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‘Bullwhip Effect’ Felt Throughout Industry as Restaurants Ramp Back Up

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‘Bullwhip Effect’ Felt Throughout Industry as Restaurants Ramp Back Up

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The start of the return to normalcy has created problems for restaurants, bars and other venues with demand outstripping supplies and creating shortages of a variety of foods and other commodities.

Couple that with difficulty in finding workers in the wake of massive layoffs earlier in the pandemic, and you have what experts call the bullwhip effect – companies that cut back rapidly during the pandemic are finding it difficult to ramp back up.

“The food industry has long suffered from the bullwhip effect, where a plus or minus 5% change in consumer demand impacts upstream suppliers by as much as 40% in either direction,” Are Traasdahl, CEO of Crisp, told The Food Institute in an email.

Nate Rosier, senior vice president and consulting group leader at enVista, noted the food industry has seen dramatic shifts in the last year and pent-up demand among consumers now is exploding.

“People miss eating out and enjoying the social experience,” Rosier said.

SUPPLY CHAIN PAIN

Supply chain difficulties are nothing new. Sanderson Farms Inc., the nation’s third largest poultry producer, said May 19 before the BMO Capital Markets Farm to Market Conference it was trying to find a way of increasing production without raising costs, Seeking Alpha reported.

The Wall Street Journal (May 7) reported many food distributors are grappling with labor shortages amid supply constraints and increasing freight costs.

Walmart threatened suppliers last fall with a 3% penalty for failing to supply 98% of orders on time, the Journal reported. Sysco took a similar stance.

Mark Allen, chief executive of the International Foodservice Distributors Association, told the Journal (May 21) part of the problem is suppliers shifted much of their operations toward groceries to meet pandemic demands and now shifting focus to institutional foodservice and restaurants is proving difficult.

Jeff Edwards, director of opportunity, planning and development at We Pack, told The Food Institute he’s not optimistic about a quick turnaround, saying:

Unfortunately, the options are fairly limited for a quick recovery for those operations that scaled back. Companies that decided to put their world on pause may very well be left with few ways to restart their supply chains.

POSSIBLE SOLUTIONS

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Some of the strain could be alleviated, in part, with better data collection and analysis, experts told The Food Institute.

“The root cause of the bullwhip effect is a lack of accurate information sharing across the food supply chain. By adopting a new approach, called programmatic commerce, food manufacturers and retailers can use real-time data to stay ahead of rapidly evolving consumer behavior, identify potential supply chain disruptions, predict store and online traffic, track inventory and product performance, understand store conditions and replenish both virtual and in-store shelves,” Crisp’s Traasdahl said.

“To minimize any supply chain snafus … distributors, suppliers and manufacturers need to be properly equipped to meet changing consumer demands,” Mike Edgett, U.S. product marketing director, medium segment, at Sage.

“The nature of the food and beverage industry leaves manufacturers and distributors dealing with huge cost pressures and thin margins. As a result, many are turning to tools that can provide better data and analytics to help inform their operations. By implementing modern technology, like industry specific enterprise resource planning systems, distributors can better forecast and report on their operations, leading to improved real-time decision making and increased agility.”

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