What makes a supply chain resilient and why is that important to the fresh produce industries? Here, Beyond Corporate’s Georgia Hargreaves takes a closer look at supply chains in the potato industry and offers her top considerations for developing a resilient chain.33
What is supply chain resilience?
Supply chain resilience is essentially the ability of a supply chain to recover from unexpected events and minimise the impacts on costs, customers and revenue. It encapsulates the ability to withstand disruptions and, more importantly learn from them and assess the constant need to adapt over time.
Traditionally, supply chains sought to keep costs down and remain stable, now though, far more is required to achieve a successful and robust supply chain. Modern supply chains need to keep up with consumers, predict and prepare for any potential peaks and troughs.
Why is this important for the Potato Industry?
Supply chain disruption is increasingly common, contributed to by unpredictable climate patterns, energy prices, labour issues, market volatility and price fluctuations as well as export and import barriers caused by political instability causing unwanted disruptions. Such disruptions place pressure on businesses throughout the supply chain.
Although technological advancements in farming can assist in increasing yields and reducing costs, the initial capital investments, as well as training and calibration time invested into such technologies place huge financial strain on potato farmers, especially those with small holdings.
Disruptions can lead to price increases and delays in distribution – does your business have the contractual right to pass cost inflation on to customers? And would any prolonged delay result in a breach of contract? This is especially difficult to manage in the potato industry, where large retailers generally hold the balance of power in contract negotiations.
Things to consider when developing a resilient supply chain:
- Robust contractual clauses can help to protect your potatoes in the face of delays or price inflation. such contracts should be detailed and clearly outline terms and conditions, including pricing, delivery schedules, quality standards, and dispute resolution mechanisms as a minimum, taking a more detailed look at some key provisions, we would highlight the importance of the below:
- Force Majeure clauses excuse a party from performance in certain events, the scope of this can vary, including a broad variety of events, particularly extreme and unexpected weather conditions and wars.
- A price variation mechanism would assist in scenarios whereby contract performance becomes more expensive, in English law if no such mechanism exists then there is no way to alter the contract price unless the parties both agree to do This is particularly important in the current climate, with rising energy costs creating significant additional hardship for potato farmers.
- Risk Sharing Agreements: Consider risk-sharing agreements with retail and wholesale partners to mitigate risks associated with adverse weather events, market fluctuations, and other unforeseen circumstances.
- Termination rights and break clauses in contracts allow parties to walk away in certain circumstances, this would be useful for situations where the contract becomes unprofitable or unperformable due to delays and price increases.
- Transportation and delivery should be dealt with by the contract, responsibility for delivery receipt and insurance should be clearly stipulated (or reference made to defined INCOTERMS) and should detail when risk and title pass, . Thorough storage provisions should be specified wherever possible to ensure optimum conditions and reduce spoilage of the stock.
- Diversification of supplier and supply locations, transportation, products, and customers. The use and reliance on a single supplier may lead to vulnerability. It is vital to ensure collaborate across the entire supply chain, identifying any gaps and sourcing materials from multiple suppliers will assist in reducing dependency and minimise the impact of disruptions.
- Communication and transparency throughout your supply chain and with stakeholders through broader data sharing agreements. Tracking data and analytics in real-time will assist in anticipating potential disruptions and responding in a timely manner. Developing strong relationships will allow your business to more effective responses to disruptions. Forging these better relationships with retailers and processors can improve market access and ensure consistent demand, it can also create access to details of best practice across the wider fresh produce market and provide solutions for developing and scaling innovation.
- Adaptability, a supply chain that is suitable for yesterday’s economy may not be quite as suitable in a year or even a months’ time – continual assessment of how the supply chain responds to risk is essential to understand how it will deal with disruptions.
- Modern technology can assist in increasing yields, providing trend forecasts and reducing spoilage. This digital transformation enables a proactive response to emerging challenges, such as storage conditions or shifting market dynamics. With accurate data, operations can be optimised, wastage reduced and timely deliveries can be planned maintaining the chain’s efficiency and reliability. Likewise, integrating traceability mechanisms is helpful to demonstrate origin and quality, helping minimise friction in the onward supply chain… .
- Manage demand of products, is there anything that can be done to manage increases in demand. Businesses should consider if it would be feasible to create and manage stockpiles in preparation for seasonal increases in demand. Predictive analytics can also help forecast demand, ensuring a balanced inventory.
Supply chain resilience comes down to ensuring your business is prepared to deal with a variety of obstacles and maintain visibility and communication from farm to fork. More than purely defensive, supply chain resilience proactively enhances business’s ability to adapt to disruptions. Much of this can be managed through a variety of commercial and legal tools, including contracts, customer and supplier onboarding and pro-active contract management.
If you are uncertain about whether your existing contracts provide sufficient protection of your business, or require general commercial advice, please contact us at [email protected].
