New competitors, technology, political and environmental events, are among a growing number of threats to supply. Be capable of adapting and responding.

 

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New UK traffic data has shown a further increase in the overall distance being travelled in 2017, with worrying implications for our supply chains. But there is other evidence that younger people are no longer in love with their cars. James has investigated the data and here are his insights.

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Following increasing legislative pressures on businesses to improve the sustainability and green credentials of their supply chains, the race for sustainability is beginning to speed up. For many organisations, the strength of sustainability strategies is the difference between a competitive advantage and a laggard mentality. 

An increasing appetite

From HSBC’s recent Navigator Survey, published in September 2018, 36% of businesses that were making sustainability changes in their supply chains were doing so to help increase profits and revenue. Whilst in previous years, many sustainability strategies were seen as a means of appeasing environmental legislation, many organisations are now viewing it as a key growth driver. With an increasing global appetite for sustainable products, the visibility of your end to end supply chain can now be an attractive marketing lever to reassure and attract environmentally aware customers.

Companies wanting a genuinely ethical or environmentally sustainable business

 
Source: HSBC Navigator Survey, 2018

True green initiatives

In recent years, however, certain examples of so called “green” strategies have not been truly sustainable. Let’s look at the Toyota Prius, this was heralded (rightly so) for helping to reduce pollution on roads. This may be considered green from one perspective, but the other perspective could be the negative impact it caused on the Lithium supply chain and lack of end to end vision of this strategy. In recent years, Toyota has invested heavily to take a true end to end view of its environmental impact and conditions have since improved.  Within the food and grocery industry this raises the question: what do these strategies really look like, and how are businesses driving growth with their green policies?

Don’t be a binner, have it for dinner

Co-op East of England recently launched its light hearted “Co-op Guide to Dating” aiming to help shoppers understand the difference between “Best Before” and “Use By” dates. By offering shoppers the chance to purchase products that were past Best Before dates at a discounted rate, Co-op was able to prevent at least 100,000 food items going to waste in the first year of the trial. Co-op has since expanded the trial into its fresh produce and bread categories. This case study is a great win/win example of how a sustainability strategy can benefit both the shopper and business, whilst reducing wastage rates and bringing incremental revenue into the business.

 
Source: Co-op East of England

Clean Loop Recycling

At IGD’s Supply Chain Summit in November 2018 we heard about “Clean Loop Recycling”, the process by which waste is collected, recycled and produced to make something new. Effectively, the waste does a full circle without having a negative impact on the environment. The value of this opportunity globally for plastic is thought to be between $50-80bn for plastic packaging alone. A benefit that can be shared between shoppers, retailers and manufacturers through a circular economy approach. Although a significant opportunity, this approach requires a joined-up approach, including collaboration from government to support with convenient recycling solutions that are accessible to all.

 
Source: Tomra

Unilever’s Sustainable Living Plan 

With demand for energy expected to grow by 50% by 2030 and increasing costs for fossil fuels, Unilever created its Sustainable Living Plan (USLP), aiming to half its global environmental footprint by the same date. Through aiming to source all its energy renewably, eliminate reliance on coal and providing surplus energy back to local communities, Unilever has realised multiple benefits. In the last 10 years, Unilever has cut CO2 output in manufacturing by 47% per tonne of production, helping save €490m in energy costs. A notable example of where early adoption and buy in can contribute to the bottom line and demonstrates Unilever’s early commitment to reaching the UN’s Sustainable Development Goals.

 
Source: UN.org

Summary

For businesses, a true end to end understanding of the environmental impact of your supply chain is needed to create great sustainability strategies that will stand the test of time. To truly understand the end to end, collaboration with your trading partners will be essential to take a single view across the entire landscape to uncover win-win opportunities.

To understand more about supply chain sustainability and how other businesses are tackling the challenge, visit our Resilient & Responsive hub on Supply Chain Analysis.
 

