Food Forum: The supply chain of the future

Supermarket supply chains have been reconfigured time and time again. What will the next generation supply chain look like?

By Jim Ritchie

Supermarket supply chains in North America have been built and rebuilt several times over the past century. Developments such as conveyors, automatic ID and true four-way entry pallets transformed the way goods moved from the fields, farmyards and pastures to store shelves and homes. What used to take months and cost thousands of dollars to ship now takes weeks or days and costs hundreds. Along the way, our food supply has become safer and more abundant.

As we move from recession to recovery, the supermarket industry is in a prime position to build the next generation of supply chains. These new supply chains, which will actually be value chains connecting trading partners up and downstream, will feature three main elements—collaboration, innovation and sustainability. Each must be addressed simultaneously to ensure optimal resource allocation and balance.

While collaborative efforts frequently shape supply chain initiatives, years of intense focus on internal cost control has lead to diminishing returns for the typical supermarket retailer or wholesaler. The logical next step to improve profit margins and efficiency requires collaboration across trading partner interfaces, from sales and marketing to order fulfillment. This level of collaboration necessitates information and resource sharing at an unprecedented level to achieve mutually beneficial goals such as optimized transportation networks. A great example of ongoing industry collaboration is with standards development, where groups such as GS1 and VICS work with manufacturers, retailers and carriers to institute processes that concurrently boost productivity and reduce costs. Trust is the critical factor for success in collaboration.

The second element centers on innovative solutions. Market leaders invest in research and development that propel the industry forward. The status quo is never good enough; companies must proactively encourage an operating environment that continuously engages each trading partner’s operations. A good example of this is ongoing work to achieve a more holistic view of product distribution. This holistic view includes shipment of the product to retail locations and reclamation of packaging back to processing facilities. A dedicated customer focus is the critical factor for successful innovative solutions.

Environmental and business sustainability is the final piece of the next generation supply chain puzzle. Market leaders understand that environmental responsibility and good business are not at odds. In fact, waste reduction and control is at the heart of every successful operation and productivity initiative. Market leaders who do not support an environmental agenda with adequate resources are soon likely to be former market leaders. There are several great examples of companies working to reduce their carbon footprint, including consumer product suppliers increasing the concentration of their products to reduce pack size and retailers increasing the offering of locally grown or raised foods to reduce transportation. A focus on long-term solutions over short-term fixes is the critical factor for successful environmental and business sustainability.

Given the recent passage of the Food Safety Modernization Act (FSMA), which President Obama signed into law on Jan. 4, a postscript needs to be added to the next generation supermarket supply chain. Although this legislation is not directly related to the supply chain, supermarket operators need to work diligently to ensure that all food products are safe as they make their way to the consumer. Importantly, the FSMA enables the Food and Drug Administration (FDA) to focus on preventing food safety problems rather than reacting to problems after they occur. The law also gives the FDA new enforcement authority designed to achieve higher rates of compliance with prevention and improved response standards when problems happen. The greatest impact for food supply chains will be in the area of recalls, where the FDA now can order a recall, and in food facilities, which must now have a written plan that clearly outlines the possible problems that could impact the safety of the products received, stored and shipped.

Following current efforts to rebuild supermarket industry supply chains into value chains by optimizing information and communication touchpoints between and among trading partners, new challenges will arise to trigger another round of collaboration, innovation and sustainability advances. The cycle will go on forever, with market leaders creating a competitive advantage using the next generation of business practices, technology and, most importantly, people.

Jim Ritchie is group president of Orlando, Fla.-based CHEP Americas, a provider of pallet and container pooling solutions. For more information, visit www.chep.com.

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