VIEWPOINT

2023

STRENGTHENING
RESILIENCE IN FOOD
& BE VER AGE PRODUC T
DEVELOPMENT
Building supply chain security throughprocurement & product development
innovation

AUTHORS
Phil Webster
Kajetan Widomski
Marten Zieris

The food and beverage industry is experiencing

Isabel Wessling

rapid, unpredictable disruptions driven by supply

Nicholas Johnson

scarcity and commodity price fluctuations. This

Christophe Perthuisot

presents an existential challenge in getting safe,
consistent products to market. In this Viewpoint,
we identify practical actions to strengthen
resilience and build supply chain security througha combination of supply chain innovation andimproved product development approaches.

ARTHUR D. LITTLE

VIEWPOINT

A COMING AP OCALYP SE ?

These factors dramatically affect food supply

The food and beverage industry is increasingly

farm labor shortages are increasing, andcomplex, with a typical processed food productcountries are banning the import/export ofincluding more than 20 ingredients sourced

certain commodities. Food prices are spiking,from around the world. The industry is grappling

most recently rising 21% between 2019 and 2022,with a perfect storm of supply chain risk andfaster than at any point in the last 50 years (seeunpredictability caused by conflicts in Ukraine

Figure 2), a situation described as “apocalyptic”

and the Eastern Mediterranean, skyrocketingby the governor of the Bank of England.

chains: fertilizer production is more expensive,

energy prices, the after-effects of labor disruption
from pandemic, regulatory fragmentation, national
protectionism, and uncertain harvests (see Figure 1).

Figure 1. Factors influencing the global food industry
Figure 1. Factors influencing the global food industry
Political
Global conflicts
Sovereignty trends & nationalism

Legal & regulatory
Protectionism over exports
Economic sanctions

Environmental
Stringent & fragmented regulations
Long-term climate change &uncertain harvests

Economic
Rising energy prices
Commodity price increases

Technical
Novel ingredients
Disruptive innovations
Emerging technologies

Social
Low-skilled labor shortage in developed markets
High consumer expectations on new products
Source: Arthur D. Little
Figure2. FAO Food Price Index in nominal and real terms,
1960–2023

Figure2. FAO Food Price Index in nominal and real terms, 1960–2023
Source: ArthurD. Little
1972

2014–2016 = 100

1974

2009

+18%

150

2020

2011

2022

+21%+12%

145

+19%
100

100
RealNominal

50

2006

2008

2005

2010

01960

1965

1970

1975

1980

1985

1990

1995

2000

2015

2020

Note: Consists of average of five commodity group prices weighted with average export shares of each group, 2014–2016. Commodities include meat, cereals,dairy, vegetable oil, and sugar; nominal values are current monetary values; real values are adjusted for inflation
Source: Arthur D. Little, Food and Agricultural Organization (FAO)

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT

Note: Consists of average of five commodity group prices weighted with average export shares of each group, 2014–2016. Commodities

2ARTHUR D. LITTLE

VIEWPOINT

Future spikes and falls are expected to becomerather, it’s a new normal in which complicatedmore frequent and more significant. Sharp, fast

global value chains will experience more frequent

increases in many food commodity prices are theand impactful disruptions, necessitating

result of export bans and restrictions, particularly

quick-fire changes in product composition

on rice, wheat, and citrus (see Table 1).

and ingredient choice.

Against this backdrop, food companies must

Change must come from two areas: (1) the way

always seek consumer delight by rapidly launching

agricultural commodities and food ingredients

exciting products while ensuring food remains safe,

are sourced and (2) how product development

legal, and affordable and enabling a shift towardtakes place. There are a series of levers thatsustainable, climate-resilient food production. They

organizations in the food, beverage, and wider

also must adapt to the availability of novel, natural,consumer packaged goods space can pull toand plant-based ingredients and integrate newbuild resilience in supply chains and producttechnologies into products and processes.

development. They include anticipating potential
issues, making the right decisions, working

BUILDING RESILIENCE

with the right partners, and delivering the rightSome think these are impossible times. Others areexplore each of these eight levers in detail below.

products and ingredients (see Figure 3). We

calmer, believing current headwinds will diminish.

ble 1. Commodity
priceattributedto export
Many
leadersfluctuationsin this sector have concluded
thatns and restrictions
the trend toward increasing complexity anddisruption is not a wait-and-see situation —Table 1. Commodity price fluctuations attributed to exportbans and restrictions
COUNTRY

