Structural Shifts Structural Shifts Affecting The Supply Affecting The Supply Chain in Fresh ProduceChain in Fresh Produce

AEC 317Fall 2012

Increases in vegetable consumption

Source: Vegetable & Melons Situation and Outlook, ERS, 2012

1992-2002 Produce Acreage Changes (thousand acres)

-7

Source: USDA Census of Agriculture 1992 – 2002

0+5 +5

-9

-24+45

-69

-11-2-2-57

-5-11+2-30

+17

0

-90

-6

-28-5

0

-4

-5

-2-50

-9

0+2

+3

-1

-12

-13

0

+34

-2 0

+1

-7

-1

+11+823

-25

+105 0

-92

1 to +10,000 acres gain 11,00 to 45,000 acres gain

> 100,000 acres gain

Produce Acres in U.S.

Increase in Marketing Formats

• Farmers Markets• Organic and Health Food Stores

– Whole Foods (Wild Oats), Fresh Market, and other natural foods merchandisers

• Convenience Stores• Club Stores• Conventional Supermarket• Even fast food moving strongly

toward distributing more produce

2000 - $75.8

Fresh Fruit and Vegetable Marketing Channels

SyscoAlliant, GFS

Castellini

SupervaluFleming

2007 - $1002007 -$20.5

2007 - $5.0

2007 - $9.0

+ + +

- - -

8

Net trade of Fresh Fruit and Vegetables

Terminal Markets

Louisville Terminal Market

Terminal MarketsDiminish in importance

Specific buyer requirements:

• packaging

• palletizing

• JIT delivery

• traceability

• temperature

• shelf life

• safety

• consistency

• volume

Retail consolidation

Fewer buyers

Oversupply

Fierce competition places multiple demands on produce suppliers while perishability limits power!

Factors Driving Scale Economies

• On-Farm production technology• Distribution economies• Buyer scale – (imposing supplier

standards)• Food safety and quality demands

Grower/Shipper Responsesto Influence Price

• Consolidate horizontally: Consolidate horizontally: acquire, merge, or form acquire, merge, or form alliances with other alliances with other grower/shippers to become grower/shippers to become multi-regional or multi-multi-regional or multi-commodity shipperscommodity shippers

• Coordinate vertically: Coordinate vertically: newly forged “partnerships” newly forged “partnerships” between produce shippers between produce shippers and retailers, even in the and retailers, even in the form of contracts.form of contracts.

Expand control – horizontally or verticallyExpand control – horizontally or vertically

Grower/Shipper Responsesto Influence Price

• Adopt cost-reducing technologies that also affect Adopt cost-reducing technologies that also affect marketing (e.g. plasticulture) marketing (e.g. plasticulture)

• New hybrids/varieties/cropsNew hybrids/varieties/crops(e.g. maroon carrot)(e.g. maroon carrot)

• Specialized products/forms Specialized products/forms (fresh processed; value added products)(fresh processed; value added products)

• New packaging schemes & POPNew packaging schemes & POP

• Undertake demand expansion programs Undertake demand expansion programs (including alternative market windows)(including alternative market windows)

Adopt differentiation strategiesAdopt differentiation strategies

Defining SCMDefining SCM

• SCM – a continuous channel-level SCM – a continuous channel-level management process of shaping and management process of shaping and reshaping intracompany reshaping intracompany performance, information performance, information technology tools, products and technology tools, products and services, and organization to meet services, and organization to meet emerging customer opportunitiesemerging customer opportunities– D. Ross, Competing Through Supply D. Ross, Competing Through Supply

Chain ManagementChain Management

Defining SCMDefining SCM

• Never totally attainedNever totally attained• Unique chain strategies - What works in one Unique chain strategies - What works in one

chain does not necessarily work in anotherchain does not necessarily work in another

Supplier Enterprise Customer Enterprise

Inventory PlanningProduction ManagementPurchasingCustomer ServiceTransportationWarehousing

Channel Network Programs

Defining SCMDefining SCM

• Coordination with a view toward…..Coordination with a view toward…..– Creating customer valueCreating customer value– Total focus on continuous improvementTotal focus on continuous improvement– Formalization of quality processesFormalization of quality processes– Development of quality process Development of quality process

methodsmethods– Developing effective performance Developing effective performance

methodsmethods

Why SCM for Horticulture Why SCM for Horticulture Sector?Sector?

• Large retail networks Large retail networks with their own with their own distribution centersdistribution centers

• Chain-wide quality Chain-wide quality assurance assurance requirementsrequirements

• International sourcingInternational sourcing• Efficient Consumer Efficient Consumer

Response initiatives Response initiatives from the packaged from the packaged food manufacturerfood manufacturer

• Increases in SKU’sIncreases in SKU’s

Retail Produce SKUs

0

100

200

300

400

500

600

700

SKU

s

Some Supply Management Some Supply Management FactorsFactors

Produce Shrinkage

0.9

6.1

7

0

1

2

3

4

5

6

7

8

Warehouse Retail Store Total

Per

cent

Role of Electronic Role of Electronic TechnologyTechnology

• Electronic data Electronic data interchangeinterchange

• Cross dockingCross docking• Case codingCase coding• Continuous Continuous

replenishmentreplenishment• Vendor-managed Vendor-managed

inventoryinventory

Shared responsibilitiesShared responsibilities

• Retailers and growers expect to see Retailers and growers expect to see significant sharing in responsibilitiessignificant sharing in responsibilities– Promotion support/planningPromotion support/planning– Demand forecastingDemand forecasting– Inventory managementInventory management– Category managementCategory management– Cross docking and other functionsCross docking and other functions

System wide supply chain System wide supply chain prioritiespriorities

Percent of participants rating issue as a high priority

Issue Retailer Grower/shipper

Food safetyQuality specificationsCold chain maintenanceHACCP standardsInventory turnsVendor partnershipsProduct traceabilityDecreased order timeE-commerceVMIFlow through/cross dock

100.0100.0100.0

97.595.090.087.560.052.542.545.0

90.995.577.281.870.091.095.561.986.486.460.0

Source: Perisio, et al., 2001

Preferred Supplier Preferred Supplier AttributesAttributes

1. Consistent quality (aesthetics & shelf life)

2. Consistent on-time delivery (JIT).

3. Consistent volume (supplies sufficient to fill majority of stores in a “region”).

4. Price protection on rising markets.

5. PLU/UPC/COOL labeling or coding capabilities (traceability).