Seasonal variations in consumer demand and ingredient supply is a major issue facing many food and beverage manufacturers. Forecasting pressures up and down the supply chain are an everyday part of business. However, accurately forecasting can be difficult if customer orders and the performance of your supply chain are subject to seasonality. How can food manufacturers manage seasonality?
The pressures of seasonality
Although most businesses are aware that consumer demand and the supply of raw and intermediate goods are both susceptible to seasonal variations, businesses are generally poorly equipped to manage the consequences of seasonal instability. Seasonal lows are naturally difficult times for a business to weather – lower revenue measures up poorly against consistent fixed expenses, making it difficult for a business to meet its costs.
Equally difficult, however, are peak events. Businesses often struggle to meet demand at the height of a product’s season, particularly if they cannot temporarily reduce production of out of season products. Even if food manufacturers can clear other production lines, finding inventory remains a challenge. The effects of seasonal demand typically ripple back through the entire production chain, creating supply pressures for a wide range of inputs and raising ordering costs.
Dealing with peak demand
The most significant challenge during a period of peak demand is securing supply. During a supply shock, every other firm is competing with your business for a very limited pool of inventory. Competition between businesses can result in ordering costs escalating steeply during this time. Rather than responding to peak demand by participating in a race to the bottom, businesses should consider partnering with farmers and suppliers to secure a base level of supply ahead of time. By entering into medium or long-term procurement agreements, your business could secure enough supply to trade through a period of seasonal demand at current ordering cost levels.
If your business is unable to secure enough supply to meet customer expectations, proactive communication with customers is crucial. Customers are more likely to forgive a business that was upfront about procurement issues during a difficult time than a business that over promised and under delivered.
If you are a manufacturer, peak demand can also pose capacity challenges. These are difficult to resolve, and investing in increased capacity may not have a significant ROI – if your canning machines are only at full capacity for one month out of twelve, there may be little point in spending a lot of money to upgrade to a system with more capacity. Even with high ordering costs, buying in the extra inventory may be cheaper than installing a new canning system. Rather, consider flexible solutions such as running second or third shifts or (if possible) producing some buffer stock in the weeks or months leading up to peak demand.
Dealing with seasonal lows
As you approach the off season, your business should focus on reducing unneeded inventory. While it may be prudent to carry a very small level of winter stock during the summer season, holding a significant amount of off season stock will unnecessarily increase inventory carrying costs. Food manufacturers generally retain relatively little stock between seasons as most food products have a relatively limited shelf life, so this should not be a major issue for most food producers.