We need to lessen our dependence on big economies of scale.
What used to work before doesn’t work anymore
In general, the current food supply chain is based on the “hub and spoke” (large factory farms delivering to regional distribution centers, who then deliver to locations in their territory). The first problem with this model: It relies on economies of scale, making it more difficult for smaller local and regional producers to break into the supply chain.
Meanwhile, large centralized distribution centers are traditional in that operations are limited to one, central location — or just a handful -- lacking the flexibility and data to adapt to market demands quickly. 2020’s empty store shelves contrasted painfully with the visuals of farmers dumping product down the street because they couldn’t connect to that supply chain.
Now, there is a massive reconsideration about how companies can distribute their supply chains, especially on a global scale. We’re seeing a resurgence of point-to-point food supply chains that, before COVID, were seen as inefficient and chaotic.
Technology is critical in this revival of point-to-point and decentralized food supply chains: incorporating AI and machine learning has enabled those in the supply chain to create efficient, rules-based networks that democratize who can participate in our food economy. These advances include technology that simplifies management of suppliers across a variety of markets, real-time data reporting for sourcing, buying, and marketing programs, and shrink- and cost-reduction through integrated reporting,
By returning to a decentralized model, we gain flexibility and ability to work with products that may not be impacted by demand that are nevertheless bottlenecking traditional supply chains. This kind of flexibility enables faster, nimbler food buying - similar to how ride-sharing apps changed how people found drivers.
The human good factor cannot be understated, either: People feel better knowing they are supporting their community. During Covid people have come together to solve bigger problems — this is a continuation of that grassroots mindset. By giving consumers the opportunity to purchase local product from local farms, everyone feels like they are contributing on a deeper level to their community.
The challenges and risks
Making these kinds of changes are not without risks:
Inconsistent supply chain: Product availability and purchasing can be impacted by everything from inconsistent supply based on erratic weather conditions to lack of volume based on a bad crop. Local forces – good and bad - will affect the local supply chain.
Those risks can be countered by investing in more local producers and suppliers, mitigating and diffusing risk across multiple vendors who then feed into that local supply chain. Some heartening additional support: The Biden administration is putting billions of dollars into local food producers and regional processors to help mitigate against big losses; for example, if a massive factory processor goes down in Minnesota that takes away meat all over the country.
Factory shuttering: Factories can have surprise shutdowns for everything from deportation from ICE, salmonella, massive events, and inflation. This can be solved not by creating more factory processors, but by getting more small players in critical areas to validate the supply chain — being more local and more direct means increased resiliency.
Consumer retailers and suppliers are moving toward the same goal: This is, more than anything, an opportunity to start building ecosystems that everyone can benefit from. Retailers should begin planning for the long term; they can’t find themselves this fragile again. By engaging with - rather than running from - supply chain fraglities, companies can evolve and be stronger and prepared for future challenges.
If the past two years have taught us anything, it is that we need to rethink old strategies and reset old ways - how we do everything has shifted, from the way we work to the way we interact with each other.
Because of this, new customer expectations - combined with new challenges - require the supply chain to be reconsidered and optimized.
Think smaller – so you can deliver more.
Sam Eder, co-founder and CEO of Big Wheelbarrow