Sounding the alarm on supply chain: The raw materials ripple effect

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Sounding the alarm on supply chain: The raw materials ripple effect

12 Oct 2021

Joanie Spencer

Since 2008, Joanie Spencer has covered the retail and wholesale sides of the baking industry.
Serving associations such as the American Society of Baking (ASB) and BEMA, Joanie is also in demand as an industry presenter on bakery operations and trends. She holds a bachelor’s degree in communication from Rockhurst University and a master’s degree in journalism from the University of Missouri.

When she’s not running or playing soccer, Joanie spends her time with her husband and 11-year-old son.

KANSAS CITY, MO — The current supply chain disruption has become a simultaneous viscous cycle and web of complications, where one setback can set off a chain of events in any number of directions.

A group of suppliers, associations, consultants and bakers sat down with Commercial Baking to assess their most recent challenges and their often-unanticipated side effects.

Here’s what they had to say about shortages and price increases for ingredients and other raw materials.

“Manufacturers looking for any kinds of raw materials or ingredients are having to revise their schedules continuously, and it’s a daily challenge,” said Lisa Anderson, supply chain consultant and president of LMA Consulting. “There are issues from one end of the spectrum to the other.”

While bakers scramble for raw ingredient materials and items like packaging film, the equipment manufacturers are in the same predicament with items such as lumber, steel and electrical components.

“We could be missing one or two items that could keep the whole machine from running,” said Shawn Moye, VP of sales for Reading Bakery Systems. “There are shortages for the parts that are essentially the ‘brains’ of the equipment, like the PLC, operator interface terminals or the IO boards. We’re seeing like 25- to 30-week lead times.”

The supply chain disruption is broader and deeper than just a problem between bakers and suppliers. It goes back to the beginning with agriculture and hits all the way to consumers.

The Purdue University Center for Commercial Agriculture (CME)’s latest Ag Economy Barometer, a monthly survey to measure agricultural producers’ economic confidence, indicated weakening sentiment among agricultural producers, dropping to the lowest levels since the early stages of the pandemic. September’s Ag Economy Barometer dropped 14 points to 124, representing the lowest reading since July 2020.

One contributing factor is rising input costs. In CME’s September survey, a third of respondents said they expect input prices to increase by 12% — or six-fold — over the next year.

“Starting at that point, you have to look carefully at what it will mean for the whole supply chain, including ingredient suppliers, bakers and, ultimately, consumers,” said Lee Sanders senior VP, government relations and public affairs for the American Bakers Association (ABA). “I predict we’re going to see some ‘kitchen table economics’ conversations happening, where people have to decide what products they want, what they can afford and where they’re struggling.”

Edible oils such as soybean oil are currently among the hardest hit, particularly as they relate to the US Environmental Protection Agency (EPA)’s proposed changes to the Renewable Fuel Standard that will impact biodiesel, according to Sanders.

“Right now, there’s more demand on the fuel side for renewable biodiesel, and it’s causing a struggle with food supplies,” she said. “I’m talking to large, medium and small bakers, and they’re all concerned about the supply of soybean oil.”

It’s cause for concern for many because if bakers lose access to just one ingredient, they simply can’t make their product.

Along with edible oils, gluten is at the top of the list. After combatting gluten’s vilification from consumers, bakers are now finding this key resource practically inaccessible.

“It’s one of the biggest problems I’ve seen hit in the US,” said Mike Porter, president and CEO of New Horizons Baking Co. “So, the big question is how do we reformulate so that we’re not dependent on it? We’ve been looking at different technologies to use for our current products and still maintain the quality that our customers expect from us.”

Meanwhile, ingredient suppliers are having struggles of their own. The overall market volatility is also impacting some ingredient suppliers’ pricing strategies. In fact, Corbion has shifted to a three-month negotiation cycle for many accounts.

“Raw materials are incredibly difficult right now, particularly when trying to predict the future,” said Mark Hotze, VP, North America, for Corbion. “For our commodity inputs like flour and soybean oil, some suppliers can’t even provide a quote for 2022.”

“We are working with customers to get creative in how we manage these things, including adjustments on a much more frequent basis. It’s more work for us in the short term, but we are trying to provide as much relief to customers as possible.”

The impact of shortages for even the smallest item is has created a ripple effect that few could have predicted. And just as one ingredient prevents a baker from making a product, one shortage can set off a chain of events that could stop equipment production in its tracks.

For example, shortages and price increases for films and other packaging materials don’t just prevent the baker from packaging and shipping product. It’s also impacting packaging equipment manufacturers’ ability to complete new installations.

“When we start a project, we provide speeds and capacity based on assumptions, and the first thing we tell them is to identify the film supplier so they can develop a sample product,” said Dennis Gunnell, president of Formost Fuji Corp.

But if the film supplier is backlogged, the baker can’t develop samples, and the equipment can only be built based on those initial assumptions. It extends the equipment’s lead time and risks setbacks should the product configuration not be compatible with the machine.

Then again, if all goes perfectly on the equipment side, a packaging machine with no film is rendered useless, and it sits unused, either with the manufacturer or in the bakery.

“We need to get it out of our facility because our production floor is swamped,” Gunnell said. “But many customers don’t have the space, especially in new facilities that are dealing with setbacks from structural steel shortages.”

As the industry fights to anticipate where the next setbacks will come from — and who they will hit hardest — companies at every point of the supply chain are strategizing as best they can.

“We can talk ad nauseum about all our similar problems, but we need to identify what the next steps will be to get us back where we were,” Gunnell said.

But the stark reality is that there’s likely no going back. All manufacturers need to regroup and create a “new” new normal.

Up next, the group looks at how strategies, relationships and resource options are changing go-to-market strategies in the midst of disruption, and they weigh in on what the future holds.

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