Alex Edge

Alex Edge

Supply Chain Insight Manager

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IGD’s Chief Economist, James Walton, explores potential availability issues and stockholding in a post-Brexit world.

The Final Countdown

Brexit is scheduled for the end of March 2019 – now just four months away.

Even with so little time left to run, businesses still have no certainty over Brexit outcomes, which may be anything from “anti-climax” to “severe disruption”.

If the exit deal agreed by UK and EU negotiators is supported by legislators on both sides, then businesses would benefit from a transition period, giving more time to prepare for Brexit.

However, if this does not happen, as still seems quite possible, we would get “Hard Brexit”, which means:

  • No exit deal
  • No transition period
  • No subsequent trading deal with the EU.

In this case, trade barriers would spring up instantly between the UK and EU, disrupting and delaying flow of vehicles in both directions, impacting grocery business operations.

Fresh foods (eg. fish, fruit, salads, vegetables) would be most vulnerable to disruption, since they have short shelf-lives and are often sourced overseas.

Shoppers come first

The shopper experience of Brexit will be critical – this is the measure by which the performance of the grocery supply chain will be judged.

If Brexit proves traumatic, supply chain impacts could be considerable and providing a totally smooth transition for shoppers may not be a realistic goal.

Supply chain problems could be reflected in price changes, poor availability, or both. Availability issues might be exacerbated by unpredictable patterns of demand. Any issues with price or availability are likely to have welfare impacts, especially for the most vulnerable shoppers. If businesses are seen to be failing to provide for shoppers, there is sure to be criticism at the very least and perhaps more dramatic action (such as emergency legislation).

Shoppers are accustomed to good availability and so gaps are easily-spotted. Media coverage of Brexit may leave shoppers especially sensitised to availability problems.

So, what might shoppers do, if they arrive at a grocery store just before - or just after - Brexit and see gaps? Much will depend on:

  • Messages received about food availability
  • Level of trust in those messages
  • Perceived length and severity of problems

Hoarding instinct

Shoppers might seek to protect themselves from shortages and disruption by building up food stocks in advance of Brexit.

IGD ShopperVista research shows that only 2% of shoppers are currently actively building food stocks 1, but more may choose to do so as Brexit approaches, depending on the situation. Rather than “panic”, this should be seen as a rational, predictable response to the possibility of higher prices or lower availability.

Some businesses have also spoken openly of building up stocks as a precaution, notably Mondelez, Premier Foods and Ornua 2,3,4.

IGD’s supply chain surveys have shown that stockbuilding is a popular business response to Brexit uncertainty, although this may be limited by lack of storage. Again, this should be seen as rational precautionary behaviour.

Some considerations for businesses

Every grocery business is likely to have a different situation and a different perspective on stockbuilding, but IGD offers some pointers:

  • Client guidance - This should be your starting point: doing what you client wants is unlikely to be the wrong move! But realistically, you may not get much attention from a big retailer before Christmas, so you may need to take “best guess”.
  • Client view of out-of-stocks - For your company, out-of-stocks as a result of supply chain disruption are obviously bad news. But will your clients see it that way? They may prefer to look at availability for each category as a whole. If they can keep something in stock, which is affordable and fit-for-purpose, they may see this as a “win”.
  • Length of any disruption - Disruption to Channel traffic is not unusual, especially in winter. However, disruption is usually temporary – disruption due to Brexit would likely be long lasting. Extra stocks can only be a temporary measure. In the longer term, moving production may be a better solution.
  • Shopper responses - We know how fast goods sell under “normal” conditions. But post-Brexit conditions may not be normal and rate-of-sale in the days after Brexit may be very high.
  • Cost of stockholding - Cost could come from working capital tied-up in stocks, cost of warehousing and handling, cost of credit to cover purchasing extra materials. This needs to be balanced against potential short-term or long-term losses if you are unable to keep clients satisfied.
  • Logistics challenges - If you store extra stocks, will you be able to move them into your customers’ distribution centres and stores as needed? Remember that logistics issues may lead to trucks or drivers being unavailable when needed. As well as stock, you would need the means to move it!
  • What priority might officials lend to your products - If there is disruption at ports, officials may decide to prioritise some shipments over others. Products like medicines and fresh food is likely to receive a higher priority than longer-life or less essential products.

