Tag Archives: shortages

Bob Bentley, Crisp
FST Soapbox

Predictions: Planning for Increased Demand with Limited Supply

By Bob Bentley
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Bob Bentley, Crisp

We are seeing the beginning of a limited supply of certain products as containment of the COVID-19 pandemic keeps manufacturers, processing plants, and other suppliers in global stasis. But what does that mean for these manufacturers and other members of the supply chain? It means continued planning of master resources such as demand management, sales and operations planning and production scheduling, but with a greater focus on efficiency.

This process of master resource planning results in a detailed blueprint for manufacturing products to meet anticipated demand, accounting for various constraints such as limited supply of raw materials and purchase parts.

So what should manufacturers do if they run into serious shortages of raw materials or purchase parts? What can retailers do to cover operating expenses if they don’t have enough products to sell? We’ll take a look at these anticipated complications and possible methods for solving them.

Limited Supply

The current COVID-19 crisis has led to mandatory business closures that have already caused a shortage of supply. So far, we’ve gotten by with inventories that had already been sitting in various places up and down supply chains prior to the shutdowns, not just on warehouse and retail store shelves. Once all inventories within supply chains are depleted, we will start to notice more stockouts.

Some businesses can endure long-term production cessations without stockouts. For example, manufacturers in critical industries such as pharmaceuticals have a policy of stockpiling inventory in case of unforeseen events. Most businesses, however, cannot afford to miss months of production time because the lean manufacturing principles they adhere to include keeping minimal inventory.

For instance, automobile manufacturers and retailers do not hold excess inventory due to the expected annual product line changes from the previous year’s models, which are typically sold at a large profit reduction at the turn of the year. Clothing and other fashion-related businesses also keep inventory minimal due to a yearly change in styles.

Another source of upcoming shortages will be the sell-off of supplier facilities due to the downturn in revenue caused by emergency closures. Food is a particularly interesting case. Farmers are reconstructing the way their supply chains work to better serve their new target consumers—grocery retail. Some farmers may run into issues with transporting livestock or may need to repurpose crops that are nearing their harvest. Many of those that are pushing to endure and come out of the pandemic disruption with minimal casualties are starting to get creative by creating small farmers’ markets (pop-ups) or marketing directly to the consumer via direct subscription boxes.

It will take some time to re-establish farms, manufacturing plants, and other suppliers who were hit hardest during the months without revenue. However, refocusing on demand planning and forecasting could aid in spurring a regeneration of these industries.

Demand Management

Demand management is the first of three steps taken during the master resources planning process. Demand management includes demand forecasting, distribution channel planning and customer demand management.

Both suppliers and retailers need to know what demand they can expect, especially during uncertain times. After COVID-19, consumer demand will be high, supplies will be limited, and accurate demand forecasting will be especially important to getting businesses back on their feet.

Inaccurate forecasting will cause waste when businesses overestimate future demand for items that have a short shelf life. For instance, a grocery store that overestimates how much produce they will be able to sell within a certain time frame will end up throwing some of that produce away due to spoilage.

Consumer behavior during a crisis can complicate demand forecasting, though. In an earlier phase of the COVID-19 pandemic, worried customers over-purchased toilet paper and paper towels. This caused a shortage for everyone else, and the demand for those items was much higher than anticipated/forecasted. More recently, the same buyers bought up meat when they heard about the disruption in the food supply chain, and they expected the prices for meat to go up. Demand spikes like these cause lost sales for stores that don’t anticipate them.

Demand forecasting will remain tricky in the short-term for both suppliers and retailers whenever a retailer re-opens to the public with the imposed 25% capacity constraint. Overhead expenses will likely remain relatively the same, but 25% of the normal revenue may not cover expenses. Whether a full 25% of a retailer’s former customer base would return during a pandemic is also an unknown factor.

Companies will see high demand when the world opens their doors for business. The most efficient way for companies to plan during these times is by utilizing high-performance, demand forecasting software that will offer the best information available to deal with volatile demands, given the various known and predicted factors.

Sales and Operations Planning

After demand management is performed, manufacturers go through a sales and operations planning process that integrates sourcing, manufacturing, sales, marketing and financial plans, and resource planning. This process results in the creation of an approved production plan (at the product family level), purchase plan, sales plan and backlog plan that satisfies the anticipated level of demand within supply constraints.

In the early days following the end of the pandemic, some manufacturers won’t have the initial supply to meet the high demand for their goods. Some may find contingencies for creating their goods and products, while others may run into supplier issues when it comes to recreating their products and goods post-closure.

Getting manufacturers back up to speed will depend on building up the supplies of raw materials and purchase parts. Sometimes out-of-the-box solutions such as part designs can eliminate the need for some unavailable purchase parts and dependency on some suppliers. Additionally, accurate demand planning information will enable manufacturers to accommodate their retailer customers as much as possible without overpromising incoming goods.