COMMODITYPERCENTAGE
EXPORTEDPRICE INCREASE
H1 2022

India

Rice

33%

12%

Russia

Wheat

18%

9%

Turkey 3. Strengthening
Citrus14%
Figureresilience
in9%supply chain andproductdevelopment
Source: Arthur D. Little,
World Bank

Figure 3. Strengthening resilience in supply chain and product development

Anticipate

Decide01

Supplye: Arthur D. Little, WorldBankchain05

Productdevelopment

Product
development
process
modernization02
DeeperUnderstandingof ingredient
substitutions

Real-timecommodity
price foresight

DeliverPartner
03
Risk-based
supplier
development

06
Real-time
product portfolio
decision-making

04
Supply chainregionalization

07
Greater flexibility
in R&D ecosystem

08
Recipesimplification& accelerated
formulation

Source: Arthur D. Little

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT

Source: Arthur D. Little

3

ARTHUR D. LITTLE

VIEWPOINT

Building supply chain resilience
Supply chain resilience involves having better
visibility into upcoming shocks in the supply
chain, developing ways to quickly substituteingredients when issues arise, and working moreclosely with increasingly regionalized suppliers toproactively manage risks.
1. Real-time commodity price foresight
The procurement function in large foodcompanies lives and dies by correctly forecasting
the price of commodities. Many use sophisticatedtools such as Gro Intelligence to model andforecast risks and prices. A remaining challenge
is how to convert macro-level intelligence into
micro-level insights and foresights, factoring inessential considerations, such as links between
commodity prices, food quality and safety, andsustainability credentials of supply chains.
Achieving this requires considering a broader
evidence base than conventional price forecasts.
Arthur D. Little’s (ADL’s) AI Competence Center
recently combined market foresight data with
unstructured data from press releases, analyst
reports, and social media to predict spikes andtroughs in commodity prices in near real timeand found error margins of <5%, compared to
16% using conventional market-forecasting

In response, large food and beverage companies are
moving toward more globally consistent material
risk assessments and ingredient characterization,and further value can be added by characterizing
how ingredients interact with each other (so thatit does taste right) and making databases of thisinformation universally available to worldwide
product development teams.
3. Risk-based supplier development
based on ingredient criticality

Working collaboratively with growers or farmers
to, for example, improve farming practices andminimize supply chain losses can help safeguard
against disruption and build resilience. Not
every supplier can be supported intensively, but
those that represent a greater risk in security
and continuity of supply (both consumer andreputational risk) can be prioritized.
This is especially important for high-value
produce. For example, a large food and beveragecompany in the premium coffee space identified
business continuity and quality risks among its
growers in Vietnam and started working withthem to ensure consistency and quality of supply.
This requires a risk-based approach to supplierassessment, followed by capability development
support for key suppliers.

techniques. The key difference is the generation

4. Supply chain regionalizationof actionable insights for decision-making inConsumer desires for locally sourced foods

near real time.

present an opportunity to re-localize supply

2. Deeper understanding ofingredient substitutions

In times of scarcity or disruption, ingredientsand commodities can be substituted for one
another, but this requires a deep understandingof ingredient interactions and what the exchangemeans for product performance, food safety, andchains to more regional models, although foodand beverage production may become moreseasonally dependent. This can create a profoundshift in how procurement divisions are set up andoperate, as well as how ingredient availability
informs product launch cycles and feeds intoadvertising and marketing considerations.

regulatory requirements (e.g., allergens). There isOrganizations such as Jeni’s Splendid Ice Creams

also a huge reputational risk in substituting anin Columbus, Ohio, USA, are embracing supply

ingredient if there’s a chance consumers will feel

chain regionalization and seasonality as a key

a well-loved product doesn’t “taste right.”

differentiator. Summer, spring, and fall flavor
collections become a product differentiator,
for instance, in addition to making use of locallysourced ingredients at their optimal freshness.

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT4ARTHUR D. LITTLE

VIEWPOINTP R O D U C T I N N O VAT I O N
R E S I L I E N C E TA K E S
PRODUCT DEVELOPMENTA STEP FURTHER

6. Real-time product portfolio
decision-making

Bringing clear value and margin objectives into
product portfolio reviews can help eliminate
underperforming products and make scarceor critical commodities more available for themost valuable parts of the product portfolio.

