One October, when I was about 10 years old, my family and I traveled from the east coast of the United States to Michigan for a relative’s wedding. As we were driving on the highway, I saw a lot of trucks filled with things that looked like footballs. My mother, a Michigan native, told me that those were sugar beets and that they were used to make sugar. When people think of sugar, the assumption is that it is derived from sugar cane. However, according to the USDA, 35% of the world sugar production comes from sugar beets. In the USA, 50-55% of the production of sugar is derived from sugar beets. Very interesting statistics.
How Do Beet Sugar Shortages Affect Food and Beverage Manufacturers?
Beet sugar is used for many purposes. The beet sugar can be purchased by consumers for home use such as baking, sweetened beverages and other purposes. A great deal of beet sugar is used in food and beverage manufacturing. Due to recent environmental issues throughout the major sugar beet growing regions throughout the world, there have been declines in sugar beet production. And this decline is impacting food and beverage manufacturing.
When a consumer purchases a food or beverage product and checks the nutrition label for information on sugar content, rarely is the distinction made on the type of sugar used. But the decline in sugar beet production, as well as increased prices of cane sugar, is having an effect on food and beverage manufacturing. As sugar costs rise and availability shrinks, manufacturers’ first instinct is to raise the prices of their products to the consumer markets.
What Can Food Manufacturers Do During an Ingredient Shortage?
Do they just raise their prices of food products containing sugar and hope consumers don’t notice? It’s probably not the best idea, but some manufacturers will do this because there may not be another choice. There are preventative measures that can be taken to work around these issues and it starts with processes and planning.
Here are four areas across an enterprise where manufacturers and suppliers can begin to effectively address their sugar shortage issues.
Improve Finished Product Forecasting
One sure-fire way to manage supply costs is to track and manage supply chain effectiveness to ensure you are using the right quantities. Accurate forecasting methods of finished products will trickle through the supply chain and make your MRP practices much more effective and reliable. This will ensure that you order the right stuff at the right time from your suppliers. If your forecast accuracy improves on the finished goods, the amount of supplies and materials you need will be more accurate. This will allow manufacturers to minimize waste and costs.
Alternative Recipes and Ingredient Substitutions
When using natural ingredients many product recipes can use substitutions. Meaning if a product usually is made with beet sugar, a substitute such as cane or corn sugar might be used. If this is the case, food and beverage manufacturers will want to check with their Enterprise Resource Planning (ERP) system and ERP provider to ensure that alternate recipes are part of their functionality. In using automated planning and scheduling systems, the same philosophy should be employed. Use a demand, production and supply chain planning tool that will automatically suggest an alternate recipe based on availability and current standard costs. This functionality and practice can help manufacturers use the most cost-effective ingredients based on market pricing.
Improve Supplier Communication
Many times, especially for commodity-based products, manufacturers need to have purchasing agreements in place with their suppliers. Once forecast accuracy is improved for these supplies, having the ability to improve communications with suppliers will also be part of the process in minimizing costs. A supplier portal function in your ERP system can help you work with your suppliers in scheduling replenishments, working with contracts to get the best prices. Better relationships with suppliers allow manufacturers options to reduce costs and effectively manage the costs of high end commodity products.
IoT and Advanced Technologies
Developing digital technologies in agriculture are beginning to provide a great deal of value to food manufacturers. The ability for farmers and suppliers of critical ingredients to communicate directly to manufacturers will allow for better use of grown products. The Internet of Things (IoT) and advanced technologies will allow farmers of sugar beets and other sources of sugar to make the most of their farms, soil and land. Intelligence can be gathered on soil, weather and crop data that can be used to help plan downstream uses of the products. Food manufacturers are now embracing advanced technologies and can now help producers better utilize the ingredients required for their finished products. Manufacturers have the ability to link this information directly into their ERP, quality and supply chain planning tools for up-to-date information to better manage their businesses.
Sugar is a Food and Beverage Industry Disruptor
Sugar has been in the news quite often in recent years. Most of the time, it hasn’t been in a positive way. Truth is, sugar is a necessary basic ingredient in most manufactured, processed and prepared food and beverage products. It is a major factor in the pricing of finished food items and is one of the major disruptors in the food industry today, whether it’s people trying to avoid it or manufacturers having to pay more for it.
Most food and beverage manufacturing businesses are faced with low margins. Ingredients and supplies are typically the highest costs incurred. Climate change, environmental issues and social issues are all impacting the use of sugar in food manufacturing. Today, manufacturers have options as to how to manage this important ingredient and commodity. The manufacturers that successfully use processes, systems and technology to manage issues around sugar cost and supply will be the ones who thrive.