Brands dealing with requirements and regulations undergo an especially tough journey to getting their products on shelves. A fault in the supply chain brings the risk of regulatory action, and there may be far fewer available sources for the raw materials these companies need. The added complexity and caution needed to manage such a situation make a textbook case for strategic sourcing.
Thinking of sourcing and procurement as high-level processes worthy of frequent consideration and discussion, rather than simple transactional matters, can transform the way a company thinks about its operations. When there are legal requirements to consider, this level of focused sourcing is likely the starting point, rather than the goal.
The organic challenge
Food brands seeking organic certification fall into this category of regulated companies with a need for constant supply chain oversight. Supply Chain Management listed the issues facing these companies, including the requirement that firms keep a close eye on the chain of custody. Ingredients can cross international borders in their trip from farms to processing. It's not unheard of for mistakes to occur on these long journeys. The source mentioned that in some cases, there have been instances of fraud by ingredient suppliers claiming to have organic certification.
Each rung on the organic supply chain has a pronounced effect on those following. Supply Chain Management noted that if non-approved cattle feed had made its way to an organic dairy farm, the effect on that company and any other that uses its milk would have been enormous. Losing organic status could be hugely costly for companies that have sold their items this way and set prices to reflect the expense needed to stay organic.
Planning for the future, and thus performing strategic sourcing, will prove essential in the organic sector. Supply Chain Management noted that demand for certified organic products is high, with supply lagging behind. This means that companies must invest in beginning the process of converting food crops from normal growth practices to organic ones. That switch takes a minimum of three years to accomplish. The relationships between brands and their ingredient suppliers will likely be complex and far-reaching.
Setting an example
Rochester-area newspaper the Democrat & Chronicle demonstrated the lengths popular brands are going to when setting up their organic sourcing operations. Wegmans, an expanding supermarket chain, now operates a network of farms using organic procedures. This group has been a work in progress since 2007, with Wegmans adding an orchard and vineyard to its farming operations. The grocer's properties are used as test grounds for new organic growing methods that could be exported to other farms.
If the processes used at the test farms prove to be both affordable and effective, Wegmans will be one of the parties reaping the benefits. The Democrat & Chronicle pointed out that Northeastern farms growing organic produce could easily become new sources for Wegmans. The company is encouraging the farmers already in its orbit to stay the course with organic growing, cultivating a supply chain that could serve it in years to come. This is a long-term and complicated sourcing operation that could pay dividends.