Master Scheduling

In the master scheduling phase, the production and purchasing plans are taken from the family level into a specific product level. This process involves a computer repeatedly simulating production and purchasing as planned during the S & OP step until optimal bills of materials are created. This process includes testing of the plans against constraints of critical resources (rough-cut capacity planning) until a master production schedule is derived.

Fortunately for the retailers, manufacturers who have done accurate demand planning and have taken their production plans through the master scheduling stage will know the maximum number of goods they can ensure without overreaching.

Conclusion

The current COVID-19 pandemic required many business closures to help contain the spread of the virus. As a result, many consumer goods are in limited supply. When the crisis ends, the demand may very well overtake the supply. Businesses will need to practice patience while supplies build back up. Thinking outside the box, using accurate demand forecasting, preventing waste, and executing good demand planning will be crucial steps in reinstating a synergistic supply chain model.

Susanne Kuehne, Decernis
Food Fraud Quick Bites

Separating the Wheat From the Chaff

By Susanne Kuehne
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Susanne Kuehne, Decernis
Food fraud, Argentina, durim wheat
Find records of fraud such as those discussed in this column and more in the Food Fraud Database.
Image credit: Susanne Kuehne.

Pasta is widely consumed around the world, and prices have increased because people have been stockpiling it during the COVID-19 pandemic. Durum wheat, the basic wheat for pasta, is the second most cultivated wheat around the world after common bread wheat, claiming 15–30% higher prices, and therefore an attractive target for food fraud. Out of 150 Argentinian pasta samples that were analyzed with a new method based on Fourier transform infrared spectroscopy (FTIR), in combination with Partial-Least Squares Discriminant Analysis (PLS-DA) and Linear Discriminant Analysis (LDA), 112 were found to be altered with common wheat. Argentinian labeling law requires durum wheat pasta to be based on 100% durum wheat.

Resource

  1. De Girolamo, A., et.al. (June 2020). “Detection of durum wheat pasta adulteration with common wheat by infrared spectroscopy and chemometrics: A case study”  LWT. Vol. 127. Elsevier.
Angela Fernandez, GS1

COVID-19 Puts More Emphasis on Supply Chain Visibility and Data Quality: A Conversation with Angela Fernandez of GS1 US

By Maria Fontanazza
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Angela Fernandez, GS1

The food industry is adapting in completely new ways as a result of the coronavirus pandemic. Retailers are scrambling to keep certain items on store shelves and manufacturers are adjusting their production strategies based on realistic and ever-shifting needs. In a recent discussion with Food Safety Tech, Angela Fernandez, VP of community engagement at GS1 US and FST editorial advisory board member, talks about how companies can improve relationships with trading partners in the face of COVID-19.

Food Safety Tech: What issues do you see happening in the supply chain right now?

Angela Fernandez: Our food supply chain is experiencing overwhelming demand. As an organization that collaborates with both the retail grocery and foodservice sectors to solve supply chain challenges, we’re working with industry on how we can make our supply chain more efficient in the short term, and make it more resilient in the long term.

Consumers are frustrated by empty shelves and the demand created by the pandemic is changing the movement of products. Right now, products are not always accounted for in transit, there are production issues depending on category, and food produced for foodservice outlets like restaurants, schools, and hotels can’t always be easily diverted to a supermarket. The U.S. Food and Drug Administration is lifting restrictions on the sale of food so that it is possible for items that may have been produced for foodservice “sale” to be sold in a supermarket.

FST: In what particular areas are you seeing inventory shortages that are impacting retailers and suppliers?

Fernandez: We’re seeing a couple of different dynamics. For suppliers that produce products for both retail and foodservice channels, we see a shift in reducing production on foodservice items and an increasing manufacturing on their retail product lines. We’re also seeing foodservice suppliers that have not serviced the retail channel previously are now looking to establish new relationships with retailers and recession-proof their businesses. This is not happening as fast as consumer demand for perimeter products like dairy and produce, so we see shortages and products expiring before they can be sold to these new retail customers.

Additionally, food product variation and customization is decreasing. If you think about your own experience going to the grocery store today, or arranging for a delivery, you’re seeing fewer flavors of a product available and fewer brand names you’re familiar with. Suppliers are continuing to shift back to mainstream production of their core product lines just to keep store shelves stocked. I think that’s what we’re going to continue to see—the reduction of customized and specialty items.

