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Finding Hidden Savings

Practical tips to cut costs without sacrificing quality or relationships
Supply Chain Solutions

By its nature, fresh produce is a difficult business; product availability is impacted by weather and seasonality, sales volume is driven by fickle customers, and price is fungible. Combine these revenue-squeezing issues and profitability is an ongoing challenge.

The area in which produce companies can exert some influence is supply chain cost control. It’s not easy, but it’s not impossible. Well-devised savings and cost avoidance efforts will find their way to the bottom line—as long as businesses understand the challenges, adopt high impact strategies, and drive decisions with data analysis.

The Challenges
If produce companies could focus strictly on reducing supply chain costs, they could make a significant dent in their operating expenses. Unfortunately, competing interests and requirements detract from the effort.

First, cost efficiency is not the only priority. Savings initiatives must be balanced against the service requirements of key customers and end consumers. For example, achieving maximum shelf life forces suppliers to sacrifice economical truckload delivery processes. “Retailers want the freshest product possible which has resulted in smaller, more frequent orders,” explains Cynthia Klein, a 25-year produce industry veteran and CEO of CK Solutions Group, LLC in Bakersfield, CA.

Second, well-intentioned mandates are cost escalators. Increased food safety regulations require compliance efforts that alter processes and add documentation. Stringent transportation regulations, such as reduced driver hours of service and mandatory electronic logbook requirements, shrink freight capacity.

And, retailer demands for corporate social responsibility force growers and processors to undertake expensive social audits. “These unprecedented added costs are mounting like I have never seen before,” confirms Mark Hayes, who has been in the industry for 45 years and is president of Twin Garden Sales, Inc. in Harvard, IL.

Finally, isolated efficiency initiatives can be counterproductive. Too often supply chain processes and partners operate independently and efforts to save money in one area lead to higher overall costs. For example, when a procurement group purchases product in larger quantities unintended consequences can result. Price discounts may be achieved but higher storage costs and increased product waste may also result from this functional suboptimization.

In sum, the fresh produce supply chain is unlike other food channels and this makes cost control more difficult, according to Ed Treacy. “With dry groceries, you can focus on the costs. With fresh, you also have to focus on food safety, product quality, and getting it to the stores on time because you’re working with very little safety stock,” explains the Produce Marketing Association’s vice president of supply chain efficiencies.

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