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How to avoid disruptions like spiking cocoa prices

After three years of rising costs, cocoa prices recently hit a 46-year high, making chocolate twice as expensive as it was just a couple of years ago. In Singapore, small confectionery shops are diversifying their product offerings beyond chocolates to cut costs and boost profits. Spiking cocoa prices signal wider supply chain volatility, which better forecasting, visibility, and production upgrades can solve.

In the top cocoa-producing nations of West Africa, a triple whammy of El Niño weather, disease, and a lack of fertilisers caused by the war in Ukraine are drastically reducing yields. At the same time, global demand continues to advance steadily. This supply-demand mismatch has sent commodity markets reeling, and the farm-level impacts now threaten to cascade worldwide.

Spiking cocoa prices offer the latest example of significant supply chain disruptions jeopardising companies’ production and razor-thin profit margins. Extreme weather events, shifting consumer preferences, and global uncertainties increasingly ripple across worldwide supply networks, with volatility being the new norm for any goods relying on imported components, materials, or labour.

Proactively navigating these disruptions is a pressing need for manufacturers and retailers alike. Building supply chain resilience before shortages hit requires technology innovations and cross-industry collaboration. Shared data and best practice platforms also allow organisations to learn from each other.

With preparation, companies can turn supply chain uncertainty into a competitive advantage. As the cocoa case illustrates, global pressures are only going to intensify. Let’s look deeper at some best practices that can keep supply chains afloat even amid disruptions.

Understanding and managing the markets

Market uncertainties quickly cascade into downstream supply disruptions with a complex commodity like cocoa. But companies must first understand them before responding effectively to changing market conditions. That’s why advanced demand forecasting has emerged as a critical capability.

Delays are the enemy of supply chains; data latency is often ignored but is a significant form of delay. The delay between a product being bought by an end customer and the demand signal being visible at the confectionery manufacturer is often in excess of six weeks, while the delay in getting that information to the cocoa farmer is often in excess of six months. By challenging the traditional cascaded approach to demand management, companies can enhance agility while improving forecast accuracy.

Manufacturers can develop high-resolution projections of likely demand trends by incorporating more data sets — from internal sales histories to consumer sentiment tracking to market futures data. AI integrations and other emerging technologies also help process more demand drivers for enhanced forecast accuracy.

With greater insight into potential fluctuations, companies can also simulate different ‘what if’ scenarios to stress test their supply chains. If threats like commodity price spikes or consumer demand drops emerge, scenario planning ensures contingency plans are put in place before the impact is felt and shortages develop. It also facilitates collaboration with suppliers to shape risk mitigation and sourcing strategies.

Difficult decisions are sometimes unavoidable. If there is not enough cocoa to service all markets, trade-offs need to be made: market and product segmentation strategies put in place so that the most important markets or most profitable products are prioritised, new products or formulations with lower cocoa content developed, and demand shaping strategies deployed to promote non-cocoa alternatives. All of these trade-offs need to be supported by scenario planning and advanced analytics to model the impacts.

Market visibility and risk simulation offer essential hedges against uncertainty for commodity-dependent sectors. Resilience benefits extend broadly for globalised supply chains of all types navigating today’s turbulent markets.

End-to-end planning

Historically, supply chains operated under the illusion that as long as we could forecast demand, supply would be essentially unconstrained. The current situation with cocoa is yet another reminder that this is a fallacy; there is simply not enough cocoa to serve the world’s insatiable and growing demand for chocolate.

While demand sensing and risk modelling provide crucial foundations, fully realising resilience requires coordinating across the entire supply chain. Too often, delayed signals and fragmented planning create avoidable volatility.

End-to-end planning breaks down those siloes through enhanced connectivity and collaboration. Manufacturers gain real-time visibility into inventory levels, production capacity, and shipment locations for both internal facilities and external suppliers. Sophisticated control towers integrate related data into a dynamic digital thread.

Supply chain managers can calibrate and optimise activities across functions and partners with a unified operational picture. If the cocoa harvest is unexpectedly delayed or short, production schedules automatically adjust without manual workarounds. Stress testing through scenario simulation also allows contingency strategies to engage the minute upstream disturbances register downstream.

New regulations in California, Canada, and the European Union are significantly impacting the welfare of people who work on cocoa farms and reducing CO2 emissions. However, additional compliance considerations are adding complexity; end-to-end planning ensures sustainability initiatives like ethical sourcing or carbon reporting integrate smoothly across businesses. Supply networks grow more agile and adaptive in the process, resulting in a cushioning against the next market disruption.

Streamlining production

While supply chain coordination equips companies to respond to market volatility, bolstering production capacity also provides critical stability. For cocoa cultivation, dated farming techniques and equipment constraints challenge yields in many developing regions. Simple upgrades like irrigation access and crop protection can drive step-change improvements. This is especially important as cutting down forests to extend cocoa plantations is no longer a viable alternative.

Further downstream, processing and manufacturing processes also require upgrades to match market dynamics. Introducing Internet-of-Things sensors across production assets gives operators and managers more visibility into real-time performance. With connected equipment and automated data feeds, issues can be identified and resolved quickly while minimising disruptions.

With a scarce resource like cocoa, it is especially important to minimise waste. Efficient farming, efficient manufacturing, and efficient supply chains all contribute to ensuring that yields are maximised and losses are reduced.

If cocoa stocks grow scarcer still, coordinating alternate recipes and batch requirements well in advance is crucial. Healthy dialogue eases such transparent coordination across partners. With market uncertainty the norm, building flexibility across cultivation, processing, and production is imperative. Streamlining operations unlocks new stability when the next supply shock emerges.

Today’s interconnected, climate-impacted economy demands companies prioritise supply chain resilience. Market instability is here to stay for special days and countless other commodities, but lessons from cocoa’s recent volatility offer a guide.

Manufacturers can take steps to increase resilience and enhance production before the next disruption emerges, so they can maintain operations through uncertainties that leave less agile competitors stranded.