State of the supply chain (full story)

State of the supply chain (full story) https://wahospitality.org/wp-content/uploads/2021/11/seattle-port-for-supply-chain-snip.jpg

State of the supply chain part 1: The future is uncertain; certainly not improving overnight

This is the complete story (parts one and two) of our two-part conversation with distributors about the supply chain as it relates to the hospitality industry.

As the end of 2021 draws near, uncertainty in the supply chain and labor markets linger. To provide some clarity, Washington Hospitality Association President & CEO Anthony Anton asked distributors to share their experience and offer advice for operators hoping to weather the storm.

Answering our questions were Randy Irvine, president of Harbor Foodservice; John Klein, executive vice president for the Pacific Northwest for Southern Glazer’s Wine & Spirits; Kristine Bowen, region president for Sysco – Pacific Northwest; Ray Sprinkle, CEO/president for URM Stores.

How is the labor shortage impacting warehousing and distribution?

Irvine said that while a truck driver shortage has been a huge issue for quite some time, the pandemic created a trifecta of new ones. The pandemic caused a shift in production to favor goods that are sold directly to consumers. In the summer, demand swung sharply in the other direction after businesses started to open again. The existing labor shortage compounded the issue and put strain on the industry as a whole.

Klein agreed and said the pandemic also added to the downward spiral by hurting retention. Klein said they used to work their teams at about 5-15% overtime. But this year that figure has risen dramatically, completely outstripping all the algorithms they use for staffing. “We’re dealing with something we really have never seen before,” Klein said, “and it’s only going to get more challenging.”

Bowen said that “the pandemic has worsened the national driver shortage that began several years ago. Sysco also mentioned labor shortages are affecting inbound suppliers that deliver to them, including their supplier partners and third-party carriers.”

Sprinkle said URM is also challenged in the warehouse where they are hiring every day if they can find qualified candidates.

Are things getting better?

Irvine said that they are currently seeing some relief for their workers, but not because a wave of new applicants is pouring in. The end of the summer meant that there was less demand from the hospitality industry as business slowed after August.

Anton mentioned that before COVID-19 he would tell people the biggest problem facing the hospitality industry was a shortage of cooks, but now it’s starting to look like it’s a shortage of truck drivers.

“It’s both,” said Klein.

Do you have additional insight?

Not all regions are created equally in a supply crisis. Klein explained that markets like New York and Florida will be less affected because their density and proximity to multiple other markets make them more cost efficient. Supply systems will naturally allocate to those big population centers first, but more remote and less dense markets like Portland and Seattle will be impacted by supply.

Slowdown at the ports: Earlier this year the truck driver shortage seemed to be the main issue for the supply chain. Food and supplies were available, but transporting them to the consumer presented problems. Now, the slowdown at the ports is presenting an equally important problem.

Bowen said, “the ships held up at the ports are a huge logistical issue and it’s unclear when that will be resolved. While the slowdown at the ports might not seem like an issue for restaurants that use local suppliers for their food, there are downline affects from that bottleneck. For instance, if fewer products arrive at stores for the holiday shopping season, consumers may shop less, and may frequent foodservice establishments less often. Finding new ways to attract holiday diners or offering catering for holiday parties will be important.”

“It’s going to get worse, it’s not going to get better,” Klein said. “If you can’t get product in through the ports, you can’t get product to the consumer.” Klein said that after events that disrupt the supply chain, like the shutdown of the Suez Canal, there is usually a 30-45-day lag before we see the consequences here. For example, they took additional steps to make sure their champagne order would get on a container this year. They put their order in three months early and prepaid to reserve a container. Despite doing everything they could, the product on shipping containers is out of their hands and the slowdown at the ports is going to have “a very negative impact in terms of what the consumer will see in November and December.”

Raw materials shortage: There is a shortage of a growing number of materials as well. We are feeling the effects of paper, glass, aluminum and other biproducts within the supply chain that were squeezed by reopening earlier this year. Klein said when things reopened, businesses rushed in to buy up the products distributors had, and consumers quickly used them. Klein expects glass to be one of the worst shortages.

