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Perfecting Your Game Plan

‘What if’ scenarios are vital to the success of produce supply chains
Supply Chain Solutions

Ultimately, sourcing adjustments need to make financial sense. The cost of spot market purchases plus the additional freight cost from distant suppliers must be weighed against price sensitivity in the market.

“If I’m bringing peppers in from California at $19 and it costs me $7 a case to get them here, I’m sitting on inventory at $26 cost,” notes Cessna. “Can I sell it and get the kind of market dollars I need to make a profit? That’s an every-hour dialogue with us.”

Adjusting to Demand Shifts
Demand for produce commodities is driven by product quality and price. The variability of both factors, compared to other industries, can cause rapid demand fluctuations. The ability to flex inventory levels and capacity with demand avoids inventory shortages in rising markets and waste in declining markets.

“Some customers send out POs [purchase orders] weeks in advance but they also make changes along the way,” notes Steve Roosdahl, executive supply chain director for Oppy, a full-service produce marketing and distribution company. “We had one customer that sent daily POs at two in the morning for shipping at 10 a.m.”

To meet base demand and last-minute requests, the company must anticipate the needed quantity, quality specifications, and packaging requirements. Most of the product is packed the day before shipping but last-minute order additions or subtractions must be handled with flexible fulfillment processes.

“You can have anywhere from 20 to 60 percent of POs changing the same day (as shipping),” states Roosdahl. These last-minute changes may then create a need for additional product or reduced quantity.

Available product is pulled, staged, and prepared for delivery. If inbound loads contain product needed for a PO, it must be quickly unloaded and checked for quality, reconditioned if needed, and packaged. An expedited work order is needed to get the truck loaded and dispatched with minimal delay.

“Every day is a juggling act—and you plan out your day as best you can,” Roosdahl concludes.

Ensuring Transportation Capacity
The variability challenges in the fresh produce industry are not limited to pro-duct issues. A produce company’s ability to move product across the supply chain at reasonable expense is impacted by capacity conditions. Sometimes, demand far exceeds transportation capacity, causing equipment shortages and rate spikes. Other times, there is excess transportation capacity and rates plummet.

Produce companies must monitor the transportation market, recognize changing conditions, and adapt accordingly. Contracting with a set of primary transportation providers is one strategy for ensuring base capacity at a reasonable cost for peak periods. Flexible capacity for variable demand and unexpected loads can be sourced through transportation brokers. However, this tactic can generate risks of not finding capacity when needed and incurring higher rates.

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It’s October and football season is well underway. Offseason efforts to develop offensive and defensive schemes, playbooks, and game plans are in full execution mode. Winning depends on in-game adjustments, which can include the coaching staff making halftime corrections, the quarterback calling a timely audible to avoid a blitz, and the defense reacting quickly to a pass or run play.

Such agility develops only when the team practices probable game situations. This ‘what if’ planning will support necessary adjustments to the offense, defense, and special teams for a variety of game conditions. As a result, the well-prepared team will not be thrown off by an opponent’s trick plays, an injury to a key player, or poor field conditions.

Produce professionals face similar circumstances. While long-range supply chain strategies set the stage for success, problems with weather conditions, product quality, and equipment availability force fruit and vegetable suppliers to deviate from their original game plans. Success depends upon a company’s ability to quickly respond with logical and effective supply chain modifications.

Like winning football teams, leading produce companies use scenario planning and modeling to prepare for ‘in-season’ adjustments across multiple platforms. Supply, demand, and transportation plans must be adapted to changing market conditions.

Effective execution of these revised plans is the difference between financial wins and losses.

Adapting to Supply Challenges
Most industries can readily depend on a stable flow of quality product from suppliers. Short of a catastrophic event like a factory fire, a labor strike, or a product design failure, the supply is dependable.

If it were only so simple in fresh produce! In a perfect world, strategic longer-range supply planning is accurate and suppliers deliver according to plan. However, multiple factors—including climate, growing conditions, shifts in sourcing locations, and labor availability—create variability in supply quantity and quality. Produce professionals must constantly monitor the situation and make necessary sourcing adjustments to secure adequate inventories.

“Among the subtle market shifts and supply chain issues, weather is the biggest factor,” comments Glenn Sheader, in sales and buying for Consumer Fresh Produce Company, Inc. in Pittsburgh, PA. “If the weather impacts us in a way that leaves [customers] short on items, [they] start looking at other sources and places to pick them up.”

The ability to make quick sourcing shifts is facilitated by strong engagement with multiple suppliers. “Having visibility of sources and a list of trusted vendors helps us,” adds Greg Cessna, CEO of Consumer Fresh. “It takes time to build personal relationships with people around the country who understand what’s going on. You can’t rely on just one or two vendors; you need several in your arsenal for these situations.”

Ultimately, sourcing adjustments need to make financial sense. The cost of spot market purchases plus the additional freight cost from distant suppliers must be weighed against price sensitivity in the market.

“If I’m bringing peppers in from California at $19 and it costs me $7 a case to get them here, I’m sitting on inventory at $26 cost,” notes Cessna. “Can I sell it and get the kind of market dollars I need to make a profit? That’s an every-hour dialogue with us.”

Adjusting to Demand Shifts
Demand for produce commodities is driven by product quality and price. The variability of both factors, compared to other industries, can cause rapid demand fluctuations. The ability to flex inventory levels and capacity with demand avoids inventory shortages in rising markets and waste in declining markets.

