Snapshot--Food Logistics: A Lineup of Challenges
With safety and recalls, sustainability, rising costs, and infrastructure improvements the usual suspects, food companies investigate strategies for locking down supply chain management efficiencies.
Executives in the food supply chain face vexing challenges, such as ensuring product safety and paying escalating fuel prices to transport raw materials. Consumers are growing more demanding and fickle, challenging food producers to rapidly deliver new products and trim cycle times.
Increasingly, food executives must solve all these issues in the most environmentally friendly way.
Safety Under Scrutiny
The next iteration of TV's famed forensics franchise might well be called CSI: Food Contamination. Daily news reports in July investigated the E. coli contamination that sickened hundreds.
Tomatoes were the initial chief suspects, then jalapeno peppers fell under suspicion. Production and distribution chains were scrutinized to determine the scene of the crime.
The Bioterrorism Act of 2002 required food companies that hadn't already implemented track-and-trace capabilities to do so. Well-publicized recalls—pet food, beef, tomatoes, among others—have turned up the heat on ensuring recall readiness.
"We used to conduct quarterly mock product recalls; we now do them weekly and allow ourselves only one hour for completion," says Rick Schlapman, national sales manager, food products, for WOW Logistics, an Appleton, Wisc.-based 3PL that specializes in dairy products. "Companies are also conducting more thorough and in-depth warehouse audits."
To ensure this kind of rapid response, food companies are investing in new processes and technologies—from more frequent temperature monitoring and inspections to increased use of mobile technology, global positioning systems, trailer seals, RFID, and biometrics.
Outside compliance, though, food companies generally have invested less in technology than other industries, where the real return on investment, and benefits such as increased visibility, lie, says Warren Sumner, vice president of marketing and products for ClearOrbit, an Austin, Texas-based software developer.
As international sourcing increases, those disconnects become more apparent, driving food companies to begin schooling non-U.S. suppliers in protocols such as Hazard Analysis and Critical Control Point (HACCP), a U.S. regulation devised to prevent foodborne illness resulting from juice, meat, poultry, and seafood processing.
In September 2007, the Grocery Manufacturers of America (GMA) announced a four-part program for strengthening, modernizing, and improving the safety of food and food ingredients imported into the United States.
This entails a foreign supplier quality assurance program; faster border crossings for FDA-approved products from higher-risk countries; helping foreign governments bring food safety standards in line with the United States; and expanding FDA resources.
The U.S. food industry is responsible for five percent of domestic energy use and 18 percent of greenhouse gas emissions, according to a GMA Environmental Sustainability Summit presentation.
While agriculture accounts for half those emissions, four percent comes from food transportation activities, increasing pressure on logistics executives to address this area.
Major food players have already announced plans to cut their carbon footprints. As the definition of "green" and "sustainable" evolves, food companies are launching initiatives on several fronts—from reducing packaging and rethinking distribution and logistics strategies to seeking alternative energy sources and imposing more fuel-efficient transport processes and technologies.
Some notable examples:
Minneapolis-based General Mills has pledged to cut both energy use and greenhouse gas emissions by 15 percent between 2005 and 2010.
Supermarket chain Safeway is one of the top retail purchasers of wind power. It buys enough wind energy to run all its fuel stations and stores in Boulder, Colo., and San Francisco, as well as its Pleasanton, Calif., corporate offices.
Stonyfield Farm, Londonderry, N.H., has stepped to the forefront of the green effort by using solar energy, implementing widespread recycling programs, and moving from less-than-truckload to full truckload, multi-stop shipments. As a result, it has cut freight costs up to 11 percent and mileage by as much as 58 percent.
Sunsweet Growers, a Yuba City, Calif., farmer-owned marketing cooperative, is focusing on packaging. It is shifting to plastic bottles and replacing full cartons with tray cases, which include a top and bottom but just a one-inch lip on the sides. The cases are shrink-wrapped for shipment, reducing fiber use by 35 percent.
Despite these efforts, there are more questions than answers when it comes to green issues: what to measure, what steps to take, and whether sustainability investments pay off.
