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.
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.