Why being close to your suppliers reduces your risk in a time of a crisis
Sustainable practices and being close to your suppliers can help build the strength necessary to weather a crisis says McCormick, a flavour company that sources locally but operates globally
When it comes to the story of globalised production and trade, you need look no further than the spice trade. It was the reason that explorers ventured on perilous journeys across oceans and continents in search of ways of bringing products back worth more than their weight in gold. Before almost any other set of economic goods, spices were being transported trans-continentally in an integrated trade system. One company still navigating this environment is US-based food company McCormick, which specialises in spices and flavours. We sat down with Brant Matthews, the company’s Vice President of Global Strategic Procurement, to see how they are handling a 21st Century crisis in this oldest of trades.
With very minor exceptions, we’ve been able to keep our supply functioning smoothly
“We have an extremely complex supply chain,” concedes Matthews, encompassing “over 14,000 raw materials from over 85 different counties.” Despite this unenviable complexity, McCormick has been able to keep business running without too many hiccups. “With very minor exceptions, we’ve been able to keep our supply functioning smoothly. So, we haven’t had any significant shortages throughout all the different phases in all the different countries,” says Matthews, adding “I don’t want to jinx it.”
So, how have they been able to keep their supply chains running even as other processed food manufacturers have faltered?
The key, says Matthews is to have a degree of agility within supply chains but also to build them the right way, so you have a wide network of suppliers that have their own degree of resiliency.
We have shortened our value chains where we could
“I think it really, really reinforces what is going to be a key priority coming out of this from a supply chain perspective, which is the resiliency of supply. The resiliency of the supply chains to be able to, in an agile way, adjust to shocks to the system.”
There have been several pieces to this. “Firstly, we have shortened our value chains where we could,” so that the brand has very few steps to reaching the original source producer. This has improved “our ability to understand where we produce, how we produce, back to the farm level, the primary manufacturing from a lot of areas,” meaning “we’ve got good transparency and visibility through that.”
China is, and continues to be, a bit of a crystal ball on how things happen and what things look like after they’ve happened
That visibility helped them to start building strategies early on and reacting before others. “We’ve got a global network that we’re [using to share] insights across the globe and what’s happening when. China is, and continues to be, a bit of a crystal ball on how things happen and what things look like after they’ve happened. We are fortunate, we have not only some very, very good supply partners around the world, but McCormick employees at a lot of our key origins as well so we are able to, first-hand, know what was happening. We are able to know first-hand what’s going on in India now with the different lockdowns and different challenges that we have [there]. We are manufacturing in Italy for example as well. So, we are able to really sort through all of the news and the communication and what was being shared to get a really first-hand view, on the ground, for what the real situation was and on how it was going to develop.”
This local intelligence is a helpful side effect of McCormick’s strategy of shortening supply chains and trying to produce and process as close to the point of sale as they can.
When it comes to the producers of the crucial ingredients themselves, it also helps to have sustainable business practices that help give those producers financial support and incentives that make them more able to weather changes in conditions.
Most of those producers “are primarily farmed by small holder farmers in developing countries located along the equator,” which makes them potentially vulnerable to supply chain shocks. By figuring out “where the pain points are with our farmers, with our sourcing communities, where our herbs and spices are coming from and [then to] really address those pain points,” McCormick is able to address many fundamental community- and farmer-oriented issues.
There are some inherent challenges in Madagascar, from a community perspective, from a poverty prospective, from a weather volatility prospective
This goes to the heart of protecting McCormick’s supply chain and brand, especially with their core products. “With our 5 iconic herbs and spices that we have identified, we get a lot deeper and a lot broader through our Purpose Led Performance program.”
“For example, vanilla beans come from Madagascar. There are some inherent challenges in Madagascar, from a community perspective, from a poverty prospective, from a weather volatility prospective,” explains Matthews. The programs help by “eliminating steps in the process, so we are setting up our supply chains in the most direct way possible, and by doing that, we can get access to the farmers that are actually growing the vanilla beans and understanding the pain points that they have – really designing our sustainable sourcing programs to get after this.
“A challenge that the vanilla farmers have, is normally for vanilla, it’s harvested once a year. They harvest the vanilla, in some cases they will cure it, they will do an additional step and they sell that and get paid once a year, which is primarily their subsistence that they rely on. So, one of the areas that we focused on is to set up a village savings and loan association to help bridge the year for them, to bridge the time for when they would be getting income and things like that.
With COVID-19 and the world we are living in now and working our way through, our ability to access product and enough supply to keep our customers supplied is critical
“Obviously, that helps them from a cash flow prospective, but it also helps drive out some bad behaviours in the value chain with harvesting vanilla early. It helps the farmers from being taken advantage of by other folks, which may give them a loan at a really unreasonable rate or have them sell their vanilla at a bad price as well. That’s just one example of really trying to understand what the pain points are and putting solutions in place that get after those pain points.”
Going this deep into their supply chain and working directly with the suppliers to make them more resilient and more tightly integrated into the company supply chain has therefore been a major source of resilience in this current turbulent period.
Providing “a lot of good agricultural practices to the farming communities not only drives quality levels, which then directly translates into our benefits for our consumers with those quality levels and their flavour, but also improves the economics for the farmer. The farmer gets the benefit of that and importantly, I would say, with COVID-19 and the world we are living in now and working our way through, our ability to access product and enough supply to keep our customers supplied is critical. Our sourcing sustainability work, the sourcing with purpose work that we do, directly feeds into that and supports our ability to access the products that we buy.”