Building a Sustainable Food Network

Research Insights on Trading Partner Collaboration

8/15/2014

By Lora Cecere

Founder and CEO Supply Chain Insights LLC

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Contents

Research

Disclosure

Research Methodology and Overview

Executive Overview

Current State of Food Networks

Moving Forward

Looking at the Future State

Improving Agility

Supply Chain Visibility in Food Networks

Defining Future State

Alignment to Move Forward

What Is the Value Proposition?

Recommendations

Summary

Appendix: Demographic Data

Other Reports in This Series

About Supply Chain Insights, LLC

About Lora Cecere

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Research Supply Chain Insights LLC is dedicated to bringing the best research to the supply chain leader. We

publish our reports based upon the principles of Open Content research. This report is designed to

guide your decision making in automating the buying and selling of perishable food in supply chain

processes. Please share this data freely within your company and across your industry. All we ask

for in return is attribution when you use the materials in this report. We publish under the Creative

Commons License Attribution-Noncommercial-Share Alike 3.0 United States and you will find our

citation policy here.

Disclosure Your trust is important to us. As such, we are open and transparent about our financial relationships

and our research processes. This independent research was 100% funded by Supply Chain Insights

LLC.

Research Methodology and Overview This report is based on 70 respondents from a quantitative study fielded in January-April 2014. For

the purpose of the study, the respondents have been grouped into two types: food manufacturers

(termed suppliers) and food distribution/wholesalers (termed non-suppliers in this study). The

quantitative objectives of the study are outlined in the overview in Figure 1.

Figure 1. Food Network Study: Goals and Objectives

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To guide the reader and ensure clarity, here we start with definitions. In this study, a food network is

defined as the process of procuring, manufacturing and selling perishable food products through a

multi-tier network; and a collaborative relationship is the buying and selling of food products in a way

that is a sustainable win/win relationship for both parties. A multi-tier collaborative process involves

the trading and buying/selling of goods and services with multiple parties including, but not limited to

restaurants, grocery retail buyers, growers, packers, handlers, third-party logistics or transportation

providers.

In this research project, we keep all of the respondent data confidential while sharing results in

aggregate. Demographics supporting this study are available in the Appendix of this report.

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Executive Overview Food networks are now more global. On a daily basis, more and more food products pass through

borders and into new and emerging channels. The products are perishable. As they age, they gain

and lose value based on ripeness. Food safety is paramount; and as a result, the management of

food networks requires the automation of multi-tier processes to ensure traceability and the quality of

products. Today there is a gap in supply chain performance. It is not seamless, and much of the data

cannot be used. Why? Most of the data on shipments move through spreadsheets and traditional

Electronic Data Interchange (EDI) processes. It is not sufficient to support the increased cadence of

decision making and the needed automation of the food value network.

In this report, we share the current state of food networks, expound on the requirements and build the

case for automation to improve agility and drive alignment through the automation of B2B networks.

While the trading partners in food networks are not early adopters of technology, the value

proposition of improving collaborative multi-tier processes through automation is compelling enough

that they should be.

Current State of Food Networks A food network is a group of trading partners which sources, manufactures, and distributes food to

grocery and retail outlets. (For the purposes of this study, a retail outlet can be a grocery retailer, a

convenience store, or a restaurant.) Due to the perishable nature of the food materials and the rising

compliance requirements of food traceability, the interactions of parties in the food network need to

be collaborative across trading partners versus the traditional one-to-one Electronics Data

Interchange (EDI) relationships. The reason? Food traceability needs to be tracked across multiple

tiers through conversion steps. The chain of custody moves from growers to packers to processers to

sellers.

The issues are many. Demand is volatile, seasonality is high, prices are ever-changing, and the life-

cycles are short. Solving this problem requires a network of trading partners working together. It is

essential; but today, this automation is happening in early stages. The driver for all, as shown in

Figure 2, is the need to reduce costs.

The gaps in current technologies that move data from one company to another in a point-to-point

fashion are a barrier to reducing costs. Without multi-tier networks, companies struggle to keep up

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with the ever-changing nature of the market. Having the right technologies to do the work ranks high

on the list of business challenges.

Figure 2. Business Challenges of Trading Partners in the Food Network

Moving Forward

When asked to describe today’s supply chain, the food providers and suppliers describe it as more

traditional and cautious than modern or risk-taking. Historically, the trading partners in this value

network are not early adopters; and as a result, the majority of interactions in the network today move

through email and spreadsheets.

The current state of automation is not sufficient to synchronize signals so that they can be aligned

quickly to meet the compliance standards with rising regulations. Today’s business processes are no

longer within the four walls of an enterprise. The processes of the food supply chain are now

dependent on a network of multiple tiers based on multi-tier processes. To accomplish the goal of

managing process flows of multiple parties, the network must not only integrate, but also synchronize

and harmonize data. Success is dependent on processes that can sense and respond based on both

structured and unstructured data. In today’s world of EDI and spreadsheets, important data types—

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code dates, temperature monitoring through shipments, quality data, and processing/handling

information—cannot be used. As shown in Figure 3, only one in three companies believe that their

supply chain is working well. This is a dilemma.

