How To Improve Profit Margins In The Meat Industry With Supply Chain Technology

Introduction

As digital becomes the new normal, supply chain management tools must go beyond basic operational functions and create new opportunities, provide new insights, and address existing production and delivery challenges. This is especially relevant in the highly competitive meat industry which is inherently tricky in nature and deals with the most complex supply chain of all. Your typical meat producer can expect short order cycles, fluctuation, and uncertainty in supply, as well as expiry and aging problems, changing consumer demands, food safety legislation, retail competition, and, last but not least, the challenge to optimize the balance of the carcass. As a result, every link in the supply chain is likely to affect the next and any bottleneck can significantly impact the overall operational efficiency.

To succeed in the future, and ensure both growth and profitability, meat producers must accelerate the implementation of the necessary supply chain planning systems available today. These solutions have to utilize and analyze all supply chain data available in order to provide optimized production and profitability plans. For those companies that depend on maximal yield from the carcass, there is an added piece of complexity in the need to improve carcass balancing. From a profitability point of view, it is critical to be able to reap all potential profit per carcass, and technology plays a major role in achieving this. So, how can meat processing companies unlock the power of digital to maximize profit per carcass in their operations? By adopting a holistic supply chain and production planning solution.

Sadly, traditional supply chain management solutions are not able to deliver the flexibility that meat producers require. The inherent complexity of the meat industry, as well as shifting customer expectations, are just some of the challenges faced today. As more and more constraints continue to affect supply, processing capacity, and demand, companies need a unified end-to-end view of their supply chain that is visible to everyone across the organization.

Today, many meat processing companies continue to rely on spreadsheets to account for basic constraints on supply and demand. This approach does not incorporate all variables affecting the supply chain and it provides limited insight into which outputs to produce in order to maximize returns.

Tomorrow, supply chain management will need to look at the supply chain in a holistic end-to-end view. Planning needs to be more accurate and automated in order to enable companies to anticipate and respond correctly to changing market conditions.

Better supply chain management means better strategic visibility to enhance and personalize the customer experience. As a result, supply chain executives need to make bold moves in order to empower the future‑ready operating model of meat processing companies. Yet they are constantly facing the difficulty of effectively balancing demand with supply - deciding what supply they need, how much they need, when they need it, and what the optimal cut plan looks like that will maximize profit and delivery service. This is especially challenging given the inherent volatility of the supply side in the meat processing industry. The availability and quality of livestock are constantly affected by weather, seasonality, and competition for stock from rival companies.

As if managing an intricate supply chain is not complicated enough, the demand‑side adds another layer of sophistication to the entire process. Demand for meat varies by cut and is influenced by foreign exchange rates and changing consumer appetites.

As briefly outlined above, the effect of dwindling supply has sparked fierce competition for stock among meat‑processing companies. In response, many companies have paid more to procure extra livestock and grow market share. In the heat of the moment, it can be difficult for companies to gauge how much it is worth paying to secure supply, as they must balance their urge to fulfill orders against the drive to maximize profitability. Even if they do secure deals to purchase their desired quantity, grade, and type of livestock, companies cannot be certain that the animal they bought will be suitable for their chosen output until it is delivered and on the hook. If the carcass isn’t what was expected, the company might be forced into a snap decision that could eat into profitability. For instance, the company may have to sell off stock with a lower grade or a shorter shelf life below market rate. Alternatively, it might have to sell the goods frozen, foregoing the premium prices achieved by chilled products.

Similarly, when demand changes, it is often difficult for meat-processing companies to adapt their plans in response, because restaurant, fast food, and supermarket chains tend to place large orders with short lead times. If a customer orders more produce than expected, the meat processor may lack the livestock, production capacity or shipping availability to fulfill the order on time and be forced to delay delivery. Moreover, as US beef consumption per capita starts to decline, meat‑processing companies cater increasingly to emerging economies such as Mexico, Brazil, and Colombia. With rising dependence on the export market, US meat‑processing companies are becoming ever more exposed to fluctuations in foreign currency exchange rates, as well as trade tariffs.

