Food Supply Chains Can Run at the Speed of Millennials

Food Supply Chains Can Run at the Speed of Millennials
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My grocery shopping experience has been looking a lot different in the past few years; namely, I’ve been seeing more and more handwritten labels with stylized copy and pastoral logos—natural, organic, grass fed, free range. In short, shoppers want better (read: fresh) food.

As a supply chain guy I know how much this trend toward fresh, natural foods will challenge traditional food supply chain structures. While smaller companies might more easily pull off a new supplier or route, many large organizations have maintained the same tightly run supply chains for decades. Changing such a complex operation is a huge—and risky—undertaking. In order to succeed, their supply chains simply must be agile enough to deliver fresh, natural foods—and react to inherent complications—fast.

How did we get here?

This natural food trend has been building since Upton Sinclair’s famous 1906 novel, The Jungle, which shone a light on the meat packing industry. Consumers began demanding more transparency about their food, and soon after, the FDA was established and basic guidelines were set in place, making food something that deserved and required regulation.

In practice, things operated a little differently. Believe it or not, most of our foods—from energy bars, to frozen dinners, to cheetos and the McRib— found their origins in military labs. When the nation went from feeding 400,000 to 11.6 million soldiers during World War II, the military enlisted big food brands—ConAgra, General Mills, Hershey, Mars, and Nabisco to name a few—to help produce food that was developed in labs to be easy to store and preserve. From this initiative, processing techniques became an integral part of the food on our shelves. The takeover of “ready-made food” dazzled customers with ease and low prices, making the demand for transparency take a back seat—for a time at least. Towards the end of the 20th century, we started to realize the health detriments of highly processed foods, and trends towards natural foods picked up again. The word “organic” began appearing in the 1980s, and was deemed important enough to require regulation by 1990.

Early on, high cost served as a barrier to entry for the market. Organic or natural food is highly elastic in demand, meaning shoppers won’t pay a premium price for it unless they have the extra income to do so. Which would explain why, after a steady climb, Whole Foods and other natural food companies saw their stocks plummet during the Great Recession of 2008. But as the economy has picked up and costs have fallen, the appetite for organic has increased again, reaching a peak in 2014 and remaining high since.

As organic comes back into fashion, large companies are scrambling to provide customers with what they want.

Natural foods are here to stay

While the economies of scale that large food companies enjoy give them major advantages, small farms are seeing more success in recent years. Trends show that while the top 25 food providers in the US (think fast and pre-packaged foods) have lost a collective $18 billion in market share since 2009, the demand for organic food has grown to nearly $20 billion in the same time frame.

So now, major retailers like Walmart and Safeway stock organic food and manufacturers like General Mills are buying local organic brands, bringing down prices for consumers. But as these food producers and retailers try to scale, they’re facing unprecedented challenges in their business models. As competitors drive down costs, margins are decreasing, and companies are struggling to foot the bill that comes with the extra costs of an all natural supply chain.

America’s food supply chain isn’t designed for this kind of offering. It seems too big an investment. In order to accommodate the demands for low priced fresh foods, companies need to restructure their supply chains to be high-velocity, high-agility and free of isolated communication silos. Organizations face challenges, yes. But there are also solutions:

Problem: Suppliers are reluctant to make the switch

Companies working with meat, dairy or agricultural producers may face difficulties convincing farmers to change their production to organic, natural or cruelty-free. While farmers can make more money farming organically—organic food can command prices three to four times higher than conventional food—the USDA has laid out a three-year transition period before a farm can be certified. In those three years, farmers risk lose money by producing organic food for the price of conventional. Smaller farms can go into debt that’s hard to climb out of.

Solution: Companies can fund the transition

For example, Clif Bar worked out a deal with their fig farm by agreeing up front to buy newly-certified organic figs for seven years. In the interim, Clif also helped by continuing to buy the farm’s existing organic fig supply before it was certified. It’s usually a much smaller risk for larger organizations to front the costs—and it never hurts to establish a closer relationship with your suppliers.

Problem: Production is too risky

Not using pesticides? Your supplying farmers will face lower yields, subsequently passing on higher prices—and risks of shortages. Passing on preservatives? All that inventory sitting in warehouses and on market shelves will expire faster, putting pressure on you to sell—or waste—your product. Going chemical-free? Preventing contamination and subsequent outbreaks will be difficult.

Solution: Create transparency in your supply chain

Companies will have to be vigilant about tracking stock and demand, predicting with accuracy how much of the items they will need. Savings come from better analysis to better manage E&O fees, which in turn come from real-time updates on supply and demand. At the same time, transparency can allow companies to improve their brand perception, as it is easier to publicly share their socially responsible supply chains.

Now more than ever, it’s important that food companies run a highly efficient and real-time supply chain with an even slimmer margin of error. I’ve seen large companies make great strides to move into the fresh and natural food world, and a lot of their success has come from better communication and a more holistic approach to supply chain. By allowing all sectors of the expansive supply chain to communicate with one another—giving everyone a wide perspective and allowing the right information to reach the right people at the right time—even immense corporations can expand their fresh offerings across the country.

Lastly, preserving traceability is a crucial element to a fresh supply chain. So finding a way to trace shipments is of the utmost importance. Most fresh food needs to be at 36 degrees within four hours of harvest—then it needs to be shipped across the country fast. In order to make sure the right shipments are getting to the right places, companies should complement GPS tracking with communication platforms that allow shippers to directly communicate with whoever needs to know about shipment status.

Don’t forget: collaboration is key. For many chains, individual stores don’t have an easy way to report on whether or not shipments are correct. When information about supply disruptions don’t travel upstream because of slow and siloed communication processes, customers miss out on products and food is wasted.

Ultimately, running a fresh, natural or organic food supply chain takes speed and flexibility. To get there, companies need to open up communication channels, but without clogging them. Information needs to get to the right place, at the right time, at all times. It might be tough at first, but it’ll pay off in the end. Much like eating kale.

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