Recent research by the global consulting firm Accenture indicates that business complexity is growing rapidly due to unpredictable government policies, product commoditization, and demand uncertainty. In turn, this leads to operational volatility, which is accompanied by even more supply chain disruptions, customer service degradation, and economic losses.
Produce companies are not strangers to these challenges. Volatility has long been a reality in the farm-to-table supply chain—caused by extreme weather conditions, product perishability, pricing instability, and transportation capacity crunches. Particularly challenged are firms with static or rigid supply chains that are not prepared for rapid and unpredictable change. Though volatility cannot be eliminated, it can be effectively managed via flexible supply chains that boost responsiveness to changing conditions. Collaboration, capacity, and creativity are the fundamental building blocks of supply chain flexibility. These three Cs help produce companies, large and small, adapt to volatility and drive value across their extended enterprises.
Collaboration
Only the largest produce companies are vertically integrated with their own growing, processing, and transportation operations. All others are dependent on external relationships to manage and fulfill demand. The strongest of these relationships are built upon effective collaboration and communication; the outcome is a mutually beneficial rapport with common goals, resource sharing, and the agility needed to manage changing conditions.
Grower Relations
Supply collaboration helps produce companies successfully engage the grower community. A constant stream of information between strategic partners on product requirements, order projections, growing conditions, and harvest dates helps secure adequate, quality supply. Timely communication about a weather event or harvest delay provides the flexibility to source additional product if necessary.
Communication is critical, according to Garry Zehe, customer relations director for grower-distributor Cabbage, Inc. in Cleveland, OH. “You have to give growers accurate information on demand projections and changes,” he notes. “Another big part of running a smooth operation is educating growers about customer specifications and letting them know what is acceptable.”
Mark Hayes, president of Twin Garden Sales Inc., concurs with the importance of sharing market requirements with growers. “During the offseason, we visit growers to lay out our needs, making suggestions about varieties, when to plant, and when to harvest,” says Hayes. “We try to ensure product consistency from growers to meet the criteria of the big retailers.”
Transportation Partners
Collaboration with a core group of transportation providers generates knowledge, effective lines of communication, and service flexibility. As knowledge increases, providers are better equipped to anticipate shipping needs, offer operational visibility, and improve service consistency. They are also more inclined to quickly respond to changes in equipment needs, routes, and the schedules of key customers.
“It’s all about relationships with carriers because you need their resources,” Zehe states. “We want carriers to be happy when we call, so we treat their drivers with respect and get them in and out of our facilities quickly.”
Recent research by the global consulting firm Accenture indicates that business complexity is growing rapidly due to unpredictable government policies, product commoditization, and demand uncertainty. In turn, this leads to operational volatility, which is accompanied by even more supply chain disruptions, customer service degradation, and economic losses.
Produce companies are not strangers to these challenges. Volatility has long been a reality in the farm-to-table supply chain—caused by extreme weather conditions, product perishability, pricing instability, and transportation capacity crunches. Particularly challenged are firms with static or rigid supply chains that are not prepared for rapid and unpredictable change. Though volatility cannot be eliminated, it can be effectively managed via flexible supply chains that boost responsiveness to changing conditions. Collaboration, capacity, and creativity are the fundamental building blocks of supply chain flexibility. These three Cs help produce companies, large and small, adapt to volatility and drive value across their extended enterprises.
Collaboration
Only the largest produce companies are vertically integrated with their own growing, processing, and transportation operations. All others are dependent on external relationships to manage and fulfill demand. The strongest of these relationships are built upon effective collaboration and communication; the outcome is a mutually beneficial rapport with common goals, resource sharing, and the agility needed to manage changing conditions.
Grower Relations
Supply collaboration helps produce companies successfully engage the grower community. A constant stream of information between strategic partners on product requirements, order projections, growing conditions, and harvest dates helps secure adequate, quality supply. Timely communication about a weather event or harvest delay provides the flexibility to source additional product if necessary.
Communication is critical, according to Garry Zehe, customer relations director for grower-distributor Cabbage, Inc. in Cleveland, OH. “You have to give growers accurate information on demand projections and changes,” he notes. “Another big part of running a smooth operation is educating growers about customer specifications and letting them know what is acceptable.”
Mark Hayes, president of Twin Garden Sales Inc., concurs with the importance of sharing market requirements with growers. “During the offseason, we visit growers to lay out our needs, making suggestions about varieties, when to plant, and when to harvest,” says Hayes. “We try to ensure product consistency from growers to meet the criteria of the big retailers.”
Transportation Partners
Collaboration with a core group of transportation providers generates knowledge, effective lines of communication, and service flexibility. As knowledge increases, providers are better equipped to anticipate shipping needs, offer operational visibility, and improve service consistency. They are also more inclined to quickly respond to changes in equipment needs, routes, and the schedules of key customers.
“It’s all about relationships with carriers because you need their resources,” Zehe states. “We want carriers to be happy when we call, so we treat their drivers with respect and get them in and out of our facilities quickly.”
Strategic transportation relationships can also provide valuable expertise, capacity, and freight tools. “A good broker helps you avoid the complexity of running a transportation department and gives you access to the fleet of owner-operators that dominate produce transportation,” says Kenny Lund, vice president of support operations at Allen Lund Company, Inc. in Los Angeles, CA. “You can leverage their relationships, transportation management systems, EDI capabilities, and contracting skills.”
