Food is a basic requirement for life. We all consume it, every day. But as well as being ubiquitous, in terms of how it gets to where its needed in time and in condition, “food” is arguably the most diverse and demanding category of all. Johanna Parsons examines the challenges.
The complexity of food supply chains has increased dramatically. Fresh and frozen produce has different requirements from ambient in the journey from farm or factory to the point of retail. And the multiplying ways of selling food adds yet another layer to the equation of food logistics operations.
From producers to retailers and distributers alike, the common experience is squeezed margins. Food production across the globe has been hit by freak weather conditions; land and fuel overheads are raising the costs of storage and transport; and supermarkets and their customers want everything cheaper.
Bernie Breslin, DHL’s vice president food retail, says that together with the fact that consumers are becoming ever more discerning, competitiveness is at an all time high.
“The market forces are changing the way things are done. Retailers want to be leaner and meaner in terms of their costs. With multi channel retailing, including m-commerce and social media, retailers are having to provide seamless supply chains,” says Breslin.
“The challenge for us is to reduce lead times and deliver those seamless supply chains, and maintain the right balance of stock holding.”
Achieving this balance is particularly demanding in the growing convenience sector. While numerous local stores certainly are convenient for consumers, they are less so for those trying to keep the shelves full.
And whereas traditionally convenience stores took less deliveries than larger stores, with orders largely dictated by their fresh requirement, that is changing.
“Convenience stores are the latest trend among the big players such as Sainsbury’s, Tesco’s and most recently Waitrose and Morrisons,” says Kewill’s Andrew Dalziel.
“This has led to a change in logistics deliveries, with the need for frequent replenishment of smaller quantities – potentially once to twice a day.”
And for convenience stores, physically making deliveries is often a challenge in itself. Steve Winwood, chief operating officer of Culina which distributes many of the big grocers’ convenience stock, says: “Many sites are in difficult-to-access locations (eg in towns, at petrol stations etc) where it might not be possible to deliver at all times of the day.
“For logistics companies providing ‘final mile’ services this can present new challenges including adhering to unusual delivery slots, managing traffic regulations, and using smaller vehicles.”
Inconvenience stores
Indeed, the new style of convenience retailing with less capacity for stock holding, requiring more frequent deliveries, with less notice, calls for a new supply chain ethos.
And echoing Breslin, that ethos is “lean and mean” according to Dean Attwell, managing director of Oakland International, which works extensively with some of the 50,000 or so independent convenience stores in the UK.
Following its deal with Londis, Oakland invested in its chilled offering with new refrigerated vehicles, removing its minimum order stipulation, and introducing a six day per week service.
Attwell says the real test of this new proposition was managing the volumes.
But this also presents an opportunity to reduce costs with consolidation, using the extra deliveries to maintain even slower moving ambient stock. For Attwell, this means case consolidation, mixed chilled and ambient loads, and delivering ambient goods on a day one for day two basis.
Elsewhere too the requirement for more deliveries has been taken as a mandate to deliver clever, actively smoothing flows. Other companies like DHL are providing a mixed load service with chilled and ambient goods on the same lorries.
And Attwell believes there are even more opportunities in vehicle utilisation.
He reckons the idea that trucks are busting with load fill at 70 per cent, is “rubbish. Forty to fifty per cent is as good as it gets.”
This capacity can be made use of, he says, but that the key will be from collaboration. “No-one is a competitor, everyone is a potential ally. We’re fighting over a corner of the market place, but that market place is moving.”
Partner networks like Jigsaw are proving the point. Managing director, Andy Humpherson, says: “We have been working with our customers to remove wastage from their supply chains by ensuring the maximum utilisation of available transport infrastructure to reduce unwanted vehicle journeys and road miles.”
Many larger retailers who handle their own distribution are actively adapting their distribution networks in response to growth in the convenience sector.
