KANSAS CITY, MO — In 2020, bakers mastered the art of resilience beyond any measure up to that point. Today, in what many may consider to be “post-pandemic,” the country is on an upswing. And as consumers emerge from lockdowns, demand is up, unemployment is down and many baking companies are working hard as ever, riding waves of growth.
The future looks bright, right? Not so fast.
These days, consumers can’t look at the news without learning about the latest shortage or price hike for products ranging from lumber, steel, gas and cars to foods and beverages. It may be safe to say that no market is safe.
In fact, while business is booming in the baking industry, the balance of supply, demand and labor has been knocked completely off its axis.
This is supply chain disruption of epic proportions, and those supplying equipment and ingredients to commercial bakers are finding themselves in a conundrum unlike anything the industry has ever seen.
To ascertain the depth and breadth of this disruption, a group of industry executives representing equipment, packaging and ingredient suppliers, as well as BEMA and the American Bakers Association (ABA), assembled to examine the volatility of the situation and determine next steps in identifying solutions.
“To me, it’s not just supply chain disruption,” said Clay Miller, president of Burford Corp. “It’s a one-two punch of capacities being maxed out. Last year, there were some segments of the industry that were struggling with capacity, but now, it looks like most everyone is peaking because of cashflows that came in from record years.”
Kerwin Brown, BEMA president and CEO, observed the implications — positive and negative — for the industry, especially BEMA members. “Several of our equipment members are saying it’s the best year they’ve ever had, and their customers are investing more than they have in years,” he said. “But that means with these disruptions, they’re struggling to meet demand.”
It’s a bottleneck, to say the least. And access to materials like lumber are creating ripples that impact the bakery supply chain, creating disruption for things like pallets and shipping cartons. While some early predictions forecasted the bottlenecks to loosen by summertime, predictions are now that this could last well into 2022.
While it’s easy to blame the pandemic, that only scratches the surface; COVID-19 was just the beginning. Added complications such as trouble in the Suez Canal, the extreme winter weather and the Colonial Pipeline shutdown have exacerbated the situation. This is a perfect storm.
“In this situation, every company is impacted, so we’re all global companies,” said Mark Hotze, VP, North America, for Corbion.
Worldwide container issues have yet to be solved, leaving shipping containers stockpiled in the wrong locations at ports around the world. Additionally, according to Deloitte research, almost half of the Fortune 500 companies have a presence in China, specifically Wuhan, and are still reeling from the onset of the virus. Many factories that manufacture Tier 1 and Tier 2 supplies were not operating at full capacity until well into 2021, causing serious inventory issues and exacerbating those lead times.
“Most of our OEM partners’ lead times are up by about 50%,” said Vince Tamborello, VP of business development for Benchmark, a ProMach company.
That is seriously impacting lead times for Benchmark projects for large integrated systems. In fact, a lead time that was 20-30 weeks two years ago, now looks something more like double that.
“In this situation, every company is impacted, so we’re all global companies,” said Mark Hotze, VP, North America, for Corbion.
“The shortest lead time for any vendor on a given project is about 40 weeks,” Tamborello said. “Previously, it was as short as 20 weeks. Now, almost every supplier is at about 30 to 40 weeks.”
But don’t count on that to be the norm. Lead times are changing every month — sometimes even faster — depending on the availability of secondary materials needed to manufacture the equipment.
Domestic transportation has also been a major issue, with the labor shortages impacting available drivers as well.
“It’s a drivers’ market right now,” Hotze said.
Any routes that are less than a truckload (LTL) are going to the highest bidder, and that can put bakers and suppliers in a pickle.
“If you have a shipment lined up to take a route, but a better option becomes available, the driver may take that job instead,” he added. “That impacts not only customers and how they ship their products but also how we get our ingredients to our customers.”
Some companies have the means to monetarily guarantee those routes, but for the average manufacturer, freight costs are being impacted … and in some cases, passed on to the customer.
Ingredients aren’t just hard to ship. Some raw materials are downright hard to find in the midst of the disruption. And those that are available come with a hefty price tag as well.
For Robb MacKie, ABA president and CEO, it’s reminiscent of the wheat crisis the industry faced about a dozen years ago, when flour prices saw increases higher than 150%.
“The price of flour today is pretty close to what it was at that time,” MacKie said.
What’s more, gluten is facing a shortage as well. “Who would have ever predicted we’d see a gluten shortage?” MacKie asked. “But it’s happening.”
And the implications reach further than the milling side of things. It means increased demand for ingredient suppliers who can help bakers stretch their gluten usage. For example, some dough conditioners can reduce or eliminate added gluten in formulas, mitigating the dependence and stretching tight supplies, Hotze said.
The shortfalls in machinery and raw materials have bakers scrambling for solutions — and scooping up everything they can the minute the resources become available.
So, in some regard, equipment and ingredients are to commercial bakers this year what toilet paper was to consumers in 2020.
“If a baker saw this coming, he may have gone out and scooped up a bunch of Allen Bradley components they thought were in high use for the bakery,” said Shawn Moye, VP of sales for Reading Bakery Systems. “But when that happens, one baker has 20 components and a two-year supply, and another baker has zero.”
The propensity to panic-buy is a natural inclination when shortages become visible.
“What happens when people get behind? They think, ‘I better order more,’” said Lisa Anderson, founder of LMA Consulting and speaker on supply chain for manufacturing. “They’re over-ordering, which is causing even more delays.”
Anderson did not participate in this core group discussion but does consult on supply chain and manufacturing for several industries including food and beverage.
The suppliers in this group agreed that panic buying is far from a solution. However, looking at the long lead times and thinking about capital investments for a bakery’s projected needs longer-term, could alleviate some of the pressure.
“When bakers fast-forward some of the projects that can be, it can soften the blow a little bit because then everyone isn’t in a ‘we need it yesterday’ mentality,” Miller said. “If 10 or 20% of bakers could jump ahead of the curve a little, it could help.”
That said, it’s hard for bakers to forecast accurately when the landscape changes so quickly and drastically. “We have to forecast what the growth is to ensure we have enough materials and other supplies,” Anderson noted. “The question becomes, ‘Can we forecast what that growth is?’”
Additionally, stepping out of the “need it yesterday” mode is challenging when the consumer demand is such that bakery customers can provide little wiggle room.
Bakers have to prioritize communication with their customers to navigate price increases and the implications of lags in the supply chain if there’s a chance to get their heads above water. Retailers might be strict on their lead times and quick to shop around based on price, but the supply chain volatility will at some point require more flexibility across the board.
As more light is shed on the complexity of these issues, perhaps bakers will be better armed to ask for that flexibility and not feel pressured to give in to those retailer demands.
That said, the supply chain disruption does not have a simple or direct root cause, and that means finding a solution that is multi-faceted.
As the situation unfolds, this core industry group plans to meet regularly in partnership with Commercial Baking, developing a task force and other materials to further unpack the problem and identify new ways to navigate the supply chain moving forward.
To offer suggestions and feedback, contact ABA or BEMA to find out how to participate, or email joanie@
