grow, the quality of their products, services, systems, and processes should rise. With continuous audits and reviews, businesses can detect and mitigate potential risks, address problems preemptively, identify cost reduction opportunities, and ensure that all industry and organizational benchmarks are being met.

Track all Purchases: The high volume of purchasing, producing, stocking, and distributing that takes place within a F&B industry company can be hard to keep pace with, and companies often incur unnecessary expenses, face significant losses, and face challenges that could be easily mitigated with preemptive action. Tracking all purchases, deals, deliveries, stock, distributions and other such purchases, can help improve transparency with stakeholders, ensure inter-departmental coordination, mitigate the probability of over-ordering or repeat orders, and stop wastage. If all departments continuously track their activities, and the supply chain manager efficiently oversees these activities, the chances of their being unnecessary risks or challenges can be mitigated. Additionally, the supply chain manager can identify cost reduction opportunities, identify problems and inefficiencies, reduce unnecessary expenses, and improve overall operational efficiency substantially.

Train Employees: The F&B industry requires well-trained, properly supervised, and diligent employees to minimize risks and damage. This includes training regarding hygiene, dealing with spoilage, pests, or over-stocking, coordinating purchase orders and needs efficiently, minimizing unnecessary losses, and identifying potential risks or challenges within their department preemptively. With a well-trained and diligent workforce, the chances of unnecessary spend, spoilage or potential unhygienic practices, wastage, and loss reduce substantially. These changes can help supply chain managers and procurement officers coordinate with their workforce, identify more cost reduction efforts, implement more active changes suggested by employees, and improve efficiency by promoting open conversation and ideation through training sessions and meetings.

Utilize Technology: The rise of digitization has transformed many industries, including the F&B industry. With increasing automation, smart factories, IIoT, and AI systems, the possibility of errors have reduced. Automated ordering, tracking, and availability of data and analytics has helped managers and stakeholders make better, data-driven decisions. Additionally, it has minimized the risk of hygiene challenges, provided more opportunities for skilled labor, helped companies make productive one-time investments, and made inter-departmental coordination less challenging. With the right technology in place, reduced margin error, and more time to focus on major operational decisions, companies can further their cost-reduction attempts, mitigate risks preemptively, and stay a step ahead of competitors at all times.

Success Story

A renowned food retailer and fast-food chain witnessed a decline in savings and rise in costs although demand had steadily increased over the previous quarters. In an attempt to identify the issue, the retailer audited their inventory, procurement, and sourcing departments and found high amounts of wastage, over-stocking, spoilage, and unnecessary expenses. To tackle this challenge, the company chose to collaborate with SpendEdge and utilize our cost reduction solutions to mitigate these issues, regain savings, and continue to produce high-quality products. Our experts guided the food retailer to implement efficient cost reduction best practices, to minimize wastage, reduce losses, and improve overall performance. By implementing our solutions, the company integrated smart technology into their departments, creating a more hygienic, less error-prone, and well-tracked system. It also re-trained all employees to better handle stocking, spoilage, and supply chain complexities, while accepting feedback, suggestions, and changes provided by them, providing clearer insight into the ground work and challenges. The food retailer identified and hired a highly-skilled supply chain manager to oversee all operations, coordinate between departments, improve efficiency, and identify more cost reduction opportunities. With all these changes in place, within a year, the company successfully restored efficiency, high savings, and a significant cost reduction, while offering high-quality products, expanding their business, and maintaining high customer satisfaction rates.

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