To stockpile or not to stockpile – that is the newest question businesses are grappling with amidst the deluge of pandemic-induced operational challenges.
While fluctuating demand has left many companies holding — or in food industry’s case, discarding — cumbersome inventories, bigger stock buffers are proving beneficial for others against the backdrop of closed borders and strained supply chains.
As The Wall Street Journal reports, businesses from Nissan Motor Co. to PepsiCo Inc. are beginning to question the future viability of “just in time” manufacturing — the decades-long trend of hyper-efficient supply chains. (Nov 7)
In an October speech, President Biden said the world needed to take a longer-term view to help alleviate port congestion, and many companies plan to keep their inventories high enough cover a six-month period, at least for the foreseeable future.
Industry Limitations
Beyond the extra capital, storage space, and staffing required to maintain large inventories, businesses offering products with a sell-by date are at a further disadvantage.
Beverage companies, including Guinness maker Diageo PLC and Anheuser-Busch InBev SA, and their distributors have swallowed the cost of unconsumed beer during lockdowns to spare bars and restaurants from further financial blows.
In October, Boston Beer Company destroyed millions of cases of Truly Hard Seltzer after unpredictable demand for the product resulted in sluggish sales, reported FOOD & WINE. (Oct 25)
“We were very aggressive about adding capacity, adding inventory, buying raw materials, like cans and flavors, and, frankly, we overbought.” Boston Beer Company Chairman Jim Koch told CNBC. “And when the growth stopped, we had more of all those things than we were going to be able to use, because there is a shelf life.”
From a market perspective, the switch from “just in time” to “just in case” procurement has also fueled inflation by pushing up demand for wheat, coffee, and sugar and contributing to a rise in grain tender prices.
Although dealing with perishable goods has unique limitations, companies can still reevaluate how they manage more normalized inventory levels moving forward. For instance, some multinational businesses plan to decentralize stocks by placing them closer to customers, thus enabling localized access during broader supply-chain strains.
Which issue do you feel will impact the food industry the most in 2022?
— The Food Institute (@FoodInstitute) October 25, 2021
