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Logistics
Management
Group Assignment
Dhaval | Subh | Manav
An Overview of
Logistics of Perishable
Products:
Challenges &
Suggestions
To fast-track in-store delivery and guarantee the freshest goods for
consumers, todays vendors must restructure their value chains, and
form new ecosystems informed by sophisticated logistics and
superior inventory management.
Table of Contents
1. Executive Summary ............................................................................................................................................................... 2
2. Need for a High-Speed Supply Chain ............................................................................................................................. 3
3. Creating a High-Speed Supply Chain for Perishables.............................................................................................. 5
3.1 Identify Priority Action Items...................................................................................................................................... 5
3.2 Conduct a High-Level Supply Chain Study ........................................................................................................... 6
3.3 Conduct a Detailed Process Analysis ...................................................................................................................... 7
3.4 Identify Future Initiatives and Actions................................................................................................................... 7
4. Application Considerations and Industry Best Practices ...................................................................................... 8
4.1 Organizational Strategy ................................................................................................................................................. 8
4.1.1 Key Performance Indicators (KPIs): ................................................................................................................... 8
4.1.2 Centralized tasks: ..................................................................................................................................................... 8
4.1.3 Centralized supply chain management: ......................................................................................................... 9
4.1.4 Supply chain body for food chain: ..................................................................................................................... 9
4.2 Business Process Modifications ................................................................................................................................ 9
4.2.1 Process association: ................................................................................................................................................ 9
4.2.1.1 Vertical integration:........................................................................................................................................ 10
4.2.1.2 Network partnership:..................................................................................................................................... 10
4.2.1.3 Single view of estimates: ............................................................................................................................. 10
4.2.2 Lean logistics with innovative distribution approach: ............................................................................ 11
4.2.3 Active allocation: .................................................................................................................................................... 12
4.2.4 Supply chain visibility: ........................................................................................................................................ 12
4.2.5 Procurement considerations: ............................................................................................................................ 13
4.3 Technology Facilitators .............................................................................................................................................. 13
4.3.1 Automated replenishment and inventory scheduling to optimize freshness: ............................. 13
4.3.2 Forecasting tools with perishables features: .............................................................................................. 14
4.3.3 Technology to incorporate weather impacts: ............................................................................................. 15
4.3.4 Management by exemption: .............................................................................................................................. 15
4.3.5 Efficiency through innovative solutions: ..................................................................................................... 15
4.3.6 Traceability and tracking tools: ........................................................................................................................ 15
5. Looking Forward ................................................................................................................................................................... 16
6. Footnotes ................................................................................................................................................................................. 17
1
1. Executive Summary
The perishables segment of the retail industry is a case of extremes:
above-index gross margins and surplus; large variations in volume-to-sales
ratios (depending on periodic and climatic patterns) and a display for brand
equity and risk. In Australia, the grocery and fresh produce retail industry [1]
recorded a total turnover of $131 billion in 2009, with estimated revenue of $194
billion by 2020 (compound growth of 3.7% p.a.). Approximately 40% of that
revenue is resultant of perishables presenting a prospect for retailers to
achieve material, commercial and financial gains.
At the same time, todays consumers are aware, and swayed by marketing
campaigns that focus on their health and well-being, and their want for fresher,
more nutritious options. A recent report in The Wall Street Journal [2] highlights
the changing inclinations of American consumers, who now favor fresh from-
the-source products over pre-prepared frozen meals. (Sales of the later fell by
3% to $8.92 billion in the period between 2009 and 2013, according to
Euromonitor International).
Freshness is evidently on the agenda of leading retailers; for example, in
2013, Wal-Mart introduced a program to ensure the freshness and quality of its
fruits and vegetables, supported by a 100% money-back guarantee. [3]
Yet catering the freshest harvests to customers remains a challenge for
retailers, since doing so is not limited to a single business function;
merchandising, store operations and the supply chain all play a concerted role
in managing and maintaining freshness and reducing shrinkage in the
perishables cycle. While different methods can help retailers achieve this goal,
developing a high-speed supply chain is one of the most straightforward
strategies for guaranteeing freshness and materializing top- and bottom-line
improvements.