Striking the right balance between supply and demand is not easy, but it’s essential if meat‑processing companies want to maximize the carcass and achieve sustained profitability. A complete match between supply and demand is close to impossible but minimizing margin erosion and maximizing carcass utilization enables companies to derive profits for each cut and cover some costs associated with the production process. As a result, in order to reap the benefits of carcass maximization, planning is essential.

Maximizing Carcass Balancing

What is maximizing carcass balancing?
Maximizing carcass balancing is about maximizing the profit per carcass while still meeting as much demand as possible. This means identifying the optimal cut plan that will maximize the profit and balance demand over time as well as utilizing different price positions from different markets.

Why does it matter?
The meat industry has over time become a low margin business. Maximizing the carcass balancing aspect of the business could have significant impact on gross margin and the bottom line.

What should meat-processing companies do?
Plan ahead in order to react faster to market needs and find opportunities for surplus meat.

Maximizing Carcass Balancing Continued

Lack of visibility and control over the entire supply chain, as well as siloed decision‑making within the business, are just some of the challenges that prevent meat‑processing companies from achieving a long‑term planning strategy. The spreadsheet‑based approach adds another layer of complexity to the planning process and compromises the ability of companies to react quickly to changing market conditions. Consequently, companies need a unified and well-informed planning approach with control and visibility across the business. This will allow them to plan effectively in the unpredictable and competitive meat industry.

By digitally reinventing the supply chain, companies can now leverage emerging technologies to bring business value back to life. As a result, a fully integrated and customized platform that fosters collaboration becomes essential to increase the speed and efficiency of different supply chain components. The solution to implementing all this? Investing in a supply chain management software to seize growth opportunities and improve responsiveness and profit. This allows supply chain executives to build smart and connected operations and elevate the customer experience.

1. Better supply chain visibility across multiple departments
Supply chain visibility provides an accurate, real‑time picture of demand signals and supplier inventory levels, thus enabling companies operating in the meat industry to track carcass, cuts, as well as finished products at various points in the supply chain. Better supply chain visibility has often been linked to better business performance.

Why? Because a prompt exchange of information between all stakeholders leads to better planning and coordination. Transparency and information integration have now become powerful competitive weapons in increasingly volatile markets. However, in many organizations, planning is performed individually within each department – often leading to conflicting plans between the livestock/meat procurement, production and marketing divisions. Without cross‑functional visibility, relationships can become adversarial, and planning meetings can spark debates over accountability. For example, if the livestock team cannot secure the intended livestock, the company may waste money on surplus production capacity, and marketing campaigns might need to be shelved.

A supply chain management solution supports the entire planning process – fully integrating supply chain, production, sales, demand and livestock forecasting. To accompany this close‑knit integration, the software delivers complete, end‑to‑end supply chain visibility across all organizational departments, and empowers organizations to plan over any timespan of their choosing.

2.  Faster decision-making, free of silo thinking
The livestock sourcing, production, and marketing departments often end up planning in siloes. This means that priorities are dispersed between various teams and relevant information about goals, tools and processes are never promptly shared between departments. As a result, insulated decision-making has nearly become the norm. This does not only lead to inconsistent planning but also to a slower decision‑making process.

For example, the silo mentality affects the companies’ ability to factor in all the variables that affect supply and demand, impacting the forecast reliability and making it hard to match supply and demand. That’s why teams need a holistic picture of all processes and projects, in order to develop a flexible course of action in their decision‑making process without sacrificing stability, reliability, and control. Otherwise, they will likely deal with constant bottlenecks that halt productivity and affect clients.

That’s why a software designed to handle supply chain management is essential to break down the silo mentality. It will not only optimize the workflow but prevent any delays that might arise as information is exchanged among silos. This allows meat‑processing companies to think in terms of customer‑centric solutions and manage operations at a new level of speed and scale.

3.  Setting realistic customer expectations
Volatility reaches deep into the demand side and meat‑processing companies have to adapt and respond to changing market trends. While weekly forecasts are exchanged between producers and retailers, some orders might end up being revised 24 hours beforehand. And since the meat industry is a highly competitive market, companies must strive for an optimal service level attainment. This does not only secure future orders but is also a major determinant of profit.

