Structural Shifts Affecting The Supply Chain in Fresh Produce

AEC 317 Fall 2012

Increases in vegetable consumption

Source: Vegetable & Melons Situation and Outlook, ERS, 2012

1992-2002 Produce Acreage Changes (thousand acres)

+105 -25 +823 +3 -28 -7 +11 0 0 -9

-7

0 +1 +2 0 +34 -57 -9 -92 -50 -5 +17 -30 +2 0 -11 -5 0 +5 -2 -2 -11 -24 +45 -13 -1 -1 -2 -9 -6 -12 0 -5 0 -4 -2 +5

1 to +10,000 acres gain 11,00 to 45,000 acres gain

Source: USDA Census of Agriculture 1992 – 2002 -69

Produce Acres in U.S.

Increase in Marketing Formats • Farmers Markets • Organic and Health Food Stores – Whole Foods (Wild Oats), Fresh Market, and other natural foods merchandisers • Convenience Stores • Club Stores • Conventional Supermarket • Even fast food moving strongly toward distributing more produce

Fresh Fruit and Vegetable Marketing Channels

2007 - $5.0

2007 -$20.5

- - Supervalu Fleming + + + Castellini Sysco Alliant, GFS

2000 - $75.8

2007 - $100 2007 - $9.0

Net trade of Fresh Fruit and Vegetables 8

Terminal Markets

Louisville Terminal Market

Terminal Markets Diminish in importance

Fierce competition places multiple demands on produce suppliers while perishability limits power!

Retail consolidation Fewer buyers Oversupply Specific buyer requirements: • packaging • palletizing • JIT delivery • traceability • temperature • shelf life • safety • consistency • volume

Factors Driving Scale Economies • On-Farm production technology • Distribution economies • Buyer scale – (imposing supplier standards) • Food safety and quality demands

Grower/Shipper Responses to Influence Price Expand control – horizontally or vertically • Consolidate horizontally: acquire, merge, or form alliances with other grower/shippers to become multi-regional or multi commodity shippers • Coordinate vertically: newly forged “partnerships” between produce shippers and retailers, even in the form of contracts.

Grower/Shipper Responses to Influence Price Adopt differentiation strategies • Adopt cost-reducing technologies that also affect marketing (e.g. plasticulture) • New hybrids/varieties/crops (e.g. maroon carrot) • Specialized products/forms (fresh processed; value added products) • New packaging schemes & POP • Undertake demand expansion programs (including alternative market windows)

Defining SCM

• SCM – a continuous channel-level management process of shaping and reshaping intracompany performance, information technology tools, products and services, and organization to meet emerging customer opportunities – D. Ross, Competing Through Supply Chain Management

Defining SCM

• • Never totally attained Unique chain strategies - What works in one chain does not necessarily work in another

Supplier Enterprise Channel Network Programs Inventory Planning Production Management Purchasing Customer Service Transportation Warehousing Customer Enterprise

Defining SCM

• Coordination with a view toward…..

– Creating customer value – Total focus on continuous improvement – Formalization of quality processes – Development of quality process methods – Developing effective performance methods

Why SCM for Horticulture Sector?

• • • • • Large retail networks with their own distribution centers Chain-wide quality assurance requirements International sourcing Efficient Consumer Response initiatives from the packaged food manufacturer Increases in SKU’s

Retail Produce SKUs 700 600 500 400 300 200 100 0 19 60 19 70 19 80 19 90 19 94 19 99 20 06

Some Supply Management Factors

Produce Shrinkage 6 5 8 7 1 0 4 3 2 0.9

6.1

Warehouse Retail Store 7 Total

Role of Electronic Technology

• • • • •

Electronic data interchange Cross docking Case coding Continuous replenishment Vendor-managed inventory

Shared responsibilities

• Retailers and growers expect to see significant sharing in responsibilities – Promotion support/planning – Demand forecasting – Inventory management – Category management – Cross docking and other functions

System wide supply chain priorities

Issue Food safety Quality specifications Cold chain maintenance HACCP standards Inventory turns Vendor partnerships Product traceability Decreased order time E-commerce VMI Flow through/cross dock

Percent of participants rating issue as a high priority

Retailer Grower/shipper 100.0

100.0

100.0

97.5

95.0

90.0

87.5

60.0

52.5

42.5

45.0

90.9

95.5

77.2

81.8

70.0

91.0

95.5

61.9

86.4

86.4

60.0

Source: Perisio, et al., 2001

Preferred Supplier Attributes 1. Consistent quality (aesthetics & shelf life) 2. Consistent on-time delivery (JIT).

3. Consistent volume (supplies sufficient to fill majority of stores in a “region”).

4. Price protection on rising markets.

5. PLU/UPC/COOL labeling or coding capabilities (traceability).