Updated: Oct 25, 2019
With every Supply Chain we are striving to provide for the following:
The right product in
The right quantity at
The right time with
The right paperwork at
The lowest possible cost with
The least impact to the environment and people
The Food Supply Chain is no different and is getting more and more challenging as consumer expectations continue to grow. The internet coupled with the global marketplace has led to these increased consumer expectations and there is no slowing of these increasing expectations.
What are these current consumer expectation for their food needs?
WHAT - They want worldwide exotic food, not just their locally produced product
GOOD QUALITY: They want freshly picked or harvested product
WHEN: Available throughout the year - Avocado on your toast every morning!
HOW MUCH: Low cost, it needs to fit within their budget
FEEL GOOD, DO GOOD: Be sustainably, legally and responsibly grown and serviced - Consumers are increasingly becoming better custodians of the planet
SAFETY: Foods are what they claim to be and are from where they claim to be from - Consumers would like to know what they are putting in their body is safe
These expectations have the following impact on the Supply Chain:
Geographical boundaries are being forced to expand. E.g. If you supply avocados to a retailer then you need a grower from Peru to provide avocados between April and September, but then you need a grower from Columbia or Chile who will produce between September and June.
Different geographies imply different regulations, skillsets, support services, currencies, languages, cultures all of which play a role in further complicating an already complicated Supply Chain - How can you keep everyone happy and still make a profit? This is the challenge…
Determining what the "right" product is for the consumer implies that organizations need to "test" consumer adoption by quickly setting up a new Supply Chain to get the product on to shelves to begin measuring success / failure ASAP - Time to market is critical
To get the right quantity of product to the consumer implies that organizations need to quickly adjust to changes in demand and supply - Balancing Demand with the Supply is the key to having the right quantity at the right time for the consumer - In a global Supply Chain this is far easier said than done
Paperwork / traceability of the transactions that have taken place between farm and fork are often overlooked but are becoming increasingly more important and even legal requirements in certain counties
As a Supply Chain extends so does the number of "touches" to a product. More participants are involved and each participant adds to the cost of the end product due to transportation, handling and storage costs
A 2015 published study "Addressing Food Supply Chain and Consumption Inefﬁciencies: Potential for Climate Change Mitigation" by Stephen D Porter and David S Reay (available at Springer via: http://dx.doi.org/10.1007/s10113-015-0783-4) said:
"Globally, more than 30 % of all food that is produced is ultimately lost and/or wasted through inefficiencies in the food supply chain"
"In the developed world this wastage is centred on the last stage in the supply chain; the end-consumer throwing away food that is purchased but not eaten. In contrast, in the developing world the bulk of lost food occurs in the early stages of the supply chain (production, harvesting and distribution)."
Before we tackle some of the top 5 issues (in our opinion) that face the Supply Chain today, we first need to understand what we are looking at. The Food Chain typically comprises of the following phases:
Sourcing raw materials - Buyer
Producing raw materials - Farmer
Processing of raw materials in to ingredients - Processor
Manufacturer of food product - Food Manufacturer
Packaging and Further Processing - Packager / Processor
Storage / Refrigeration - Warehousing / Cold storage
Wholesale distribution to retailers - Wholesaler
Retail redistribution to consumers - Retailer
Simple Food Supply Chain
Between each phase is a process of transporting and storage of the product in exchange for currency. In addition, quality control is required at several points in the process. Full documentation of all financial transactions, product movements, inspections etc… needs to accompany the product on its journey through the Supply Chain.
A disruption in any one of these phases could ultimately impact one of the consumer expectations mentioned above. The organization that manages their Food Chain in the most efficient way will lead the way in their market.
Now that we understand some of the players and the requirements of the food chain it's time to delve in to the 5 key issues that face the Food Supply Chain today…
#1 - Lack of Supply Chain visibility and traceability
First let's tackle visibility as an issue across the extended Supply Chain. As a product moves through the Supply Chain certain "events" may be attributed to it. E.g. Planted, Harvested, Packed, Sold, Purchased, Scrapped, Issued, Received, Inspected, Produced, … These Supply Chain events can be "Expected" events (i.e. events that a product would normally be expected to go through - E.g. Planted or Harvested) or "Unexpected" (i.e. events that a typical product would not normally be expected to go through - E.g. Scrapped or Quality Inspection Failed).
Visibility of the end-to-end Supply Chain can be described as having a view of the Supply Chain events pertaining to a particular product (inbound and outbound logistics). This visibility is what the consumer is demanding in today's world and it is also what is needed by the product provider to ensure the right product is delivered in the right quantity at the right time with the right paperwork at the lowest possible cost with the least impact to the environment and people.
Next let's tackle traceability, which is the ability to track and trace a product through the entire Supply Chain process (i.e. Farm to Fork process). What is the difference, if any, between "Track" and "Trace"?
Track - Represents the current or present status of a product - Where is it now, What condition is it in, Who has it, Where is it going to, …
Trace - Represents the historical or past statuses of a product - Where has it been, What conditions has it been in, Who has handled it, … This represents the genealogy of a product and is of most interest to the consumer and the regulatory authorities requiring this detail
Consumers are demanding to know where all their products, and their ingredients, have come from and want to know that they were responsibly, safely and securely handled along their journey in the Supply Chain.
