Companies in the food and beverage industries face several new challenges. Besides just trying to stay competitive on thin profit margins, regulatory changes will force them to revise current operating procedures. For example, the Food Safety Modernization Act, signed by President Obama earlier this year, will increase Food and Drug Administration scrutiny of product and information flows and give it access to company records as well as the authority to force recalls.
Another example is the Federal Motor Carrier Safety Administration’s Hours-of-Service Regulations for truck drivers (49 CFR Part 395), which would put limits in place for when and how long commercial motor vehicle drivers may drive. This is a major concern for producers of perishable products.
MH&L spoke to several food logistics experts about the ramifications of such regulatory changes and how food chains can stay competitive while being compliant. Readers in other industries will find common ground with these colleagues.
Keeping Logistics Local
When Mark Whittaker first started as a transportation supervisor at Frito Lay 27 years ago, he was filled with great ideas. But when he shared them with a company executive one day, he remembers being told, “Great ideas, kid, but just move our stuff on time because I have to sell it.”
Today Whittaker is vice president of transportation strategy for Pepsi Logistics Company, Inc. (PLCI), which tells you how far logistics has come since those tactical days. He is responsible for spending PepsiCo’s transportation budget wisely—which means finding ways to spend less every year. One way to do that is to get the rest of the company’s supply chain to join him in lowering transportation costs.
But he knew that alone wouldn’t get PepsiCo where it wanted to be competitively. He would also have to find ways to add value and generate revenue. He did that by working with his team to establish PLCI as the internal logistics services division for the various PepsiCo business units. Today PLCI is moving 40,000 shipments annually.
“Transportation is one of the first things the company goes to when we talk collaboration with customers or other shippers,” Whittaker says. “We’re looking at ways to worldwide leverage our transportation expertise and have more of a harmonized functional excellence.”
When you’re in food and beverage, excellence means overcoming the challenges of getting short-shelf-life products to market as quickly and cost effectively as possible. For PepsiCo that means making and handling products as close to their markets as possible. The company has hundreds of warehouses and over a hundred manufacturing locations in the U.S. alone to support its businesses. It also locates near its raw material sources and where it has the least-landed-cost transportation sourcing and manufacturing networks. The same goes for its international markets.
“Our ocean spend is a fraction of our transportation spend worldwide,” Whittaker explains. “It makes more sense to invest in production and raw materials locally than trying to move that stuff around. We have R&D people who have developed the right raw materials to support our businesses locally. It always works well from a marketing standpoint to talk about ‘made locally,’ and we’ve capitalized on that.”
Alternatives to Trucks
Whittaker is concerned about how the developing safety and regulatory changes like the Federal Motor Carrier Safety Administration’s Hours of Service rules will affect delivery efficiencies in U.S. markets.
“We’re hearing that 5-8% of truckload capacity could vanish over time,” he says. “We have large private fleets to support our business and we want to make sure we’re in compliance. But we’re also getting visibility to all of our transportation providers on where they stack up with safety compliance, and we’re having conversations with them on what they’re doing to improve if they have issues in certain areas.”
Whittaker went through a peer benchmarking process with eight other consumer products companies to further develop his strategy. He came away with one overarching theme: a significant transition to intermodal. PepsiCo already ships 15% of its finished goods via intermodal today, and 80% of its chilled juices go by rail. He expects his intermodal business will double.
“We’ll try to create the planning and deployment processes to support the lead time necessary to do that,” he says. “We have to diversify the portfolio a little more so we’re not as exposed to truckload market conditions. It’s not just pricing, but capacity in general.”
It’s also a matter of environmental sustainability. Whittaker’s goal is to move another 15-20% payload with the same carbon emissions and fuel burn, which he acknowledges is a tall order considering the heavy loads its beverages and raw materials make. He doesn’t think professionals like him should take this task on by themselves. Success depends on collaboration among shippers and the smart use of technology.
Communication is Collaboration
One of the tools Whittaker and his team is using to make better transportation decisions is JDA’s FreightMatrix, a software-as-a-service transportation management system. It’s helping PLCI manage transactions, communicate with its carrier base, track and trace shipments and produce reports. It helps his PLCI team compete against other third parties that do business with PepsiCo divisions. But beyond competition, he also sees opportunities for cooperation among fellow shippers.
“We’ll have to collaborate better among shippers and remove waste between us,” he says. “There are still a lot of trucks passing each other in the night empty. The biggest roadblock we’ve found to enabling shipper-to-shipper collaboration has been how you manage cost sharing without creating a conflict of interest. Would it not make sense for me to ship a less than truckload shipment with another food company going to the same customer and create a full truckload? That way they get one delivery instead of two.”
