I have spent the weekend writing midterms. Often these exams, it’s nice to have an example of a process for students to work through. Fortunately, I didn’t even think about orange juice. A glass of Minute Maid should be easy, but as Businessweek explains, it’s more complicated than you’d think (Coke Engineers Its Orange Juice—With an Algorithm, Jan 31). Check out the eye candy!
Archive for the ‘Agriculture’ Category
Check ou this quote from the Wall Street Journal (Bad Roads, Red Tape, Burly Thugs Slow Wal-Mart’s Passage in India, Jan 11):
In the world of perishable goods perishing, India has few rivals. Lacking proper storage facilities, enough refrigerated trucks and adequate highways, the world’s second-largest fruit-and-vegetable producer loses about one-third of its produce each year to spoilage, the government says, roughly $10 billion worth.
India also is bogged down by an entrenched system of government-imposed middlemen, the scope of which has few parallels, essentially an army of traders and agents who charge various fees along the way. That alone can increase farm-to-store costs sixfold, analysts estimate.
Just what does this system look like? The video below (which regrettably you have to go off the Ops Room to see) gives you an idea:
Obvious a contorted supply chain like this doesn’t arise over night, so why is the Journal writing about it now? In a word, Wal-Mart!
Last fall, following a relaxation in India’s foreign-investment rules, [Wal-Mart] said it was planning to open its first stores in the country in the next two years, tapping into a prized $490 billion retail sector. But to cash in, Wal-Mart and other foreign retailers will have to solve a fundamental problem: how to move goods into stores efficiently in a country that offers big retailers little in the way of modern logistics and is plagued by dilapidated infrastructure.
The hurdles are particularly daunting in the food sector, which makes up more than half of the revenues at the Bentonville, Ark.- based company.
Online retail is exploding with Amazon leading the charge in the long tail, items consumers buy irregularly. Online shopping and delivery of fast movers like groceries, however, is available to few areas in the US: FreshDirect in NYC and Peapod in Chicago and some east coast cities are the big exception.
An Operations Audit gives the explanation: the costs of covering the last mile are strongly influenced by delivery density which makes large sprawl areas prohibitively costly to serve (as dotcom busts like Webvan quickly learned). In our operations strategy class, we study Peapod by linking its financial performance to its operational structure and execution. Such analysis highlights the importance of operational metrics such as stops per hour and pick&pack per hour and revenue metrics such as basket size ($ per order). Students always suggest to replace the expensive delivery process by a pick-up model. For companies with a large investment in delivery assets and processes such as FreshDirect and Peapod, however, embracing pickup (which Peapod is experimenting with) then necessitates a hybrid model. In contrast, pure-play pick-up models such as the French ChronoDrive never invested in delivery assets.
This brings us to Relay Foods which seems to differentiate itself on 3 dimensions:
- Emphasize local suppliers, and hence satisfy the “local food movement”.
- Local supply allows daily deliveries which minimizes inventory risk.
- Focus on pickup approach. (They also offer home delivery at a premium of $10/order.)
Relay foods is based in Charlottesville, Virginia, and also serves Richmond. It can show nice growth trajectories (see video below) in those two markets and earlier this month announced it raised $1.2 million to expand in to the greater Washington, Baltimore, and Philadelphia areas. (more…)
I never thought I would use the terms “maple syrup”, “strategic”, and “reserve” in the same sentence. But then someone broke into the Global Strategic Maple Syrup Reserve in Quebec and made off with $30 million worth of Canada’s Maple export.
Probably you ask yourself: Why does Canada have a Strategic Maple Syrup Reserve? Why does it have to be pooled (in other words, why does it have to be global), and how many pancakes does one have to eat in order to consume such an amount of syrup?
