June 08, 2012

GFMT Article: Improving supply for farm to fork

The UK agri-food supply chain is worth UK£80b annually and is vital to the UK economy.  However, it faces multiple pressures.

In this GFMT article from March/April 2012, Roly Taplin, Vice President, Agri-food at DHL Supply Chain, explains how to improve the supply chian. 

 Read the full article here (with pictures) or scroll down.
Improving supplies from farm to fork
by Roly Taplin, Vice President, Agri-food at DHL Supply Chain, UK

The Agri-food supply chain is not only one of the most crucial and ancient of all; it is also instrumental in maintaining the nation’s economic, as well as physical, health.

Although Britain imports around 40 percent of the food it consumes, the food and drink supply chain is the UK’s single largest manufacturing sector, accounting for 15 percent of total manufacturing turnover and seven percent of GDP.

The supply chain employs 3.7 million people and is worth UK£80 billion (US$ 126.5 billion) per year. Farming alone is worth UK£20 billion (US$ 31.6 billion) to the UK economy and looks set to become ever more crucial, given the government’s ambition to restructure our economy towards manufacturing.

Strains in supply
Yet despite its importance to the national economy – and the national stomach – Agri-food businesses face unprecedented pressures across their supply chains.

Global food prices in 2011 reached a peak not seen since the 2008 food crisis and the United Nation’s Food and Agriculture Organisation (UN FAO) predicts a coming period of price uncertainty due to continued global economic uncertainty, which is impacting the world’s commodity and fuel markets[1].

Supply chains across the globe have been affected by recent economic events.
Additionally, the Agri-food supply chain is more exposed than most to the changing weather patterns as a result of climate change. Unpredictable weather means that yields are difficult to forecast, causing increased price volatility and making planning more challenging across the entire supply chain.

With 2011 global grain prices hitting three-year highs according to the UN FAO[2] and a volatile economic outlook impacting stakeholders across the Agri-food supply chain; the European Food & Farming Partnerships (EFFP) recently warned that the world might be entering a new era where food is far more expensive. 

Room for improvement
However, there are significant gains to be made in supply chain effectiveness, which could help improve Agri-food businesses’ bottom lines, despite current pressures.
The industry itself agrees, with many academics and professional bodies declaring that there are efficiencies to be made, particularly in the logistics arena.

These are possible because the agri-food industry has historically been less adaptable than others. According to a recent two-year study by the EFFP in association with DHL Supply Chain, Openfield and Rank Hovis, many areas of the industry remain inefficient; the UK’s grain supply chain alone is wasting between UK£30 to 50 million (US$ 47.5 to 79.1 million) each year.

A further study by DHL and EFFP has shown that the entire food manufacturing supply chain is operating with UK£1 billion (US$ 1.582 billion) worth of inefficiencies. These are caused by a variety of factors, including the difficulty of forecasting reliably, and a lack of communication and co-ordination.

Maintaining visibility across the supply chain is crucial to boosting performance, particularly where perishable goods are concerned. To minimise wastage, the entire supply chain needs to know which goods are coming and when, so farmers, suppliers and retailers can plan effectively to save time and costs.

Straightforward approaches to efficiency could be utilised more widely; recent DHL data shows that while it should take 20 minutes to load one-grain truck, the average for many businesses is nearer 45 minutes.

Similarly, it should take around an hour to book-in, weigh, sample and empty a truck at a mill – but many businesses take two hours. This often results in trucks queuing on public roads outside mills, at a cost of approximately UK£40 (US$ 63.3) an hour, not to mention the impact of congestion on other road users.

Overall, for every hour a bulk grain lorry currently spends moving grain around the UK, it spends two waiting at collection and delivery sites. This waste not only time, but also fuel, space and ultimately stock, at a time when these factors are increasingly valuable to producers, suppliers and consumers.

The impact of planning and visibility of stock in generating supply chain efficiency is noticeable; further up the supply chain, where the final product is transported from food processor to retailer, stock reaches retailers on time in excess of 99 percent due to more closely managed production and logistics operations.

