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Karol Kissane, Head of Public Sector Services and Economics
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Was your business ready for the last disruption? What about the next one?
91% of food and agribusiness respondents reported rising input costs over the last 12 months, the highest level recorded in nine editions of this Report. Faced with repeated supply chain disruption, many businesses have responded by carrying more inventory, with 47% of respondents increasing their level of safety stock. Far fewer have invested in formal supplier risk monitoring or scenario planning.
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Input costs remain at record levels
The longer-term data shows that cost pressures have remained elevated since the inflation surge of 2022–2023, rather than returning to earlier levels. More than a quarter of businesses (27%) now report that costs have 'increased significantly'.
A number of factors are contributing to a higher cost base, including energy, labour, compliance, transport and logistics. For businesses carrying additional safety stock, there is another cost to consider, the working capital tied up in inventory, along with storage, insurance and the risk of obsolescence or waste.
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The sector responded with inventory
Disruption was widespread. Nearly half of respondents (49%) experienced a supply chain disruption in the past year, and 72% of those who did experienced more than one.
Increasing safety stock was the most common response to disruption, reported by 47%, followed by adding or diversifying suppliers at 39% and renegotiating supplier contracts at 22%.
Only 11% introduced formal supplier risk monitoring or scenario planning and 21% put nothing structured in place at all.
Agribusinesses increased safety stock (61%) far more often than they added suppliers (34%). Food manufacturers did the reverse, adding suppliers (53%) ahead of holding more stock (33%), a more scalable response and one better suited to managing shorter shelf life products.
The two approaches manage risk differently. Additional inventory can provide an immediate buffer against supply interruption, while supplier diversification and scenario planning can help a business prepare for a wider range of future disruptions.
When additional stock becomes a warning sign
Holding more stock appears in the survey as a deliberate response to disruption. Yet 22% of businesses also identify rising stock levels and slowing stock turnover as a financial red flag.
Additional stock can therefore represent either deliberate risk management or inefficient working capital. Without measuring stock turnover and carrying cost, it can be difficult to know when one has become the other.
Putting a number on it
The cost of carrying additional inventory extends well beyond its purchase price. Industry estimates commonly put annual inventory carrying costs at around 20% to 30% of inventory value, including the cost of capital tied up in stock, warehousing, insurance and systems, as well as the risk of damage, obsolescence and shrinkage.
For food and agribusinesses, perishability can add further cost through waste, spoilage and write-offs.
On that basis, a business holding an additional €500,000 of buffer stock could be carrying an annual cost of €100,000 to €150,000, before allowing for any additional losses from spoilage. With 47% of respondents having increased safety
stock, understanding that ongoing cost is important when assessing whether additional inventory represents good risk management or working capital that could be put to better use elsewhere.
A measured, hybrid approach
Just-in-time has proven fragile in the new world businesses operate in. As outlined above, just-in-case is costly and eats into margin, especially with perishables. The right model for most businesses is a hybrid, just-in-time discipline for predictable, short-shelf-life lines and just-in-case buffers reserved for critical or hard-to-source inputs. Even Toyota, which invented just-in-time, now holds buffer stock for key components.
The starting point is measurement. Businesses need to understand where critical dependencies are, and what the cost is of carrying stock for these dependencies versus the financial impact of not having these inputs when required. That provides a much better basis for deciding where additional inventory is justified and where supplier diversification, risk monitoring and scenario planning will work. Stock for the sake of stock is a large cost to a business, not just in carrying cost, but in the lost opportunity to put capital to better use.
4 questions to ask about your stock