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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