How Grocery Store Supply Chains Work

Lynne Sampson | Content Strategist | August 21, 2023

Grocery stores are one of the first retail experiences for many of us. Some of us have fond memories of sitting in the seat of the shopping cart as our parents pushed it around the store, picking out colorful packages and tossing them in. But did you ever wonder, as a child, where all that stuff came from?

The answers have to do with the grocery store’s supply chain. In this article, we’ll look at the complexity of grocery store supply chains and give you an appreciation for everything that goes into making them run smoothly.

What Is a Supply Chain?

A supply chain is the network of companies, employees, machines, information, and other resources involved in moving a product from raw material to the end customer. Manufacturers source raw materials from suppliers, trying to get the best quality materials at the best price. The raw materials are shipped to a manufacturing plant, where they’re assembled into a product (soap, canned goods, sliced bread, and so forth), inspected, and packaged. The final products are shipped to buyers, which might include giant consumer goods companies such as Unilever, national grocery chains with big warehouses, or small distributors that sell to independent grocers. The final product goes from those buyers to the grocery store shelves and ultimately into your shopping cart.

Every step along this complicated supply chain must be controlled and monitored. Employees must plan for the right amount of raw materials, coordinate transportation routes, manage inventory levels, and ensure quality control. They often rely on supply chain software to help manage these complicated processes. This type of software falls under the category of supply chain management systems.

What Is a Grocery Supply Chain?

The grocery supply chain includes sourcing raw ingredients, processing and packaging them, and delivering them to stores for sale. Fresh fruits and vegetables don’t require much manufacturing or processing. They go from the farm to the store more or less as is, but perishable items must be refrigerated during shipping. Packaged goods—such as crackers, breakfast cereals, and margarines—follow a typical manufacturing journey. Raw ingredients are shipped from supplier to manufacturer, processed, combined, and cooked or baked (with varying degrees of automation along the assembly line). The final products are packaged and distributed to buyers, warehouses, or directly to retail grocers.

Grocery supply chains require close coordination among many players to ensure that producers have access to the right resources, customers receive quality products on time, and stock is made available whenever needed. In recent years, supply chain disruptions have become more common for several reasons (a pandemic, wars, climate change, and so on). As a result, more companies are investing in supply chain management (SCM) software to make their distribution networks more efficient. SCM software is available for every step in the supply chain, from demand planning to order management to logistics and warehousing. Today’s SCM systems often include built-in artificial intelligence (AI) and machine learning to identify potential problems and recommend solutions. Manufacturers and other stakeholders use the systems to streamline their processes and get better visibility into their operations.

Key Takeaways

  • Grocery supply chains connect food producers and manufacturers with grocery retailers via transportation, warehousing, and inventory management processes.
  • Key objectives of a grocery supply chain are to shorten delivery times, reduce spoilage, control costs, and ensure that the supply of final goods matches customer demand.
  • Suppliers follow their own standards and practices to ensure quality products.

Grocery Supply Chain Explained

The grocery supply chain is a complex process by which food and other household staples travel from their origin to neighborhood stores. Grocery retailers typically don’t interact directly with food manufacturers. Instead, they buy products from third-party distributors or warehouses. Once the products arrive in stores, retailers must organize them in a way that makes it easy for shoppers to find what they’re seeking. Grocery retailers also track inventory so they can order more of an item before stock runs out. It’s a complex network that makes food accessible to billions of people every day.

How Do Grocery Supply Chains Work?

Grocery supply chains connect food producers with retailers. Steps along the supply chain include raising fresh foods on farms, transporting the food, and often, processing raw materials into packaged goods. Food manufacturers sell processed and packaged goods to food brands, warehouses, or wholesale grocers, which then sell them to retail grocers.

