Inbound Logistics | June 2022

consumed at home to grow between 5% and 6% in the full year of 2022. “One factor that’s driving these shortages is inflation,” says Durbha. “Take eggs, for example. The animal feed cost has gone up by 50% or more, which traces back to grains, in part. Animal feed constitutes 60-70% of the cost to produce an egg.” Inflation isn’t only raising the cost of inputs, it’s also nudging consumers to make different choices at the grocery store. Under these circumstances, businesses need to prepare for shifts in demand. Companies can ameliorate these disruptions with robust demand forecasting and artificial intelligence, Prothero says. Traditional forecasting methods rely on historical consumption data, which can be useful—until an external event causes demand to drastically change. Artificial intelligence and machine learning can leverage large, complex data sets compared with statistical methods alone. These technologies are designed to anticipate demand signals early, and give retailers more opportunity to work with suppliers to adjust procurement or replenishment accordingly. One concept that artificial intelligence can help to decipher is substitution. Inflation put a dent in demand for higher-priced products, leading consumers to seek out lower- priced alternatives. “The major impact for consumer packaged goods is that rising prices suppress demand and impact revenue,” says Prothero. “Demand for fresh meat and produce is falling, and customers are switching to beans.” Artificial intelligence can pull from a variety of data sources to glean insights into substitution decisions. Some of the results might not be intuitive, like a connection between the price of meat and demand for canned fruit. There’s a lot of food for thought on keeping grocery stores stocked. n

Keeping aisles stocked means grocers are branching out to new products and suppliers. Retailers have become more willing to accommodate new brands, packaging, or different items altogether. “A good example is chicken wings,” explains George Eversman, executive vice president of business development at Dot Foods. “Wings are in short supply, so retailers might try to offer more thigh or other dark meat products instead.” Upstream, shippers can prepare to accommodate these changes in a few ways. One strategy is to concentrate on producing the SKUs that are highest in demand, and allocate supply to where products are most needed. There are a few ways to slice this approach. For example, consumers might buy more over-the-counter allergy medicines in certain parts of the country. Shippers could map out where that need will be, and then prioritize supplying medications in those regions. Or leading up to a holiday, companies could limit SKUs to items that are needed for observances. Admittedly, reducing the assortment of SKUs means fewer options to choose from,“But this is a way to ensure there are products on the shelf,” says Joan Driggs, vice president of thought leadership at IRI. Food manufacturers could also expand their pool of ingredient suppliers. In the past, businesses may have had one or two sources of supply. More recently, it has become expedient to include a third or fourth option, in case a source experiences bottlenecks of their own. Companies should establish relationships with new suppliers as early as possible to avoid getting lost in a sea of phone calls. “If you try to move to a tertiary source, and you haven’t already established that relationship, you’re stuck waiting in line,” warns Doug Baker, vice president of industry relations at the Food Industry Association. “You’re in a lobby, trying to be the tallest person while waiting to get called on.”

June 2022 • Inbound Logistics 91

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