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2. Need for a High-Speed Supply Chain
According to Harvard Medical Schools Center for Health and the Global
Environment, in the U.S., products procured at the grocery store normally
voyages more than 1,500 miles [4] from farm to table. A typical Australian food
basket travels an approximate 70,000km roughly equivalent to travelling
around the circumference of the earth twice or around Australias coastline
three times. [5]
While these are remarkable logistics, a road literally less travelled could
lead to fresher merchandises and better nutrition for the consumer.
In-store product freshness definitely influences customer demand. As
specified in a report by consulting firm Oliver Wyman, Consumers who are
satisfied with freshness will spend over a third more in the produce division of
their primary store compared to those who are not content. At the same time,
they will spend 8% more of their entire grocery spend with retailers whose
product they are satisfied with than the buyers who are not happy with that
stores produce. The report also defined that freshness and shrink, managed
together, can add as much as $60 Million a year to some $10 Billion chains
earnings while increasing sales and improving its market positioning. [6]
However, estimates tell us that produce spends up to 50% of its life
between suppliers and vendors at different touch points in the supply chain, a
longer supply chain results into more touch points. Each touch point
compromises the produces freshness and quality due to aspects related to
loading/unloading, wait and execution time on the dock, faulty cooling
systems, or improper configurations which result in shrinkage or waste.
A high-speed supply chain can decrease waste (shrink) across the chain
by transporting product to store with an extended shelf life (i.e., by consuming
less of the limited shelf life between production or harvest and sale).
Prolonging shelf life provides more chances for a product to be picked
from the shelf, and reduces the probability of it being thrown away due to
expiration. A 2010 study by the Asian Food Information Centre (AFIC) reveals
that 67% of customers in India keenly consider expiration dates before
purchasing perishable goods. [7]
While perishables cumulatively make up about 38% of total store sales,
they contribute up to 65% of total store shrink. [8] Improving the velocity of a
retail supply chain increases the revenue and gross profit proportionately (see
Figure 1). The velocity of the supply chain can be directly connected to the days
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it takes to transport a product ready for sale in store. The earlier this is
executed, the broader the window of opportunity to sell, and the less
opportunity of shrinkage/waste.
. Figure 1
Day to Deliver is inversely proportional to Opportunity to Sell
Opportunity to Sell is directly proportional to Sales/Waste
Figure 2
The industry average for retail contraction in the U.S. is around 2.7% of
retail sales, with 65% of that credited to perishables. [9] Clearly, a prospect exists
4
to reduce shrinkage, and improve overall revenue and deliver a fresher
proposition to the customer by accelerating the supply chain speed.
The question is how? In the following pages, we will answer that question,
and point out processes that can be taken to create a high speed supply chain.
Effective Shelf Life (ESL) = Total Shelf Life Supplier to Customer Lead Time
Minimum Freshness Days
* Minimum freshness days is the number of days a product must maintain freshness in order for a customer to
accept it, e.g., a customer will buy milk if it has a minimum of two days of freshness remaining or is set to
expire after two days.
5
3.2 Conduct a High-Level Supply Chain Study
Subsequent to item prioritization, the next step is to evaluate the end-to-
end supply chain and segregate the time spent at each node, or transportation
leg, in the chain. This reveals the value chains role at each site, the high-level
integration touch points, and the lead time at each phase of the supply chain
(see Figure 4).
Figure 3
Figure 4
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3.3 Conduct a Detailed Process Analysis
Subsequent to the high-level supply chain analysis, the next step is to
understand in depth the lower-level processes and actions, then classify each
process stage as either a value-adding or non-value-adding activity. The
comprehensive analysis on the list of process steps will identify (for removal)
the later, and reveal opportunities to reduce the lead-time of value-adding
tasks. Figure 5 is an example of a detailed process analysis worksheet.
At this phase, data must be taken from various areas and systems at each
point related to freshness and waste. This comprises systems for warehouse,
transportation, point-of-sale, procurement, etc. The objective is to build a
quantifiable supply chain matrix that will help identify nonvalue-adding
processes in the supply network.
Recording and obtaining access to the correct information is an
important investment for retailers, and crucial to realizing the maximum
benefits from this analysis. Most vendors retain generic information about
transport lead time, wait time, etc., or store it in various systems.
