Food supply chains have become long and complex. The recent UK horsemeat scandal illustrated that the complicated links that are emerging as a result can make supply chains increasingly difficult to manage.
But first, what is a supply chain? One of the more widely accepted definitions is provided by the Supply Chain Council: “The supply chain encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer”. It mainly takes the shape of a global network of raw materials suppliers, production facilities, service providers, retailers and consumers, all linked together via forward and backward flows of materials, information and cash.
In these chains buying organisations are typically becoming increasingly large, with high product diversity, huge buying power and a focus on cost and efficiency. In bread supply chains, for example, the pressures to reduce costs and maximise profits have forced mergers across all levels of the chain. For example, retailing is dominated by a few large businesses such as Tesco and Asda. In production, 96% of bread sold in the UK is produced by 3 companies – Warburtons, Allied Bakeries (producers of the Kingsmill brand) and Premier Foods (Producers of the Hovis brand)).
However, more recently, a series of drivers have challenged these traditional supply chain arrangements, resulting in a move away from globally centralised to a more distributed, local approach – the idea of redistributed manufacturing (RDM). These drivers include:
- Changes in global cost structures (such as labour, transportation, raw material costs, taxation, firm productivity, etc.) – a key driver for ‘bringing production back’ is the elimination of hidden costs and risks that can emerge in long, global supply chains. For example, shipping costs are likely to be minimized when production takes place geographically closer to the intended markets. Risks can be reduced compared to long supply chains that are more likely to be disrupted by natural disasters;
- Availability of materials and energy – competition for resources is an important modern issue that can erode the advantage of production elsewhere;
- The call for sustainable production systems – global sourcing can pose barriers to the improvement of a company’s environmental and social footprint. For instance, when suppliers are located far away, it can be more difficult to assess what suppliers are doing and to encourage their commitment to sustainability. Life cycle analysis also shows that distributed local production can have a smaller impact on the environment and is more sustainable in the long term than conventional centralised manufacturing and shipping, due to reductions in energy used in transporting goods;
- Increasing demand for customised products – the demand for new innovations and customized products is leading to shorter product life cycles and a need for smaller, more frequent order quantitates. As a result, products are manufactured in facilities distributed across the globe, each serving a smaller area, where they can be more easily customised with details adapted to individual or regional tastes;
- Development of advanced technology – the emergence and increased availability of smaller-scale advanced technologies make small-volume production more viable;
- Traceability – tracking any food through all stages of production, processing and distribution is particularly difficult in today’s global food chains. This is made even more difficult because of the frequency of outsourcing and sub-contracting.
- Intangible factors, such as the marketing and branding power of the ‘made in…’ label, increasingly encourage local production and local sourcing.
The decline of global supply chains is not widespread or, indeed, desirable across all sectors. However, companies that want to take advantage of the newly emerging RDM idea are likely to require a fundamentally different approach for designing and managing their sourcing, production and delivery processes. New business models are also likely to be required, and new trade-offs need to be found – these are the areas that our project – the Food-energy-water Local Nexus Network aims to explore in more depth over the next few months.