However, at the more fragmented, less mature end of the grain supply chain – from farmer to first manufacturer – poor weather, road conditions and inefficiencies have far greater impact, meaning that stock is ‘on time and in quality’ in only 60-70 percent of cases. The resulting excess stock holding, tying up time and money, impacts the entire supply chain and ultimately, bottom lines.

Order management, operational technology and process improvement
The industry’s complexity remains the root of its issues; because no two agri-food supply chains are the same, it’s unlikely that an off-the-shelf enterprise resource system designed specifically for grain supply chains will be developed.

Instead, logistics suppliers need to focus holistically on each supply chain in its entirety through business process mapping systems which can plot the life cycle of the agri-food supply chain from grain in the field to the consumer’s fork, via lorries, storage, processors, supermarkets and bank accounts.

This approach involves strategic planning which takes long-term supply and demand trends into account, whilst retaining an awareness of economic, climatic and consumer trends. An efficient order management system will ensure that grain is in the right place at the right time. Unlike a manual system, which is incapable of accounting for the variety of constrains within the business – from vehicle access to storage locations to delivery instructions – a mechanised system ensures that deliveries arrive when recipients expect them. DHL has deployed a grain management system for clients to bring deliveries to a 90 percent-plus on-time performance level, on a par with other industries.

Whilst effective order management is essential for reducing costs, it is best complemented with advances in operational technology and load tracking. For all parties to be able to plan ahead, lorries need to be fitted with on-board computers and mobile communications spanning SMS and a web-based portal. Thus the effect of unforeseen delays such as traffic congestion is minimised.

These on-board measures can be supported with back-end digital systems, which ensure all delivery documents are scanned, stored and shared across supply chains. Reducing the amount of paper saves administrative time and space, as well as enabling quick retrieval of documents, ensuring faster turn-around of invoices and payment, saving time and money.

This data based approach also allows for longer-term data compilation and information management, as process improvement is another area where many contemporary agri-food supply chains could be enhanced. Regular data analysis allows logistics providers to find the root cause of inefficiencies, and re-engineer the process to allow for maximum efficiencies. These efficiencies translate as financial savings, which quickly repay the initial outlay.

The importance of collaboration
This streamlining process works most effectively when taken in tandem with other approaches, namely supply chain collaboration. A highly competitive market, dominated by a few large retailers but supplied by thousands of small- and medium-sized producers (farmers), has encouraged competition over price and product.

Supply chain collaboration, where parties band together where possible to generate efficiencies of scale, could hold the key to reducing waiting times, improving efficiencies and ultimately, unlocking significant value in the supply chain.

This is demonstrated by a recent initiative coined: Project Marlin, a collaboration between DHL, Openfield (Britain’s foremost farmer-owned cereal merchant), Rank Hovis (Britain’s biggest flour millers) and a range of industry bodies, select farmers and hauliers.
DHL has been working with these industry leaders to identify areas for improvement across the agri-food supply chain, with the view to identifying and removing waste and inefficiency. By utilising its supply chain expertise, DHL has improved delivery and collection efficiency, resulting in serious time and ultimately cost savings for all involved.

By collaborating with DHL, Openfield could focus on what it does best: marketing grain and nurturing its relationships with farmers and customers, safe in the knowledge that DHL was looking after all areas of its supply chain.




The impact of small steps
DHL’s work with Openfield demonstrates that these proposed improvements are possible, and make rational business sense for producers, suppliers and retailers, as well as consumers, all of whom stand to gain from the cost and environmental benefits of an improved supply chain.

Moreover, despite the large gains to be made, the adjustments are not expensive or unwieldy, though they are impactful.

Small, crucial steps at each stage of the supply chain could have a profound impact on service delivery and efficiency, improving customer relationships, logistical efficiency and – ultimately – everyone’s bottom line.

References
[1] Source: Food and Agriculture Organisation of the United Nations, ‘FAO Food Price Index ends year with sharp decline’, 12.01.12 http://www.fao.org/news/story/en/item/119775/icode/

[1] Source: Food and Agriculture Organisation of the United Nations, ‘FAO Food Price Index up slightly in June’, 07.07.12 http://www.fao.org/news/story/en/item/81577/icode/





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