During the pandemic, people started to drink more, and demand outpaced any of their estimates by far. Producers had to adapt, shifting production from the bottle sizes that restaurants and bars typically purchase to the bottle sizes purchased directly by consumers. When businesses started reopening, they were being hit on both sides and the industry is already starting to feel it. Tequila has seen especially large increases in consumption and an agave shortage is on the horizon as well. Restaurants won’t necessarily see outages across the board, but certain categories are expected to be especially troublesome like champagne, cognac and tequila which could see a 15-20% shortage. And this won’t be changing any time soon, said Klein. “We’re waiting for the supply chain to catch up, and it’s not going to.”

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The following is the second part of our conversation with distributors about the supply chain as it relates to the hospitality industry. In this section, we seek advice on how operators can successfully navigate the coming months.

State of the supply chain pt. 2: What can operators do?

This is part two of our two-part conversation with distributors about the supply chain as it relates to the hospitality industry. In the first part, we asked distributors about the current state of the supply chain and labor shortage affecting us all. In this article, we seek advice on how operators can successfully navigate the coming months.

Answering our questions were Randy Irvine, president of Harbor Foodservice; John Klein, executive vice president for the Pacific Northwest for Southern Glazer’s Wine & Spirits; Kristine Bowen, region president for Sysco – Pacific Northwest; Ray Sprinkle, CEO/president for URM stores.

Any guess of when the supply chain might normalize?

“[I] wish I had a crystal ball. I believe we are six months to a year away,” Sprinkle said. Sprinkle’s biggest upcoming concern is getting the inventory needed and manufactures need to catch up with demand.

Irvine agreed that everything he has read says we’ll be in this situation for at least another year. The slowdown at the ports also doesn’t seem to have an end in sight. Klein said he had heard estimates that the bottleneck would be cleared by the third quarter of 2022 and now he’s hearing that the first quarter of 2023 is more likely. Bowen said that predicting the future and putting a date on when things will get better is a tough call. Operators should continue to be flexible and stay informed.

What should hospitality operators be preparing for?

Irvine listed the rising cost of goods as the thing operators need to prepare for most. Cost of goods inflation is stemming from a lot of different areas, and his company is getting regular notices of 5-15% increases in cost of goods – and food prices don’t ever go down. Irvine said his best advice would be to expect them and raise prices now to prepare for increased costs tomorrow.

He added that tin is expected to quadruple in cost, which has a ripple effect across the industry. While you might be buying a case of soda for the goods inside the can, you are also paying for the cost of the can, the vessel, the packing material, the labor and everything else associated with getting goods to the end user. Nearly all the costs factored into the production and transport of these goods are rising right now.

What advice can you give members to help them succeed in the coming months?

Communicate: This was a theme throughout the association’s discussions with distributors. Businesses that adapted and thrived during summer shortages were the ones that could be flexible and plan ahead. The consensus was that over communicating with your trusted supply representatives is more important than ever.

When it comes to communication, Bowen said “it’s really important to have a trusted business partner to rely on for current market information. At Sysco, the sales team gets a report each week that details supply shortages impacting the entire industry so operators know what to expect. Be sure to ask and engage on any new information each week from the Market Corner.”

Approach your menu differently: 

Bowen’s advice for operators is to “reduce or streamline your menu for efficiency. Something a lot of operators learned to do early in the pandemic was make sure they weren’t ordering food for just one or two menu items. With supplier product shortages, operators need to be aware of or seek acceptable substitutes for an item. Sysco is working to find new sources of supply as well as sourcing alternatives for products that may be in short supply. Accepting a substitute can often be better than not receiving product at all. Plan to meet regularly with your Sysco sales consultant to stay on top of product availability and suitable alternatives.”

Irvine mentioned that restaurants can be more accepting of alternates and work with your rep proactively to identify potential replacement ingredients should your specific item be unavailable for a period of time.

Inventory/ordering management:  Sprinkle recommended maintaining heavier inventories, if possible due to the unpredictability of these supplier issues. Irvine also suggested operators need to take advantage of where they can buy and plan ahead to order quantities for a few weeks at a time if possible – not just a day or two.  In addition to ordering larger quantities, getting less frequent deliveries and pooling your orders with nearby restaurants are examples of collaboration and flexibility that he has seen work.

The sun will rise again

Despite the gloomy forecast, there was optimism in the air. “I really want to encourage people that there is hope on the horizon,” said Irvine. “The industry will thrive again and this challenge we’ve got right now can be overcome if people can work together.”