Will the Heinz and Kraft merger impact your supply chain?

 

The food industry has been consolidating for the last decade with a big impact on its supply chain. Traditionally, the supply chain has been a combination of small suppliers producing ingredients that are combined by the manufacturers and then sold to food service and retail distribution channels. In my opinion, consolidation, regulation, increased cost of doing business, demand for additional inspection, demand for longer payment terms, just in time production systems and drive for lower cost has driven many suppliers out of the business.

Consolidation has also caused issues for the industry leaders since there are fewer suppliers, reduction of capacity, increased risk and increased costs and fewer choices for key ingredients. Many of the key ingredients and specialty packaging solutions come from only one or two suppliers. As companies like Heinz and Kraft merge and focus on homogenizing specifications and the supply base, it is essential that attention remains on maintaining a strong supply chain that can deliver in the ever-increasing demands of the industry.

For the suppliers in the industry, it will be essential that they maintain a healthy bottom line, innovate new products, remain lean and align with strategic partners both up and down-stream in the supply chain. The ability to continuously improve, remove risk and compete will be an essential factor in the ability to survive in an age of massive industry consolidation.

No one can predict the future, but understanding the ever changing environment will be the key to survive and thrive.

Will your strategic supplier get “voted off the island?”

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Sustainability is key

If any suppliers needed more evidence of the importance of sustainability in the sourcing decisions of huge consumer goods companies, they certainly got it in spades over the last several weeks.

General Mills’ executive vice president of supply chain operations John Church announced a new corporate climate policy to track and reduce GHG emissions as part of its commitment to environmental stewardship and sustainable agriculture. In his blog post, he said this new policy requires key ingredient suppliers to demonstrate environment, social and economic improvements in their supply chains.

Shortly afterwards, Coca-Cola increased its investments in Africa to support, among other activities, key sustainability initiatives and programs there. The company also signed a letter of intent to launch Source Africa, an initiative to secure more consistent, sustainable local ingredient sourcing for its products, in partnership with the New Alliance for Food Security and Nutrition and Grow Africa.

On the heels of Coca-Cola, Tata Global Beverages announced their plans for 100% sustainable sourcing by 2020. A major focus of its sustainable sourcing strategy is sustainable agricultural practices, including reducing the use of Plant Protection Products in the tea industry.

Suppliers, take note.

Source Responsibly

Consumer pressure for sustainability has become so powerful that even a company that is dedicated to celebration and partying – Bacardi –  is taking a socially responsible position on sourcing. It has released a very detailed list of actions it’s taking.

These actions range from sustainable packaging to recycling waste to building a green-certified distillery in England. Bacardi even exclaims its goal to obtain 40% of the sugarcane-derived products used to make its rum from certified, sustainable sources by 2017 – and 100% by 2022.

Bacardi is using social media to promote its branded initiative, artfully called “Good Spirited.” So it obviously believes the initiative has marketing value. That tells us two things:  One. Sustainable sourcing is generally accepted as good for the company. Two. It’s still considered something that’s unique enough to set Bacardi apart.

The question is, how long until sustainable practices are so widely adopted and universally expected that touting them isn’t even worth it. What do you think?

 

Be the Best Customer

We have been saying for quite some time that suppliers won’t give their best stuff to their worst customers, and here’s another voice chiming in with the same message. Smartblog on Food and Beverage with supported research from SCM World indicates that innovative ideas and marketing only come when there is a targeted audience that will respond/engage. It is difficult to harvest creativity for customers that won’t notice or care — which is another way of saying, “listen to your suppliers because they are listening to you.” SCM World also states that collaborative relationships between brands/businesses for great ROI are only successful when there is the right market. Their tips for successful business relationships range from sharing strategic information to measuring and rewarding success.

