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Structural Shifts Affecting The Supply Chain in Fresh Produce

Structural Shifts Affecting The Supply Chain in Fresh Produce. AEC 317 Fall 2012. Increases in vegetable consumption. Source: Vegetable & Melons Situation and Outlook, ERS, 2012. 1992-2002 Produce Acreage Changes (thousand acres). 0. 0. +105. -9. -4. -92. +1. -1. -25. -28. -50.

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Structural Shifts Affecting The Supply Chain in Fresh Produce

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  1. Structural Shifts Affecting The Supply Chain in Fresh Produce AEC 317 Fall 2012

  2. Increases in vegetable consumption Source: Vegetable & Melons Situation and Outlook, ERS, 2012

  3. 1992-2002 Produce Acreage Changes (thousand acres) 0 0 +105 -9 -4 -92 +1 -1 -25 -28 -50 -1 0 -13 -5 -2 +2 0 -2 -11 0 -30 +2 -12 +3 -7 -9 -6 -5 +17 0 -9 -5 0 +823 +5 +5 +34 +11 0 -7 -24 -11 -2 +45 -57 -2 1 to +10,000 acres gain 11,00 to 45,000 acres gain > 100,000 acres gain -69 Source: USDA Census of Agriculture 1992 – 2002

  4. Produce Acres in U.S.

  5. Increase in Marketing Formats • Farmers Markets • Organic and Health Food Stores • Whole Foods (Wild Oats), Fresh Market, and other natural foods merchandisers • Convenience Stores • Club Stores • Conventional Supermarket • Even fast food moving strongly toward distributing more produce

  6. Fresh Fruit and Vegetable Marketing Channels 2007 - $5.0 + + + Supervalu Fleming - - - 2000 - $75.8 2007 - $100 Castellini 2007 -$20.5 Sysco Alliant, GFS 2007 - $9.0

  7. Net trade of Fresh Fruit and Vegetables

  8. Terminal Markets

  9. Louisville Terminal Market

  10. Terminal Markets Diminish in importance

  11. Fierce competition places multiple demands on produce suppliers while perishability limits power! • Retail consolidation • Fewer buyers • Oversupply Growers • Specific buyer requirements: • packaging • palletizing • JIT delivery • traceability • temperature • shelf life • safety • consistency • volume

  12. Factors Driving Scale Economies • On-Farm production technology • Distribution economies • Buyer scale – (imposing supplier standards) • Food safety and quality demands

  13. Grower/Shipper Responsesto Influence Price Expand control – horizontally or vertically • Consolidate horizontally: acquire, merge, or form alliances with other grower/shippers to become multi-regional or multi-commodity shippers • Coordinate vertically: newly forged “partnerships” between produce shippers and retailers, even in the form of contracts.

  14. Grower/Shipper Responsesto Influence Price Adopt differentiation strategies • Adopt cost-reducing technologies that also affect marketing (e.g. plasticulture) • New hybrids/varieties/crops(e.g. maroon carrot) • Specialized products/forms (fresh processed; value added products) • New packaging schemes & POP • Undertake demand expansion programs (including alternative market windows)

  15. Defining SCM • SCM – a continuous channel-level management process of shaping and reshaping intracompany performance, information technology tools, products and services, and organization to meet emerging customer opportunities • D. Ross, Competing Through Supply Chain Management

  16. Defining SCM • Never totally attained • Unique chain strategies - What works in one chain does not necessarily work in another Channel Network Programs Supplier Enterprise Customer Enterprise Inventory Planning Production Management Purchasing Customer Service Transportation Warehousing

  17. Defining SCM • Coordination with a view toward….. • Creating customer value • Total focus on continuous improvement • Formalization of quality processes • Development of quality process methods • Developing effective performance methods

  18. Why SCM for Horticulture Sector? • Large retail networks with their own distribution centers • Chain-wide quality assurance requirements • International sourcing • Efficient Consumer Response initiatives from the packaged food manufacturer • Increases in SKU’s

  19. Some Supply Management Factors

  20. Role of Electronic Technology • Electronic data interchange • Cross docking • Case coding • Continuous replenishment • Vendor-managed inventory

  21. Shared responsibilities • Retailers and growers expect to see significant sharing in responsibilities • Promotion support/planning • Demand forecasting • Inventory management • Category management • Cross docking and other functions

  22. System wide supply chain priorities Source: Perisio, et al., 2001

  23. Preferred Supplier Attributes • Consistent quality (aesthetics & shelf life) • Consistent on-time delivery (JIT). • Consistent volume (supplies sufficient to fill majority of stores in a “region”). • Price protection on rising markets. • PLU/UPC/COOL labeling or coding capabilities (traceability).

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