Operational delivery and supply chain responsibility – 9th July 2020
Speakers:
- David Read, chairman, Prestige Purchasing
- Julian Hunt, VP public affairs and communications, Coca-Cola European Partners
- Justin Turquet, head of sustainability, Bunzl
- Stephen Brennan, supply chain director, Aramark
- Angela Cannon, Commercial director, Li & Fung
- Jessica Sanderson, senior solutions consultant, Fourth
Key takeaways:
- Foodservice and hospitality supply chains adapted quickly to the sector shutting down, redirecting supplies and helping to protect the vulnerable during the crisis.
- As the sector reopens the supply chain could be squeezed, creating challenges relating to availability, diversity, choice and perhaps even sustainability. There will be a strong temptation for buying teams to consolidate. Many companies will be looking to improve the resilience of their supply chains, which could involve shortening and retraction to more local solutions.
- The need to act as sustainable, responsible businesses has not diminished in the face of the covid-19 pandemic. There is in fact the possibility that scrutiny from investors, customers and consumers will intensify. This will create both opportunities and challenges when combined with the fallout from the pandemic and Brexit on the horizon.
Life BC (before covid) presented serious challenges
Thanks to the application of science and technology, safe and “pretty cheap” food has been widely available to most of the UK population for many years. Some achievements have been miraculous but there have been notable consequences.
“As we sped along that journey we ate more and more calorie- and fat-intensive foods which made us heavier and increased our levels of sickness dramatically. We have largely driven out nature, destabilised our environment and polluted our planet with plastics and increased carbon emissions.”
The sector was indeed facing some compelling pre-covid challenges. Has the pandemic seen them swept under the carpet?
A spike in single-use has not burst the sustainability bubble
There have been some temporary adjustments – most notable among them has been huge demand for single-use PPE and a shift towards disposable food and drink packaging.
“The demand and squeeze on materials which have a limited supply are being pushed into certain areas and in many respects that’s just following money at moment. I wouldn’t say there is huge appetite at the moment to find a more sustainable or reusable solution to PPE. We are trying to keep the industry on its feet at the moment so some issues, such as the use of disposable PPE, have been prioritised – and you have to sympathise with that.”
Some suppliers have had customers seeking single-use solutions that previously didn’t need them. However, they are asking the right questions: Can the materials be recycled? What are the options around recycled content? That would not have happened a couple of years ago.
The current crisis has also “reset the context” on sustainability. In the months running up to March the focus had been skewed towards plastic but the pandemic has pushed other risks up the agenda, including climate change, biodiversity and security of supply. Treatment of staff and safety of customers, as well as companies’ role in the community – all the ‘s’ factors in environmental social governance – are also more prominent than ever.
Few envisage any firms backtracking on the commitments made pre-covid in relation to net zero carbon or recyclable packaging targets, for example. The health and wellness agenda is also firmly on the radar following evidence that being obese or excessively overweight increases the risk of severe illness and death from covid-19. The UK government to has launched a new obesity strategy.
Newly spooked by anything risky and ready to embrace those firms that offer a blend of resilience and responsibility, companies that offer disclosure could well be in demand.
“What we’ve found is the investment community is increasingly interested and scrutinising performance of business from a sustainability standpoint. That interest and scrutiny has not diminished [as a result of covid]. Businesses are right to keep that at their core of what they’re doing as they think of their recovery stage because that scrutiny from investors, from customers and, importantly, from consumers is not going to go away at all.”
Recovery will require investment in technology to deliver sustainability
Since this forum more businesses have moved into recovery mode. Those with a global reach are learning from colleagues oversees who are further down the path in terms of reopening.
“From Central European colleagues we have learned how they were simplifying offerings and reducing complexity, resorting to home comforts and less experimentation.”
Technology will likely assume even greater importance. The reopening of the hospitality sector has already seen the public embrace new ordering systems, but this innovation will stretch right the way down the supply chain and sustainability could be at the heart of everything from novel packaging to using data to help minimise distribution road miles and on-farm technology.
“Businesses need to start to make some money and make profit. Demand forecasting absolutely key. [It will] take a few weeks to understand what this new normal will be like. [Those in the sector] will have to understand where efficiencies will need to happen.”
There is also an opportunity now to focus on KPIs that don’t just relate to cost. Procurement has an important role to deliver innovation and the management of change that delivers good sustainability outcomes. And yet “we still see buyers [paid bonuses] just on savings”. Some called for “more ambition”.
“There is a real opportunity to recruit procurement professionals that have the time and the skills to understand the complex web that deliver food from farm to plate. When they see or taste the difference between UK and imported chicken, or free-range and intensively reared chicken, this job [becomes] not how to buy cheapest bird but how to select right product and derive the maximum value from it for the customer.”
Will suppliers be able to bounce back?
During the height of the pandemic normal procurement practice went out of the window. Pro forma invoices were de rigueur, for instance. Now attention has turned to the so-called “green recovery”, businesses are looking meticulously up and down their supply chains.
“We have to start measuring the impact of where we choose to buy and what materials we choose to buy the basket of goods we have.”
The fact that 80% of the foodservice and hospitality sector shut up shop overnight left the entire supply chain in chaos. Recent results from Booker highlighted the paradigm between the panic buying at supermarkets and the fallout from food-to-go’s closure: retail sales at the wholesaler were up 24% whilst catering supplies fell 32%.
“We were left with a lot of stock, a lot of short dated stock. Our suppliers were left with [stock and there was] a backlog of stock already on route. We encouraged suppliers to divert some into retail space. That excess stock was catalyst to how hospitality stepped up.”
The efforts of the sector in the face of the crisis have not gone unnoticed. Those in the forum spoke of collaboration and agility, as well as the enhanced skillset that dealing with the unprecedented challenges has created. Some wanted to help suppliers more, but couldn’t: as firms extended the credit they have with customers, insurers in some cases reduced insurance cover.
The battleground for the supply chain may not be the cost of food and drink but “cash and security of supply”
The largest firms have strengthened their balance sheets with investment and borrowings but a vast number of SMEs that produce or distribute food to kitchens have been surviving on government support and deferred payments.
“In situations like this there is a possibility that as supplier CVAs [company voluntary arrangements] emerge – and there has been quite a few already – we will see capability falling out of supply markets along with reliable availability, diversity, choice and perhaps critically sustainability.”
Buying teams could well consolidate into larger, stronger suppliers in the year ahead, and these will “dangle the carrot” of better payment terms for the businesses they want to support and ask for longer-term contracts in return. This will “test how much we value diversity of supply, particularly local and regional”.
“If you are buying £10m, £20m, £30m of food you might not find answers quickly and easily in local supply chains. There will be a lot of consolidation into larger suppliers and they will be focusing on bigger accounts. Smaller players could pick up regional business as a result.”
Those with a global reach were more prepared but will this crisis see supply chains shortened?
“Covid has highlighted the question of whether you put all your eggs into one distant manufacturing base or do you spread it out evenly and support local business on the basis that in future that supply chain might be more secure?”
There are challenges but the recovery can be green
Despite the “totally disruptive” nature of this crisis many are confident the sector can “come back” – even if the summer will likely be “quiet”. Reopening is tentatively underway but more job losses are on the cards, with younger workers likely to be hardest hit. Brexit is also around the corner, which throws up a new set of supply chain challenges. There will be huge demands on any organisation in the next few months but the mood remains upbeat.
“There has been a real spirit in the trade to help us get through; if we can take that forward it will help recovery … hopefully a green recovery.”
“If there has ever been a time for there to be a responsible business recovery forum then this unique moment in our sector’s history must surely be it.”
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