Dan Myers of Norbert Dentressangle says: “Retailers such as the Co-op have put in place a new network, strategically designed to meet its convenience store format delivering chilled/frozen and ambient foods on a multi-drop delivery platform, while others have redesigned their existing networks to support growth in their convenience store formats.
“In areas where store density is sufficient, there is the opportunity to develop dedicated multi-temperature convenience store format distribution centres and dedicated multi-drop platforms, otherwise these stores are served by the RDC network.”
The other big motivation to retailers addressing their distribution networks is the emergence and challenge of online food retailing.
“While this is extremely beneficial to the customer,” says Bruce Stubbs of Intermec, “this process continues to put a strain on logistics and the supply chain to deliver product on time, in the right quantities and with the quality and freshness consumers demand.”
Whether because of an innate reluctance to trust food deliveries, or because retailers have been discouraged by operational challenges, food has trailed other retail sectors for online activity, accounting for just five per cent of total grocery sales, according to Dentressangle.
But this is widely expected to grow, and the supermarkets are getting on board.
Dalziel points out that Tesco invested in its latest dark stores earlier this year in a bid to compete against Ocado.
“Up until recently, Tesco was using staff in its stores to pick online grocery orders, but given the burgeoning demand for online shopping and home delivery in densely populated areas, such as London, they have invested in several dark stores across the country and plan to open more in the near future.”
Dalziel reckons that growing online sales, together with the boom in convenience retailing, footfall to the larger out of town superstores will fall. In fact, he says “The future could well see many of today’s superstores turn into dark stores.”
Attwell agrees that the future will see supermarkets develop their online channels, and believes that dark stores’ value will be in connecting suppliers directly to RDCs, essentially using them as warehouses.
He cites Ocado as a prime example of how to work with dark stores: “I think they’re ahead of their time, and the market. Their strategy is the right one, straight from supplier to RDC and then customer, not touching stores.”
Rick Ballard of The Logistics Business, says that the newer dark stores are becoming increasingly sophisticated. “Later developments are including a significant level of automation… This is a new area of activity for food logistics and retailers are still on a steep learning curve.”
For online retailing as with convenience stores, agility is invaluable. And reacting to market data, replenishing and delivering stock fast is being used as a competitive differentiator.
Differentiating data
With some stores promising delivery windows of within two to five hours of order, Breslin says that the pressure to be faster demands “an IT link-up that’s seamless – that’s a given”.
And to that end, Myers says that over the last two to three years Norbert has invested heavily in invoicing on proof of delivery with real time delivery updates to speed up the process, and thus cash flow. And it is about to launch a development that promises invoicing up to three days faster than before.
Attwell sees improving data flows as another area with room for improvement. “Some retailers still don’t have EPOS (electronic point of sale data), which is crazy, but even for those that do we don’t get Monday’s orders ’til Wednesday… We’re throwing away time waiting on data.”
Another reason for increasing electronic tracking in the food chain is to ensure quality and integrity of stock. The recent horsemeat scandal just shows how precarious our supply chains are.
The surprising number of food robberies of late suggests the possibility of traders prioritising price over provenance. Recent reports include nine cheese and meat heists in one year in the USA, $18 million of maple syrup stolen in Quebec, and most recently the theft of five tonnes of Nutella in Germany.
If the idea of your five-a-day being hooky seems unlikely, consider how our globally depressed economies and increasingly erratic weather patterns are creating a perfect storm for black markets. Demand is pretty constant as we all need to eat, but household budgets are under pressure, and the supply is expensive – often exacerbated by the risks in production or farming.
One robbery in Florida of fresh produce and meat, estimated to be worth $300,000 was put down to volatility of food’s value, since the price of Florida tomatoes had spiked due to frost damaging crops.
Illicit markets
Another illicit market recently caused volatility in the supply chain. Health scares in China prompted massive demand for Western branded powdered baby milk, resulting in attempts to smuggle shipments into the country, with runs on supplies in other regions.
