Corporate

The sun is shining, Wimbledon is about to start and it’s the height of the British summer. Time for a barbecue? That could be tricky.

Why is CO2 important?

CO2 is widely used in the food processing and drinks industries. It puts the bubbles in your lager, extends the shelf life of salads, meat and poultry, and is widely recognised as the most humane way to stun animals before slaughter.

What’s the problem?

A large amount of CO2 is produced as a by-product of the fertiliser industry. Consumption of fertiliser is higher in the winter, so many fertiliser plants close down in the summer for essential maintenance and repairs.

This year, too many plants across Europe (and in the UK) have closed down at the same time, whilst demand for soft drinks and alcohol has been higher than usual with warm weather and the FIFA World Cup.

Demand for CO2 is vastly outstripping supply, and organisations and feeling the pinch.

Who’s been hit?

Both Heineken and Coca-Cola have experienced difficulties, with the latter having temporarily paused some of its production lines.

Yesterday, Scotland’s largest pig processing plant was forced to suspend its slaughtering process and food wholesaler Booker imposed limits on its beer and ciders.

How long the shortage will go on for is not yet clear, but what it does highlight is the importance of good supply chain management – not just in the food and drink industry but across all business sectors.

Supply chain management

Our top four tips for effective supply chain management:

1) Monitor the supplier regularly (not just pre-contract!)

Be proactive – try to spot problems early by means of:

  • Credit monitoring
  • Your own checks
  • Speaking to others who deal with the supplier
  • Checking the press for relevant coverage
  • Visiting the supplier’s premises to check for issues (e.g. stocks of materials, operation of production lines, number of staff present etc.)
2) Monitor the supplier’s performance

The individual(s) responsible for supplier monitoring must be familiar with the relevant provisions of the contract and have the necessary resource to do their job. The key issues to bear in mind:

  • Service levels (and related service credits, if appropriate) should be clear and capable of objective measurement
  • Managing information / reporting obligations – be aware of what management information you are entitled to receive, check that you’re receiving it, read it and query it
  • Contract governance structure – who are the parties’ representatives? What are their responsibilities? How are issues to be resolved under the contract? Once you understand the contractual framework, use it to your advantage
  • Audit and inspection rights – if you have them, use them!
3) Exercise contractual rights and use your contracts to your advantage

You should be aware of your rights in respect of performance failure and exercise them:

  • Reject deliverables / require remedy for defects
  • Collect service credits
  • Push for any related remedial / service improvement plans
  • Know your rights to terminate for breach and threaten to use (and use) them as appropriate – bear in mind that repeated acceptance of performance failure could result in your waiver of these rights
4) Ensure your supply chain arrangements are consistent

You should make sure that your supply chain arrangements tie up with other arrangements:

  • Key provisions should be consistent between your obligations to your clients and the obligations you pass on to suppliers
  • Don’t get caught between your clients and suppliers in terms of liability

Conclusion

Good supply chain management will help you to mitigate commercial risks and soften the blow should the unforeseen and undesirable happen.