Efficient, sustainable, successful: Supply chain innovations in food and beverage
Success in the food and beverage industries has to go beyond appealing to consumer tastes and health trends — food and beverage companies have to look inward as well. Whether it’s creating a more efficient production line, scaling back on facilities, or speeding up a product’s time to market, companies are looking for new strategies to improve their bottom lines in ways other than simply appealing to the cravings and wallets of the typical consumer.
Still beyond that though is the rise of sustainability in supply chain innovations. More food and beverage companies today are employing measures to conserve water, reduce carbon emissions, protect animal welfare, and decrease fuel consumption than ever before.
Mondelez constructs “Lines of the Future” to foster growth
At the Consumer Analyst Group of New York in February, Mondelez International provided an update on the company’s strategy to reinvent its supply chain to achieve margin goals. This is a three-year plan that includes $3 billion in gross productivity savings, $1.5 billion in net productivity, and $1 billion in incremental cash flow.
As a significant part of this strategy, Lines of the Future are “more efficient, modular designs for global product platforms” that “are cutting conversion costs by 30 percent in biscuits and 20 percent in chocolate and in gum as they replace older, more inefficient assets,” according to a press release.
Daniel Myers, Mondelez’s executive vice president of the integrated supply chain, said in the press release, “Our Lines of the Future are driving significant savings in reduced engineering, installation and start-up costs. And we're reducing conversion costs through increased throughput, less waste and lower staffing per line.”
The company is also focusing on a reconfiguration of its end-to-end supply chain network, which includes funding new or expanded plants around the world. From 2013 to 2015, Mondelez will have taken on 11 such projects, including Bahrain, Brazil, China, and India, with the outlook of another five sites by 2018, the press release said.
Diageo raises a glass to its successful and sustainable supply chain commitments
Diageo has plenty to gain from realigning its supply chain to set itself up for success. According to a Logistics Viewpoints piece, “Diageo spent over $250 million on its transformation that included a production network redesign, internal process enhancements, technology standardization, and a fundamental shift in focus from cost savings to product delivery and revenue growth.”
As part of this strategy, Diageo invested in high-speed lines, some of which were dedicated to agility and responsiveness, which optimized production facilities and brought products to market more quickly. This effort “supports new product introductions and enables Diageo to be ‘first to shelf’ and ultimately increases revenues from new products,” says Logistics Viewpoints.
In December, Diageo reaffirmed its commitment to sustainability and responsibility by pledging more initiatives to reduce water use and carbon emissions by 2020. This includes goals to lower direct operations' absolute greenhouse gas (GHG) emissions by 50% plus a 30% decrease across the whole supply chain as compared to 2007. Diageo also plans to “reduce total packaging by 15 percent, while increasing recycled content to 45 percent and making 100 percent of packaging recyclable,” as compared to 2009, according to Green Retail Decisions.
World Economic Forum recognizes empowered food value chains
Many major food and beverage companies are looking toward sustainability to improve their supply chains—and ultimately their bottom lines and brand images—and some are being recognized for those efforts. In its report, “Beyond Supply Chains – Empowering Value Chains,” World Economic Forum named 25 companies that boosted revenue up to 20% and cut up to 16% of supply chain costs by putting sustainable supply chain practices in place. Among those companies were Nestle SA, SABMiller plc, Coca-Cola Co., PepsiCo Inc., Ahold, and Unilever.
Nestle was recognized for holding their suppliers accountable to a “no-deforestation” policy on palm oil. Nestle along with PepsiCo also “bundled their warehousing, co-packaging and outbound distribution of fresh food products leading to logistics, cost savings, service level improvements and carbon reductions.” Nestle also employs traceability requirements for its suppliers, who must report on their supply chain, specifically the origin of products provided to Nestle, so the company has a comprehensive picture from farm to consumer.
Last year, Nestle also signed a partnership agreement with NGO World Animal Protection and pledged to protect animals from hundreds of thousands of farms in its supply chain, which Nestle uses to source its dairy, meat, poultry, and eggs, by employing tighter animal welfare standards. The company became the first major food company to partner with an animal welfare NGO, according to its press release.
Another sustainability practice, sourcing from local/micro suppliers, was a chief asset to SABMiller, which launched a low-cost beer in conjunction with Nile Breweries Uganda by sourcing the sorghum used to produce the beer from local farmers. Also, according to the report, Coca-Cola sources ingredients from 50,000 farmers in Kenya and Uganda for its "locally" sold fruit beverages.
According to the report, Coca-Cola also operates the “largest fleet of heavy-duty hybrid electric trucks in the world with more than 750 hybrids in North America alone.”
Besides the product itself, the supply chain is arguably the most critical component of delivering consumers what they want to eat and keeping food and beverage companies and their brands financially alive and well. Many more examples of supply chain innovations can be seen spreading across the food and beverage industry today, and as more companies take notice and follow suit, still more are sure to come.