Concerning the food and beverage supply chain...

Allen Scott (pictured right), Manhattan Associates, looks at some of the supply chain challenges facing the food and drinks industry and offers some solutions.

Food traceability is still top of mind

The food scare last year involving chilli powder contaminated with the red dye Sudan1 was a major test of the traceability legislation introduced in January 2005. The dye had been banned from food products the EU in 2003, but the dye surfaced in a batch of imported chilli powder used to make a Worcester sauce, which was in turn used as an ingredient in a wide range of products. The Food Standards Agency ordered the withdrawal of hundreds of products from supermarket shelves. The problems were eventually traced back to a contaminated shipment of chilli powder which came to the UK in 2002 from India. 

Many manufacturing companies still operate manual paper-based traceability systems where data is hand-written onto batch sheets but there is growing concern around such manual systems from supermarkets, fast food outlets and the consumer. The process of analysing such data quickly and efficiently is a nightmare, especially if there is a need to go back several years as in this case.  Companies need systems that can provide comprehensive traceability information at the touch of a buttona full paperless Audit Trail of raw material traceability by Lot and Batch number.

Real-time visibility

Food traceability delivers benefits of one kind but real-time visibility of food or drink inventories in the supply chain can additionally provide process improvement opportunities. Using real-time reporting and alerting mechanisms, food and drink suppliers can optimise their distribution centre (DC) processes by being proactive instead of reactive in addressing logistical issues and managing the flow of products and orders. For example, by monitoring lot and date tracking, suppliers can identify when perishable goods are nearing their expiration dates and can send an alert to notify marketing or sales to run a special on the product that is near expiration to hopefully incite orders and avoid inventory expiration and spoilage.   

Additionally, real-time visibility allows food and drink suppliers the ability to increase cross-docking opportunities where inbound shipments are sent directly to shipping to promptly satisfy customer demand.  This kind of flexibility is a major productivity advantage, particularly in a large food distribution facility where customers are constantly making and changing demands and orders must be turned around quickly.   

In order to extend the benefits of real-time visibility, collaboration with suppliers and other supply chain partners such as, consolidators and freight forwarders is essential.  By establishing real-time methods of information exchange and synchronising business processes, end-to-end supply chain communication and global visibility is possible.  With Performance Management and Trading Partner Management technology, food and drink suppliers can exchange data in real-time with both vendors and customers so that it can be executed on immediately.  This ensures efficiency and productivity improvements throughout the supply chain, resulting in better in-stock positions, increased sales and enhanced customer service. 

On-shelf availability

With an average retail out-of-stock rate of 7.1 per cent, availability is a huge issue affecting both manufacturers, distributors and retailers.

When measured along the supply chain, availability levels typically decline closer to the shopper. Service levels can reach 99 per cent from the supplier to the retailers distribution centre but it is often down to 90 per cent at the point it moves from the stock room to the shelf. This underlines the critical importance of the last 50 yards. 

Root causes of non-availability can be grouped into three main areas: inventory errors, forecasting; and in-store execution problems. This is still the main reason for out-of-stocks, as much as 60 per cent. 

A shopper who finds a specific product unavailable may react in a number of different ways.

- Delay purchase

- Substitutesame brand (different size or type)

- Substitutedifferent brand

- Do not purchase the item.

Solutions that address the root causes of non-availability include the following:  

-  Inventory errors

This is probably the least difficult problem to eradicate. The integration of advanced in-store systems to equally sophisticated execution solutions that deliver product to the distribution centre and to the store should help provide 100% or near to 100% inventory accuracy levels. 

- Poor forecasting

Forecast accuracy will always be a huge challenge for retailers but sophisticated technology solutions available today can help radically improve sales predictions. Advanced integrated planning solutions maximise sales opportunities by combining proven forecasting techniques with sophisticated demand cleansing and day-of-the-week and seasonal profiling tools to help companies generate the highest return on inventory investment and ensure they have a plan to meet their goals. 

- In-store execution problems

This can happen for a number of reasons but insufficient replenishment staff, back-of-store warehouse management, shop-floor layout, unit and pack-sizes, and packaging quality are usually the most common factors preventing goods from getting to the shelf in a timely manner.  Labour management tools can help address staff levels required whilst sophisticated Execution Solutions in the back-of-store warehouse environment are being used increasingly to equip retailers with the tools to address the peaks and troughs of in-store demand. 