For retailers, they have a prioritized the focus on ramping up their e-commerce strategy to relieve the pressure on their stores and service more consumers online. This poses a particular challenge when retailers have limited IT resources and a need to set up a new item supplied from a new foodservice manufacturer that is trying to divert their products to the retail channel to support the demand. And in some cases unfortunately, foodservice suppliers maybe unable to redirect some of their products due to the fact they are not marked for individual sale with the traditional U.P.C. and other retailer requirements.

FST: Is there a better way that food companies, retailers and suppliers can work together during this pandemic?

Fernandez: Food companies can improve the way they work together if they focus on supply chain visibility and data quality. Visibility is key as suppliers are ramping up production on those mainstream products and trying to get them to the proper locations when retailers need them. That’s where I would look at GS1 Standards such as the Global Trade Item Number (GTIN) for product identification and the advance ship notice (ASN) transaction, which lets a partner know when something is ready and being shipped. Global data standards enable the visibility to what delivery a retailer can expect and when, and being able to account for that inventory once it’s inside the DC [distribution center] location so that they can update an online platform. This can help ensure that a retailer has accurate information for the consumer and ability minimize the substitutions that can occur.

The second piece is the data quality aspect—making sure we have the right information around those core items that we are trying to keep stocked on the shelves for consumers who are purchasing those items today. The retail grocery and foodservice industries have been working on making product data more complete and accurate for a number of years, but we’ve seen a heightened focus on it now, knowing that consumers are relying on digital information to be correct since they cannot see the product in person right now. Expanding the data set for the consumer is critical.

FST: What is GS1 US doing right now to help customers better navigate today’s environment?

Fernandez: GS1 US is helping trading partners work with the capabilities they have to implement greater supply chain visibility, improve data quality and ramp up e-commerce operations. Depending on what was already implemented by the manufacturer or retailer, we’re looking at how we can leverage existing capabilities to help partners work together more efficiently to meet demand. How we can help connect the physical product and the digital data, knowing how important that is online right now, not only for trading partners but also for consumers?

One example of how GS1 Standards can be extended is if a retailer is looking to shorten their supply chain and purchase from a local farm. Standards provide a blueprint for supply chain partners to work together in a consistent way. We want to help these companies leverage and extend the standards instead of proprietary systems and abandoning useful processes for item setup, data exchange and point of sale checkout. Those are the types of discussions that we’re having—how GS1 US members can extend the standards that lead to operational efficiency and more easily bring in new partners to help fulfill demand.

Karen Everstine, Decernis
Food Fraud Quick Bites

COVID-19 and Food Fraud Risk

By Karen Everstine, Ph.D.
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Karen Everstine, Decernis

While foodborne transmission of the novel coronavirus is unlikely , the virus has significantly affected all aspects of food production, food manufacturing, retail sales, and foodservice. The food and agriculture sector has been designated as a “critical infrastructure,” meaning that everyone from farm workers to pest control companies to grocery store employees has been deemed essential during this public health crisis.* As a society, we need the food and agriculture sector to continue to operate during a time when severe illnesses, stay-at-home orders and widespread economic impacts are occurring. Reports of fraudulent COVID-19 test kits and healthcare scams reinforce that “crime tends to survive and prosper in a crisis.” What does all of this mean for food integrity? Let’s look at some of the major effects on food systems and what they can tell us about the risk of food fraud.

Supply chains have seen major disruptions. Primary food production has generally continued, but there have been challenges within the food supply chain that have led to empty store shelves. Recent reports have noted shortages of people to harvest crops, multiple large meat processing facilities shut down due to COVID-19 cases, and recommendations for employee distancing measures that reduce processing rates. One large U.S. meat processor warned of the need to depopulate millions of animals and stated “the food supply chain is breaking.” (An Executive Order was subsequently issued to keep meat processing plants open).

Equally concerning are reports of supply disruptions in commodities coming out of major producing regions. Rice exports out of India have been delayed or stopped due to labor shortages and lockdown measures. Vietnam, which had halted rice exports entirely in March, has now agreed to resume exports that are capped at much lower levels than last year. Other countries have enacted similar protectionist measures. One group has predicted possible food riots in countries like India, South Africa and Brazil that may experience major food disruption coupled with high population density and poverty.

Supply chain complexity, transparency and strong and established supplier relationships are key aspects to consider as part of a food fraud prevention program. Safety or authenticity problems in one ingredient shipment can have a huge effect on the market if they are not identified before products get to retail (see Figure 1). Widespread supply chain disruptions, and the inevitable supplier adjustments that will need to be made by producers, increase the overall risk of fraud.