"There is quite a bit of discussion in the food industry but a hesitancy to be first," acknowledges ClearOrbit's Sumner. "Carbon is another constraint in the supply chain that hasn't been fully modeled yet, but needs to be."
Sustainability issues could even prompt a shortening of supply chains after many businesses extended their reach to pursue the least expensive and most plentiful sources of supply. "At what price point will we no longer be willing to pay for year-round fruit?" Sumner asks.
Slimming Down Costs
Consumer packaged goods manufacturers are cutting costs and boosting efficiencies to offset high fuel and commodity prices and prevent overall logistics costs from rising, according to a May 2008 IBM study conducted on behalf of the Grocery Manufacturers Association. Logistics costs as a percentage of sales have remained relatively flat in recent years.
To continue to hold or even reduce logistics costs, "companies are taking a fresh look at distribution patterns," says Stephen Cook, vice president of marketing and business development at Saddle Creek, a third-party logistics provider based in Lakeland, Fla. "Economic conditions can act as a catalyst for companies to seek new ways of doing things."
Food companies are considering or undertaking the following cost-cutting strategies:
- Re-examining direct store delivery vs. retail distribution
- Increasing use of rail
- More efficient production and supply chain planning
- Training drivers and enacting processes to streamline deliveries
- Postponing packaging
- Use of 3PL consolidation centers
- Finding backhaul volumes
- Using on-board computers to monitor truck operating efficiency. Food service companies are heavy users of onboard systems due to strict delivery windows and tight margins
- Investing in technologies to enhance inventory visibility and supply chain assets
- Implementing voice communication solutions to streamline warehouse operations
- Increasing the use of forward distribution, managed by 3PLs
- Rethinking the supply chain through network optimization tools and services
Sampling New Ways of Thinking
"Companies are increasingly receptive to examining their supply chain networks, and trying new and different strategies to change them," says Peter Westermann, president of Total Logistic Control, a Zeeland, Mich., 3PL active in food and beverage operations.
But the admirable goals of boosting efficiency and trimming costs must be balanced against customer demands, which sometimes hurt the cause. It isn't easy to satisfy retailers' desire for smaller, more frequent orders, for example, while consolidating shipments into full truckloads.
"One of our cost-cutting projects is to analyze our warehouse locations and make sure they're where they need to be. With correctly-sited facilities, we can combine more orders into one truckload, with less travel," says Bryce Treese, director of supply chain for Sunsweet.
Balancing sales and marketing needs with logistics is an ongoing challenge, he adds.
Some food companies may require larger order sizes, or move to longer production runs to minimize changeover time, storing more product as a result, says WOW's Schlapman.
Collaboration is also on the rise as a logistics cost-cutting strategy. Food companies are approaching suppliers and third-party logistics providers to attack shared issues together. Collaborating on forecasts with growers, for example, helps avoid the whipsaw effect that poor prune or apricot crops might have on processors.
"In agriculture, you don't always know how much product you will have to sell," says Tom Leonarski, senior consultant, food processing, for Supply Chain Consultants, a supply chain software developer in Wilmington, Del. Forecasting and planning technologies are key, he says, as are close supplier relationships.
"Historically, 3PLs have been do-ers, not necessarily thinkers," adds Westermann. "Today, however, food companies turn to 3PLs for their ability to help solve supply chain issues." Rather than demand lower rates, companies are starting to ask 3PLs to work with them to help reduce costs.
High raw material and fuel costs and "green" mandates haven't replaced other challenges filling food supply chain managers' plates. Consumers still expect a steady stream of new products.
That leaves logistics departments to cope with the warehousing and transport challenges of SKU proliferation—another variable to consider as food companies rethink how and where they source, produce, and distribute their products.
Eating Away at Infrastructure
Truck driver shortages, paired with the government's failure to fully invest in highway infrastructure improvements, continue to impact the ability to move food quickly and economically.
One solution is to craft a long-term plan to rebuild highway infrastructure and reduce congestion, including unclogging critical highway freight bottlenecks, according to the American Trucking Associations.
