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The implications for Food & Beverage industry CIOs are clear—they must find ways to help their businesses grow through innovative use of technology. But with so much going on in this industry, it can be difficult to determine where to start. We will discuss three key supply chain issues where CIOs have real opportunities to innovate and differentiate their businesses to drive growth.

Innovation vs. Requirements

There certainly is no lack of important issues demanding CIOs’ attention today. Food safety is, of course, key among them. The Food Safety Modernization Act (FSMA) of 2011 is presenting major challenges for CIOs. Michael Wills of Supply & Demand Chain Executive notes it is “the most sweeping overhaul of food regulations in decades.” He says the act “compels food companies to constantly assess risk in their operations and verify the safety of any food entering the distribution chain.”1 This becomes even more difficult as more food items and ingredients are sourced from international producers. The FDA estimates that 15 percent of our domestic

food supply is now imported, including 60 percent of fresh fruits and vegetables and 80 percent of seafood.

We are not, therefore, underestimating the difficulty and importance of FSMA compliance when we say that it is “only” a requirement. The problem is that compliance is something all food and beverage companies must do, and as such, it is not differentiating. The same is true of new product labeling regulations and the many other compliance issues requiring CIOs’ time and attention—they are table stakes, not differentiators.

“Trying to be different is vital in this day and age of intense competition,” says Seth Mendelson, Editorial Director of Grocery Headquarters magazine.2 Gartner concurs, “Leaders of global logistics organizations must innovate and invest in new processes and technologies to remain relevant and competitive. Focusing myopically on cost reduction is no longer a valid strategy; logistics organizations must concentrate more on enhancing differentiation.” 3

The role of chief information officers (CIOs) at consumer packaged goods companies historically has been to deliver efficient and unfailing systems at the least cost. Information technology has been viewed as a cost of business instead of a driver of strategy and a means for profitability and advancement. However, for Food & Beverage companies that need to support business growth and competitive differentiation, this approach is clearly antiquated.

How CIOs Can Drive Growth in the Food & Beverage Industry: Three Supply Chain Innovation Opportunities

1 Michael Wills, Food for Thought, Supply & Demand Chain Executive, December 18, 20132 Seth Mendelson, The Smell Test, Grocery Headquarters, December 20133 C. Dwight Klappich, Greg Aimi, David Gonzalez, Jane Feitler, Christian Titze, Predicts 2014: Global Logistics Differentiating for the Future, Gartner, November 20, 2013

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How CIOs Can Drive Growth in the Food & Beverage Industry : Three Supply Chain Innovation Opportunities

But true innovation and differentiation are never easy. So where should you start? Here are three opportunities for innovation CIOs should consider to help drive growth.

The Omni-Channel Consumer

The consumer is now firmly in control of the shopping process. Today’s customers expect to shop 24/7 across multiple channels in a very seamless way and through a dynamic, customized user experience. This requires food and beverage companies to collaborate with customers in ways not necessary under traditional “push-based” supply chain formats.

For example, consumers may go directly to a food company’s website to order items they can’t find at their local grocer but want to pick the item up at a local store. Or they may want it shipped to their home. Either choice has supply chain implications for inventory management, fulfillment, shipping and brand integrity. Food and beverage companies now need agility and flexibility in supply chain operations to accommodate consumer preferences.

This is one area where food and beverage companies can innovate in their supply chains to offer differentiated services. Since grocers, especially in the U.S., have been slow to offer customer options such as order online/pick up in store, food companies have the opportunity to leverage their supply chain capabilities to collaborate with grocers on offering customers order anywhere/pick up anywhere options that win customer loyalty.

CIOs must understand this is driving radical change into supply chains. Traditional models of fulfillment are based on truckloads, pallets and cases – this next generation must include eaches and inner packs, which are more critical to omni-channel. Individual customer orders are increasing in volume as part of the shift to omni-channel.

