Food companies are reevaluating their product offerings, choosing to focus on a smaller number of SKUs with a more targeted approach rather than a wide variety of products, according to Mihir Tamhankar, principal at Kearney, at the Food Manufacturing Summit.
Tamhankar noted that while larger corporations are cutting back on SKUs more aggressively, smaller businesses are hesitant to make changes to their portfolios as they may not fully grasp the trade-offs involved.
This shift reflects a growing recognition of the distinction between “good complexity and bad complexity,” as highlighted by Dheera Anand, partner at Bain & Co., during a panel discussion. Companies are now more mindful of the types of complexity that drive growth and consumer choice versus those that do not bring desired benefits.
According to Anand, companies are realizing that they can no longer rely solely on brute force to manage complexity, especially with rising costs, disruptions, and inflation in the food industry. This has led to a more strategic approach to buffer stock and hedging practices, particularly in managing commodity volatility.
Manufacturers are now carefully considering where to allocate buffer stock, inventories, and investments, particularly with high-risk items such as products with short shelf lives. They are also refining their hedging strategies by assessing specific disruption scenarios rather than using a one-size-fits-all approach.
While managing buffer stock can be challenging due to high holding costs and interest rates, Anand pointed out that handling perishable items adds another layer of complexity. Finding the right balance between minimizing waste and maintaining agility poses a significant challenge for many companies.
Overall, companies are facing a calibration challenge in determining the optimal placement of buffer stock and managing the trade-offs between waste and flexibility, Anand concluded.