"While China has invested considerable funds in its infrastructure, many of its vessels will be calling at U.S. ports, which have inadequate landside infrastructure to handle the crush of containers," Ray Kuntz, chairman of the American Trucking Associations, told a Senate subcommittee last April.
In fact, the United States' logistics system ranks 14th in the world based on key measures such as the quality of transportation infrastructure, competence of logistics providers, and terminal handling efficiency, according to a World Bank analysis.
Complexity Stays on the Menu
Food remains one of the few industries still dominated by domestic production. But the proximity of sources to end consumers doesn't make supply chain challenges any less complex.
Rising costs, fuel and infrastructure concerns, variable weather conditions and demand, and stepped-up scrutiny of safety and sustainability practices are forcing food supply chain executives to be more creative in trimming costs while ensuring quality.
Sunsweet: Pruning Seasonal Demand
Predicting demand, weathering the economy, and responding to escalating fuel costs are challenging for any manufacturer. When your goods come out of the ground, you must also account for yield variances; this year's poor showing can give way to next year's bumper crop.
So Sunsweet Growers, a farmer cooperative based in Yuba City, Calif., relies on sales and operations planning (S&OP) to help smooth the bumps that any one of these factors can cause. Sunsweet produces more than one-third of the world's prune crop, as well as other dried fruits.
The company implemented Zemeter, a supply chain planning suite from software developer Supply Chain Consultants, Wilmington, Del., just in time to meet a crisis when, in 2005, prunes had their worst season in 30 years.
"It was a great test for the new system, which features demand planning, S&OP support, and plant scheduling," says Bryce Treese, director of supply chain for Sunsweet. "It helped us forecast well in advance when we'd run out of fruit so we could plan inventory needs and get through the period smoothly."
Changing market demands continue to test the functionality of Sunsweet's system. After 2006's adequate yield, 2007 was its second-worst crop, and 2008 is due to run short. Treese expects its S&OP will help Sunsweet pull back to lower inventory levels through summer.
But Sunweet must balance planning against high fuel costs that can eat into profitability. The manufacturer is working to build up East Coast inventories by shipping early from western plants via intermodal rather than trucks, cutting transportation costs.
Zemeter helps determine where that makes sense, and how to produce to implement that plan. Other planning decision points include whether to store dried fruit or turn it into finished product, and how to produce and store high- vs. low-velocity SKUs.
Recently, Sunsweet added labor management to its production mix. "In the past, we imposed layoffs, then paid workers overtime during peak periods," Treese says. "Zemeter creates a smooth production plan that boosts inventory levels but controls labor costs."
The company also shares real-time data with suppliers. As it oversells or undersells compared to forecast, it can adjust future production and therefore demand for packaging and other supplies.
"The business environment has changed dramatically," says Treese. But the grower is weathering shifting demands through the use of more nimble planning processes.
Colorcon: An Appetite for Lot and Inventory Tracking
Some familiar candies wouldn't be their shiny, bright selves without coatings provided by Colorcon, West Point, Pa., which also makes polishes, colorants, and non-toxic inks, including those used on food packages.
Because the company also provides coatings and formulations for pharmaceuticals, food manufacturers sourcing from Colorcon gain the benefit of rigorous compliance and accuracy practices already in place.
Those practices are particularly essential with today's increased focus on safety and traceability. Manufacturers are under pressure to trace products back to specific lots, raw materials sources, and suppliers who must also be trusted to comply with these standards.
To address its own materials movement and ensure accurate tracking, Colorcon uses Gemini software for discrete manufacturers from ClearOrbit, an Austin, Texas-based provider of supply chain execution and reverse logistics software solutions.
"The company is batch-oriented," notes Perry Cozzone, Colorcon's vice president and chief information officer. "It's important that we record material movement accurately, confirm material status, determine whether materials have been moved to the appropriate place, and perform certification."
