CPG Resources

Supply Chain Risk Assessment for the Fast Food Industry

By: Manpreet Kaur

Key takeaways

  1. Proactive risk management
    Implementing comprehensive risk management strategies and using supply chain visibility platforms can help businesses anticipate and mitigate potential disruptions, ensuring the timely delivery of goods and maintaining food safety.
  2. Adaptable supply chain models
    Developing a flexible supply chain model that includes alternative sources of supplies and considers transportation delays is crucial for resilience. This adaptability helps mitigate the impacts of a loss of suppliers and other unforeseen challenges.
  3. Regulatory and market adaptation
    Staying updated with regulatory changes and consumer demand changes is essential for maintaining compliance and meeting market needs. This ensures that food and beverage businesses can continue to operate smoothly and efficiently in a volatile market.
  4. Enhanced production processes
    Understanding and optimizing production processes and supply chain operations are vital for reducing transportation costs and improving customer impacts. This involves using sensitivity analysis to make informed decisions and maintain high standards for key ingredients and raw materials.

What is risk management?

Supply chain risk management involves a structured approach to recognizing, evaluating, ranking, and alleviating potential threats that could disrupt the smooth and productive movement of goods, data, and funds within the supply chain. Successful supply chain risk management necessitates a preemptive and unified strategy that entails cooperation across various organizational functions and tight synchronization with external supply chain partners. Supply chain management is a critical component of the fast-food industry, influencing product quality, cost efficiency, operational effectiveness, and the ability to meet customer expectations. Effective supply chain management contributes to the overall success and competitiveness of fast-food chains in a dynamic and fast-paced industry. In recent years, various disruptions, including the COVID-19 pandemic and natural disasters, have highlighted the importance of proactive risk management in supply chains. This industry relies on the timely and efficient delivery of ingredients, products, and services to meet customer demands, therefore, identifying supply chain risks and devising right risk mitigation strategies is of top priority to ensure the efficient flow of goods and services even in challenging circumstances.

Challenges in the packaging procurement process

Supply chain disruptions: Natural disasters, pandemics, political instability, and other unforeseen events can disrupt the supply chain. Fast food companies need contingency plans to address these disruptions, such as finding alternative suppliers or adjusting production processes.

Supplier reliability: Fast food chains rely on numerous suppliers for their ingredients. Ensuring that suppliers consistently meet quality and quantity requirements can be challenging. Supplier disruptions, like bankruptcy or labor disputes, can impact the supply chain.

Food safety: Maintaining food safety and hygiene standards is crucial in the fast-food industry. Any lapse in quality control or safety protocols can lead to health issues, legal problems, and damage to the brand’s reputation.

Logistics and distribution: Efficient logistics and distribution are essential to delivering fresh food quickly. Managing a vast network of distribution centers, delivery trucks, and last-mile delivery can be complex, especially in densely populated areas.

Regulatory compliance: The fast-food industry is subject to numerous food safety, labeling, and labor regulations. Staying compliant with these regulations across different regions and countries can be challenging.

Cost pressures: Fast food chains are always under pressure to maintain competitive prices. Balancing cost-efficiency with quality and sustainability can be a constant challenge in the supply chain.

Technologies in risk management and mitigation

Supply chain network design systems that run and analyze scenarios allow your organization to visualize potential supply chain risks, such as the loss of suppliers or transportation delays, which could transform into significant problems. These systems enable you to evaluate options to mitigate the risks. Simulation and modeling tools aid in scenario planning and testing contingency plans, ensuring the timely delivery of goods. By simulating various risk scenarios, organizations can assess the impact on key ingredients, raw materials, and temperature-sensitive goods, and make necessary adjustments to their strategies.

In the food and beverage industry, food and beverage businesses must consider factors such as product freshness, shelf life, and expiration date requirements. Seasonality and consumer demand changes can also impact supply chains. Food shippers and overseas suppliers add complexity to the network, and regulatory changes can introduce new challenges. By adding or removing constraints within various supply chain network scenarios, companies can understand the cost, risk, and service outcomes, which guide risk management decision-making.

Moreover, focusing on food safety at processing plants and distribution centers is crucial. Evaluating the impact of transportation delays on temperature-sensitive goods ensures that food and beverage businesses maintain high standards of product freshness. This comprehensive approach allows organizations to address potential risks proactively and maintain the integrity of their supply chains.

How SpendEdge is helping the industry overcome challenges

How SpendEdge can help the industry in overcoming the challenges

Unlocking supplier intelligence

Supplier intelligence is an ongoing process that requires a proactive approach to ensure the fast-food industry’s supply chain remains efficient, reliable, and responsive to market demands and consumer expectations. We can help in identifying and selecting the right suppliers from the right locations and can conduct detailed assessment of suppliers based on criteria such as reliability, pricing, quality, capacity etc. We can also provide visibility on supplier costs and their pricing structure that can help further in negotiating better terms and pricing agreements.