Figure 5
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Examples of initiatives embarked on by retailers include:
Partnership with supply associates for speed and freshness.
Automation to reduce warehouse handling time.
Execution of sophisticated refill technology with special attention for
freshness.
As with any investment decision, ranking future initiatives based on their
probable impact and benefits is highly recommended.
8
Nevertheless, completely centralizing operations may not be possible or
applicable in all circumstances; many progressive organizations have adopted
a hybrid approach that combines a centralized strategy to gain agreement with
decentralized execution to improve service. [11]
4.1.3 Centralized supply chain management: An emergent global trend is to
unify procurement, logistics, contract management, forecasting/demand
planning and similar management functions under a single supply chain
leader. This helps enable effective decision making with a view spanning the
entire supply chain.
4.1.4 Supply chain body for food chain: The objective of a governing council is
to provide direction and help align the supply chain strategy [12] with all other
functions and departments in the organization. The council can help quantify
and monitor the impact of new initiatives for perishables. Its membership
should include the leader of the supply chain organization, business unit
managers, corporate executives, and other influential stakeholders within the
organization. Its existence will indicate that supply chain management has the
validation and commitment of senior leadership.
Figure 6
Figure 7
4.2.2 Lean logistics with innovative distribution approach: Perishable produces
require distinctive distribution strategies. The journey to a lean supply chain
begins with innovative distribution channels and progresses through
continuous process improvements, automation, and the embracing of best-in-
class know-hows.
Sourcing a product is only half the job; the article must also be available at
the store, and time to store is directly tied to the networks intricacies. There is
a growing need to tactically leverage the DSD (direct store delivery) channel,
straight from farms/production to store/customer to distribute more product. In
2008, the Grocery Manufacturers Association (GMA) reported that DSD
represents 24% of unit sales and 52% of total profit in the grocery channel.
11
Further, the report noted that of the top-ten food categories by dollar volume,
seven were achieved through DSD processes. [19]
The DSD model launched by Nestl in 2009 ensured the availability of
Nestl products wherever and whenever customers wanted them, allowing the
company to continue widening its distribution base into non-conventional
alternative locations. In 2012, following the models success, Nestl also
invested in modern DSD/route accounting solutions. [20]
An integrated distribution network is another way to tread the line
between optimizing truck loads and meeting the need to ship quickly and
directly. In this model, small branch warehouses are situated close to the point
of consumption; stores do not rely on conventional warehouses to receive
produces that take longer to process and ship.
Warehouse procedures, if not optimized separately for perishables, may
slow time to store. Through arrangements with suppliers, retailers can leverage
advance shipping notes (ASNs), enabling warehouses to pre-allocate the
shipment to be received for cross-docking, or make required arrangements for
flow through/pick-to-zero.
Aligning replenishment rate with the retailer ordering calendar and
receipt times at stores/warehouses is vital to achieving a smooth product flow
throughout the supply chain.
4.2.3 Active allocation: The freshness of products at a warehouse is a primary
success condition for achieving a stock-allocation strategy. The key is to have
clear visibility of the expiry date or best before date of the available and in-
transit stock. The warehouse should also be able to perform active allocation to
avoid waste.
The rapid growth of multi-option retail has made order fulfilment more
multifaceted. Hence, the supply chain must be able to prioritize and optimize
the management of e-commerce and retail store orders.
4.2.4 Supply chain visibility: An estimated 30 percent of all worldwide
perishables shipments never reach customers because of a variety of supply
chain issues. [21] Monitoring stock levels over the course of the day through the
supply network, preferably in real time, can further improve inventory
management.
12
Traceability is an important facet in identifying areas for improvement. It
can help regulate the actual lead time, processing time and wait time at each
step in the supply chain before the produce reaches the consumer.
Papa Johns implemented Manhattan Associates fleet software system
and a visibility package, UK-based Isotrak, to enhance its freight-tracking
capabilities. A 2013 case study by Manhattan Associates emphasizes that the
implementation of new technology provided unparalleled visibility, lower
expenses and enhanced efficiency and productivity at every point in the
supply chain. [22]
4.2.5 Procurement considerations: The effective shelf life of the produce should
be a crucial consideration during contract formulation and sign-off. A retailer
must outline a realistic lead time that meets freshness standards and
guarantees compliance. Penalties and rewards are agreed upon during
negotiations and when defining terms of procurement with suppliers.