Productivity in the DC

Warehouses in the food industry are typically high product throughput, labour intensive and multi-temperature environments.  

Dealing with the last point first, radio frequency (RF) technology may not always be the best solution for sub-zero temperature environments as RF devices can suffer from rapid battery depletion and heavy gloves that need to be worn may slow or even lead to mistakes in the way hand-held or wrist-mounted RF devices are used. A more practical long term solution in such an environment, albeit for a more expensive initial investment, can be a voice-directed operation using voice recognition (VR) technology. The productivity improvements derived from VR technology over traditional RF-driven solutions, in any environmenttemperature-controlled or notcan typically be 20 to 30  per cent higher. 

The other two aspects of a typical food warehouse environment are linkedhigh product throughput dictates that there is a high demand on labour resources.  Consequently productivity levels are crucial to the performance of any warehousing operation. When one considers that the direct operational activities that go on within a DC such as receiving, picking, packing and shipping are the productive aspects of a warehousing operation and typically account for approximately 40 per cent of the total operational activity, it follows that indirect or non-productive activity such as travel time, administration or ancillary tasks such as maintenance or cleaning typically account for approximately 60 per cent of total operational activity. In budgetary terms, the labour component of this 60 per cent is probably half, and so it also follows that 30 per cent of the total operational budget is being spent on labour resources carrying out non-productive tasks. Applications such as labour management, slotting optimisation and performance management can help companies to make huge savings in the way they deploy their resources.  

With a labour management solution, companies can record all activities while an employee is on the clock, monitor performance levels in real time, get visibility to fair performance targets, views workload across functional areas and zones, measure actual productivity against expected performance, calculate pay-for-performance data, and run off reports on productivity based on warehouse role. 

Slotting optimisation improves DC velocity by determining the most beneficial and ergonomically correct placement of pick line items. Fast movers are dynamically placed near the shipping dock, which bypasses the put-away process and helps improve overall order throughput.  Another type of optimised slotting is when the slotting system dynamically places like products together on the pick line, which cuts down on travel time in the DC. This achieves quickness in the picking process and a reduction in labour effort.  Optimising slotting also ensures that inventory placement meets weight and/or temperature constraints to prevent damaged goods and minimise worker compensation claims.  With thousands of items in a warehouse, food suppliers and retailers should not underestimate the value of slotting to maximise labour productivity, increase order throughput, while also reducing workers compensation claims. 

Finally, performance management solutions provides unique scorecard functionality that measures and evaluates performance, equips users with a set of pre-configured management reports, and notifies workers when key conditions or exceptions have occurred or are about to occur. 

Transportation optimisation

Transportations effect on the supply chain has always been significant but companies are just beginning to develop the tools to quantify the cost impacts of improperly planned or uncoordinated transportation efforts on their supply chain initiatives, and to move to reduce or eliminate these costs. 

While businesses have historically directed their efforts on improving relationships with their vendors and customers, most have, unfortunately, forgotten to include their transportation supplier partners in key supply chain initiatives.  Companies not only have yet to push their transportation supplier partners to their limits in physical transportation and logistics, but also in systems tracking and information sharing.  It is becoming readily apparent that transportation is a key significant area for ROI improvement within the supply chain infrastructure. 

Factory gate pricing

Companies are looking for solutions that support factory gate pricing (FGP) initiatives whereby considerable savings can be realised based on the conversion of prepaid freight. 

FGP helps companies reduce cost at each stage. These reductions can be achieved in a number of ways, including:

- Removal of traditional geographic transport boundaries where an assigned logistics provider controls all vehicle movement within a particular region for a retailer

- Better vehicle utilisation as suppliers share vehicles in order to reduce costs

- Removal of uneconomical vehicle movements through combining additional products from different sources to ensure every lorry is full when it sets out on its delivery route.

Allen Scott is UK managing director at Manhattan Associates, a leading supply chain solutions provider. The company's supply chain planning, supply chain execution, business intelligence and business process platform capabilities enable its more than 1200 customers worldwide to enhance profitability, performance and competitive advantage.