Assessing risk 

In the fast-food industry supply chain it is crucial to identify, evaluate, and mitigate potential risks that can disrupt operations, impact food safety, and affect the overall reputation and profitability of the business. We have capabilities of providing visibility on the overall supply chain and identify Supplier-related risks, Food safety and quality risks, Natural disasters, Transportation risks, Regulatory and compliance risks, Economic risks etc. and conduct detailed assessment on them to evaluate the potential impact each risk can have on the supply chain and also provide recommendations on the mitigation strategies that can help in minimizing the impact.

Selecting the right sourcing destinations

We also possess capabilities in conducting detailed low/best cost country sourcing analysis and it involves evaluating potential sourcing destinations to identify the most cost-effective and efficient options for procuring goods and services. This analysis is crucial for fast food companies to optimize their supply chain and reduce operational costs. In these studies we can provide indications on the total cost of sourcing from each potential country, including procurement costs, transportation costs, import duties, taxes, and other relevant expenses, we can also evaluate the quality and safety standards in each potential sourcing destination, understand whether the suppliers in those countries can meet the quality and safety requirements or not, analyze the logistics and transportation infrastructure in each country considering factors like proximity to your markets, shipping routes, and lead times, understand the regulatory and compliance requirements for importing goods from each country, calculate the TCO for each sourcing destination, which includes not only the purchase price but also ongoing costs such as maintenance, quality control, and warranty expenses, assessment of potential risks and choosing the low risk destinations and evaluate potential suppliers in these countries based on their capabilities, reputation, and track record.

Best practices for managing supply chain risks

Source multiple suppliers

The impact of the pandemic revealed significant deficiencies in the worldwide retail and manufacturing supply chains. When production delays initially arose, some retailers switched to using a multi-source model, which involves having backup suppliers in case a single supplier is unable to provide a product. When selecting suppliers, it’s crucial to prioritize a supply chain risk management plan and consider choosing suppliers that operate from multiple locations to avoid being vulnerable to a single point of failure in the event of a natural disaster. Both small businesses and large corporations benefit from sourcing from multiple suppliers, and I’ve observed important activities such as new employee orientation and system implementations being halted due to a single supplier’s failure to deliver the correct or sufficient equipment.

Establish nearshore sources

In the context of managing unforeseeable risks such as force majeures or natural disasters, organizations often face challenges beyond their direct control. Weather-related factors, for instance, significantly impact supply chain logistics. To mitigate these risks, businesses can strategically engage in proactive measures such as establishing relationships with suppliers and distributors in close proximity to their operational centers. This approach minimizes the potential for weather-related delays by reducing the distances over which products and components need to travel. A pertinent example of the impact of this approach is evident in the toolmaker’s business, where the closure of ports and a substantial increase in freight costs underscored the importance of closer supply points. Although regional suppliers may incur higher costs, the benefits of reduced travel time and lowered risk exposure outweigh the associated expenses.

Manage inventory buffers

The just-in-time (JIT) supply chain saves money by reducing storage costs. However, some experts in the industry suggest that companies have reduced their inventory too much and now need to replenish it. It might be beneficial for businesses to incur the additional cost of adopting a “just in case” approach, as this will better position them to maintain the flow of products and business operations during unexpected weather events or other rare incidents, thanks to the extra stockpiles. Once again, establishing a set of supply chain measurements from previous years can be useful, as it gives stakeholders historical data that can be utilized to forecast and estimate future inventory requirements.

Enhance vendor visibility

A comprehensive understanding of all components within your supply chain is crucial for preemptively identifying potential issues. It is imperative to ensure that thorough visibility is maintained across all third-party vendors, encompassing their financial stability and external dependencies. Examining credit reports from major rating agencies of prospective suppliers is recommended. Employing technology that offers product and shipment tracking capabilities is essential to staying informed about anticipated delivery schedules for both yourself and your customers. Lastly, conducting a meticulous supply chain risk assessment is strongly advised prior to entering into any contractual agreements.

Model worst-case scenarios

A framework for managing supply chain risks should consider how a company will respond in worst-case scenarios. Thanks to the use of big data, predictive analytics, and data modeling, companies have the necessary information to simulate high-risk events and their potential impact. Utilizing modeling to predict worst-case scenarios allows businesses to create plans for emergencies, backup options, and communication processes for dealing with disasters. Conducting tabletop exercises (TTX) for probable events or situations where personnel act out an incident and response in real time helps prepare the organization for future response activities. These exercises are particularly effective for scenarios that require extensive coordination and immediate action.

