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The Impacts of the Energy Crisis on the Food and Beverage Industry and How to Mitigate Them

The Impacts of the Energy Crisis on the Food and Beverage Industry and How to Mitigate Them

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The Impacts of the Energy Crisis on the Food and Beverage Industry and How to Mitigate Them

Aug 11, 2022

John McCurdy
Wind turbines in a field at sunset.

The world’s ongoing energy crisis has put food and beverage businesses like yours in something of a bind. While demand remains high, increased costs and material shortages are limiting both profitability and production capacity, hampering your ability to capitalize on the opportunity for greater revenue.

At the same time, the obvious play of passing along the financial burden to customers by raising prices is clearly flawed, as consumers will only tolerate a certain amount of markup before switching brands, especially with inflation rampant. Thus, you need to find a way to make the most of the resources you can afford while keeping your margins as healthy as possible.

First, though, it’s worth taking a closer look at the reasons why the food and beverage industry is particularly vulnerable to energy crises like the one we’re currently facing and how current best practices could be improved upon to grow more resilient in the future.

Then, we’ll dive in on how a sound digital transformation strategy based on a foundation of an organization-wide enterprise resource planning (ERP) solution can help your company weather these adverse conditions and continue to succeed in a competitive market despite the cost pressures you’re facing.

The Effects of the Energy Crisis on the Food and Beverage Industry

First and foremost, your industry is especially susceptible to complications arising from energy crises because food and beverage production is an energy-intensive process. Every step in the supply chain requires energy, normally in multiple forms—both electricity and fuel, for example—such that direct and indirect energy costs can account for as much as 40 to 50% of total variable costs for businesses.

Just about every food and beverage company utilizes some combination of refrigeration, heating elements for cooking and other energy-hungry technologies in their manufacturing processes. Of course, that’s not to say that farming and livestock operations aren’t also hit hard by increased energy costs—for example, whereas a large dairy farmer would spend between $100,000 and $150,000 on an annual electricity contract prior to the crisis, that figure is closer to $250,000 today.

But the need for energy isn’t the only reason that our current circumstances have food and beverage organizations pinched financially. There’s a trickle-down effect from the higher oil and natural gas prices that affect other materials these businesses need, exacerbating the situation—which is why we’re also including some strategies for mitigation of the issues below.

Fertilizers

Staying on the subject of farms, those that cultivate agricultural products are quite reliant on fertilizer, which has also spiked in cost due to its requirement for ammonia that is produced almost exclusively from natural gas. Fertilizer prices have more than tripled since mid-2020, reaching their highest levels since the recession of 2008 and 2009.

This should prompt farming operations to look into more organic ways of maximizing output, including vertical farming, hydroponics and permaculture. Governments can also play a role by helping to educate industry professionals on the “4 Rs” of nutrient stewardship—applying the right fertilizer, at the right rate, at the right time and the right place.

Plastics

Plastics are another resource that food and beverage operators frequently need—typically for packaging—and because they require petrochemicals to produce, they have also grown more expensive. Whether it’s used for bags, wrappers, clamshells or otherwise, plastic’s increased cost has made the potential switch to more environmentally friendly packaging alternatives like cardboard, paper and bamboo even more enticing.

Take, for example, No Evil Foods, which packages its small-batch, plant-based meat alternatives in fully compostable materials with plant-based inks. Confectionery and snack brand Alter Eco has also been a pioneer in this space, as they developed the first compostable stand-up pouch made from renewable, plant-based materials.

Carbon Dioxide

As a result of fertilizer becoming more expensive and scarce, the important byproduct of carbon dioxide (CO2) is also in shorter supply, making for yet another necessary resource for food and beverage businesses that is now more expensive. Used for a variety of applications—from keeping packaged foods fresh for longer when sealed in packages to adding the fizz to carbonated beverages—CO2 is crucial for several product segments.

Thankfully, nitrogen can be used as a stand-in for CO2 in most food and beverage operations. It can be produced on-site as part of an existing compressed air installation or through a dedicated nitrogen generation system. It has the same preservative effects when sealed in fresh food packages and can be used for the counter-pressure filling of soft drinks as well.

Agricultural Commodities

Finally, there are many common agricultural commodities that have seen price hikes as a result of the energy crisis. U.S. soft red winter wheat is at 210% of its value in May 2020, palm oil is up 198% in the same time period, and sunflower oil and rapeseed oil aren’t far behind with increases of 182% and 177%, respectively.

Some of these ingredients are simply necessities for certain businesses that rely on their procurement for manufacture of their finished goods. In some cases, substitutions for less expensive products can be used to lower costs—just keep in mind that changes in recipes and formulas should be reviewed for any allergen concerns that may be introduced.

