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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 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 -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
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
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
Terminal Markets Diminish in importance
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
Factors Driving Scale Economies • On-Farm production technology • Distribution economies • Buyer scale – (imposing supplier standards) • Food safety and quality demands
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.
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)
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
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
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
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
Role of Electronic Technology • Electronic data interchange • Cross docking • Case coding • Continuous replenishment • Vendor-managed inventory
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
System wide supply chain priorities Source: Perisio, et al., 2001
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).