Since the 1940s Canada is the global leader in production of maple syrup, churning out somewhere in the neighborhood of three quarters of the world’s supply, so why do they need to keep a global reserve? In this industry both demand and supply (i.e. the harvested quantities) are uncertain:
The trees need cold nights and mildly warm days to yield sap, meaning production can vary greatly year to year based on the weather. That’s a potential problem for the big syrup buyers, whether they’re bottlers or large food companies that make cookies or cereal. Quaker can’t pour a bunch of time and money into developing a maple-and-brown-sugar-flavored version of Life, only to find out it won’t be able to get enough of its ingredients, or that they’ll have to pay through the nose for each liter of syrup. (“Why Does Canada Have a Strategic Maple Syrup Reserve?“, The Atlantic)
One cannot manage maple syrup inventory the same way you manage inventory of consumer goods. (more…)
So Valentine’s Day is upon us so it seems worth thinking about an interesting supply chain story from Fortune (How Big Chocolate plans to save its cocoa supply, Feb 7). Apparently Hershey and other large confectionary firms are spending heavily in West Africa to help out cocoa farmers. They are targeting both working conditions (in particular, trying to eliminate child labor) and educating farmers. On the one hand, this may seem like so much corporate window dressing to avoid an Applesque avalanche of bad press on just what it takes to put chocolates in the sampler box. On the other, there are very real bottom line implications for the firms in carrying out these programs.
But there is common ground. All industry players benefit if farmers produce more cocoa. Market demand is growing. As nations like India and China grow wealthier, new members of their burgeoning middle classes have developed an appetite for luxury goods such as coffee and chocolate.
At the same time, companies are keeping an eye on environmental and political threats to cocoa yields. Space to grow cocoa is limited; it only thrives in equatorial climates. About a third of the crop grown every year is trashed because of pests and disease. Unstable political conditions in cocoa-producing nations also adds to the volatility in the market. Cote d’Ivoire, for example, produces over a third of the world’s cocoa. In 2011, political unrest surrounding a local election caused the government to cease all exports, which limited the cocoa supply and sent cocoa prices skyward.
Companies need to get on the ground to ensure their supply. Hershey, for example, introduced a program called COCOALINK in 2011. COCOALINK distributes information about climate and pest control via SMS to farmers with cell phones, which most of them already have. “We’re starting to see the benefits when you really get to the farmers and give them the best information,” says Andrew McCormick, the vice president of public affairs at Hershey. “The preliminary results are that it will double crop yields in a couple of years.”
Call me old-school but I still love the HBS case on the National Cranberry Cooperative. Apparently, the folks at Fortune, also like old, dated write ups. About once a week, they post a classic article that has some relevance to the time of year or the week’s news.
This week, they get to talking cranberries!
The story (Cape Cod Cranberries) originally appeared in 1946, which, remarkably, makes it older than the HBS case. To connoisseurs of process analysis cases, however, parts will sound familiar:
Regardless of the tricks of weather and the rapacity of bugs, the cranberry harvest–good or bad–begins with the ripening of the Early Blacks, in September, and goes on until the last of the Howes have found their way to the screen house. In the early days “picking time” was a sort of Barnstable County festival, all other work being put aside while people of all ages turned out to gather the crop. Having ridden to the bogs in bright blue wagons piled high with new barrels (modem boxes have since made the cranberry barrel obsolete), almost the entire population of Harwich or Orleans knelt on the vines to pick the berries laboriously by hand. Today the harvesting is done by a smaller horde, mostly Portuguese-Americans, who use wooden-toothed scoops, on an hourly or piecework rate of pay. Recent labor shortages have encouraged the use of a few machine pickers, but these are disliked because of their expense and unreliability, and because they crush an appreciable percentage of the fruit. Regardless of the picking method, numbers of berries drop to the ground under the vines, but a large percentage of these are salvaged by flooding the bogs and floating the loose fruit to the surface. Berries thus gathered are suited only for processing.
