Dive Brief:

• Butter prices in Ireland have risen 160% within the past year, The Irish News reported Monday. At least 70% of the increase has occurred within the past eight weeks.
• A previously unsustainably low price, along with supply reductions and strong demand, have driven the rise in spot rate. Also, a spate of panic buying by food ingredient customers who had been maintaining unusually low inventory in expectation of a continued low price contributed to the rise.
• Buyer margins have been hit, while significant worry exists over brand damage and reduced demand as consumers have responded by buying lesser quality butters or margarine. Butter as-an-ingredient customers are viewing the price increase as a crisis.

Dive Insight:

Two of the most important concepts for any supply chain manager are risk and resilience. One is inevitable; the other, do-able. Some risk will always be present happen regardless of planning, but resilience preparation enables the chain — and the company — to survive.

In the crisis stemming from the spike in butter prices, overconfidence and under-budgeting led to a breakdown in inventory levels, inducing a panic. Companies relying on butter for production failed to anticipate a potential rise in price, instead counting on an artificially depressed market stemming from a glut created by a general reduction in butter fats. Resilience, which embraces the dual ideas of resistance and recovery, was ignored.

Preparation for a recovery in this instance was lacking. Margins within the supply chain must be flexible enough to accommodate rearrangement, with enough padding in one area to allow cutting in another, with neither compromising the business model. But by relying on unrealistic prices, two conundrums for the supply chain emerged: the first, inventory was compromised, creating a downward pressure on the availability of milk-based products.  The second: by not managing the supply chain properly, it may have significant impact on damage to company brand, which will then roll forward into future stock buying power reduction. 

Finally, diversified sources from which to cull are a necessity. Two cows are better than one.