Our food and beverage value chains have been tested by COVID-19 and faced severe disruptions. But the silver lining is that it highlighted where and how value chains are vulnerable. Making unknowns known is inherently valuable. As companies look to recover, they can apply what they’ve learned to increase resilience — both for managing ongoing pandemic challenges and preparing for the system-wide risks of a climate that is already changing.
The days of being able to optimize for efficiency assuming a relatively static state are done. A major contributor to why we saw shortages during the COVID-19 pandemic is the rise in lean global supply chains optimized for efficiency and informed by forecasting based on historical data more than scenario planning for major disruptions.
As COVID-19 is highlighting the need to build both resilient and efficient value chains, the historically divergent priorities between chief operating officers and chief sustainability officers are now converging. Operational priorities of cost, lead-time, risk, and innovation are colliding with sustainability goals to decarbonize, meet stakeholder demands for increased visibility, and make a positive impact. The work ahead is to optimize across all these priorities by increasing visibility, redundancy, agility, risk mitigation and collaboration.
What exactly did agility look like during the COVID-19 disruption? General Mills, in response to shifting consumer behaviors caused by the pandemic, ramped up processing capability (while keeping employees safe), encouraged cooking education on its food website, and boosted consumer engagement through online platforms to drive ecommerce sales. Unilever, PepsiCo and Coca-Cola reduced SKUs to allow for greater production efficiency and flexibility to address consumer needs. These tactics might well be here to stay.
Four strategies for beating disruption
Recognizing that the pandemic has something to teach about even larger disruptions ahead from climate change, food and beverage companies can prepare now by investing resources in a few key areas:
- Invest in technology and data. Technology and the data it provides can improve decision-making across the value chain. Growers can incorporate data to optimize water usage, input management, and harvest time. Processors can leverage data analytics with forecasting to improve inventory management. Downstream, food service and retailers can gain valuable lead time in decision-making by quickly tracking potential supply disruptions. Growing visibility into corporate environmental footprints can be an indicator for which value chain partners are becoming more climate resilient.
- Name climate risks and treat them as inevitable. Climate risk assessments at each stage of the value chain will make visible where risks, such as ingredient shortages, threats to physical assets, transportation disruptions and power shortages can — and eventually will — disrupt business. The case that decarbonization and resource efficiency will build resilience is stronger than ever.
- Build the right relationships. This will look different by business but may include proactively diversifying suppliers, using local sourcing when possible to reduce transport risks, and developing collaborative lines of communication with the supply partners you depend on. Collaborate with and encourage your value chain partners to build resilience through delivering on their sustainability goals.
- Simplify and be ready to flex. Increase adaptability both through capital investments and process improvements. For example, agile processing and packaging are key capabilities for responding to changing consumer trends, shifts in demands (food service to retail), or logistical challenges of extreme-weather events.
Your food and beverage peers in action
Food and beverage companies grappling with COVID-19 value chain challenges are actively incorporating strategies to enhance their operational resiliency. This experience is training for building value chains that better manage climate change risks.
For example, Califia Farms is making efforts to address vulnerable ingredients within its supply chain and reduce risks related to potential supplier shutdowns. The maker of plant-based dairy products is focusing on supplier relations and working closely with ingredient suppliers and copackers to stay ahead of inventory.
During the shutdown, Danone used its own cash flow to financially support 15,000 small businesses in its global ecosystem to preserve the resilience of its value chain. Danone has also focused efforts on regenerative agriculture—adopting practices that are meant to strengthen agricultural resilience. With healthy soil functioning as a carbon sink, Danone promotes agricultural practices that enhance soil organic matter content and help sequester more carbon. This supports microorganisms in soil, which nourish and protect vegetal and animal biodiversity, creating healthy ecosystems that are more resilient to the stresses of climate change.
To address climate change, Unilever recently set out new actions to protect and regenerate nature and preserve resources. This includes committing to achieving a deforestation-free supply chain by 2023 by adopting emerging digital technologies that increase traceability and transparency. Unilever will also join the 2030 Water Resources Group and contribute to building resilience in water management in key water-stressed markets around the world.
The time to act is now: Take the next step toward resilience
In Preparing For The Next Threat: Unlocking Barriers To Climate Resilience, you can explore targeted strategies to build resilience within your organization for dealing with the shocks and disruptions posed by a changing climate. To develop more tailored measures, connect with a consultant and begin formulating your plan.