  • Wholesale grocers buy a large volume of products from suppliers, then sell them to small retailers that can’t buy directly from manufacturers. By serving as a go-between, grocery wholesalers help ensure that adequate supplies are available across the entire supply chain while reducing manufacturers’ distribution costs.
  • Distributors transport food from producers to wholesalers or directly to grocery stores. Grocery distributors often use their own fleets of vehicles (such as trucks and vans), or they contract with third parties, including railroad freight haulers. Distributors might also provide grocery stores with services such as shelf stocking, merchandising, and order fulfillment. They play a key role in the success of a grocery supply chain by ensuring that fresh produce and other items arrive on time and in good condition.
  • Direct store delivery (DSD) is a distribution system in which wholesalers, distributors, or manufacturers deliver goods directly to stores with no intermediary. DSD can improve product freshness since food goes from manufacturer to store without any delays. DSD also allows for faster restocking of shelves, helping grocery stores keep pace with customer demand.
Key players in the grocery store supply chain include wholesale grocers and distributors. In addition, a direct store delivery distribution system allows wholesalers, distributors, and manufacturers to deliver goods directly to stores.

5 Key Grocery Supply Chain Challenges

Today’s grocery supply chains depend heavily on machines and software, so many of the key challenges are related to technology. The top challenges include everything from integrating data from hundreds of systems to determining the best delivery routes to keep food fresh.

  1. Data integration
    Grocery supply chains can involve hundreds of software systems, including demand forecasting, logistics, and inventory management. When these systems aren’t connected properly, information must be entered manually from one system to another. That can result in human error and inconsistent data, slowing order processing, delivery, and visibility—ultimately leading to out-of-stock products and lost revenue.
  2. Demand forecasting
    This process involves analyzing data to forecast how much of a particular product will be needed during a particular period. Forecasting mistakes can result in too much stock at one retail location but not enough at another. Demand forecasting is only as good as the data and models used to predict future purchases.
  3. Warehouse management
    Warehouses receive products from manufacturers and other suppliers, where they’re stored to fulfill orders from multiple retailers. Warehouses are careful to organize sensitive items requiring special attention (for example, temperature control to avoid meat spoilage) and to avoid picking and packing errors (which can lead to delivery delays, returned items, and canceled orders). Most of today’s warehouses use robotic arms to ensure pick-and-pack efficiency, as well as warehouse management software to schedule shipments, track products, and understand how much inventory is on hand.
  4. Delivery optimization
    Optimizing delivery routes is a fundamental component of grocery store supply chains. Retailers need to minimize their costs yet still meet customer demands, such as same-day deliveries in urban areas. Well-planned routes can help ensure prompt delivery for both customers and stores alike and save money by reducing wasted fuel and transportation bills.
  5. Inventory visibility
    One of the most frustrating experiences for consumers is finding that the items they want to buy are out of stock. To meet customer demands, grocery retailers need reliable, real-time visibility into their inventories. Without it, retailers can’t accurately assess customer demand or forecast needed stocks, which could lead to either too much stock or too little. Inventory management applications can help grocers track all inventory across their channels to reduce understocking and overstocking.

7 Tips to Improve Grocery and Supermarket Supply Chains

Grocery supply chains have, for many years, relied on software to coordinate and track shipments; nevertheless, only parts of the supply chain were automated. Today’s newer technologies, such as AI built into cloud software, can help automate nearly all parts of the supply chain, making them more efficient and agile.

