Tight supplies occur in lots of supply chains. Pick any industry with rapidly rising demand and you are likely to see at least the occasional glitch in the supply of a key component or input. Still, the setting described in a recent Wall Street Journal article is fairly unique (Hunger for Organic Foods Stretches Supply Chain, Apr 3).
Nature’s Path is among a number of organic-food purveyors taking steps to tackle supply constraints that are hampering the growth of one of the hottest categories of the U.S. food industry. Companies including soup maker Pacific Foods of Oregon Inc. and publicly traded burrito chain Chipotle Mexican Grill Inc.are digging deeper into the supply chain with such moves as financing farmers, offering technical training and hiring full-time headhunters to recruit organic growers.
The efforts are aimed at ramping up organic-food output that has failed to keep pace with surging consumer demand, due in part to the significant costs and risks that U.S. farmers face in converting from conventional to organic farming. Longer-term, the steps could help bring down organic-food prices that have been bolstered by tight supplies, companies say.
According to the article, retail sales of organic food have tripled in the last ten years and that has put a lot of pressure to increase the output of organic products.
This is the breakdown for a Johnny Rockets burger and some of the numbers might seem out of whack — Why should iceberg (!) lettuce costly nearly five times as much in Africa as New Jersey? The answer is simple: It’s imported. Why import lettuce? Because the local supply chains are simply not sophisticated enough to support the quick service business.
But that quest is straining a supply chain that is short on the refrigerated trucks and warehouses needed to keep patties and vegetable toppings fresh. And in many places, Africans are consuming beef at a faster clip than cattle ranchers can deliver new cows, meaning beef prices keep climbing. That is testing the limits of what the continent’s young urbanites can afford.
I have spent the weekend writing midterms. Often for 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!
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…)