Food Safety – Not as Simple as it Sounds

The unfortunate truth is that safety in the food industry supply chain still has a long way to go. No one likes burdensome regulations, but it’s hard to argue against them when we hear about blunders such as these:

• The Associated Press reported that Foster Farms, a California chicken farm was closed Jan. 8 when inspectors found cockroaches on five separate occasions in various parts of the plant over four months. The company says no chicken product was affected.
• A release posted on Reuters stated that New Zeeland’s Fonterra announced on Jan. 13 a recall of products that had been contaminated with E.Coli. It affected 8,700 bottles of fresh cream marketed under their Anchor brand. There have been no reports of illnesses so far.
• The Associated Press reported Northern California’s Rancho Feeding Corporation of Petaluma, Calif. recalled 40,000 pounds of meat products because it was produced without a full federal inspection. As of now, there are no reports of illnesses.

The U.S Food and Drug Administration (FDA) announced back in January of 2013 its proposed new food supply chain safety rules under the Food Safety Modernization Act (FSMA). After considerable input from food producers and consumer advocates,  the FDA’s most recent statement Dec. 19, 2013 indicates that it expects to issue revised rules next summer. Although they might show a retreat from some of the most stringent provisions of the FDA’s first proposals, the final rules are likely to require significant changes in how we bring food from the farm to the table.

I believe that unless the food industry self regulates and builds lot-control chain of custody processes like the pharmaceutical industry’s, greater regulation of the food supply chains is very likely.

From Carrot Skins Come Chicken Wings

Here’s an extreme example of recycling in the food supply chain. Several New York City restaurants are sending some of their kitchen scraps to an Amish chicken farm in Pennsylvania. Chickens of a breed imported from France eat the kitchen scraps, and when their day comes, are slaughtered and shipped to those restaurants to be served to customers.

Of course, feeding table scraps to your domestic chickens is not exactly a new idea in many rural parts of the world, but when four-star chefs do it, the idea sounds like an innovation.

Here’s the story in the New York Times.

OK, so technically it’s not recycling. And the driving force seems to be taste, not sustainability, as the participating chefs are raving about the flavorful meat from the pampered poultry. Someone ought to run a total cost analysis, though. The restaurant would have to get a break in its waste removal costs because of the diversion of the kitchen scraps. The chickens are still fed soybean pellets to supplement the scraps, but not as much as they would without the recycling program, so there’s some savings there.

Perhaps the same truck delivering the chickens returns to the farm full of fresh scraps. There might be value there if the trucks had been returning to the farm empty. Nevertheless, it does seem that the transportation costs of shuttling between a Pennsylvania farm and Manhattan kitchen would prevent the program from being a value AND flavor win. You certainly can’t blame them from thinking outside the coop, though.

Possibly the next step has to be roosters on the roof, pecking in the sedum turf. Or “Central Park Free Range Fowl.” What do you think?

General Mills and Its Partners Help Small Farmers in Peru

It’s a pretty good sign that sustainability is going mainstream in the food supply chain when General Mills gets into the microloan business with Peruvian artichoke farmers, and that is happening right now.

General Mills and its supplier/partner AgroMantaro are providing the loans so small farms can buy artichoke shoots and seeds, helping them to increase yields and improve profitability.

The breakfast food giant says it is building on its long history of working with farmers around the world  by identifying very specialized methods — and partners — to help small farmers advance sustainable practices.

In Peru, these farms are typically one to two hectares, or two to four acres, and are run by women who lost their husbands during the civil unrest in the 1980s.

General Mills sources its artichokes from the Sierra region of Peru for its top-selling brand in France, Green Giant or Le Geant Vert.  While the crop has a strong export potential, farmers have struggled to capitalize on it because of lack of capital, training and education, and access to export markets.

The four-year joint commitment between General Mills and AgroMantaro will provide more than $1 million to help the farmers with training on crop management; microloans to buy shoots and seeds; training on starting farm cooperatives; and financial planning education to put together business plans.

The two companies are joining with the international humanitarian organization CARE, which specializes in facilitating community governance and local connections, and will work side-by-side with the farmers and AgroMantaro to meet the project objectives.

