What do food system enterprise decision-makers need to consider external costs in daily operations?
How we can bring hidden costs into view within enterprises in support of an evolved, regenerative food system
Earlier this year, as part of a cohort of food system change-makers, I embarked on a journey to reimagine the food system in a way that brought hidden costs into view by the principles of true cost accounting. Our aim was to evolve today’s food system to optimize for widely-cast metrics that define success for people, health, business, and planet. Our focus was on equipping food system decision-makers with frameworks and tools to adopt a wider lens that is tuned to their roles. We honed our focus on stakeholders involved in product innovation and sourcing within consumer packaged goods, fashion/apparel, retail, and pharmaceuticals.
We partnered with Nature Interactive to conduct research to build, test, and iterate hypotheses for the most effective avenues by which to accelerate adoption of true cost accounting (TCA).
But first, why do we need TCA?
- Hidden costs affect everyone. The food system is highly interconnected with society and economy and is one of the main drivers for our current environmental and health crises. For every 1 USD spent on food, 2 USD is incurred in economic, health and environmental costs, for which society must foot the bill (Ellen MacArthur Foundation).
- Hidden costs affect the bottom line. Hidden costs increase scarcity and risk across the food system, impacting margin. Today, the food system relies heavily on yield and productivity to define operational success, largely ignoring costs that indirectly affect the bottom line.
- We can do better. Our food system has evolved to support rapid population growth. However, today’s food system is just an iteration on a path toward’s maturity. With today’s bright minds and technological innovation, we can take what was “good enough” and co-evolve the system towards regeneration.
- We’re missing hidden opportunities. Through a narrow focus on yield and productivity, our farmland and health have been deteriorated on a global scale. This contributes to the hidden costs that ultimately resulting in higher costs to produce food with diminishing nutritional value. However, existing regenerative and holistic land management practices are known to restore ecosystem balance and increase productivity. There are clear opportunities to improve land management practices and still capture monetary returns, but this is only possible through surfacing hidden costs and aligning metrics to both ecosystem health and growth objectives.
What we learned:
We learned contextual metrics throughout the product innovation process and deeper supplier collaboration are key to improving health, environmental, and community impact across the supply chain.
- Providing richer contextual metrics at decision-making points would help bring hidden costs into view in support of product innovation and sourcing decisions.
- Providing capabilities to support deeper supplier collaboration would further support product innovation and development agility.
Some of the insights that led us here:
Product Innovation & Sourcing decision-makers indicated room for improvement in current tools/processes to increase likelihood of success in their roles.
Product innovators must take into account various inputs that are often disparate and complex, including business risk factors and external costs like sustainability metrics. However, our research revealed available sourcing and product innovation tools can hamper innovation by inhibiting collaboration with innovation partners with rigid, siloed process flows. Further, while many organizations today have defined metrics for certain external costs, data access was indicated as a top challenge, followed by partner selection & iteration.
Tools that go beyond initial supplier data gathering to support negotiations and collaboration are highly valuable to Sourcing/ Procurement Teams.
Today, Sourcing teams commonly use ‘source-to-pay’ tools, most of which help with the initial data gathering (i.e., RFP response collection), but not with what happens after sourcing teams receive responses. Further, sourcing teams value when suppliers ask clarifying questions and rely on the ability to iterate on pricing. These capabilities are not widely supported by available tools.
“Most tools just focus on RFP execution, not many help you do much once you get the responses back.”
— Director of Procurement, Kellogg
Available Sourcing tools may even hamper innovation.
Today’s source-to-pay tools may inhibit collaboration with innovation partners and ultimately constrain organizational innovation capability.
“[Our system] has a lot of constraints in how we select partnerships. I was working with an augmented reality startup that would allow you to scan a label and translate it into whatever language you speak. However there was nowhere for me to categorize that supplier because it was neither ‘IT’ nor ‘sales’. We tried both and got denied through both. We ultimately went around the system and to the CEO for approval, but only after wasting a lot of time.”
— Innovation Manager J&J
Close and long-standing supplier relationships yield competitive advantage for Brands.
Working closely with suppliers means more effective planning and more agile reactions for supply chain disruptions. During shortages, suppliers prioritize their customers with long-standing relationships as they aim to conserve the relationship and steady demand.
Supplier innovation is extremely important for Brands who strive for continuous improvement and benchmarking.
Brands rely on suppliers to lead innovation and engage their sourcing teams in these discussions. Brands regard suppliers as the experts in their domains and look to them to drive innovation. Innovation benefits may include cost savings and better health outcomes for consumers and ecosystem.
“Suppliers can and should play an active role in driving sustainability and innovation, and bring the buyers along with them.”
— Director of Procurement, Kellogg
Data access, partner selection & collaboration, and de-risking product investment are top challenges for product innovation.
Survey Question to Enterprise Decision-Makers: Please rank the challenges in order of severity (top = most challenging) for product innovation/ideation.
Challenges accessing data and identifying and selecting partners from the Product Innovation/Ideation stage indicate current challenges with siloed tools/processes.
While most survey respondents already had defined metrics for certain external costs, data access was a top challenge, followed by partner selection & iteration.
Survey Question to Enterprise Decision-Makers: Please rank the challenges in order of severity (top = most challenging) for measuring & improving outcomes.
Real-time/updated data access was the top challenge for measuring outcomes, despite most respondents indicating having defined metrics for measuring external outcomes. Respondents indicated selecting and collaborating with innovation partners with high-quality products as top challenges to drive iterations for improving outcomes. Respondent sentiment confirms the importance of working closely with partners and supplier to drive innovation and improved business and TCA outcomes.
Overall, the research revealed clear opportunities and demand for solutions that bridge information gaps, deepen relationships with suppliers, and enable faster, de-risked innovation. Meanwhile, data providers like mesur.io and HowGood have data assets that could help bridge the information gaps and enhance existing solutions by injecting contextual information within decision-making workflows to help accelerate TCA adoption and optimize outcomes. See the full report here.
