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Sourcing in The Food Industry: The Secret Recipe for Success

The food industry has been influenced by various trends in recent times. This calls for the players in the industry to be on their toes to watch out for these changes and adapt accordingly. If you go through the revenue data of the food industry for the past decade, you will find a noticeable decline in the profits. What could be the reason for this you wonder? Increasing competition from private label players, growing trend of value and price-conscious customers, more number of discounters in the market, etc. are some of the few reasons that have been adding salt to the already wounded profit margins in the food industry. The only way companies in the food industry can increase their profits in the existing market situation is to transform the way they specify, source, and manage the supply of raw materials, which will eventually help them to cut costs, meet the changing consumer preferences, and manage risks efficiently. So how can companies efficiently alter their sourcing strategies and gain better business efficiency? Gear up as we reveal the secret formula:IR_Brochure

Adopt Flexible Sourcing Techniques

We have seen a steep fall in commodity prices over the past few years. Therefore, it is essential for players in the food industry to formulate flexible sourcing plans to determine the cheapest and most cost-effective medium of sourcing products to widen the profit margins. A large number of food industry companies are also resorting to ‘clean-sheet cost modeling’ techniques, which allows them to build a comprehensive idea of the cost drivers of existing potential suppliers. Food industry clients can benefit from this as it will enable them to determine effective negotiation strategies that will prove to be the most cost-effective for them.

Keep an Eye on Changes Around You

Due to the extremely volatile and dynamic market conditions, food industry companies have to make a note of these three techniques to thrive in the long run:

  • Identify the different variables that affect pricing and demand.This will help businesses to improve their forecasting abilities and formulate better sourcing policies
  • Make changes in the product mix and supply chains based on the forecasts
  • Use the data from forecasting to hedge against future price fluctuations

Optimize Product Specifications

Food industry companies can leverage ‘Design-to-Value’ techniques to understand which features of their products make maximum impact on their customers. How can food retailers benefit from this you wonder? Identifying consumer tastes and preferences creates an opportunity for companies to make necessary alterations in specifications and reduce costs significantly. Companies can simultaneously increase product value by optimizing their product specifications as per customer demands.

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Procurement Intelligence in the Chemicals Industry

The chemicals industry often encounters trouble in procuring the right raw materials of the right quality at the right price. In case of specialty chemicals, the purchasing expenditure can go as high as 60 percent of what is gained as sales revenue. Pricing is a highly volatile aspect in the global chemicals industry, which makes it more important for stakeholders to adopt the right procurement intelligence solutions.

Procurement challenges for chemicals

There are both demand and supply side bottlenecks in the chemicals industry. Even though the market for chemicals raw materials has been developing since the year 2000, the transportation expenses backed with delay in lead times has emerged as a major impediment in this industry. Similarly, being a highly niche industry the demand side often faces challenges in the form of complex product requests and inflexible production systems.

The right procurement strategy is sure to bring a huge difference in the purchasing plan of the company. For instance, companies can bring down the overall spending by up to 10 percent and boost their earnings before interest and taxes (EBIT) by around five percentage points annually.

Procurement intelligence to the rescue

Though many chemicals companies have hired procurement managers to build an agile purchasing strategy, procurement intelligence is sure to improve their overall sales plan. By segmenting the entire purchasing process based on value and strategic importance, players in the chemicals industry can capture a major share of the market and beat the competition. Also by employing purchasing optimization tools, procurement intelligence helps players in the chemicals industry to overcome traditional roadblocks in the industry.

Procurement intelligence also improves the savings in the indirect categories like IT and communications, facilities management, and office supplies, by as much as 25 percent through right distribution of resources. It even helps in containing the volatility in the market, especially in the chemicals market. By imbibing best procurement practices, procurement intelligence enables companies to overcome both demand and supply side challenges and emerge as major players in the global chemicals industry.

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