How the food supply chain is changing in the wake of COVID-19
By Anne-Frances Hutchinson
Adversity inspires. The juddering disruption of food supply chains in the wake of the pandemic is demonstrating how companies must rethink everything they know about end-to-end food logistics.
We didn’t need a pandemic to observe pain points in the food supply chain; demographic shifts, climate change, and shifting consumer desires are among the issues that have been compelling producers to change their logistical approaches in recent years.
The crisis has added significant fuel to those fires, including increasing volatility in supply, red-hot demands for trucking while 3PL providers are struggling to increase capacity, the slowing of international trade as a result of lockdowns and other containment measures, as well as heightened food safety worries that may eventually lead to stricter regulatory standards.
“The future of the food logistics will be greatly influenced by macro factors such as government lockdown policies as they continue to battle the pandemic. Food service logistics will continue to decline as the constraints such as reduced hours or full closures on the hospitality services continue to be implemented,” Susan Boylan of Gartner’s supply chain practice told industry pub Food Logistics.
“Logistics operations supporting the retail trade will come under increased pressure as remote working and dining at home is on the increase, driving volume of home food purchases,” she added. “Perishability and shelf life will also continue to be a key area of focus for food product not consumed under normal demand patterns, which will potentially lead to warehouse congestion, waste, and inventory write-offs of product. The management of stock loss will need to be a closely monitored process in the months to come.”
In 2019, supermarkets carried an average of 28,000 items. The pandemic pressed grocery producers to focus on fast moving SKUs rather than slower-moving items like new products that would typically be introduced to lure new customers and increase brand loyalty, as well as niche items in the early days of the crisis, producers streamlined the number of SKUs as a way to manage stock to meet changes in demand and keep inventory moving.
General Mills, Con-Agra Brands, Campbell’s Soup Co., and Mondelez International slimmed their product offerings to just their core SKUs, and Kraft-Heinz, and Kellogg pushed new product launches to the future. In a November 2020 conference call with investors and analysts, Mondelez chairman and CEO Dirk Van der Put noted their ongoing SKU reduction efforts. “Our teams are focused on ensuring we don’t lose shelf space or incur too much waste while increasing sales, reducing inventory, and increasing line efficiency,” he said.
Emerging trends may lead to enduring change
While the virus has slowed progress in some quarters, the pace of technological advancements are moving at high speed. “IT innovations are improving not just efficiency and sustainability, but also supply chain visibility, particularly vital now to spot and address supply chain issues in an early stage,” according to Deloitte.
While delivery robots get lots of sizzling press, the lack of infrastructure—the way cities are set up—has proven them ill-suited for mass deployment. The real utility for robotics is best applied in warehousing, where advanced warehouse automation is speeding up order fulfillment and helping to maximize warehouse space. New automated guided vehicle technology such as driverless forklifts and pallet movers are gaining popularity as a way to increase efficiency and reduce labor costs. Fully autonomous mobile robots can be used in end-to-end logistics chains, and to fast track order fulfillment.
Decentralized warehouses are also gaining popularity. “One trend we’re witnessing is decentralized yet coupled warehousing facilities,” Matthew Goezler, a warehouse distribution specialist at MG2, told Food Logistics. “While it may be more expensive to have 10 smaller warehouses around the Atlanta metro area, as opposed to one large one near the heart of the city, these decentralized, wider-spread locations allow for more efficient deliveries—saving on fuel and allowing for frozen goods to spend less time in trucks—as well as safeguard your supply chain in the event of one warehouse not being accessible.”
The e-commerce boom has led to the adoption of micro-fulfillment strategies, which can be used in end-to-end logistics, from online order placement through to last mile delivery. Micro-fulfillment centers, which can be built within stores or set up as standalones, are considerably smaller than traditional grocery warehouses, cheaper to build, and can be launched quickly. Financial services firm Jeffries estimates that compared to manual order picking, micro-fulfillment can lower order fulfillment costs by 75%. And, because they are typically located in cities, they can speed last-mile order delivery.
“Stand-alone MFCs are proving to be useful in dense urban areas, where space is at a premium. Because a majority of the world population is moving to urban areas, the need for e-commerce services in these areas is also increasing. These smaller fulfillment hubs allow for distribution and logistics to be moved closer to places where demand is high,” CB Insights said of the trend.
They added, “Many MFCs use artificial intelligence to direct online orders to stores that are best equipped to fulfill them. Employing automation at these various stages—from sorting to packing to last-mile delivery—can significantly speed up the fulfillment process and helps reduce costs.”
Walmart piloted a micro-fulfillment system designed specifically for grocers by Alert Technologies in a single store in 2019, and has since rolled out the technology in several others. The Alphabot collects 10 times more than what a typical human warehouse worker can pick on their own. High turnover rates coupled with an understanding of what goods move the fastest make MFCs ideally suited for grocery retailers.
The current surge in online grocery ordering is likely to taper somewhat as the pandemic eases and consumers feel safe to return to their favorite stores more often, but the ease and convenience of online ordering and delivery will keep micro-fulfillment technology on the forefront as we head into the future.