  1. Adopt predictive planning.
    AI and machine learning can analyze historical data to predict trends and make planning recommendations. For example, supply chain planning systems can use built-in AI to predict the amount of fresh produce that will be sold in a particular store over the next 30 days. The software automatically sends an alert to store managers, recommending that they increase next month’s order. Predictive alerts let retailers put items on their shelves quickly, helping stores adjust quickly to changing demand forecasts and reduce the risk of stockouts.
  2. Implement supply chain management (SCM) software.
    Applications for supply chain planning, inventory management, order management, transportation, warehousing, and data analytics help grocers and their suppliers anticipate demand and ensure they have what the end customer wants, when they want it. SCM software typically starts with planning and forecasting applications, which supply chain planners use to model the most- and least-likely scenarios, providing insight into what products a grocer will need and when. Order management software helps suppliers capture orders across any channel—whether retailers are ordering online, via mobile app, through a sales rep, or from other sales channels. SCM systems might include modules for manufacturing (for companies that process and sell packaged goods), pricing, and warehouse management.
  3. Improve tracking.
    Technology helps track food products across all parts of the supply chain, from farms to warehouses to supermarkets and even home delivery. Improved tracking also lets stores know exactly which products are available in their inventory at any given time, which helps ensure that shelves are well stocked with items customers are seeking.
  4. Expand logistics networks.
    Logistics, the process of coordinating the movement of goods from place to place, includes trade, transportation, and warehouse management. An effective logistics network is key to getting groceries from warehouses to stores quickly and efficiently. Grocery suppliers and retailers can develop partnerships with logistics companies or private fleets to help get items where they need to go faster.
  5. Adopt real-time inventory management.
    Grocery stores need up-to-date information about which products are available on their shelves or in back stock areas. Without this real-time data, they’re likely to either run out of stock or risk having it spoil or expire on their shelves.
  6. Integrate supply chain systems.
    For grocery retailers to get the fastest, most accurate data, their various supply chain systems need to talk to each other. Systems integration ensures that grocers’ planning, ordering, shipping, tracking, and inventory information is automatically handed off from one system to the next. Without this integrated handoff, data must be manually reentered from one system into another, slowing the entire supply chain and increasing the risk of human error.
  7. Analyze data.
    Analyzing data at every stage of the supply chain helps grocers and their suppliers make better decisions on how much product to grow or manufacture, how to ship it, what prices to set, which products to promote, when to offer discounts, when to reorder, and how to set up stores.

Future of Grocery Supply Chain

The future of the grocery supply chain will depend on technology. Already, technologies such as AI, machine learning, blockchain, and predictive analytics are becoming more important to supply chain efficiency. For example, AI and machine learning can analyze data generated by Internet of Things sensors attached to product crates, shipping containers, and other “things” and identify potential problems, such as whether a container can’t maintain the proper temperature to prevent food spoilage. Blockchain can power intelligent track-and-trace systems, securely tracking the journey of individual items along every step from farm to table. With more automation and improved analytics in place, companies can optimize their inventory levels and minimize waste, making food industry operations more efficient.

Improve Your Grocery Supply Chain with Oracle

Oracle’s supply chain management and grocery retail applications provide real-time insights into inventory levels, shipment status, number of orders fulfilled correctly, costs, and other key performance indicators. With cloud-based analytics tools, grocery retailers can identify areas where they can improve the delivery process, reduce waste, and optimize pricing. Oracle's applications integrate with major ecommerce platforms, letting grocery retailers manage online orders as part of one central supply chain system. For example, grocery stores can let customers purchase in-store, place orders online, or use mobile apps on the go. Many of the world’s leading grocery retailers use Oracle to collaborate with more than 250,000 suppliers.

Grocery Supply Chain FAQs

What is the supply chain of grocery stores?
The grocery store supply chain typically consists of suppliers, wholesalers, distributors, and retailers of food, beverages, and other household products.

How does a grocery store supply chain work?
Grocery store suppliers grow or manufacture fresh or packaged foods and other products. Wholesalers purchase those items in bulk from suppliers and resell them to retail grocery stores. Distributors move those goods from one place to another. The grocery stores themselves stock those items for sale to the public in-store or online.

Why is there a shortage of groceries?
Grocery shortages happen for any number of reasons. Different parts of the supply chain get disrupted because of labor strikes, trade disputes, worker shortages (think truck drivers), adverse weather conditions, and other “shocks” (such as the COVID-19 pandemic). Droughts, torrential rains, and sudden insect infestations can cause crop failures. Shortages also happen at individual retail stores because of inadequate supply chain management processes and systems.

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