By Don Harding, Partner at Oliver Wight Asia Pacific
The shortage of carbon dioxide (CO2) has been a major talking point across Europe over the past few weeks, as supplies continue to dwindle. Widely used in the food and drink industry, CO2 has several functions – from keeping meat fresh, to providing the fizz in drinks – and now supply is falling flat!
The shortage comes at an unfortunate time for manufacturers, suppliers and supermarkets alike. The recent spate of hot weather in Northern Europe has fuelled an increased thirst for alcoholic and soft drinks, as well as a hunger for poultry produce for summertime BBQs. But most worryingly, at a time when the World Cup is on our screens, some European breweries are limiting or even stopping production as they run out of CO2.
The shortage has resulted in some supermarkets, such as Asda, taking action by reducing the amount of product on its shelves in an effort to ration supplies. But how, in a 21st century marketplace, has this shortage happened?
What has caused the CO2 slump? CO2 is a by-product of the production of ammonia and ethanol products. Ammonia Is commonly used as crop fertiliser, but during the spring/summer farmers need little fertiliser, meaning many ammonia production plants are routinely shut for maintenance during this period. However, this year has seen the perfect storm unravel, as the annual shutdown has coincided with Europe’s summer heatwave, severely affecting production and supply of CO2.
A spokesman for the British Beer and Pubs Association said, “Supply issues here in the UK are being further complicated by a combination of planned plant shutdowns and unexpected equipment failure, in particular in connection with one of the two major national producers of bulk CO2.” Additionally, European ammonia producers are finding it difficult to compete with cheaper production suppliers in Asia, and carbon dioxide isn’t valued enough to be economical to ship from Asia. Consequently, CO2 should be addressed as a supply chain issue.
Who has been affected so far? The country who has been hit the hardest is the UK, due to three out of five producers shutting down for essential maintenance. Most notably, this has affected the production of crumpets, beer, fizzy drinks and poultry,;
• Beer - The British Beer and Pub Association (BBPA), which represents brewers and 20,000 UK pubs, said the CO2 shortage was beginning to cause stoppages in beer production. Heineken has reportedly written to pubs asking them to limit their orders of John Smiths Extra Smooth and Amstel Kegs.
• Crumpets – The UK’s largest producer of crumpets, Warburtons, produces 1.5 million crumpets a week. The company was forced to halt production at two of its four plants, as it ran out of CO2.
• Poultry – CO2 is used to stun animals for slaughter and increase the shelf life of fresh meat. In a statement, the British Poultry Council said that “the absence of CO2 means that many poultry producers will have to slow or halt their processes. If birds cannot be stunned, then they cannot be slaughtered”. This will have a direct consequence on supply.
A supply solution It is often the case that businesses do not plan far enough ahead to prepare for cases such as this. There is never going to be a time when we can always accurately predict what is going to happen. However, if the known factors and most likely outcomes had been considered – i.e. the annual ammonia plant shutdowns, the 2018 World Cup and seasonal weather driving carbonated beverage consumption, a scenario of tight or short supply impacting multiple supply chains could have been foreseen, and mitigation actions put In place. In order to facilitate this visibility, the right processes have to be in place to begin with.
Integrated Business Planning (advanced S&OP/IBP), a business management process for running the entire organisation, not only provides a 24-36 month rolling horizon, it directly links the corporate strategy and financial plans, and exerts control over the extended supply chain. The process can also be used to identify gaps in performance far enough ahead for a business to re-optimise in light of changing circumstances, using scenario modelling to deliver the best results.
No matter how efficient an organisation is, there will always be unexpected events that can negatively impact your business, unless there is co-operation and collaboration across the supply chain. In a world of pan-continental and global supply chains, understanding where your supply chain is most vulnerable to change, communicating effectively and forming strategic relationships throughout the extended supply chain are all essential in identifying areas of risk, opportunity and enabling your organisation to plan for now, and for the future.