“Some customers send out POs [purchase orders] weeks in advance but they also make changes along the way,” notes Steve Roosdahl, executive supply chain director for Oppy, a full-service produce marketing and distribution company. “We had one customer that sent daily POs at two in the morning for shipping at 10 a.m.”

To meet base demand and last-minute requests, the company must anticipate the needed quantity, quality specifications, and packaging requirements. Most of the product is packed the day before shipping but last-minute order additions or subtractions must be handled with flexible fulfillment processes.

“You can have anywhere from 20 to 60 percent of POs changing the same day (as shipping),” states Roosdahl. These last-minute changes may then create a need for additional product or reduced quantity.

Available product is pulled, staged, and prepared for delivery. If inbound loads contain product needed for a PO, it must be quickly unloaded and checked for quality, reconditioned if needed, and packaged. An expedited work order is needed to get the truck loaded and dispatched with minimal delay.

“Every day is a juggling act—and you plan out your day as best you can,” Roosdahl concludes.

Ensuring Transportation Capacity
The variability challenges in the fresh produce industry are not limited to pro-duct issues. A produce company’s ability to move product across the supply chain at reasonable expense is impacted by capacity conditions. Sometimes, demand far exceeds transportation capacity, causing equipment shortages and rate spikes. Other times, there is excess transportation capacity and rates plummet.

Produce companies must monitor the transportation market, recognize changing conditions, and adapt accordingly. Contracting with a set of primary transportation providers is one strategy for ensuring base capacity at a reasonable cost for peak periods. Flexible capacity for variable demand and unexpected loads can be sourced through transportation brokers. However, this tactic can generate risks of not finding capacity when needed and incurring higher rates.

Holidays are a particular challenge, according to the Consumer Fresh team. “Mother’s Day is the busiest foodservice holiday for us, but we’re competing with floral loads getting shipped out of Florida,” says Sheader. “The Fourth of July is another challenge. When you feel the trucking scenario tightening up, you have to get ahead of it and book loads early.”

In excess transportation capacity conditions, the temptation is to chase the lowest transportation rates available through brokers. But the “you get what you pay for” rule may apply as the lowest priced carrier may not meet desired quality, equipment, and technology standards.

Instead, produce companies should take a relationship-based perspective and tender freight to their regular carriers when excess supply exists. It will yield longer-range benefits, notes Roosdahl. “Make sure you take care of your key carriers in the offseason so their trucks are running as much as possible,” he suggests. “If we help them out, then they’ll be there for us when times are tough.”

Achieving Agility via S&OP
Sales and operations planning (S&OP) is a valuable tool for modeling supply chain requirements and driving coordinated modification of initial plans. Managers meet regularly and review projections for demand, supply, and the resulting financial impact.

The intention is to generate a synchronized set of priorities and make certain that tactical plans in every business area are in line with the organization’s strategic plan. The frequent communication aspect of S&OP fosters insight and appropriate responses to the types of supply, demand, and transportation conditions discussed above.

Proactive, S&OP-based demand and supply management takes place across multiple planning horizons at Oppy. With the company sourcing over 100 varieties of produce from more than 25 countries, effective network monitoring, communication, and what-if analysis are necessary to handle changing demand conditions. This makes S&OP a valuable tool for centralizing activities and ensuring the appropriate people are included in the planning process.

The initial rollout focused on kiwifruit logistics, which realized significant improvement in communication and planning. The S&OP process also expanded to include apples, pears, and citrus.

“We start off with a 12-week plan as the most critical point,” notes Roosdahl. “That’s where you can impact change: you can add containers of product coming from overseas growers or make cuts and adjustments. You’ve got room to make sure that everything works cost effectively.”

The company also monitors supply flows at the 8-week mark and S&OP occurs every four weeks within the organization. Roosdahl notes that S&OP helps the company review the gaps between product supply and demand at its warehouses.

Labor and packaging resources versus needs are also appraised. The managers then collectively determine what can be done to address the gaps. Daily engagement provides further opportunities to proactively manage changing conditions.

“You jump into daily huddles within the categories and within the warehouses to manage the day-to-day issues,” says Roosdahl. “They’re very quick, efficient, and have defined KPIs [key performance indicators] so you can see how you’re performing. You make daily adjustments and ensure they’re being communicated to the right people.”

Consumer Fresh follows a similar process of regularly bringing the key players together for information sharing and planning. “Every morning, we’re having a dialogue as a group and we get updates from buyers,” explains Cessna. While everyone shares relevant information, the buyer makes the final decision to either purchase product or pass on it. If the buy is made, then the sales and service teams go into action to move and sell the product.

Summary
Produce supply chain professionals operate in a fast-paced, frequently changing environment. Much like football coaches and quarterbacks, they must develop preseason strategies but also prepare for evolving conditions. “Plan ahead so you know what to expect, but be flexible because something is going to change,” advises Cessna.

Being ready for environmental, resource, and competitive changes involves monitoring the marketplace, conducting “what if” analysis, and aligning strategic and tactical plans.

When needed, the occasional quick audible must be called to change sourcing locations, add or streamline inventory, or expedite loads in response to customer order requirements.

The use of S&OP combined with frequent team communication provides valuable support for making effective decisions. Of course, produce industry knowledge, intuition, and relationships also help immensely.

The future need for “what if” analysis and scenario modeling will only grow. The marketplace is changing with retailers buying smaller volumes on a just-in-time basis and consumers seeking a greater variety of organic and local products. Omni-channel grocery retailing is another change agent. With these shifts comes a host of new challenges and the need for more agile produce supply chains. So, strap on that helmet and get ready. It’s game time!

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