Responding to recent suspicious buying behaviour in the UK, Danone Baby Nutrition, said: “We understand that the increased demand is being fuelled by unofficial exports to China… Most retailers are now introducing a retail limit of two packs per customer. This limit is to prevent some individuals from bulk buying baby milk for commercial purposes…
“Several of our brands are already officially available in China and we are increasing production and supplies to meet the increasing demand.”
The extraordinary pressures on food markets are benefitting some, such as makers of “recession proof” low cost treats. According to Mintel, the biscuit market is expected to grow by some 21 per cent within the next three years.
One of these beneficiaries is Burton’s Biscuits, which is capitalising on its growing market share with a massive £13.5 million investment in its manufacturing operations, in addition to its £12.5 million supply chain investment last year.
Chiming with the general importance of integrity in the industry, Burton’s investment is aimed at enhancing production and reinforcing its standards of consistency, quality and reliability, for example with its control room system that feeds live data back from points across the factory to recognise any quality control issues.
Chief supply chain officer Neil Grocock says this is a first in the biscuit industry, where the norm is to spot and report deviations manually at the end of the process. “Sensing devices on the line, feeding back data in real time avoids the waste of waiting for an hour’s worth of batches before detecting a problem.”
Another example of the value of data. But it is also about the value of pre-set standards. And some would say that standards are the lynch pin of the food logistics, keeping a precarious supply chain consistent, and safe.
A new report by Capgemini Consulting, The Consumer Goods Forum, and GS1 found that 70 per cent of the supply chain executives in consumer brands that were surveyed would like to see wider standards adopted across the value chain.
Tesco’s chief information officer Mike McNamara, said of the report “Standards have a fascinating past and an exciting future. On the one hand, they are foundational to the way we do business, driving down the cost of our operations. On the other hand they are helping us to get closer to our consumers and meet their ever-changing needs, particularly in the digital world.”
Perhaps it’s because of the predicted increase in demand for food, but McNamara’s attitude seems to exemplify an industry suffused by optimism.
New channels for retailing with such sensitive products mean massive challenges for food logistics. And demand for convenience stores means anything but convenience for logistics networks. Not to mention the odd scandal or theft. But with enterprising attitudes to delivery and fulfilment and the scope for new IT and automation, seemingly every problem represents latent value to be optimised.
From supermarkets, convenience stores, and home deliveries to the myriad logistics strategies employed to make them all run smoothly, the potential for new offerings, and growth, is unlimited.
Case study- Isotrak comes up trumps for Asda’s transport
Asda is about to complete a two-year trial of Isotrak’s integrated vehicle tracking system, Total Transport Solution, to get the best out of its distribution operations.
Asda has implemented a new regional distribution network equipped with the real-time transport plan execution and management system.
Chris Hall, the supermarket’s national transport manager, said: “We have moved away from individual planning for each distribution centre and have created seven planning regions across the UK that provide a clear differentiation between regional planning to maximise geographical resources and local execution for compliance to plan and accountability for store service.”
“It is true to say that this would be impossible to do without an effective system and process,” says Hall.
This new structure, uses TTS across 21 DCs to plan some 18,000 store deliveries using a fleet of 900 vehicles. It has improved delivery services to its stores, improved use of driver resources, ensured route compliance and reduced operational costs.
“Asda transport has been completely transformed to provide new efficiencies across the board,” says Hall.
“The results of this business change are on-time delivery improvements to the stores, optimisation of our driver and vehicle resources and greater route compliance, which is also reducing mileage, fuel costs and emissions.”
Asda also used this project as an opportunity to standardise all transport office practices and procedures that has led to simplification and increased efficiency.
Hall says “We have been able to take a standard solution and configure it to our specific requirements.
“We already used Paragon for fixed routing, but this is a step up combining routing, scheduling and resource optimisation with Isotrak’s vehicle tracking and transport execution and management. It gives us full visibility of the entire operation and this has been instrumental in the success of this project.”
