What are the top challenges facing the food logistics industry? Last year, Saddle Creek Corp. set out to answer that question. The Lakeland, FL-based third-party logistics provider conducted a survey among food and beverage logistics managers to identify common practices, challenges and emerging trends that are shaping the industry.
By far, the survey found that capacity problems are the most critical. Driver shortage and increasing customer demands in the industry also topped the list. While these challenges may not be surprising, they indicate that there is a significant opportunity for companies who are able to offer solutions.
When evaluating the responses of this survey, it's clear that the food industry is disjointed, reliant upon outsourcing practices, has seasonal patterns of production and deals with highly perishable products. The industry is dependent upon a highly fragmented truck transportation system for 80 percent of its shipments (more than 600,000 interstate motor carriers in 2002 per Federal MCSA).
Meanwhile, out-of-stock products cost the food industry between $7 and $12 billion per year, according to Accenture research, with an estimated 60 percent of food and beverage items on the shelf being "slow moving" and unprofitable. Inefficient transportation and excessive inventory represent an estimated $30 billion savings opportunity to this industry.
These issues become exacerbated due to mergers and acquisitions. Disparate technology systems overlap and become cost-prohibitive. Physical distribution networks become costly to manage, integrate and re-architect.
Challenges, Emerging Trends
Currently, food companies are pressured to address these challenges while they develop a more optimized, more streamlined supply chain in order to hold minimal inventory so they're not burdened with that large investment. What are emerging trends that will help beat these challenges?
Changing business model: The industry is shaped by an Internet-driven, customer-centric marketplace. Efficient, timely order fulfillment is the new fundamental business requirement for food companies. Smaller, more frequent orders are required and fulfillment focused on value-added handling rather than warehouse storage.
Perfect orders (on-time, accurate and complete) are a food company's most important performance indicator. Neglect this metric and they risk the inevitable loss of customers and market share. Since their business is comprised of an extensive network of trading partners, this means that the quest for perfect orders must ultimately become a collaborative goal.
Increase in forward distribution centers: To enhance responsiveness and accommodate changing delivery needs, food and beverage manufacturers are establishing more forward distribution centers. This is being done, in large part, as a result of increasing changes in the truckload industry and increased demand placed upon them by their customers.
Globalization and consolidation: Retailers, manufacturers and 3PLs are consolidating in order to achieve sufficient scale to become global players. In order to compete with the largest competitors, food companies must all look to grow globally through mergers while reducing investment in hard assets and focusing their resources on those areas in which they have core competencies.
Trading partner collaboration: Leading food manufacturers and retailers are devoting resources in order to integrate information systems with their trading partners using both EDI and, more recently, web-based internet systems or e-market hubs/exchanges. Improved information sharing provides greater visibility and, with visibility, more opportunity for exception event management and supply chain monitoring.
Supply chain management: SCM addresses unplanned events, such as shipment delays, parts shortages, production delays and demand swings, which often derail optimized production and fulfillment plans. When addressed with traditional optimization applications, such initiatives give rise to rigid, linear value environments. These food supply chains must give way to dynamic supply networks and collaborative technology that drives them.