15
5. Looking Forward
The perishables supply chain is exceptional in terms of operations and
product features. Retailers looking to develop a world-class perishables supply
network must first understand the notion of an effective shelf life (the available
days that a product can be sold without becoming unfit for ingestion) in order
to identify the top 20% of items that contribute to 80% of waste. It is essential to
adopt an organized approach for analyzing and detecting the root cause of
waste and identifying future initiatives. Vertical integration, network
collaboration and collective planning create a base for an efficient and viable
supply chain. Implementing perishables KPIs within the organization and
persuasive all stakeholders to ensure the delivery of fresh produces will serve
as a catalyst for realizing the goal of a fresh supply chain.
Adopting perishables-specific technologies can help lead the way to a
high-speed supply chain that accelerates and synchronizes information, aligns
business processes, reduces waste and assures the delivery and availability of
fresh produces. In this way, retailers can boost sales, reduce shrinkage and
establish a fresh connect with the customers.
16
6. Footnotes
[1] 2020: Industry at a Crossroads, Australian Food and Grocery Council.
https://www.atkearney.com/documents/10192/178350/2020_industry_at_a_crossroads_final.pdf/702b00d1-cdca-4e8f-85d8-
7f55dbc26952.
[2] The Wall Street Journal, Frozen Foods Grow Cold as Tastes Shift to Fresher Fare, June 26, 2014.
http://online.wsj.com/articles/frozen-foods-grow-cold-as-tastes-shift-to-fresher-fare-1403826097.
[4] Sophie Glabella and Asha Bee Abraham, Food Miles in Australia: A Preliminary Study of Melbourne, Victoria
[Internet], 2008 [cited June 20, 2008].
http://www.ceres.org.au/sites/default/files/CERES_Report_%20 Food_Miles_in_Australia_March08.pdf
http://www.ecofriendlyfood.org.au/buy_locally.
[7] Arvind Singh Rana, Old is no Longer Gold - Applying theory of constraints to improve freshness of products.
http://www.vectorconsulting.in/insights/consumer-goods/old_is_gold_no_more.html.
[10] Trends in Loss Prevention and Store Operations Control for 2012.
http://www.retailcontrol.com/articles/6- trends-in-loss-prevention-and-store-operations-control-for-2012/.
[11] Bob Engel, 10 Best Practices You Should be Doing Now, Quarter 1, 2011 issue.
http://www.supplychain- quarterly.com/print/scq201101bestpractices/.
[12] Ibid.
[13] Taking advantage of the Organic Supply Chain, Australian Organic Spring 2013 | Issue No.1.
[14] Corporate Responsibility Review 2011/12 - Food with thought, Wm Morrison Supermarkets PLC
http://your. morrisons.com/Documents/Morrisons_CR_Review_5MB.pdf.
[15] Emerging Trends in US Logistics Part II: Food Safety TrendsFood chain Intelligence.
http://www.food-chain. com.au/Dispatch3.pdf.
[17] Reducing the Bullwhip Effect via Market Research-Gleaned Insights, Cognizant.
http://www.cognizant.com/ InsightsWhitepapers/Reducing-the-Bullwhip-Effect-via-Market-Research-Gleaned-
Insights.pdf.
17
[18] Temperature-Controlled Logistics: Provide or Perish.
http://www.inboundlogistics.com/cms/article/tem- perature-controlled-logistics-provide-or-perish/.
[19] Powering Growth Through Direct Store Delivery, Sept., 2008. Grocery Manufacturers Association (GMA).
http://www.gmaonline.org/downloads/research-and-reports/DSD_Final_111108.pdf.
[23] Real Results Magazine, Volume 8, Issue 2. 2013 JDA Software Group, Inc.
jda.com/realresultsmagazine.
[25] SAP Solution Brief. Plan, Deploy, and Optimize Retail Software Faster and Easier Than Ever.
http://www. sap.com/bin/sapcom/en_us/downloadasset.2012-11-nov-30-08.plan-deploy-and-optimize-retail-software-
faster-and-easier-than-ever-pdf.html.
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