Analysis- £13.5 million investment for Burton’s Biscuits
Burton’s Biscuits, the manufacturer of Wagon Wheels, Jammie Dodgers, Maryland Cookies, Lyons biscuits and holder of the licence for all Cadbury biscuit products, is investing £13.5m in its manufacturing operations to enhance production, support new product development, and meet growing demand from domestic and international markets.
This is in addition to its £12.5 million supply chain investment last year.
Chief supply chain officer Neil Grocock said: “Continued investment in our supply chain and manufacturing capabilities is central to Burton’s vision for being a brand-focused business, able to swiftly respond to changing market dynamics and bring new products to market quicker than any other company in the biscuit market.”
The investment will help the firm meet growing demand from domestic and international markets, and to support new product development, such as the imminent launch of Maryland Gooeys, its popular Big and Chunky cookies, filled with either praline or chocolate cream.
New technology is being introduced across all sites to reinforce its quality standards. Llantarnam is piloting new control room technology to monitor the biscuit production in real time. And more automation will improve efficiency and capacity, for example it will automate its pallet assembly process for the first time.
As part of its investment, Burton’s also consolidated and outsourced its distribution operation last year. Originally run from five distribution centres, the manufacturer made a deal with DHL Supply Chain to store and handle onward distribution of its finished goods from its G.Park Liverpool facility.
“We make biscuits, we’re not logistics specialists,” says chief supply chain officer Neil Grocock. With that in mind, they took a pro-active approach to the deal, and asked DHL to tender exactly what they could offer. The result is that DHL is piloting collection of packaging materials for delivery into factories, with a view to rolling this out further during the year.
This move away from in-house distribution perhaps reflects an inclination to shed non-core operations, to avoid becoming mired down in peripheral decision making, leaving a more responsive manufacturing business.
Grocock says that one of Burton’s strengths is its flexibility, which is enabled by its focus. As the only UK biscuit manufacturer that is solely concerned with biscuits, it is more dynamic than its competitors, and can get a new product from the drawing board and into production inside 9 months – unheard of in larger multi-national firms which Grocock says would take double that time.
This strategy is already paying off for Burton’s. The firm has annual sales of over £342 million, and reckons that last year it reached a record breaking share of the domestic UK sweet biscuits market, with Burton’s Power Brands growing by 16 per cent since 2009.
Case study- Fruit firm picks Intermec for faster packing
Washington Fruit & Produce grows and ships apples, pears and cherries from Washington and Oregon in the USA. After moving to a new packaging and storage facility the firm needed a more streamlined pallet tagging system to minimise errors and to provide traceability compliance.
The firm took on technology supplier Pacific iD for a new hardware system that would improve inventory management and accuracy, and increase throughput.
Pacific iD supplied a range of Intermec products including CK3 mobile computers, CV60 vehicle-mount computers, SR61ex scanners and PM4i industrial printers, which improved efficiency immediately.
Apples come into the DC in large wooden crates. The entire crate is submerged in water, and the apples re-sanitised, washed, waxed, graded, sorted and boxed.
Workers stamp full boxes with ID information in human readable form as well as with two bar-codes: one Global Tracking and ID Number for food traceability compliance, and one in-house serial number.
Robots then place the boxes on pallets and Intermec CK3 mobile computers scan the serial numbers on the pallets and generate pallet tags. The PM4i printer creates bar-code labels to be scanned by the forklift operator. The pallet tag stores all serial numbers of each box on each pallet. In shipping, the CV60s and SR61s are used to put the pallets onto the right trucks.
Systems operator Mikey Hanks said: “Before deploying the Intermec products we relied heavily on a manual inventory system… We had handwritten sheets used on the loading dock for loading trucks that can be hard to read or many times were inaccurate.”
The company has now been breaking its own daily packing records without adding any staff.
“Since deployment at our new facility, we have not had any instances of the wrong products shipping to customers,” Hanks said. “This is something we wouldn’t have accomplished without our new software and hardware implementation.”