More than anything, though, this particular development stresses the need for your business to get everything out of your materials. That’s best achieved with technology developed specifically for the food and beverage industry, which we’ll dive in on next.

How Industry-Specific Software Solutions Drive Savings and Efficiency

We mentioned ERP technology at the outset, so we’ll begin there, as it’s the best foundation for a full-on digital transformation of your food and beverage company. These systems act as cross-functional databases and a “single source of truth” for your key decision-makers and personnel, helping them make smart moves on the fly with full confidence.

Importantly for getting the most out of your materials, an ERP platform built for the food and beverage industry should come with robust inventory management features that help you track freshness ranges and expiration dates so that you minimize spoilage of materials you’ve already purchased. With the right software in place, you’ll also have full supply chain visibility and integrated financials so you know where your orders are and how much you’re paying at all times.

These solutions can also leverage automations for greater efficiency—for information capture via barcode and QR code scanners; various compliance and quality assurance checks; and even steps in the recall process should you find yourself in that situation. Advanced systems, like Aptean Food & Beverage ERP, update all your vital information in real time and prompt your staff to intervene with on-screen alerts in the case of deviations from acceptable ranges.

While a purpose-built ERP is the bedrock of a truly modernized food and beverage organization, the following complementary solutions can also help you reduce waste, maximize productivity and operate as cost-effectively as possible in the face of the energy crisis.

Overall Equipment Effectiveness (OEE)

Overall equipment effectiveness platforms allow you to truly own the functioning of your shop floor, including both machinery and personnel, to optimize performance. OEE systems import data directly from your equipment to give you a live look-in on losses and attainment, allowing you to rectify issues and keep scrap and rework to a minimum.

Our own OEE solution for food and beverage manufacturers also lets you track and improve changeover, clean-in-progress (CIP) and sanitation times, boosting the chances that you can consistently meet plan attainment without unnecessary delays.

Enterprise Asset Management (EAM)

By helping you stay ahead of maintenance needs and lowering the total cost of ownership of your equipment, enterprise asset management systems keep all your machinery in tip-top shape so that malfunctions don’t drag you down. Process errors caused by faulty parts or functioning can be costly in terms of yield loss, but with EAM on your side, you’re far less likely to face such challenges.

Aptean’s EAM for the food and beverage industry is another cutting-edge offering, and it comes with the additional benefits of improved operational efficiency and less unplanned downtime thanks to its preventive maintenance features.

Transportation Management System (TMS)

If your food and beverage business distributes the goods you grow or manufacture, a transportation management system can help you carry out the process effectively with capabilities that help you handle volume fluctuations and meet demand for frequent, precisely timed deliveries. If your organization is a specialized food and beverage distributor, a TMS is an absolute must-have, as these platforms offer comprehensive tools to manage your fleets.

Knowing how high fuel costs have climbed—and that they aren’t going down any time soon—puts efficiency at a premium, and that’s where Aptean Routing & Scheduling really excels. By optimizing your routes to minimize the miles spent on the road while still meeting your customers’ tight time windows, you’ll be able to continue succeeding even with prices at the pump so inflated.

What Makes Aptean the Ideal Food and Beverage Solution Provider

Knowing that disruptions like our current energy crisis are likely to occur with increasing frequency in the future, now is the time to jumpstart your digital transformation—or get it kicked off proper, if you haven’t already. There are a few key reasons why Aptean should be at the top of your list of prospective software providers.

First, there’s our passionate professionals’ in-depth knowledge of the food and beverage industry. We have decades of collective experience in the space and know the challenges you face day in and day out, and that’s why we designed our solutions with the functionalities you need to overcome them. Plus, our teams can also help you better understand best practices during implementation, further boosting your results in the long-term.

We’re also proud to act as a partner in the deployment of our systems, helping your people prepare for the change and roll out the software for optimized outcomes. Our experts can assist in creating a timeline, and after your go-live date, you’ll be in good hands with our dedicated IT teams providing maximum system uptime and smooth updates.

Finally, two points in favor of the award-winning Aptean Food & Beverage ERP specifically. First, there’s the fact that it can be implemented via the cloud on a software as a service (SaaS) model for a lightweight and flexible approach—ideal in today’s fast-paced world.

What’s more, our unique, industry-specific technology is built on the Microsoft Dynamics 365 Business Central platform. That makes it accessible and user-friendly for your staff, helping them get up to speed and comfortable with the new system in no time.

So, if you’re ready to hear more about Aptean Food & Beverage ERP and our other best-in-class business solutions, don’t hesitate to reach out to us. You can also request a personalized demo to see the system of your choice in action.

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