Despite the disparate levels of sophistication between cold chains in developed markets versus those in emerging ones, the common goals are generally the same: maintain food safety standards and protect brand reputation, reduce operating costs, and keep pace with changing consumer demands, which includes online grocery shopping and home delivery.
The cold storage sector is tasked with meeting all of these requirements, which is driving significant changes across the board.
Taking a Global View
Emergent Cold, a newer cold storage provider that was founded by industry veterans, operates facilities in both developed markets, such as Australia and New Zealand, as well as emerging ones like Vietnam. This gives the company a unique view into the global cold chain.
In emerging markets, the lack of infrastructure is one of the biggest challenges for the food industry, says chief operations officer West Hutchison.
“There are a lot of markets around the world that have no temperature-controlled infrastructure at all,” he says, or they are “mom-and-pop companies that maybe don’t have some of the design experience and security systems in place from a physical facility perspective or IT perspective.”
While the construction of the physical infrastructure is underway, Emergent is working with enVista, a global consulting and software solutions firm, to build an overall IT suite that ensures it will be able to track-and-trace products that are in its care custody and control.
While regulations in the United States require the capture of “one up and one down traceability,” so that if there’s a request for that data, the appropriate party can respond, in New Zealand, the regulations are even more stringent, notes Hutchison. In particular, the data must be “pushed” to regulators.
These variances in both the physical infrastructure and country-specific regulations make it a necessity to implement a robust and comprehensive IT solution that can be applied globally. It also provides a foundation for continued growth across multiple global regions.
Different Markets, Different Labor Issues
Mike Rader, managing partner at enVista, notes that labor issues are also different in emerging markets like Vietnam compared to developed markets.
For example, the adoption of technology lags, in part, because it’s simply cheaper to hire people and maintain paper-intensive processes.
“It’s going to be interesting to see how receptive they are as we roll out technology solutions in emerging markets, especially Vietnam,” he says.
In many developed markets, though, labor availability is tight, and attracting workers to the cold storage sector can be even tougher, given the generally harsh environment.
According to Hutchison, Emergent’s philosophy is “to have fewer, but more highly compensated associates, through a blend of automation and performance-based pay packages.
“As we look at our facilities, there are a lot of opportunities for automation. AS/RS facilities have been around forever, but they are getting a lot more capable of performing lower-level tasks such as layer picking and case picking,” he says, adding that even the use of automated guided vehicles (AGVs) can have a positive impact in a tight labor market.
Moreover, the strategic use of manual labor combined with automation is especially important as the cold storage sector continues to increase the types of value-added services it offers to customers, for example, kitting, bagging and repackaging services.
In fact, Corey Rosenbusch, president and CEO of the Global Cold Chain Alliance (GCCA), notes that the revenue from value-added services has surpassed that of strictly offering storage. Specifically, 65 percent of the revenue from a cold storage facility today comes from value-added services, he says.
An informal tally from the GCCA found that there are currently more than 75 different value-added services available from cold storage providers.
E-commerce is also pushing cold storage providers to apply automation where they can in order to free up workers for direct-to-consumer shipments. While e-commerce/online is still a relatively small percentage of overall grocery sales, it’s an area that’s growing very quickly, points out Emergent’s Hutchison.
Gathering and analyzing data is another area that is quickly evolving in the cold storage sector, says enVista’s Rader, and the Internet of Things (IoT) is helping to facilitate it.
In a cold storage facility, there is obviously continuous temperature monitoring taking place. The next step is to not only track temperature, but to also find the anomalies and other indicators that can help predict trends or pending issues, Rader says, like a hairline fracture in the pipes of a coolant system that could turn into a major problem.
Hutchison adds that technology advancements are also making it possible to get better insight on energy consumption in order to evaluate the “true cost to serve” a customer, so that the customer is not being over-charged (or under-charged) if their product or order profile is actually causing higher energy consumption in a cold storage facility.
Meanwhile, the cold storage network and distribution model is also getting a second look, he explains. For instance, building large, regional cold storage facilities in major cities that can cover the United States within a few days are common. Yet, e-commerce and consumers’ demand for quick delivery, especially for groceries, is challenging that model.
“The temperature-controlled food distribution industry grew out of the old ice house business, where every single city in the U.S. used to have an ice house,” explains Hutchison. Furthermore, deliveries to customers’ homes often included both ice and coal as a way to increase the average order size and make it profitable for the ice houses.
“We’re going to see a lot of smaller distribution centers crop up around the country that will provide same- or next-day service directly to consumers’ homes,” he predicts. “It will also be interesting to see how the expectations being created by Amazon will affect the grocery and temperature-controlled distribution market. Waiting three days for a grocery delivery is not going to be acceptable.”