CategoryThought Leadership
April 19, 2022
There has been a radical shift in the way the Fast Moving Consumer Goods (FMCG), Quick Serve Restaurants (QSR), and the Food and Beverages (F&B) industries operate to meet the growing needs of today’s consumers. B2B food trends like the growth of QSRs, the need for centralized kitchens for large enterprises, and increasing demand for cold chains are high capital-intensive markets that open up new investment opportunities.
There is a rise in stringent hygiene policies, and automation of manufacturing and packaging among food businesses. Also, with a rise in internet access and new-age apps, customers are better informed than ever, demanding transparency in the food supply chain. Optimizing the supply chain ensures overall benefits for the food manufacturers and helps them thrive in fierce competition. And one of the best ways to optimize is to outsource the task of managing the supply chain to a third-party logistics provider (3PL).
Here we explore why food businesses must adopt an outsourced SCM and how it can benefit them in the long run.
The need for a dynamic Supply chain in the Food industries
Unlike other industries, QSR, FMCG, and F&B industries require a very dynamic supply chain. It is due to multiple factors, including a diverse range of products, their varying shelf lives, and storage conditions like temperature and humidity, changes in consumer demands, seasonal availability of raw materials, packaging, law, and order, etc.
These food-related industries must ensure an agile supply chain to balance the supply and demand of finished products and expand their presence across different geographies. Currently, the two main categories of supply chain management are either insourced or outsourced methods.
While insourced SCM carries out all the operations of the supply chain activities using an in-house team, the outsourced SCM hires a third-party workforce to undertake the end-to-end supply chain activities. Before zeroing in on the SCM category, food products manufacturers and QSRs must thoroughly study their existing supply chain system and identify the gaps and goals to be reached.
What are the challenges in insourcing?
Though insourcing SCM can have its own benefits, some major pitfalls cannot be ignored. Some of them are shared below.
High Cost
Recruiting dedicated full-time employees for various roles could incur exorbitant costs. The company must cover the expenses for the in-house team members even when they take days off from work. The cost of maintaining internal infrastructures, including dedicated warehouses, work areas, and resources spent on logistics, adds up to the high expenditure. In industries like FMCG, QSR, and F&B, susceptible to external factors, a minor variation in operations can largely impact overall costs.
Time
It is not an easy job to filter and recruit the right candidate for a particular vacancy in the supply chain. Even if you find the best one, it takes more time to train them according to the business specifications and take ownership of their responsibilities. Also, time is a critical factor in handling perishable foods, from procurement to delivery of the final product. When an in-house supply chain is not agile enough to meet the demands of timely logistics, it turns out to be a major hurdle.
Risk of Dependencies
Since the critical tasks are assigned to a particular person within a department, there is a high risk of dependency on them. It is a matter of concern during times when the person is unavailable or is already loaded with too many tasks to handle simultaneously. This dependency might, in turn, interfere with the seamless food supply chain activities and disrupt the entire cycle leading to stagnation of perishable goods incurring a considerable loss.
Why should businesses transition from insourcing to outsourcing SCM?
Streamlining the supply chain processes through outsourcing will go a long way in benefitting food businesses. According to Technavio, a UK-based research firm, the 3PL Indian market is expected to rise at a CAGR of 8%, valued at USD 10.74 billion from 2021 to 2025. Check out the comprehensive overview of why food businesses and FMCG companies must move from an insourced SCM to an outsourced one.
Cost reduction
Maintaining your warehouse and logistics, recruiting, and paying for a dedicated in-house team is now a costly affair, especially for FMCG and F&B industries. But, a third-party service provider with streamlined processes can undertake the whole responsibility of maintaining the supply chain at a comparatively lower cost.
Always up and running
Working with an outsourced 3PL company can help run your business throughout the year, which is the key driving factor to sustaining a food-related business. There is no risk of putting any business deal on hold with outsourced SCM due to the unavailability of resources. You can be assured of timely deliveries and be confident of meeting the fluctuations in consumer demands.
High expertise and technology support
Outsourcing SCM means you benefit from the third-party service provider’s experiences of working with several other brands. It could come in handy when your business faces any specific issue, and they could suggest the best possible solution that fits your needs. 3PL companies provide technology-backed services that ensure maintaining the right temperature and humidity and help meet other requisites for food storage and logistics.
Quicker implementation
When you recruit a new member with an in-house team, it takes a few days to weeks to complete the industry-specific training and get started. But when you outsource the supply chain activities to a third party, you get a quicker implementation of the tasks right away as they are equipped with the necessary resources. The quicker the actions are initiated, the better would be the customer satisfaction and trust in your food brand.
Scalability
The unprecedented times like the COVID-19 pandemic have seen a surge in demand for food-related products. The fluctuations in demand can be overcome by an optimized supply chain that could be achieved through outsourcing to a third party. You can quickly scale up or scale down the supply chain through outsourcing based on your requirements.
Outsourcing your SCM could be incredibly beneficial to your food-associated business, especially when you are starting new, with no resources or infrastructure to carry it in-house. Moving towards outsourcing is a big step where you have to consider and evaluate your company’s future goals and see if it aligns with your service provider.