Effective supply chain management (SCM) is essential for businesses in the food and beverage industry — or more specifically, having the flexibility to adapt to unexpected supply chain disruptions.
Oscillating consumer demands, changes to regulatory policies, and general market volatility are always on the menu, making access to working capital a key ingredient for successful SCM. Flexible financing solutions in the food and beverage industry help fuel growth, support operations, and mitigate risks.
Read on to explore the significance of working capital access in the food and beverage sector and how non-debt finance solutions, such as Accounts Receivable Finance (ARF), can help businesses navigate an unpredictable supply chain.
Consumer-Driven and Regulatory Impacts on the Food and Beverage Supply Chain
Consumer tastes reverberate through the supply chain. This has been particularly apparent since pandemic-era lockdowns, which fundamentally changed consumer preferences for food and beverage products and launched trends that continue to influence the industry.
Related developments include increased pressure for transparency around health and safety policies and environmental responsibility. Additionally, regulatory pressures have only continued to grow in the years following. The added pressure to justify the cost of groceries also promotes high levels of industry scrutiny, despite these pressures being felt across the supply chain.
As a result, businesses in the food and beverage industry face the challenge of capturing consumer attention while balancing an unpredictable supply chain and complying with more strict regulatory policies.
Supply Chain Management and Regulatory Compliance
Navigating food safety laws adds complexity to and emphasizes the importance of SCM. Developments in industry regulations underscore the need for businesses to adopt robust SCM practices that prioritize compliance while maintaining operational efficiency.
Businesses now face stricter food traceability recordkeeping measures, enhanced labeling standards, and more rigorous inspections. This will require them to implement comprehensive tracking systems to provide the granular level of traceability sought by the FDA.
As the U.S. Government Accountability Office (GAO) acknowledges, adapting to updated compliance requirements often requires significant, up-front financial investment. For example, the increased requirements around traceability will require additional staff and training for distributors managing large volumes of products.
But, if a business lacks the funds to implement comprehensive tracking systems, hire and train more staff, and meet other compliance requirements, they open themselves to costly recalls and legal issues. Plus, with consumer awareness at an all-time high, a lapse in compliance can significantly damage a brand’s reputation.
Accounts Receivable Finance and Supply Chain Management
Accounts Receivable Finance (ARF) is pivotal in SCM, especially for food and beverage manufacturers and distributors. By unlocking cash tied up in unpaid invoices, businesses can enhance their access to working capital and invest in the necessary technologies, labor, and processes to ensure compliance.
Unlike bank loans or traditional factoring, ARF provides flexibility to address unexpected costs and invest in supply chain improvements without incurring additional debt. By leveraging flexible financing solutions like ARF, businesses can navigate the complexities of regulatory demands and ensure a resilient and responsive supply chain. Embracing these strategies will be vital for companies looking to thrive in an increasingly competitive landscape.
Leverage Working Capital to Satisfy Consumer Demand
With the rise of social media and viral trends, businesses can find themselves in a unique situation: experiencing a surge in demand overnight. While this rapid shift presents a significant opportunity, it also poses major challenges for companies needing adequate access to working capital. Imagine gaining this level of demand for your product but not having the funds to purchase the materials you need to fulfill the influx of orders.
When products go viral or are similar enough to products that go viral to fill in with the consumer when shelves are barren, having the ability to meet that demand has lasting impacts. For example, Trader Joe’s is known for having an array of specialty foods, with frozen foods being particularly popular. When the retailer’s vegan interpretation of kimbap gained immense popularity seemingly overnight, it was cleared out of store freezers across the country. This had a ripple effect that impacted more than just one retailer.
When a comparable product appeared on Costco’s shelves, consumers noticed. However, many companies would struggle to meet such a sharp increase in demand. In this instance, the rise in demand for reliable access to a comparable product provided opportunities to other businesses, including small- and medium-sized businesses (SMBs).
Of course, internet virality is not required for a sudden onslaught of orders, and demand impacts not only retailers and wholesalers but producers, distributors, and manufacturers in the food and beverage industry. Farmers can experience similar situations, meaning they have to balance product surges with seasonal availability of crops and fickle weather.
Rapid changes in consumer demand also produce challenges for manufacturers in the food and beverage supply chain to overcome. For example, the fight to gain consumer attention often requires companies to innovate and develop new products to accommodate changing tastes. Offering more products results in added costs, even more so when combined with increased regulations around tracking food and beverage products.
