2-min read
International port delays have ramifications that will hit small/medium CPGs later this year. The big suppliers are getting hit now, and it’ll flow downstream.
Ingredion, the third largest supplier of starch in the world behind ADM and Cargill, recently announced that earnings fell. They sited increased transportation costs and equipment delays as factors.
“The company had about $20 million of unexpected costs in the fourth quarter…” said the CEO.
Last quarter’s problems will be next quarter’s reality
It takes a few quarters for supply chain problems of this magnitude to reach the market. This goes beyond the labor shortages more directly tied to Covid.
The ports are a mess
If you are a manufacturer, you know that parts and new equipment are delayed. Delivery time and costs have more than doubled in the last 12 months. Until inefficiencies at the ports (caused by union controls, lack of truckers, and regulations) get resolved, the headwinds won’t let up.
Demand is normalizing
Consumers are over it. They are done buying tubs of mayo and hoarding toilet paper. So, while you might be planning that rollout of single serve snacks and counting on consumer weekly replenishment behaviors, your suppliers may not be able to play along with you.
Demand planning
It’s more important now than ever to take precautions in your ingredient procurement and manufacturing.
- Secure multiple manufacturers
- Identify multiple sources of ingredients and run trials
- Be flexible with packaging materials and sizes
On that last point, I’m not talking about downsizing your ounce weight. Big Food is doing that because their biggest problem is food cost. By-and-large your per ounce costs are not your biggest concern.
Your biggest concern is fulfilling orders.
Talk to your advisors and investors about days of inventory you plan to have on hand. And have a plan in case of excess.
It’s about measured risk. There is a risk tradeoff between having extra inventory, which sits on the balance sheet as a non-cash asset, vs having the cash.
All my best,
Jennifer
Kraft Heinz recorded a fourth quarter loss. The President of Kraft Heinz North America said the company needs to do a better job anticipating demand and forecasting more accurately to hold on to market share.
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diversified ingredients
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nutrition & immunity
novel packaging