Inbound materials cannot be released for use until Colorcon tests them and verifies the results. Then the software tracks the location and use of the materials as they move through the production process. Gemini controls the bar-code scanning inputs and outputs that document the movement of goods from receipt through shipping.
Tight integration with Oracle's process manufacturing system ensures the required visibility and reporting with error-free data. Colorcon uses identical solutions across its eight worldwide plants.
Thanks to ClearOrbit's software, Colorcon's lot tracking is more accurate and efficient than its previous, manual approach. If a customer inquires about a batch, the company can now easily track the material in question.
The system has enabled Colorcon to achieve internal operational benefits as well as meet its customers' thorough and frequent auditing requirements.
Ocean Spray: Moving From Bog to Bottle
Harvesting cranberries is a unique process. Workers flood their marshy growing fields, causing the cranberries, which have air pockets inside, to float to the top for easy removal from the vine.
Moving cranberries through the supply chain is also a unique process. Just ask Ocean Spray Cranberries, a cooperative owned by more than 650 cranberry and grapefruit growers. North America's leading producer of canned and bottled juices and juice drinks, Ocean Spray also makes Craisins, sweetened dried cranberries, and cranberry sauce.
Ocean Spray increasingly leverages total delivered cost metrics to define effective sourcing strategies, consider where and when to position finished goods inventory, and better manage its transportation.
Using a proprietary tool from Eden Prairie, Minn.-based third party logistics provider C.H. Robinson's transportation management system, the cooperative can calculate the total delivered cost of finished goods. Now it's beginning to apply the technology to inbound raw material movements.
"Without a track-and-trace tool, it was hard to get inbound visibility. We were working off assumptions," says Doug Ward, inbound transportation manager for Ocean Spray. "Now that we use the software, however, we know the actual cost per unit to move raw material, and the plants can go online to locate their shipments."
Such analysis led Ocean Spray to consider bulk transportation to move raw materials used to make many of its products.
Much of the fruit Ocean Spray's cooperative farmers grow first moves by dry or refrigerated van to conversion facilities, where it's made into liquid concentrate for delivery to manufacturing sites across the country. Other purchased ingredients are also in a concentrate state.
In the past, these materials were often shipped in steel drums or wooden bins. Now, however, Ocean Spray is moving away from transporting concentrate in bins and drums and moving toward bulk solutions—a more economic, earth-friendly strategy.
For example, each wooden bin currently used to move liquid concentrate weighs up to 300 pounds—even before the liquid is added. Ocean Spray is looking to move to isotankers or 20-foot "flexi" containers—basically a giant bag in a 20-foot shell—that can hold up to 4,900 gallons. These bulk containers use far less packaging per gallon of concentrate, optimizing cargo efficiency.
Embracing a bulk-only approach presents some obstacles.
First, regulations hinder transport of bulk liquid food across state lines in the required vehicles.
Second, the large tanks can't be stored in a typical cold warehouse. Instead, they require bulk holding farms for food-grade liquids near manufacturing plants, which are in short supply. Ocean Spray relies on Des Moines-based Ruan to provide over-the-road tanker services and support its bulk initiative from strategic locations inside the United States.
Leveraging bulk transportation within these constraints continues to challenge Doug Ward and his colleagues. Fortunately, the corporate culture at Ocean Spray encourages a collaborative approach.
"Ocean Spray's transportation people work closely with quality assurance and procurement," Ward says. "The three departments are joined at the hip. We don't just consider how much money we can save. We also look for the most practical way to get materials to the factories without compromising food safety."
Ocean Spray is now applying that same collaborative approach to working with upstream suppliers—particularly globally. Together they are working to increase total supply chain visibility, safety standards, and cost savings.
Logistics is Like a Box of Chocolates
These days, even chocolates are fashionable.
Demand for freshness and variety has pervaded many consumer products categories, including fine chocolate.
That makes life increasingly challenging for small companies such as Chocolate Potpourri, Glenview, Ill., which makes and sells high-end chocolates to hospitality and retail customers. The company must continually develop and market new products while making sensible sourcing, production, and inventory choices.