Reaching Out to Retailers
Collaboration with downstream customers also helps produce companies develop accurate and timely forecasts of future inventory needs. If a retailer is planning a major promotion for a particular commodity, it is essential for produce suppliers to have such information well in advance, which allows enough time to procure appropriate levels of supply to support the promotion.
The most collaborative relationships lead to retailers sharing promotional calendars and point of sale information with trusted partners.
“If you’re actively involved with retailers, they will share their advertising plans, typically about three months in advance,” says Julia Inestroza, marketing director for Gourmet Trading Company in Los Angeles. “The key is working with retailers to align their big ads and aggressive pricing with your flush production.”
Category data from retailer cash registers, holiday sales, and other historical information are essential for developing predictive models to understand demand, according to Roger Pepperl, marketing director for Wenatchee, WA-based Stemilt Growers, LLC. “We graph out our crops to create a supply-demand curve for our products,” he indicates. “The goal is to make sure we’re in stock at the right time and plant orchards at the right time to keep the graph stable.”
Capacity
Though seasonal demand spikes can be difficult to manage, accurate forecasting helps proactively determine additional needs for product, transportation, and storage. The real challenges occur when there are disruptions of unknown frequency or timing such as extreme weather, supplier failure, or product recall.
Sourcing from multiple regions is a valuable strategy to help avoid or temper the effects of extreme weather. When feasible, a network of geographically dispersed growers reduces supply risk in the event of a drought, late season freeze, or other climatological event that disrupts product availability and quality.
Also needed is a contingency plan to rapidly access this capacity in the event of an interruption. Orders must be quickly placed with backup growers, transportation equipment must be secured, and customer delivery schedules must be modified to avoid inventory shortages and empty store shelves.
Hayes and Zehe highlighted the importance of geographically dispersed domestic suppliers while Inestroza notes the value of having offshore suppliers to source needed product year-round.
“We have diversified our growing region so we’re not just relying on Peru,” Inestroza states. “We depend on Peru and Mexico during certain timeframes; at other times, we rely on Washington and California. If a weather issue takes out one region, we have another to fall back on.”
Strategic management of transportation resources is essential for ensuring flexible capacity for peak season requirements and unique situations. Tendering consistent volume throughout the year at negotiated rates that properly compensate providers will pay dividends when driver and equipment availability are in short supply. These core brokers and carriers will return the favor by allocating scarce resources at reasonable rates to loyal customers for their incremental peak season loads.
Produce companies that lack consistent volume must make their freight attractive in periods of tight capacity.
Lund suggests: “To get the equipment you need, create driver-friendly loads with properly precooled product that is ready to go, with good pick-up and delivery times, and a low number of drops. Plus, you have to pay the market rates and avoid the unloading fees that make truck drivers crazy.”
Contingent capacity provides the flexibility to handle a “positive disruption” such as record crop output or heightened consumer demand for a commodity. Produce companies need not make capital investments in facilities for these infrequent or one-time events; instead, they should identify, visit, and qualify a small group of processors and third-party logistics firms to handle overflow requirements. This is a cost efficient strategy for creating supply chain volume flexibility.
Creativity
Innovation is another critical element of flexibility. When one issue is resolved, new ones arise that require different strategies and solutions. When combined with rapid product degradation and exacting customer specifications, the need for creative problem-solvers is crucial, according to Inestroza.
Our industry experts provided multiple examples of creative firefighting to maintain a flexible flow of quality product for consistent shelf life. Pepperl suggests using farms at varying altitudes and planting varieties that bloom at different times to spread the supply across a longer timeframe.
Harvesting product very early in the day or twice a day to avoid extreme temperatures is another option, notes Inestroza. And, sometimes orders need to be juggled and delivery schedules reworked to ensure that all customers get served when inventories are tight, adds Zehe.
Managing fuel expenses also requires a strong dose of creativity for companies with private fleet operations, as they must develop flexible capabilities and strategies to minimize the impact of fuel price volatility. Dr. David Menachof, the Peter Thompson Chair in Port Logistics at the University of Hull (Yorkshire, UK), highlights a variety of strategies to reduce fuel expenses. From an operations standpoint, he suggests: “A low cost option is a one-day fuel efficiency training course for experienced drivers. This can produce a 5 to 7 percent performance improvement in fuel economy. Also, if too many empty miles are being driven, work with a freight broker to generate backhauls [which] will partially offset the fuel costs for returning vehicles to the home base.”
Menachof also proposes creative financial strategies: “Hedging programs can be used to lock fuel prices for a set period of time. It prevents the fleet from being affected by future price increases.” Further, Menachof notes that “2014 tractor engines will be significantly more fuel efficient than current models; with a 1 percent increase in fuel economy worth approximately $900 per year and diesel fuel at $4 per gallon, a 10 percent improvement in fuel economy could amount to a savings of $9,000 per year for each power unit replaced. ”
Conclusion
Success in the fresh produce supply chain is not based on heavy standardization and repetition like a manufacturing operation. Produce companies and their supply chain partners must be adaptable to the realities of the weather, growing conditions, and external disruptions.
Fortunately, this ability to adapt is not about technology investments or asset accumulation; it is derived from a willingness to establish collaborative relationships, organize contingent capacity, and creatively
manage problems. Produce companies, both large and small, can leverage these flexibility building blocks to become more agile, service oriented, and successful.