There are "holes" in the reporting of Supply Chain events from the Supply Chain partners - Not knowing of a potential Supply Chain disruption does not provide an opportunity to recover from the situation - Partners are not reporting all the needed Supply Chain events either because they don't have the technology to do so or it is time or cost prohibitive. Traceability could ultimately be broken if there are Supply Chain events that are not reported
The timeliness of the reporting of these events is a concern - The late reporting of issues or product status leads to a delay in responding to potential Supply Chain disruptions or exceptions
The accuracy of the data reporting in each Supply Chain event is a concern - Responses to Supply Chain deviations from the plan are only as good as the data provided in the plan and the data reported against the plan (i.e. Supply Chain events). These issues could lead to risks that have legal consequences.
If a consumer does not trust the data and product provided they could lose confidence in the product brand leading to reduced sales and profits.
Extract all relevant Supply Chain events from your ERP system (E.g. SAP ERP) for both planning and execution data
Contract with all your partners to require the timely, accurate reporting of all relevant Supply Chain events at the needed level (i.e. either batch or serialized level)
Measure partner compliance for against the plan at Supply Chain execution time
Enable electronic transfer of data to record transactions between Supply Chain partners (E.g. EDI, Supply Chain marketplace)
Consume this data in a solution designed to process Supply Chain events (E.g. SAP Event Management or SAP Global Track and Trace, SAP Global Batch Traceability) - Enable visibility reporting and Exception Management to proactively address and make visible Supply Chain disruptions
Consider adopting several emerging technologies to ease the process and improve efficiency and accuracy - IOT devices to track movements and product conditions, Consortium Blockchain solutions (an immutable ledger of transactions) for sharing and reporting industry common transactions that are of interest to regulatory authorities
Supply Chain Visibility and Traceability
In the above diagram you can see how each partner sends their Supply Chain events to a solution containing Visibility and Traceability functionality. This enables the consumer and regulatory authorities to view this data at any stage within the Supply Chain. This is powerful...
THE BENEFITS OF A TRACEABLE SUPPLY CHAIN:
Enhances food safety
Enables regulatory compliance
Collapses the Supply Chain by allowing for the prompt reaction and potential correction to Supply Chain disruptions
Improves brand integrity
Increases customer satisfaction and loyalty
#2 - Challenges with maintaining food safety
It is only natural that consumers are wanting to consume high-quality safe products and not inferior. The consumer also needs enough information to know that what they are consuming is actually what they are expecting to consume. Fake products or ingredients could be ingested in to the Supply Chain at many points along the way. These could prove harmful to the consumer.
Counterfeiting practices insert fake products or ingredients in to the Supply Chain without detection
Bad warehousing practices allows for the deterioration of the quality of product - non-refrigeration, mis-handling product, …
Poor transportation practices also allow for the deterioration of the quality of product - Delays in transport, non-refrigeration, mis-handling product, …
Poor weather can adversely affect the quality of the product
Any impact to product quality that could impact food safety concerns could lead to a product recall
Source and select the best quality raw materials from reputable suppliers (SAP Procure to Pay process)
Implement production processes according to best practice international standards - Test and prove out these processes - Be able to demonstrate that you have tested and proven the process (SAP Manufacturing process)
Ensure quality inspections are conducted by accredited laboratories (SAP Quality Management)
Capture all the plan and execution detail for the above processes in your Supply Chain visibility solutions (SAP Event Management or SAP Global Track and Trace)
Select the correct packaging to ensure product freshness and safety - Ensure labeling of the product is accurate and complete (SAP Auto-ID Infrastructure )
Ensure the logistics (transportation and storage) of the product is handled by folks that are experienced in food handling (SAP Extended Warehouse Management, SAP Transportation Management, SAP Global Trade Services)
THE BENEFITS OF A SAFE SUPPLY CHAIN:
Reduction in product recalls - recalls can be very costly. If a recall is unavoidable then having a fully traceable Supply Chain will allow for a targeted recall (i.e. just recall the product that is actually effected and not ALL the product)
Enhanced food safety
Improves brand integrity
Increases customer satisfaction and loyalty
#3 - Challenges with partner collaboration
The extended Supply Chain can involve many partners across many regions who speak many languages, use various currencies, operate under diverse cultures and legal requirements. This is a serious challenge for any Supply Chain that is trying to plug the "holes" and receive ALL Supply Chain related events accurately, on time and with all the needed documentation. In order to achieve that elusive efficient Supply Chain, ALL applicable partners need to collaborate in a timely, transparent manner.