As a result, proper planning is essential in order to meet customer requirements and enables companies to consider all the variables that might affect supply and demand in order to prioritize orders accordingly. This means that potential shortages or surpluses can be timely anticipated, and thus customer expectations are promptly adjusted. A more reliable service translates into better customers satisfaction and more profitability.

A supply chain management software is tailored to react to fluctuating customer demands, who want products in their hands faster. Thus, the supply chain will have to evolve as the market needs evolve and technology can help companies respond to dynamic customer expectations by timely assessing required capabilities and designing a roadmap to meet all desired orders.

4.  Longer planning horizons
With spreadsheet‑based planning, most companies are only able to forecast around a week in advance. Given that customer orders typically have lead times of 2‑4 weeks, that means that meat‑processing companies frequently accept orders before they know whether they can fulfill them.

A longer planning horizon enables companies to give greater certainty to customers and suppliers and allows for greater insight into how it can fulfill the orders currently on the books, plus likely shortfalls or surpluses. Some companies who have the option of selling frozen vs chilled would generally prefer to sell products chilled as it generates a higher return. By extending the planning horizon, they are able to ship goods chilled rather than frozen and cut storage time and costs.

With the help of a supply chain management software, companies in the meat industry can extend their planning horizon and enable earlier identification and corrective action for production surpluses and bottlenecks. Without prior knowledge of a surplus, companies are often forced to freeze the stock to extend its shelf‑life, store it while the company formulates a plan, then sell it for a lower price. This prevents them from achieving higher margin, reducing inventory levels and ultimately gaining a real, competitive advantage.

5.  Anticipate potential scenarios
Staying ahead of the competition often entails devising long‑term strategies by quantifying potential business outcomes. But in order to obtain accurate business forecasts, supply chain executives need to perform what‑if analyses and study how certain roadmaps might affect performance. For example, they can study how profits would be affected by procuring more supply, selling cuts chilled or frozen, offering discounts or running marketing campaigns. With deeper insight into potential outcomes, companies can fine-tune business processes and reshape their decision‑making around analytics and hard data rather than gut feelings.

The support of a supply chain management solution can now ease the burden of forecasting sales because decision‑makers can use statistical analysis based on historical trends and seasonality. This helps reduce uncertainty in the demand side and enables companies to find a good market for all the cuts in a carcass. Since any compromise will result in a profit impact, alternative plans are essential to empower executives to foresee any market changes and respond accordingly.

6.  Better marketing campaigns
Marketing departments play an increasingly important role in supply chain management because they provide the necessary demand information that helps balance livestock/ meat procurement. They hold essential data on products and availability, prices, order tracking, incentives, marketing campaigns, and sales information. However, to actively contribute to the supply chain planning process, they also need inside information as well to build the relationships that help improve the efficiency of supply chain operations.

Because it helps companies from the meat industry make more accurate forecasts, the supply chain management software is also essential in strengthening the marketing department. For example, if the solution forecasts a production surplus of a certain cut, the marketing and sales departments can plan promotions and liaise with customers to help sell the stock for a higher price while it is still chilled. The result? It not only strengthens the company’s competitive position, but it also supports the successful distribution of all cuts from the carcass.

7.  User-friendly platform to adapt to a fluctuating environment
Operating in a fluctuating market environment means adapting and responding to different variables in a timely manner. Any delay might impact the competitive edge, so easy customization is key to enable companies to react to market trends without impacting operations. But switching between scenarios and devising new strategies and adjusting variables at the same time might take a toll on the employees who are unable to deal with sophisticated processes. And any mistake along the way can have serious consequences.

A comprehensive supply chain management solution makes operations more intuitive for employees because it is so much easier to use than the spreadsheet‑based planning. As a result, employees don’t need to be experts in supply chain planning in order to formulate accurate planning initiatives because the software will take care of most of the work. This will encourage employees to test different scenarios and devise innovative solutions that will have a positive impact on operations.