Reconstructed supply chain
Figure 1. Reconstructed supply chain based on recall data following the identification of Sudan I in the chili powder supply chain in 2005. Data source: Food Standards Agency of the U.K. National Archives and The Guardian. Figure from: Everstine, K. Supply Chain Complexity and Economically Motivated Adulteration. In: Food Protection and Security – Preventing and Mitigating Contamination during Food Processing and Production. Shaun Kennedy (Ed.) Woodhead Publishing: 26th October 2016. Available at: https://www.elsevier.com/books/food-protection-and-security/kennedy/978-1-78242-251-8

Regulatory oversight and audit programs have been modified. The combination of the public health risk that COVID-19 presents with the fact that food and agriculture system workers have been deemed “critical” has led to adjustments on the part of government and regulatory agencies (and private food safety programs) with respect to inspections, labeling requirements, audits, and other routine activities. The FDA has taken measures including providing flexibility in labeling for certain menus and food products, temporarily conducting remote inspections of food importers, and generally limiting domestic inspections to those that are most critical. USDA FSIS has also indicated they are “exercising enforcement discretion” to provide labeling flexibilities. The Canadian Food Inspection Agency (CFIA) announced they are prioritizing certain regulatory activities and temporarily suspending those activities determined to be “low risk.” GFSI has also taken measures to allow Certification Program Owners to provide certificate extensions due to the inability to conduct in-person audits.

While these organizations have assured stakeholders and the public that food safety is of primary importance, the level of direct regulatory and auditing oversight has been reduced to reduce the risk of virus transmission during in-person activities. Strong auditing programs with an anti-fraud component are an important aspect of food fraud prevention. Adjustments to regulatory and auditing oversight, as necessary as they may be, increase the risk of fraud in the food system.

There is a focus on safety and sustainability of foods. The food industry and regulatory agencies are understandably focused on basic food safety and food sustainability and less focused on non-critical issues such as quality and labeling. However, there is a general sense among some in industry that the risk of food fraud is heightened right now. Many of the effects on the industry due to COVID-19 are factors that are known to increase fraud risk: Supply chain disruptions, changes in commodity prices, supplier relationships (which may need to be changed in response to shortages), and a lack of strong auditing and oversight. However, as of yet, we have not seen a sharp increase in public reports of food fraud.

This may be due to the fact that we are still in the relatively early stages of the supply chain disruptions. India reported recently that the Food Safety Department of Kerala seized thousands of kilograms of “stale” and “toxic” fish and shrimp illegally brought in to replace supply shortages resulting from the halt in fishing that occurred due to lockdown measures.

High-value products may be particularly at risk. Certain high-value products, such as botanical ingredients used in foods and dietary supplements, may be especially at risk due to supply chain disruptions. Historical data indicate that high-value products such as extra virgin olive oil, honey, spices, and liquors, are perpetual targets for fraudulent activity. Turmeric, which we have discussed previously, was particularly cited as being at high risk for fraud due to “‘exploding’ demand ‘amidst supply chain disruptions.’”

How can we ensure food sufficiency, safety, and integrity? FAO has recommended that food banks be mobilized, the health of workers in the food and agriculture sector be prioritized, that governments support small food producers, and that trade and tax policies keep global food trade open. They go on to say, “by keeping the gears of the supply chains moving and actively seeking international cooperation to keep trade open, countries can prevent food shortages and protect the most vulnerable populations.” FAO and WHO also published interim guidance for national food safety control systems, which noted the increased risk of food fraud. They stated “during this pandemic, competent authorities should investigate reported incidences involving food fraud and work closely with food businesses to assess the vulnerability of supply chains…”.

From a food industry perspective, some important considerations include whether businesses have multiple approved suppliers for essential ingredients and the availability of commodities that may affect your upstream suppliers. The Acheson Group recommends increasing supply chain surveillance during this time. The Food Chemicals Codex group recommends testing early and testing often and maintaining clear and accurate communication along the supply chain.1 The nonprofit American Botanical Council, in a memo from its Botanical Adulterants Prevention Program, stated “responsible buyers, even those with relatively robust quality control programs, may need to double- or even triple-down on QC measures that deal with ingredient identity and authenticity.”

Measures to ensure the sufficiency, sustainability, safety and integrity of foods are more closely linked than ever before. In this time when sufficiency is critical, it is important to avoid preventable food recalls due to authenticity concerns. We also need to stay alert for situations where illegal and possibly hazardous food products enter the market due to shortages created by secondary effects of the virus. The best practices industry uses to reduce the risk of food fraud are now important for also ensuring the sufficiency, sustainability and safety of the global food supply.

Reference

  1. Food Safety Tech. (April 24, 2020). “COVID-19 in the Food Industry: Mitigating and Preparing for Supply Chain Disruptions “. On-Demand Webinar. Registration page retrieved from https://register.gotowebinar.com/recording/1172058910950755596

*Foodborne transmission is, according to the Food Standards Agency in the U.K., “unlikely” and, according to the U.S. FDA, “currently there is no evidence of food or food packaging being associated with transmission of COVID-19.”