Freshly harvested cranberries are at once carted to a so-called screen house, where they are freed from leaves and chaff by a blower, tested for soundness by being dropped on a series of bouncing boards, sifted to eliminate undersized “pieberries,” inspected, and packed for shipment either to the brokers who sell fresh fruit or to the companies that process it.
It’s always nice to have a seasonally appropriate post. At Thanksgiving, it’s tempting to write about the economics of turkey rearing. The New York Times has even provided an appropriate article (In the Labyrinth of Turkey Pricing, a Reason Under Every Giblet, Nov 19). However, we’ve done that before. That means it’s time to turn to an important question: How do they make Tofurky?
“The Chinese want our nuts” — simply not a sentence that you expect to see in a major daily newspaper (assuming you still look at one of those) but there it is in the Wall Street Journal (Shell Shock: Chinese Demand Reshapes U.S. Pecan Business, Apr 18). In a nutshell, the story explains how the Chinese have very quickly developed a taste for pecans and now represent a major export market for US pecans. As one can see in the (ahem) pecan pie charts at right, the Chinese have taken some nuts away from other export markets but largely they have reduced the number of nuts sold domestically, driving up prices as a consequence.
In the following video, the author discusses what has happened.
Just how much information do you want to about your food? Are you happy knowing that your raspberries came from California or do you want to nail down that they are from just outside of Oxnard? The ability to know just where your food is from is the promise of a technology developed by HarvestMark (Avoiding recalls by tracking food from seed to supermarket, Mar 29, Marketplace).
Elliott Grant founded a company that tracks meat and produce the way FedEx tracks packages. He says people would be surprised to find out how often food changes hands by the time it reaches the store.
Elliott Grant: The produce industry is amazingly complex. And the stuff just flies through the supply chain.
Grant created his first tracking system about five years ago for pharmaceuticals and semiconductors.
Grant: In 2006, when there was that terrible spinach outbreak, we happened to have the right technology and we quickly realized that our technology was going to solve this problem.
So Grant rolled out HarvestMark. Today it’s used by 2,500 farms in North and South America. And its coded labels can be found on everything from watermelon to chicken — and traced by everyone from the guy in the warehouse to a shopper with an iPhone.
Here is a curious article from the Wall Street Journal (Japanese Farms Look to the ‘Cloud‘, Jan 18). On the one hand, it is a novel application of “manufacturing logic” and some serious analytics. On the other, it seems the article was written with buzzword bingo in mind. The setting in question is Japanese agriculture, an industry at a crossroad as farmers age. According to the article, 70% of Japanese farmers are over 60 and only 15% are under 50. This has created a role for technology. Where in the past, farmers have relied on their own expertise, technology has now enabled workers to be more productive while leveraging the knowledge of experienced farmers.
Now the head of a commercial farm in the southern Japanese prefecture of Miyazaki, Mr. [Hideaki] Shinpuku is back manning a desk with his eyes glued to a Web browser tracking every movement of his workers who handle 60 different fruits and vegetables across its 100 hectares. …
Shinpuku Seika has placed sensors out in its fields to collect readings on temperature, soil and moisture levels. Fujitsu’s computers then crunch the data and recommend when to start planting or what crops may be well-suited to a specific field. …
If Mr. Shinpuku wants to take a look at the crops for himself, he can call up online footage from the video cameras out in the fields. Workers can also take pictures on their mobile phones of potential problems like an infected crop. Those images are uploaded directly into the system so more experienced workers can diagnose the problem later.
The gains to this have been pretty impressive with cabbage production up 12% and carrot yields doubling.
Industrialized/mechanized agriculture is arguably the norm in the US, but this story has a different feel from a Michael Pollan book. In the US, highly mechanized farming often mean monoculture production. A farmer buys a combine and other big toys and then plants acres and acres of corn or soy beans. Here, technology is being used to support variety and in particular is letting unskilled workers access the expertize of Mr. Shinpuku.
OK, now its time to be snarky about buzzwords. (more…)