Logistics study highlights use of technology in food sector

By Ahmed ElAmin

- Last updated on GMT

Related tags Supply chain Supply chain management

Food and beverage companies are increasing their use of
cross-docking, are continuing to rely on paper-based order-pick
methods, and most are outsourcing some or all of their
transportation, according to a survey of logistics practices in the

Saddle Creek, a third party logistics (3PL) provider, said its survey shows that leading food manufacturers and retailers areincreasing looking at ways to cut the costs out of logistics while at the same time service theircustomers more efficiently. They are attempting to make their logistics operations more efficient in a bid to reduce the $7bnto $12bn per year estimated cost attributed to out-of-stock products.

"Inefficient transportation and excessive inventory represent an estimated $30 billion savings opportunity to thisindustry,"​ the company stated. "These issues become exacerbated due to mergers and acquisitions. Disparate technology systems overlap and become cost-prohibitive. Physical distribution networks become costly to manage, integrateand re-architect."

To beat the costs down they are devoting considerable resources tointegrating their information systems with their trading partners using both Electronic Data Interchange(EDI) and, more recently, web-based internet systems or exchanges, the company said. A more optimized, more streamlined supply chainis being developed in order to hold minimal inventory so they're not burdened with that largeinvestment, Saddle Creek stated in the survey, released this month.

They are also increasing the use of cross--docking, a practice of unloading products from an incoming truck trailer or rail car andthen re-loading them directly in outbound trailers or rail cars. The technique saves time and moneyby reducing the need for warehousing. All the operations are done in large staging areas where inbound materials are sorted, consolidated, andstored.

About 64 per cent of those surveyed said they outsource some or all of their transportation. Order pick methods continue to be largely paper-based, but bothradio frequency identification and voice-directed technology are growing, according to the report.

Meanwhile logistics executives at food and drink companies say their main challenges are findingcapacity and drivers to transport their products. About 43 per cent of respondents pinpointed capacity as the biggest logistics challenge they facewhile another 24 percent cited driver shortage.

Customer demands are a key concern for about 20 percent of the respondents to the survey. In abid to meet this need food and beverage manufacturers are establishing more forward distribution centers toincrease their responsiveness and accommodate changing delivery needs.

"When evaluating the responses of this survey, it's clear that the food industry is disjointed, reliant upon outsourcing practices, has seasonal patterns of production, and deals with highly perishableproducts,"​ Saddle Creek said in an analysis. "The industry is dependent upon a highly fragmented truck transportation system for 80per cent of its shipments -- more than 600,000 interstate motor carriers in 2002 per Federal MCSA."

Other trends affecting food and drink logistics include the changing business model driven by theInternet and a more "customer-centric" marketplace, the company stated. Since theirlogistics operations are made up of an extensive network of trading partners that includes 3PLs, suppliers, contract manufacturers, distributors, andretailers, their quest for perfect orders must ultimately become a collaborative goal.

"Efficient, timely order fulfillment is the new fundamental business requirement for foodcompanies,"​ the report stated. "Smaller, more frequent orders are required and fulfillment focused on value-added handling rather than warehouse storage."

To meet these demands food and drink companies are increasing their use of forward distributioncenters. This is being done, in large part, as a result of increasing changes in the truckload industry andthe additional demand placed upon them by their customers.

Meanwhile globalization is leading to more consolidation among retailers, manufacturers and 3PLs. In order to compete with the largest competitors, food companiesare looking to grow globally through mergers while reducing investment in hard assets and focusing their resources on those areas in which they have core competencies.

They are using more dynamic tools and technologies to address supply chain management issues suchas unplanned events, shipment delays, parts shortages, production delays, and demand swings.

"When addressed with traditional optimization applications, such initiatives give rise to rigid, linear valueenvironments,"​ the report stated. "These food supply chains must give way to dynamic supply networks and collaborative technology that drives them. This technology allows for the processing of high volumes of distributed transactions between various members of a supply chain in a fast and low-cost manner."

While focused on inventory and orders, such systems allow managers to track an order or inventory stock-keeping unit (SKU) using the unique numbering system of the individual trading partner.They also provide a single consolidated view of all trading partner inventory in a supply chain, thereport stated.

As supply chain management systems (SCM) become more efficient in providing the real-time data, they alsoalso being developed to become better at predicting future needs and orders.

"Eventually, real-time execution systems are anticipated to have the capabilities that incorporate long range forecasts, plans and schedules into real-time execution systems, and will reduce the need for the advanced planning/forecasting systems usedtoday,"​ the report stated. "Leaders in the food logistics industry are aligning themselves with these new SCM solutions that simultaneously revolutionize the supply chain and optimize customer intimacy."

Saddle Creek's surveyed 100 executives involved in the warehousing or transportation management of food and beverage products.The majority of respondents were grocery companies, food and beverage processors or 3PLs located throughout theUS.

About one-third were with smaller or medium-sized companies earning less than US$50m in gross annual revenue.

"Food shippers are interested in developing collaborative relationships with third-party logistics providers to create leaner, more efficient logistics practices within their supplychain,"​ Saddle Creek stated in releasing the results of its survey this month.

Related topics Processing & Packaging

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