How price volatility can provide horizon scanning intelligence

supply chain risk

All food manufacturers operating to BRC7 need to complete vulnerability assessments to identify and mitigate supply chain risks. Horizon scanning it touted as the solution, but there is a lack of best practice advice currently available.
One source of horizon scanning intelligence may be sitting across the office from you…yes your friendly purchasing colleagues.
Sit closer to them, get them the odd coffee and become their new best friend. Yes it may be difficult when they try to take short cuts around your supplier approval procedure.
They are talking to suppliers every day and should be aware of availability problems and sourcing difficulties. Some of these issues could provide you with horizon scanning data and sources of potential supply chain risks.

Harvest failures

A poor harvest in a key country of origin which you rely upon resulting in your suppliers struggling to source sufficient quantities of raw materials to meet demand. Look closely at your raw material specifications to see if suppliers are restricted on where they can source from?
Has any restriction been passed along to your own finished product specifications?
If it has then you have identified a real supply chain risk and need to look at relaxing the product specifications to enable suppliers to source from other countries of origin. If not then you are not using your horizon scanning and the resultant supply chain risks that you have identified to take mitigating steps.
In today’s food industry most of your customers should be sympathetic to the above situation and work with you to update finished product specifications.

Supply and demand imbalances

If a country like China or India with large populations starts to import large quantities of an ingredient that you rely upon and drives the price up then your horizon scanning should identify that there is a pending supply chain risk if suppliers start diverting stocks into potentially more profitable markets, and also where raw material specifications are not as tight as yours. As the cartoon accompanying this blog identifies, if you have a number of suppliers coming to your business and explaining the situation, and looking to pass on price increases to ensure continuity of supply, but one supplier who is not, you need to be questioning why the supplier who is not passing on a price increase is not doing so. There may be a genuine reason such as the supplier carrying a large stock and wanting to support you but there could be fraudulent reasons such as;
The supplier is sourcing from a different origin already and therefore not complying with your agreed raw material specification, taking a fraudulent profit and not aware that there is a tight supply from the correct origin.
The supplier or someone in their supply chain is already adulterating or substituting the product that is being supplied to you and therefore are not being impacted by the supply imbalance which is impacting the honest suppliers.
While no-one likes price volatility in their business, there can be occasions such as these where volatility provides you with an additional source of horizon scanning data which if used proactively can highlight supply chain risks that you were not aware of.