Identify software solutions

Software for managing supply chain risks enables companies to proactively manage risks by enhancing visibility into the entire supply chain ecosystem. By gaining a deeper understanding of your supply chain, you can swiftly identify areas of weakness and receive data-driven insights for potential enhancements. Utilizing integrated software and technology across various aspects of the business also fosters increased adaptability in the face of supply chain disruptions. Deploying cloud-based software across your company’s entire network minimizes inefficiencies and positions your business more effectively to handle potential outages through redundancies and shared data, while also emphasizing the importance of diversifying providers.

Conduct regular supply chain risk assessments

Regular performance of risk assessments is a crucial foundation of an SCRM program. When you conduct a risk assessment of your SCRM strategy and activities, your organization can support the risk identification, risk analysis, risk mitigation, and risk monitoring stages of the risk cycle; update your risk register; and develop action plans and mitigation strategies that suit your organization. You can have internal audit teams or external auditors conduct risk assessments. Both methods are valid and beneficial, although organizations may want to consider engaging third-party auditors every two to three years to obtain opinions and recommendations from an impartial party.

The success story of how SpendEdge helped a fast food giant navigate business disruptions

A leading fast-food giant with operations in over 40+ countries across the globe was looking for a partner who could support in providing visibility of the overall supply chain, identify suppliers and can also identify associated risks.

The client was facing issues with identifying suppliers who have the required capabilities and capacity and also wanted to identify risks associated with the sourcing destinations that they were interested in.

To help the client overcome these challenges, we conducted a detailed supplier identification and risk assessment study. For the target geographies we identified suppliers who can best fit the selection criteria and possess all the required capabilities pertaining to different products that client wanted to procure, quality certifications, regulatory compliance, pricing, geographic reach etc. We also identified and analyzed the risk areas associated with the locations from where client wanted to procure the goods such as political instability, corruption perception, pollution index, population in modern slavery, child labor, ease of doing business etc. and assessed the level of impact these risks could have on the supply chain.

Based on our assessment, we provided recommendations on the best fit suppliers and risk mitigation strategies that could help the client protect their business from potential disruptions and enhance overall operational resilience.


Why choose SpendEdge

 Contact us now to solve your procurement problems!

Conclusion

The dynamic and often volatile nature of the supply chain necessitates a robust and proactive approach to risk management. As consumer demand changes and regulatory changes become more frequent, food and beverage businesses must focus on maintaining food safety and the timely delivery of goods. Effective supply chain operations require constant monitoring and adaptation, particularly when dealing with key ingredients, raw materials, and temperature-sensitive goods. Incorporating advanced supply chain visibility platforms and conducting thorough sensitivity analysis help businesses anticipate and respond to potential disruptions. Implementing comprehensive supply chain mitigation strategies, including sourcing from alternative sources of supplies and managing transportation delays, ensures resilience against the loss of suppliers. A disciplined supply chain design and an adaptable supply chain model are crucial for maintaining efficiency and reducing transportation costs. Understanding the production processes and their customer impacts is essential for maintaining a high level of service. Effective mitigation efforts are vital in a volatile market to sustain operations and profitability. By strategically planning for various scenarios and maintaining flexibility, businesses can better navigate the complexities of modern supply chains, ensuring they remain robust against disruptions and continue to meet market demands efficiently.

Author’s Details

Manpreet Kaur

Assistant Manager Presales – Sourcing and Procurement Intelligence

Manpreet is a Presales Consultant at Infiniti Research and is responsible for designing best fit solutions for clients belonging to different industries such as BFSI, Chemicals, Retail & CPG, F&B, Pharma and Healthcare, Energy, IT & Telecom and Automotive sectors. She specializes in sales, business strategy execution, and innovative solution design.

Talk to Our Experts

From retail to healthcare, businesses are scraping the bottom of the barrel hoping to find the next opportunity for topline growth or spending cutbacks. Contextualized category intelligence is increasingly the key differentiator.

Contact Us

Frequently asked questions

Risk management in the supply chain involves identifying, assessing, and mitigating risks that could disrupt the flow of goods, data, and finances, ensuring smooth and efficient operations.

Risk management in the food processing industry focuses on ensuring food safety, regulatory compliance, and the integrity of supply chains to prevent disruptions that could affect product quality and availability.

To manage risk in the food business, implement robust supply chain visibility platforms, develop contingency plans, diversify suppliers, and regularly monitor compliance with food safety regulations.

Recent Posts

Ways to Tackle Volatile Commodity Price Changes With Ease

Written by: Srinivas Procurement organizations must think ahead of the curve!   Commodity prices are expect...

Read More
Cybersecurity lessons

Essentials of Procurement Strategy for the Semiconductor Industry

By: Yatheesh Chandrasekaran The semiconductor industry is a cornerstone of modern technology, underpinning everything...

Read More

Robotics in the Packaging Industry: Transforming Efficiency, Speed, and Safety

The packaging industry is undergoing a significant transformation, driven by the increasing adoption of automation an...

Read More
SpendEdge Central: Comprehensive procurement intelligence platform
x