It’s just a guess, but $1 million over four years sounds like a pilot project for a corporation that has $18 billion in annual net sales. In the short term the benefits are likely to come primarily from maintaining a good corporate reputation. General Mills does have a well established set of responsible sourcing policies, so even a small project helps to keep its practices aligned with its stated policies.  It is also possible that General Mills is taking a long view of the situation and sees potential cost savings coming from better yields, more consistent products and lower risks from its micro-investments.

Unilever Reports on Its Sustainability Challenge

There are plenty of companies that are adopting sustainability policies, but not many that are taking the challenge to the same commitment as Unilever, as it is described in this op-ed written by its vice president of sustainable living.
Jonathon Atwood writes that the company in 2010 adopted a 10-year sustainable living plan that calls for “doubling of the size of the company, while reducing our environmental footprint and increasing our positive social impact.” One of the goals is to source 100% of its agricultural raw materials sustainably. Two years into the program, Atwood says its working. “Brands that made sustainable living central to their product innovation and brand purpose are increasing sales.” At the same time he claims the program is saving money and reducing risks.
These are noble, but ambitious claims. How far do you think your organization is willing to go to meet sustainability targets?  How do you even define them?
Atwood says one metric Unilever uses is waste-to-landfill, and it has hit zero percent at its headquarters and R&D facilities. Food for thought from a major food processing company.

Lesson from McDonald’s – Stay Ahead of the NGOs

This animated Chipotle commercial telling the story of a farmer freeing his pigs from pens wasn’t exactly the most attention-grabbing spot of the Super Bowl broadcast. However, it turned out to be a good setup for the recent announcement by McDonald’s that it is requiring its suppliers to end the practice of keeping pigs in gestation pens. Here’s Bloomberg’s coverage of the story.
According to Bloomberg, Chipotle stopped buying pork from producers who used gestation pens (which highly restrict the movements of a reproducing sow) a decade ago, while McDonald’s still owned the restaurant chain.
McDonald’s reportedly came to agreements with major producers such as Cargill before it made its own announcement.
Three lessons emerge from this. One — Do not underestimate the power of activist organizations. I worked with a restaurant chain that was under pressure because PETA was complaining that it unfairly treated fish.
Two — Stay ahead of the curve. McDonald’s made its move ahead of any serious public criticism. Animal rights activists have complained about the practice for years, but no credible threats were made to McRibs in the form of boycotts, occupying booths or blocking drive-thrus. McDonald’s anticipated the trend, adapted its supply chain and then announced.
Third — Manage your communications. McD’s announced the change jointly with an organization that could have been its enemy in a public opinion battle — the Humane Society of the U.S. With that step it didn’t just turn a potential negative into a positive — it simply skipped the negative potential altogether.
In all three ways, McDonald’s showed it recognized the potential influence of activist organizations and knew how to turn that into positive media coverage. Please pardon my saying so, but that’s a clear case of making a silk purse from a sow’s ear.

You Cannot Know Too Much, Too Fast

When something goes wrong deep in your supply chain — you can never find out the precise source of the trouble too fast, or in too much detail. Time spent creating a chain of custody is well spent when a crisis breaks. Even when the problem is minor, it can have a big impact.  Case in point: according to “Baking Business,” Jeff Sobell, senior manager, global packaging, Kellogg Company, Battle Creek, MI, recently told a panel at Pack Expo that the company’s quarterly net income dropped 15% last year when it had to pull 19 million cereal boxes from stores shelves because the packaging had an odor.
He was making a point about how important packaging standards are to food products, but there’s also a lesson there for a tight chain of custody. Kellogg is a global corporation and an industry leader in supply chain practices. However, this relatively minor issue that had no impact on the quality of the product inside the boxes, nevertheless, hit Kellogg’s bottom line. I am pretty certain Sobell mentioned the case only because Kellogg had learned from it. You can, too.