With cocoa prices at a 28-year high, and sharp cost increases for ingredients, the 27-year-old manufacturer of Veritas and How Sweet It Is private label truffles and sweets must ensure that it attains maximum supply chain efficiencies.
The company, which manufacturers about 80 percent made-to-stock product and 20 percent made-to-order, must also accommodate seasonality not only in sales, but in shipping conditions.
Chocolate that's safe to move through standard less-than-truckload or parcel shipping channels in winter, for example, often needs extra coolpacks in the summer heat. The company prefers to under-produce rather than over-produce during the summer months due to shelf-life issues.
Chocolate Potpourri is taking a bite out of the challenge by leveraging a real-time forecasting, inventory management, and planning module from Costa Mesa, Calif.-based Syspro's enterprise resource planning system. The company took about one month to configure and load three years of sales history into the new system.
The tool checks raw materials inventory for made-to-order products, and notifies the staff whether supply is sufficient, or they need to order additional materials. By contrast, forecasts, rather than customer orders, drive production decisions for made-to-stock items.
"The solution lets us create an accurate forecast using sophisticated algorithms," says Richard Gordon, president of the chocolate maker. Accurate forecasting also helps Chocolate Potpourri avoid waste by ensuring a just-right flow of inbound materials and outbound product. Consequently, the company has cut planning time from hours to minutes.
The software deployment has also allowed the company to implement more efficient shipping practices—for instance, holding a product for an extra day so an order can ship complete.
As chocolates grow more trendy, Chocolate Potpourri is now better prepared to handle the changes forced on production and logistics operations. When a new item is introduced, the staff creates a forecast by proxy—using the history of a previous product with a similar profile to project likely demand among customers.
AriZona Iced Tea: Brewing Up New Supply Chain Solutions
It made an unmistakable impact when it first appeared on store shelves in 1992: a tall, aluminum can, wrapped completely in an eye-catching, southwestern design.
Soon, the company added glass bottles, with labels sporting the same award-winning graphics. Within 15 years, AriZona Iced Tea would become the top-selling ready-to-drink tea in the United States.
But those tall, glass bottles that helped make AriZona iced tea a hit have lost some of their appeal now that diesel costs more than $4 a gallon.
In response, AriZona, which already offers multi-serve bottles made of Polyethylene Terephthalate (PET), has unveiled a single-serve version. Retailers are responding enthusiastically because a truck filled with PET bottles fits up to 14 percent more cases per load.
"Buyers are extremely pleased with the PET bottles because they weigh less than glass and are non-breakable," says Jay Petragnani, vice president of planning for AriZona Beverage, Cincinnati, Ohio, which also makes energy, fruit, and smoothie drinks.
AriZona's manufacturing and distribution executives are grappling with how popular PET bottles will become, and how to balance retailers' interest in PET single-serve packaging with other iterations of AriZona product.
One challenge is the fact that only some of the manufacturer's 28 plants can produce the single-serve PET bottles—and adding that capability involves considerable investment.
Couple that with the comparative costs of shipping full pallets vs. mixed orders, and it's a conundrum not many software applications are capable of solving.
"It's a challenge to fulfill a customer's mixed order, and deliver efficiently and effectively," says Petragnani.
And then there are the intangibles: how much does the consumer perceive glass contributes to the taste and enjoyment of the product?
AriZona isn't relying on PET alone to solve all its logistics challenges. The company is also cross-docking finished goods to accommodate growing product volume in Florida.
After successfully transhipping product at a company-owned facility in New York, AriZona chose to outsource cross-docking in its Florida plant to a third-party logistics provider: Saddle Creek Corp., Lakeland, Fla.
After using Saddle Creek in an initial test, AriZona expanded its use of the 3PL. By next year, Saddle Creek will handle complete finished goods cross-docking for AriZona's Florida plant.
Saddle Creek picks up full truckloads of finished goods at AriZona plants in Tampa and Ft. Meyers and transports them to its own facility. There, the goods are cross-docked for local direct-store delivery by distributors.
"This helped direct-store deliveries immensely," says Petragnani.