Building product development resilience
Product innovation resilience takes productdevelopment a step further by involving a greater
understanding of how ingredients interact,
simplifying recipes and product portfolios, andmaking data-driven decisions on how to use awider ecosystem of co-innovators and partners
in the event of a supply chain disruption.

Systematically creating ingredient-availability
scenarios at the product level can help stresstest these decisions (see sidebar “Reducingthe cost of complexity”). The ideal target state
involves linking these decisions in real time toconsumer insights and, ultimately, to promotions
and demand shaping to influence consumers to
buy more resilient products. As far as we know,
this is yet to be realized.

5. Product development processmodernization

Product development involves multifunctional

Reducing the cost of complexity

teams from within and outside companies

ADL recently worked with a large consumer

involved in ideation, design, and scale-up, often

goods company to prevent ad hoc supply

through a series of test-and-learn experiments

chain shortages and reduce resilience risks

and decision points. By building resilience-based

associated with complex formulations. Thisdecisions into each decision gateway during

involved identifying the main drivers of

this process and ensuring foresight regarding

complexity in the product portfolio and theingredient availability, the final product can

raw materials and ingredients affected bybecome more resilient.

them. We then developed new governanceKey questions to ask include:-approaches to guide resources toward themost profitable products. The result was

Does our new product require ingredients

reallocation of procurement and productavailable only from a small number ofmanagement resources to the mostsuppliers?

valuable parts of the product portfolio.

- Have these ingredients been susceptible toshortages or price fluctuations in the recentpast?

- Does the ingredient or commodity come withany inherent risks or risks associated with how
it is produced, farmed, or manufactured?

- Are there obvious substitutes to ingredientsshould one become scarce?

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT

5ARTHUR D. LITTLE

VIEWPOINT

7. Greater flexibility in R&D ecosystem

8. Recipe simplification &Some food and beverage producers are partnering

accelerated formulation

with external manufacturers and productAs recipes and stock-keeping units (SKUs)

developers to move into new geographies andproliferate due to incremental changes to flavors

product categories. This can create resilienceand packaging, different types of ingredients are

by identifying co-developers with similar

needed from more places. This increases bothformulations (rather than changing existingtime and effort when switching from one recipe

recipes and lines) to safeguard against short-

to another, as well as knowledge fragmentation

term ingredient shortages.

across the organization. Recipe simplification,

A rise in contract R&D organizations with specificskill sets that seek to decouple food production
from agricultural production is creating newoptions in areas like alternative protein. For
example, Bio Base Europe, a pilot facility in Gent,underpinned with a comprehensive understandingof how ingredients interact, can alleviate thiscomplexity. This lets manufacturers quickly test
interactions between ingredients and move straight
to a new formulation, avoiding extensive testing.

Belgium, provides process development, scale-up,Organizations such as the Materials Innovationand custom-manufacturing services for novel

Factory at the University of Liverpool, UK, arebio-based ingredients.

working with companies like Unilever to developing
artificial intelligence and robotics-enabledapproaches, applied with a more profoundunderstanding of materials science to enable rapid
formulations of cosmetics and home care products.

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT

6ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONE X P L O R I N G W H AT ’ S N E X TW E M U S T C H A N G E T H E W AY C O M M O D I T I E S
ARE SOURCED AND HOW PRODUCTD E V E L O P M E N T TA K E S P L A C E

Future consumer goods companies will experience a more uncertainworld. To ensure continuity and resilience, we must change theway commodities are sourced and how product development takes
place. This requires new thinking in supply chain setup through amore distributed and dynamic approach, along with new ways ofdeveloping products with simpler products and more flexibility inthe R&D ecosystem. Consider the following as key enablers:1

Data-driven decisions linking foresight over commodity pricefluctuations to deep, proprietary insights about ingredient
substitutions and their implications for recipes help
companies better understand how to work with suppliersand co-innovators.

2

Strong relationships and seamless data sharing between
departments, along with extensive co-innovation between
consumer goods companies and the agricultural commodities
businesses that supply them, facilitate the invention of more
resilient commodities.

3

Clear processes and an institutional appetite for change
and transformation within and outside the confines of asingle business create enthusiasm to explore “what’s next.”

STRENGTHENING RESILIENCE IN FOOD & BEVERAGE PRODUCT DEVELOPMENT

7

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