Approximately 60 percent of Americans consume one or more cups of coffee daily, according to the National Coffee Association (NCA). The caffeinated drink has been consumed widely for centuries – from September 2016 to September 2017, individuals across the globe consumed more than 150 million 60-kilogram bags of coffee, according to the International Coffee Organisation.
Despite coffee’s unwavering popularity, its supply chain continues to face a range of challenges. This article examines how fragmented production processes and climate change mean that manufacturers will need to regularly review their current processes to offset ordering costs and keep their supply chain running smoothly.
Fragmented Production Processes
The journey from bean to cup is not a simple one – producing coffee involves a fragmented production process that usually starts in remote and developing regions of the globe. The process begins with the seed of the red-coloured fruit of the coffee plant – the fruit is first harvested by hand, the seeds removed, dried, processed and milled. Most beans are sourced from what is commonly known as the “bean belt” or the countries that run along the equator.
While the beans do not require refrigeration, exposure to moisture can cause mould and degradation to erupt. This means that the beans ideally need to be exported to manufacturers within several weeks after they have been processed and milled.
Once the beans are exported and the importer has received the invoice, payment is usually required to be made immediately although the beans have just left the exporting country and may not arrive for another one to three months. Manufacturers will need to put in place methods for offsetting these ordering costs to manage their expenses appropriately.
This fragmented production and export process creates a range of challenges for coffee manufacturers. Importers must carefully monitor the coffee's movement and manage risk, as even large coffee manufacturers may not have the time and resources to do themselves.
Climate change is another significant challenge to the coffee supply chain. Increased temperatures and humid climates have caused outbreaks of coffee rust, a fungus that has wiped out 25 to 70 percent of production in many parts of South America.
Climate change therefore presents a significant risk to the coffee supply chain because increased temperatures can cause a reduction in resources. This scarcity is likely to push bean prices up dramatically, so manufacturers will have to shuffle around their own processes to offset the increase.
The reduction in bean availability will inevitably affect manufacturer’s financially. To offset ordering costs associated with increased bean prices, managers will have to review other costs and adjust accordingly. Such interruptions to the supply chain can cause a range of disruptions for coffee manufacturers, and may result in financial loss if handled incorrectly.
Aside from problems with production and the risk posed by climate change, the coffee supply chain faces multiple other challenges. This includes things like commodity market instability, the migration of farmers from rural to urban regions and much more. Manufacturers need to regularly review their processes in line with these external forces to keep their supply chain running effectively.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.