Everybody wants everything cheaper, quicker and more sustainably and nobody’s got any money.
Food and drink firms are seeking simple, streamlined supply chain solutions offering more information, visibility and flexibility without major cost implications. But cut corners and you can end up with a ‘horsegate’ on your hands.
“We have to figure out ways of being quicker, delivering on time without additional cost. Working with our clients and their customers, we find ways to compromise,” says Alistair Brown, commercial development manager at Culina Logistics, and responsible for the succinct summary that opens this article. “The two are very different animals,” says Brown, referring to chilled and ambient business. “For both businesses, lead times are getting shorter. Chilled is driven by wastage and ambient is driven by inventory levels.”
With ambient goods, Culina ensures full loads are sent to distribution centres whereas, for chilled, its high market share offers potential to consolidate supplies. “We have a critical mass within chilled,” says Brown. “We’re delivering 1.5M cases per day of chilled products.
“For chilled, the difference between profit and loss is wastage but cutting inventory puts service levels at risk and could give you empty shelves.”
Shorter in-lead times and ability to handle smaller loads without increasing costs for businesses is vital, agrees Dan Mowbray, commercial manager at Jigsaw Solutions, a collaboration of 11 regional partner hauliers using a customer-focused ‘family values’ approach to compete nationally against third-party and fourth-party logistics providers (3PLs and 4PLs).
Reduce costs (Return to top)
To reduce costs, Jigsaw looks at, for example, optimising account management, using longer trailers or offering one-pallet rates. “We get close to customers to understand the challenges," says Mowbray. “We have 11 mds on the end of the phone we can talk to, to get things done.”
Improving cash flow and visibility can also help. “The sooner they can close invoices and raise payments, it helps with cash flow,” says Mowbray, with Jigsaw's customers offered electronic order transactions through its internet-based business-to-business electronic data interchange application or customised order systems.
“People want to know where their products are in the product cycle,” he says, allowing early intervention should any problems emerge in the supply chain.
Supply chains should also flex to meet the peaks and troughs associated with seasonality and promotional activity.
Increasing reliance on promotions in retail is creating spikes in the market, says Nick Hay, md of ambient, chilled and fast moving consumer goods supply chain specialist Fowler Welch. “If you drill down into what’s happening, variability is increasing all the time and is linked to promotions,” says Hay. “It leads to stresses and strains in the supply chain. The strain that it’s causing in terms of cost is increasing all the time.”
Greater variety in the marketplace demands greater flexibility from the supply chain, concurs Nick Miller, principal consultant at supply chain consultancy Crimson & Co.
“It’s almost a different mindset; every part of the supply chain has to be more sophisticated and you have to be a lot better at introducing new products and exiting products,” he says. “We have good project management on that.
Long-term business relationships (Return to top)
“On the procurement side, if half of products are going to be new every year, it’s gone away from a purchasing relationship to long-term business relationships with suppliers. The purchasing price becomes less important than the whole package of services.”
Clients include a global wine business reorganising its business end-to-end to boost flexibility, and a major spirits manufacturer restructuring operations from monthly to weekly production cycles.
“The competitive advantage becomes adaptation rather than being very good at what you’re doing now,” says Miller.
An evolution is underway with increasing customisation of products, says Dan Myers, director of the Food Business Unit at Norbert Dentressangle, a European operator of transport, logistics and freight forwarding services.
“Our customers are increasingly looking for the ability to customise on demand and putting more and more services under one roof with all-encompassing service centres,” he says.
Choosing the right warehouse management system (WMS) is vital if flexibility of operations is required, according to Jungheinrich UK, a supplier of warehouse equipment, including forklift trucks, racking systems and warehouse planning services such as WMSs.
“Could your WMS adapt if you were suddenly faced with an upsurge of online orders which brought about a dramatic shift in your typical order profile?” asks Steve Richmond, director of Jungheinrich UK Systems & Projects Division. “A facility may suddenly be required to shift from a bulk or unit load-based operation by a customer-driven need to fulfil single item picks at a much higher frequency.”
Partnerships (Return to top)
“You need to consider working with other firms and investing,” says Myers. “You need to future proof your firm by having the right partner.”
For Expense Reduction Analysts (ERA), a global network of specialist procurement advisors: “What we’re trying to do really is secure a client and build a long-term, on-going relationship with them,” says Craig Warhurst, a supply chain manager with Expense Reduction Analysts.
Expense reduction analysis works on a contingency basis for many clients, receiving a percentage of savings achieved. “It’s more tenable with most companies nowadays,” says Warhurst, with clients enjoying “all the benefits with no risk and minimal input”.
ERA claims supply chain savings of 20% for clients with a purchasing team in place but entrenched in long-term deals with suppliers. “It’s always harder for a supplier to give away something he’s already got," says Warhurst. Buyers should review costs every year at least, he says.
For Fowler Welch, corporate purchasing causes problems in the supply chain. “People are trying to commoditise something it's difficult to commoditise,” says Hay. “You’re basically getting something from ‘a’ to ‘b’ but minutiae of detail is very important. When you have procurement experts who don't understand the nuances, it results in a fractious relationship.”
Emerging markets (Return to top)
Partnerships can also ease entry into new markets. With globalisation, manufacturers are “expanding out into the unknown”, says Miller. “You need to understand the end market.
“Generally, when going into emerging markets, you don’t have the scale when you first go in but can collaborate with other companies to gain that distribution and scale.”
ERA helps its clients shorten the supply chain. “What you’ve got to do is combat inflation get smarter at buying,” says Warhurst. “You might be sourcing from a wholesaler who is making a high margin and you can take him out. It's about moving supply down the chain as far as we can.”
While retailers have become more adept at direct service, much of the foodservice sector is still not going direct to source for products, says Warhurst. For one global foodservice chain, ERA reduced supplier numbers from 32,000 to 4,200, consolidated into one logistics platform.
Greener supply chains cut costs for manufacturers, while ticking the boxes of corporate responsibility and compliance with carbon reduction targets.
The Chartered Institute of Purchasing and Supply (CIPS) has just launched a sustainability index in collaboration with the University of the West of England and global analytics business PRGX to create consistent sustainability measurement.
“For a London hotel, it’s possible they may have 40 to 50 trucks a day delivering and that can be consolidated into five or six mixed trucks, with a lot more volume on a lot less trucks,” says Warhurst. “You’re paying for the fuel of that truck.”
Culina’s sustainability plan extends from route optimisation, driver performance and vehicle consumption analysis, to greener warehouses and work practices. It has also added an ethical element by working with Fareshare – a charity tackling food poverty and redistribution of waste.
Another logistics provider, NFT, collects products from suppliers of all sizes nationwide to be stored for picking or consolidated at ‘transhipment hubs’ for efficient delivery to regional distribution centres, minimising food miles and number of deliveries.
One project improving delivery compliance across the supply chain by using a logistics function for returns to process and redistribute chilled product rejections, saved over £500,000 in 12 months for the client, says Dale Fiddy, sales and marketing director at NFT.
Traceability (Return to top)
And one of the key elements of the supply chain is, of course, traceability, covered in greater detail in last month’s food safety feature.
“A lot of food manufacturers are taking a hard look at supply chains, and there is a sense of the lack of control they had and exposure to possible fraud in the supply chain,” says Duncan Brock, director of CIPS. “Many had been managing their tier one suppliers and knew a little about their tier two but very little about tiers three, four or five, which is what happened with the horsemeat scandal.”