Finally…

The best way to address Brexit disruption to supply chains is, of course, to develop an agreement between the UK and EU which is favourable to trade, as soon as possible.

Failing that, grocery businesses will be expected to act prudently and rationally, to protect shoppers. Lack of clarity is unlikely to be accepted as an excuse if things go badly.

A good place to start may be IGD’s “no-deal” Brexit checklist, a to-do list of things that could take immediate effect after Brexit day.

Sources:

(1) IGD ShopperVista, November 2018 – base: 1,700 shoppers, fieldwork October 2018

(2) Independent, 11th September 2018

(3) Reuters, 13th November 2018

(4) Guardian, 11th October 2018

James Walton

James Walton

Chief Economist

Download our report to understand how supply chain excellence will be a source of growth and value for the future.

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We look at how Ahold Delhaize-owned Albert Heijn is making its private label chocolate traceable, while Carrefour Poland forms a coalition to promote organic farming.

Albert Heijn invests in traceability

Albert Heijn has partnered with Switzerland-based chocolate maker Barry Callebaut to make its private label chocolate traceable. The partnership reflects the growing interest in ethical sourcing, with both companies suggesting the buying raising industry standards. The companies have said the sourcing will provide a living income for farmers.

From March 2019, Albert Heijn will source cocoa for its private label ‘Delicata’ from Tony's Chocolonely's partner cooperatives in Ghana and the Ivory Coast. The cocoa will be based on the five sourcing principles of Tony’s ‘open chain’, which helps to achieve a transparent supply chain. Jeroen Hirdes, who is responsible for chocolate sourcing at Albert Heijn, explained, “The new Delicata chocolate will have the yellow-orange label with the open chain Tony's uses to indicate to consumers it was sourced sustainably”.

Carrefour Poland forms coalition

Carrefour Poland has formed a coalition with the EKOLAN association, the Polish Chamber of Organic Food and Warsaw University of Life Sciences. It has been named ‘the coalition for the development of the bio-food market’ and will promote organic farming across Poland.

Christophe Rabatel, president of Carrefour Poland, commented, “As a member of the coalition, Carrefour wants to support farmers through direct cooperation, our know-how, logistics and extensive infrastructure of almost 900 stores. We will also continue to educate Polish clients in the field of healthy nutrition”.

Research has shown organic farming in Poland is declining, with only 500,000 hectares of land being used. However, the demand for organic food is high and largely met through imports. Rabatel added, “Today's consumer is more and more aware of the impact of nutrition on health, and our mission is to offer him the products he or she is looking for and needs”.

Presentations

13/12/2018
Procter & Gamble’s laundry detergent brand Tide has launched an Eco-Box. This is the first product launch from P&G Fabric Care’s eCommerce Innovation Group.
12/12/2018
Find out how much preparation is happening in UK grocery supply chains for leaving the EU, and compare your own progress.
28/11/2018
At this year’s IGD Supply Chain Summit, we heard from business leaders, academics, supply chain directors and more, on a wide range of topics. Here is our summary of the main stage presentations.
View all presentations

Sustainability Manager Alan Hayes looks at IGD and Wrap’s new resources for food companies to improve food waste measurement

Vulnerabilities in the global supply chain

This series of reports explores several significant vulnerabilities in the increasingly global food and grocery supply chain, and proposes actions plans that you can take to be prepared and resilient.

  1. Geopolitics
  2. Environment and resources
  3. Setting up for disruption

Use our benchmarking reports to compare yourself to your peers and as a roadmap for future development.

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