Keeping Information Fresh
When shelf life of a food product is days instead of weeks, managers must make sure information about the movement of those products is kept just as fresh as the products. That’s Tom Marshall’s job as assistant plant manager for Ocean Beauty Seafoods. Although this company is based in Seattle, Wash., Marshall is responsible for moving seafood out of the company’s Excursion Inlet, Alaska, plant—which is about 40 miles outside of Juno.
To get product out, Marshall must first make sure it gets through the plant properly, and that means making sure it’s labeled correctly and that the information from those labels contributes to good inventory records that can be shared confidently with the Seattle home office.
Ocean Beauty direct-ships many of its product to China or Europe, so getting those products into the right containers, putting the right export labeling on them and tracking their progress is a challenge. This is the busy season for the Excursion Inlet plant, and it ships 30 to 40 container loads each week.
Good lot tracking is key to meeting global food standards. It uses The SIMBA (Specialized Inventory Management with Barcode Accuracy) system from DynamicSystems Inc. throughout production and Psion’s Workabout Pro 3 scanners for container loading.
“We’re documenting all through the day all of our good manufacturing practices,” Marshall says. “We send tender vessels out onto the fishing grounds to purchase our fish from the independent fishermen, we bring it back to our plant, and we monitor the fish all the way from when we butcher it, send it through the cannery, in cold storage, and as we freeze it, making sure it comes out of the blast freezer at the right temperature. In cold storage, we monitor it as we load 40 foot frozen/refrigerated containers destined for either Seattle or for various parts of the world.”
With the range of products Ocean Beauty ships, tracking is key to freshness and supply chain safety. These technologies enabled the company to handle a wider variety of products more cost effectively.
“Before everything used to come in as a commodity and it was sent to Seattle for cold storage,” Marshall adds. “We had a lot more cost at that time. To be able to direct ship out of here, we get better transportation rates. Without these technologies it would be impossible, as would tracking shipments from the vessel all the way to the consumer.”
Tracking Fruit from the Field
Radio frequency identification (RFID) technology is becoming a more affordable way to track and trace food through the supply chain. The new XC3 technology platform is comprised of a battery assisted passive (BAP) tag, RFID chips, reader modules, fixed readers and mobile hand held readers, all supported by the EPCglobal Class 1 Gen 2 standard and the emerging ISO 18000-6C Class 3 standard.
The BAP tags are said to perform similarly to active RFID tags in their read/write operating ranges (up to 100 meters), memory (60 kbits) and security using multi-layer password protection and over-the-air data encryption. Their lower price point, however, makes them justifiable in low-margin supply chains such as food.
One fruit grower (who asked to remain nameless until they were ready to make this announcement official) is testing this technology not only to track the whereabouts of its products once they leave farms in Mexico, Chile, Argentina and the U.S., but to monitor the conditions the fruit encounters throughout its supply chain journey. At the farm level, tags supplied by Intelleflex are being inserted inside palletloads of fruit to track their core temperatures as they encounter varied conditions from the field to the first pre-cooling and cold storage stages. This helps the grower predict shelf life.
“The benefit of knowing that before you put it on a truck is now you can match the remaining shelf life to the proper duration through the supply chain,” says Peter Mehring, CEO of Intelleflex.
This grower ships by truck from Mexico to Philadelphia and to Dallas. Philadelphia is a four- to five-day trip but Dallas is a two-day trip. Determining the preferable destination for the fruit is a matter of knowing how the fruit was handled at the farm.
While testing the RFID technology, this grower learned that more than 30% of its products were leaving the farm with less than 13 days of shelf life instead of the 16 it expected.
“Had they known that they could have directed those products to Dallas instead of Philadelphia and still sold it as good product,” Mehring says. “They didn’t know it because they just graded the produce visually and it all looked good. Some of it randomly shipped to Philadelphia, some to California and some went to Dallas. And because the trucks were loaded with 26 pallets with 26 different aging rates, almost 40% of this grower’s product was being lost before it could be sold.”
With intelligent tags this grower has full traceability without requiring connectivity in the field. A product’s weighpoint data can be downloaded to a central database at any point in the chain, but this capability is especially important at the retail destination, where it’s critical to know if the fruit is safe and, if necessary, from which farm it came and from which lot.
This grower will start applying this technology across all of its produce starting in September and throughout next year.
Safety Needs a Chain Gang
In its 2011 Financial Performance Report, the Grocery Manufacturers Association, in conjunction with PricewaterhouseCoopers, laid out their recommendations for dealing with the coming regulatory and economic challenges:
“Companies need to reexamine every link in their supply chain and their own facilities for the presence of risk and develop mitigation strategies. For example, what will the business do if a trusted major supplier switches to a new vendor with unknown or questionable food safety practices?”
The answer—as the logistics professionals interviewed for this article will tell you—is to clear up those mysteries as soon as possible for the sake of consumer safety and service. An entire supply chain’s reputation depends on it.
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