Food Supply Chain Overview

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Food Supply Chain Overview

• ISQA 458/558

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Food Supply Chain

• Structure
• Definition
• Trends

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The Supply Chain Players
Consumer
Retailer
Food Service, Schools or Gov.
Wholesaler, Distributor, Agent or Broker
Food Beverage Manufacturing
Farm, Ranch, Fishery or other provider Agricultura
l Producers
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Food Producers (raw materials)
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• Number of Farms increasing for vegetables, crops
  and hay, animals eggs, but declining for most
  other things.

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Trend toward more small and very large farms,
loss of the middle Segment (family farms versus
corporate farms)
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Farmers Producers

• gt 2.1 million farmers ranchers
• 125,000 of them control 75 of production
• Sales 375 Billion
• Focus
• 650,000 cattle ranchers
• 500,000 hay farmers
• 330,000 grain and oilseed farmers
• 100,000 fruit and nut farmers

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Food Manufacturers and Processors

• 26,000 companies in US 540 Billion in Sales
• Meat products 18.5
• (4 firms control 80 of market)
• Bakery 16.6
• Fruits Vegetables 14
• Dairy 10.7
• Sugar, candy, grains, oilseeds, seafood. Etc.
• Make up 70 of grocery sales, 10 are
  unprocessed, and remainder non-food
• 100 large firms control 75 of all processed food

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Wholesalers, distributors, agents and brokers
roles

• Whole group 33,000 players (600 B)
• Wholesalers/Distributors
• Purchase groceries and related products from
  processors or growers and resell to retailers,
  institutions, and other companies
• Manufacturers sale branches
• Wholesale operations maintained by processors to
  market their own products
• Agents Brokers (w/ above 4700)
• Wholesale entities that buy or sell as
  representatives of others for a commission and
  who do not usually handle the product.

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Food Service Vendors

• 580,000 vendors (580 B)
• 40 full service restaurant
• 37 limited service
• 6.1 education
• 4.4 hotels
• 580 Billion in sales
• 3 companies control most food service management
  contracts
• ½ spent on food away-from-home typically at
  full-service or fast-food restaurants

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Retailers

• More than 210,000 stores
• (sales 584 Billion)
• 32,000 Supermarkets (stores with sales gt 2
  Million)
• ¾ of all grocery stores are operated by corporate
  chains
• Retailer power - 4 retailers 40 market share
• Typical store has 25,000 items and inventory
  turns 14 times/yr
• Produce turns 58 times/yr
• Non-food turns 4-6 times

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Logistics Providers

• Cover movement, storage, management of inventory
• Transportation
• Storage facilities
• Third parties for managing products and
  information
• 800,000 warehousing and transportation firms.
• Increasing outsourcing to third parties

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Driving Forces and Trends affecting the industry
Consolidation of the Supply Chain Technology Regul
ation Environmental Factors Management
Orientation/philosophy
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Consolidation
Corporate Farms
Mega-Manufacturers
Largest Chain Restaurants?
Largest Grocery Retailer?
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Largest Chains by Number of Units?

• Subway, 24,722
• McDonalds, 14,098
• Starbucks, 10,821
• Pizza Hut, 7,600
• Burger King, 7,231
• Dunkin Donuts, 7,015
• Wendys, 6,594
• Dairy Queen, 6,187
• Taco Bell, 5,670
• Dominos Pizza, 4,907
• Who would be number one in sales?
• McDonalds (34 Billion in 2011)

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Example Brands

• Consolidation of Organic Natural Food

• Horizon
• Kashi
• Ben Jerrys
• Nantucket Nectars
• Celestial Seasonings

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Consolidation Animationhttps//www.msu.edu/howar
dp/organicanimation.html
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What does this consolidation mean for the supply
chain members?

• You are a food product innovator and want to
  bring your product to market?
• How might consolidation create interesting
  business opportunities?

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Who is The Food Industry???
The Food and Agriculture Industry Farming
Growers Raw Ingredient Processors Function Food
Ingredient Manufacturers Consumer Packaged Food
Manufacturers Distributors Retailers
(traditional/non-traditional) Foodservice
Establishments
Non-Food Industries Chemical Suppliers Utility
Suppliers Packaging Suppliers Equipment
Manufacturers Transportation Industry Analytical/T
esting Environmental Industry Information
Management
Key Constituents Government Agencies/Political Med
ia Employees/Unions Stockholders/Boards/Wall
Street Advocacy Groups Academics/Foundations Medic
al Community
Consumers
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Technology

• Integrated systems of
• RFID (Radio Frequency Devices)
• Bar Coding
• Facility Software Management Systems
• Internet (on-line purchasing usage)
• 20 of Food Wholesalers
• 40 of Restaurants
• 15 Food Processors
• Results
• Improved food inventories
• More efficient distribution
• Better customer service levels
• Note Food stock-outs still cost industry 7-12
  billion/yr.

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Regulations

• Government oversight is increasing
• Two main bodies
• U.S. Department of Agriculture
• Food and Drug Administration
• Product Liability Traceability
• Food Tampering/Security
• Import/Export restrictions and trade barriers

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Environmental Factors The big squeeze
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Environmental Factors

• Pesticide and Herbicide use
• Excess Fertilizer and animal waste runoffs from
  large farms
• GMOs
• Others?
• Leads to supply chain shifts practices,
  certification, market opportunities, regulation
  increases, and purchasing policy changes.

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Management Orientation/Philosophy

• Food Industry slow adopters of philisophy from
  mainstream manufacturing
• Just-in-time JIT
• Sustainability
• Quick Response or Efficient Customer Response
  (ECR)
• Collaborative planning, forecasting and
  replenishment

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New Performance Assessment/Metrics

• Better, faster, cheaper
• Environmental, animal treatment, wild lands,
  community commitment

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Other trends

• Shift in power from food manufacturers to food
  retailers
• Increases in the number and scope of vendor
  participation programs
• Increases in slotting fees (fees charged to
  manufacturers to rent shelf space in the retail
  store).