Strategic Non-Debt Financing Solutions to Gain Market Share
SMBs often don’t have the same access to working capital as larger corporates, putting them at a disadvantage. Without sufficient cash flow, businesses might struggle to meet heightened demand, risking missed opportunities and lost revenue. But, if a business can stock the surge, they position themselves for success and set themselves apart from competitors.
Companies that leverage their accounts receivable can stabilize their production chains and position themselves for long-term success. ARF empowers companies to respond to immediate demands and use that momentum as a catalyst for expansion.
By unlocking capital trapped in unpaid invoices, businesses swiftly access the funds needed to ramp up production, hire additional staff, or invest in new product lines. When a business invests back into their operations, they can cultivate a cycle of growth, ensuring they remain agile and responsive to evolving challenges.
Navigating Supply Chain Challenges in the Food and Beverage Sector
Regulatory changes and demand variability aren’t the only trials businesses in the food and beverage industry have to face. Unfortunately, there is a plentiful portion of opportunities for disruptions across the industry, and uncontrollable factors majorly impact the global food supply chain.
Impact of Production and Distribution Disruptions on the Supply Chain
Unforeseen disruptions in the supply chain, such as avian flu, will impact available inventory — and sometimes the cost of omelets as a result. On top of disease, droughts can raise prices just in time to damper family gatherings. Businesses must adopt financial strategies to mitigate the risks associated with the industry.
Food and beverage companies are often reliant on transportation and distribution providers. As we’ve seen in recent years, these businesses can face delays and difficulties of their own.
Labor shortages or strikes (at multiple ports) could derail a perfect farming season and batch of product. Tragedies, anomalies, and other unfortunate events can halt shipping vessels and derail many businesses depending on that cargo. Surviving these storms becomes more manageable when a company has access to working capital, which makes ARF an essential component in any SMB’s financial strategy.
Due to the volatility, traditional bank loans or factoring often fall short of funding needs in this sector. By using a ARF as a standalone solution or in combination with other forms of lending, businesses can navigate turbulent times without taking on additional debt.
Funding Food and Beverage Manufacturing
Even if the necessary raw materials proceed through the supply chain unfettered by disease, drought, or delays, food and beverage manufacturers still face heavy upfront financial commitments that can significantly strain cash flow. In most cases, manufacturers must pay for the goods needed to produce their products upfront. This is a significant issue for companies that don’t have that cash on hand, and remember, there are also funds already diverted to labor and equipment costs.
These constraints and requirements make ARF an excellent option for food and beverage manufacturers looking to bolster their working capital strategies.
Case Study: Leveraging ARF to Fill Future Orders
Raistone has experience helping manufacturers in the food and beverage industry overcome obstacles to achieve growth. One of our clients didn’t have the cash they needed to take on the larger orders they were receiving. To capitalize on their product’s popularity, our client leveraged their receivables to gain access to working capital without taking on debt.
You can read the full case study here.
Accessing Working Capital in the Food and Beverage Industry
As consumer expectations rise and regulatory requirements tighten, businesses in the food and beverage sector must quickly adapt their offerings and navigate more complex order management processes. The food and beverage industry provides layers of complexity and uncontrollable factors, such as weather or disease, making agile SCM a requirement at all stages in the process. Businesses must adopt a strong working capital strategy to navigate a complicated supply chain.
Evaluating your supply chain strategies and considering how financing solutions can support your business objectives is paramount. By embracing innovative solutions like ARF, companies can improve cash flow, enhance operational efficiency, and position themselves for growth in a competitive market.
If you want to learn how Raistone’s non-debt solutions can help your business grow, call 888-626-6593 or fill out this form.
About the author
Kellen Bates serves as a Vice President on the Accounts Receivable Finance (ARF) Sales team at Raistone. He manages ARF programs across a wide portfolio of clients and is responsible for onboarding new clients and growing existing relationships. Prior to joining Raistone, he served as a Procurement Agent at Boeing where he managed relationships between raw materials suppliers and Boeing. While there, Kellen learned the importance of capital access for smaller suppliers working with large organizations utilizing extended payment terms. He holds a Bachelor of Science in Finance from Montana State University and is a CFA® charterholder.