Understanding Demand

A second area where food and beverage companies can collaborate with their grocery customers is on demand planning for their merchandise. “Assortment, space, price, promotions and offers are understood at the decision level, but the net impact of the combination of each decision eludes nearly all retailers…without the holistic understanding of future demand, knowing the right quantity that a retailer will require on a given day for a given SKU at a given location is impossible,” says Gartner VP Kevin Sterneckert.4 Dan Gilmore, Editor of Supply Chain Digest, further emphasizes that, “Very few companies have well mastered the art and science of supply chain planning, while a sizable percentage are in very early stages of maturity.” 5 By helping grocers better understand demand and stock accordingly, food and beverage companies that innovate with collaborative demand planning can grow their business with grocers and grow their brand with consumers.

CIOs must provide technology to manage forecasting at a much more granular level than ever before. Multiple channels and sources of

demand with multiple fulfillment locations exponentially increase the number of forecasts. Each intersection of a SKU/location/customer can generate its own unique forecast. Coupled with more SKU offerings due to competition and customer demand will require technology to manage. More SKUs, more selling seasons and more response to production/pipeline issues mean that re: (allocation, prioritization, forecasting and planning) are the norm for the future.

Elongated and Compressed Supply Chains

Consumer tastes within the food and beverage market are becoming much more diverse. For example, U.S. consumers may want exotic spices from Asia or exotic fruits from South America. “American’s desire for fresh fruit and vegetables year-round are big drivers,” says Lara L. Sowinski, editor-in-chief of Food Logistics

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4 Kevin Sterneckert, 2014 Outlook Guide, Retail Touchpoints, December 20135 Dan Gilmore, 2014 Supply Chain Planning Benchmarking Study, Supply Chain Digest, December 2013

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How CIOs Can Drive Growth in the Food & Beverage Industry : Three Supply Chain Innovation Opportunities

magazine. “ At the same time, emerging markets in Asia, Latin America, Eastern Europe and the Middle East and Africa are adopting Westernized palates, which means more fresh (and frozen) food is being transported, oftentimes over great distances.” 6

There has also been a strong increase in demand for locally grown and produced foods. Francis P. Koster of salisburypost.com says, “Research has shown that almost 30 percent of shoppers say they would consider switching to another chain if their favorite store does not carry an adequate amount of locally produced food. Seventy percent of these shoppers say they would pay a premium of up to 10 percent for locally grown food.” Yet Koster also notes that, “Every major supermarket chain I was able to speak to told me they were having trouble obtaining reliable, large shipments of locally grown items.” 7

And therein lies the challenge. On one hand, supply chains are being elongated to accommodate global palates, and on the other hand, they are being compressed to produce and deliver fresh foods within local market areas. To be successful in today’s schizophrenic market, food and beverage companies must be able to balance market demand for global

foods with the demand for locally grown foods—clearly two opposite ends of the supply chain spectrum. Innovation will come from designing supply networks and facilities that can support these two extremes profitably.

CIOs need to understand, in addition to the challenges from the previous two opportunities, the globalization of the world, the flattening of commerce requires a new understanding of a single supply chain - one that provides international and domestic capabilities at each stop – all appropriately supporting the local needs of wherever the product is located. Evaluating all sources of inventory and demand at each opportunity and servicing the right customers at the right margin dynamically in real time are requirements for global supply chains to compete in the new world of retailing.

No Easy Answers

We have just looked at three currently hot market issues and proposed ways CIOs could innovate to help their customers address these issues, and in doing so, grow their business. But we all know innovation isn’t easy. If it was, everyone would be doing it and then where would the differentiation be?

Innovation is the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. It is generally considered a process. And that is the challenge for CIOs who are more familiar with buying or developing systems. Putting the right process in place to innovate is more difficult.

To innovate on helping grocers master omni-channel retailing techniques takes expertise in systems and technology, order management and fulfillment, inventory management, transportation and supplier management, while maintaining brand integrity. To innovate on collaborative demand planning requires expertise in the selection, implementation and use of cutting edge demand sensing and forecasting systems. And to innovate in solving the two-headed monster of global and local demand requires expertise in supply chain network design, facility design and frozen and refrigerated transport. While there are no easy answers to innovation, the right supply chain consulting experts can help CIOs address each of these challenges, developing proven processes that lead to innovation, and enabling CIOs to differentiate and grow their business.

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6 Lara L. Sowinski, More Perishables, More Supply Chain Complexity, Food Logistics, May 2013 7 Francis P. Koster, The Optimistic Futurist: Supermarkets have appetite for local produce, salisburypost.com