Partners do not communicate in full or accurately about their part of the Supply Chain process
Partners are slow to be on-boarded in order to be able to participate in the Supply Chain
Legal requirements for partners, if applicable, are hard to enforce
Partner responsiveness to questions or issues is slow
Provide a partner collaboration portal (E.g. SAP Ariba Network or SAP Supplier Relationship Management) for partners to register Supply Chain events manually
Enable automation for all Supply Chain events to and from partners (E.g. SAP EDI with Workflow enabled error handling) for automated handling
Leverage Blockchain technology to capture key Supply Chain events between partners - These are typically only the transactions that involve change of ownership or change of location - Partners can freely interact with the Blockchain from within their own ERP systems
THE BENEFITS OF COLLABORATION:
A complete end-to-end view of the Supply Chain is attainable which allows for the provision of a complete traceability record for food product
Improved quality of food is a by-product of good collaborative communication between you and your suppliers
Minimizes the occurrence of shortages or overages in the different phases of the Supply Chain
Minimizes the impact of Supply Chain disruptions due to the early awareness of the issue - This is often termed "Time to Insight" - The time between when an issue occurs and when it is discovered. A company would naturally want to minimize this time.
#4 - Poor or lack of Inventory Management practices
All along the extended Supply Chain each partner is having to deal with inventory - Receiving deliveries, storing it, consuming it, delivering it. The ultimate challenge for inventory management is to thread the needle between Supply and Demand. Best case scenario is matching Supply to the Demand - This is a well-balanced Supply Chain.
Timing is critical in the food industry because too much inventory could invariably lead to food that goes off / rotten leading to waste. Off course having too little stock on hand will lead to lower customer satisfaction and if you try to expedite inventory to meet your demand this will invariably lead to increased freight costs.
Too little stock on hand to meet the consumer demand
Too much stock on hand leading to product wastage
Increased costs to expedite receiving of goods to match demand
Deploy good inventory management best practices to match Supply and Demand up and down the Supply Chain
Manage your master data and business rules in the system - let your ERP system do the work for you (E.g. SAP ERP MRP)
Establish cross-functional teams to deal with daily, weekly and ad-hoc exceptions
Automate inbound and outbound communication with partners (Carriers and Suppliers) - SAP EDI - This gives accurate visibility in to when product will be arriving at the warehouse or factory
BENEFITS OF GOOD INVENTORY MANAGEMENT:
Reduction in lead time
Reduction of inventory (quantity and value) - Less warehouse space required
Improved supplier relationships - Suppliers do want to provide good quality on time (in general) and providing them with timely accurate forecast data goes a long way to easing their pain in the Supply Chain - The can do better capacity planning
#5 - Rising Costs
As consumer expectations for better product at lower costs grow, the desire to minimize your costs increases. Supply Chain costs account for a large portion of the costs associated with a product sale.
These costs include:
Transportation costs: fuel, trucks, services
Logistics: warehousing / storage, freight handling
Employees and contractors: technicians, warehouse clerks, drivers, buyers
Energy and utilities
Technology: hardware, software - IOT, blockchain, robotics, 3D printing, ERP
In order to be profitable in a highly competitive, global economy companies have to sell the best product at the lower cost than it takes to provide the product. In order to make more profit a company must either generate more revenue or reduce the costs. The Supply Chain is focused on the latter. Reducing operating costs will ultimately lead to a more profitable product line - The Supply Chain costs are significant and reducing them are a challenge
Understand all the costs in detail - Capture the planned cost and then measure the actuals against that plan - Evaluate and adjust accordingly for future runs (e.g. SAP ERP - FICO)
Use technology for your benefit - IOT can play a significant role in understanding the logistics execution part of the Supply Chain which will allow you to accurately apportion costs to each phase
Invest wisely in technology - Don't adopt every new technology - Do a Proof of Concept - Prove it out and only adopt that which shows benefit. Note that a good backbone of technology will help companies reduce time-to-market and withstand competition over time
THE BENEFITS OF LOWERING OPERATING COST:
Increased profit margin
Increased customer satisfaction (if this cost saving is passed on to the consumer)
There are a couple of key takeaways here that are worth mentioning and then also a few suggestions for expert resources that can help in each of these areas:
To gain full control of your Food Supply Chain you will need ALL Supply Chain events reported from ALL your partners in a timely, accurate and complete way - SAP technologies to leverage: SAP EDI, SAP ERP, SAP Event Management / SAP Global Track and Trace, SAP Global Batch Traceability - SAP experts related to this field: ERPGenie, the SAP visibility and traceability experts - www.erpgenie.com
To ensure food safety source the best quality from the best partners - Inspect and measure compliance up and down the Supply Chain - SAP technologies to leverage: SAP Quality Management - SAP experts related to this field: Quality Management Solutions - www.qmsinc.com
Ensure that Supply meets your Demand - SAP technologies to leverage: SAP MRP (Material Requirements Planning), APO (Advanced Planning and Optimization) or SAP IBP (Integrated Business Planning) - SAP experts related to this field: Transform - www.transformval.com
ABOUT THE AUTHOR
A 25 year SAP solution veteran and life-long student of Supply Chain, Computer Science and Emerging Technologies. Kevin is an evangelist in the Supply Chain Visibility & Traceability areas and regularly gives talks on the topic at conferences around the world. He is a published author with a core focus on SAP Solution Architecture and Design.