Figure 3. How Members in the Food Network Describe Their Supply Chain Today

Looking at the Future State

As these market speeds of trade accelerate, the future will become more complex. When the

respondents were asked about the future and the expected gaps in 2015 (as shown in Figure 4), it is

clear that the current state is not sufficient. The gaps are high, and attempting to close them through

spreadsheets and EDI is analogous to solving the problem with baling wire and strapping tape. It is

just not sufficient.

To meet the needs of 2015 and beyond, a technology platform to enable collaborative interactions

between trading partners is required. This type of architecture would help companies to be more

proactive and aligned.

Figure 4: Perceived Gaps in the Future State of the Food Supply Chain

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Improving Agility

While the companies in the study want to be agile, and they are attempting to close gaps through the

use of technology and e-commerce, there is more to be done. The gaps remain high because the

current processes do not enable trade-offs between multiple tiers of the supply chain to orchestrate

price and volume trade-offs in trading networks. Instead, the focus of current investments is on

improving enterprise processes.

Companies need visibility—quality data, shipment status, damage and returns, and shelf-life data—

between trading partners. Today, this type of visibility is primarily within single tiers of the supply

chain between individual buyers and sellers; not the extended trading network. Current automation is

point-to-point based on daily integration. To make trading more effective, and improve the overall

state of supply chain, companies need to connect the flows across trading partners and multiple tiers

on an hour-to-hour basis. This critical information is only useable if there is a B2B trading network.

Portals are too passive, and the data is too static within portal interactions to meet this requirement.

A second project to improve supply chain agility is demand forecasting and improving demand

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planning. While both suppliers and non-suppliers are attempting to improve demand planning, in the

study, neither group is satisfied with their current efforts in this area. Overall, the parties within the

food network lag other industries in the maturation of demand processes.

While companies are attempting to automate the network through e-commerce, in interviews, too few

business leaders understood the differences and capabilities between point-to point and multi-tier

automation through a network. Education on the differences between EDI point-to-point integration

and multi-tier collaborative networks is critical for the industry to move forward.

Figure 5. Current Efforts to Improve Supply Chain Agility

Supply Chain Visibility in Food Networks Companies within the food network have automated and improved visibility within the four walls of

their enterprise, but inter-enterprise, multi-tier visibility with multiple trading partners remains an

opportunity. To accomplish traceability from field to fork, the gaps need to be closed with second- and

third-tier trading partners. In the perishable food supply chain, where growers rarely pack and seldom

sell their own products, there is a need to trace lot and handling information across the multiple steps

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(especially in food processing and conversion). As shown in Figure 6, companies have automated the

enterprise, not the network. While the logistics and transportation visibility gap has been closed,

visibility for first tier suppliers and between third-party logistics carriers is both important and lagging

in performance.

Figure 6. State of Supply Chain Visibility

To close the gaps, supply chain visibility needs to be about much more than just the automation of

movement within the company. Instead, companies need to look more holistically, and define visibility

and traceability, end-to-end from field to fork. As value network thinking progresses, the focus

becomes more about outside-in processes. The traditional processes are inside-out. So, to become a

leader and seize the opportunity, companies need to start to define the processes to sense and

translate market activity outside-in.

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Defining Future State As a result, as seen in Figure 7, end-to-end supply chain visibility and control is the number one

challenge in driving supply chain excellence. It is an underlying capability needed to improve the

other items in the chart like shorter life cycles, improving the customer experience, and building a

safe and secure supply chain. For the leader in the food supply chain, this is a challenge.

Figure 7. Top Challenges in the Food Supply Chain

To make progress, organizations need to be aligned. Functional groups need to understand the

possibilities and be able to work together to use new forms of data across sell, source, make and

deliver. The traditional organization is not aligned. Companies tend to operate in silos. In the food

network, as shown in Figure 8, the most important and closest alignment is between sales and

marketing groups, and finance and operations; but overall, the organizational gaps are high.

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Alignment to Move Forward Achieving end-to-end visibility requires rethinking the value chain. While sales and marketing in the

food network are closely aligned, the ends of the supply chain are not closely aligned with operations.

Major gaps exist between sales and procurement, and sales and operations. This gap is larger than

in other industries due to the dynamic nature of the data and the perishability of the products. To

effectively utilize B2B networks and orchestrate multi-tier processes, the organization must first work

on alignment.

Figure 8. Organizational Alignment within the Food Value Chain

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These gaps create friction in trying to orchestrate end-to-end processes. As companies adopt new

technologies, and build value networks through outside-in processes, there is a need to move from a

functional definition of supply chain to one that is more end-to-end, which starts with the customer

and ends with the supplier, with bidirectional orchestration of price, promotion and placement

opportunities. For most companies in this study, there is a focus on the channel and selling products,

but less strength and focus on sourcing and alignment end-to-end.

What Is the Value Proposition? The cadence of supply chain decisions is increasing. Today, the critical decisions of the food value

chain are becoming more multi-tier and dynamic.

Ever-changing Prices and the Commodity Markets. Price volatility, coupled with short shelf-life and

traceability of foodstuffs, makes the automation of the food network using a network approach more

important. Since the value of many products changes with age and handling, the dynamic nature of

pricing makes this even more critical.

Field to Fork. Price volatility is coupled with the rising needs for food traceability and ensuring that

products are safe to eat. The use of standardization and multi-tier tracking can only happen through a

network solution.

Quality and Safety. Ensuring food safety through temperature-controlled conditions that enable a safe

and secure supply chain requires the support of multiple parties. Tracking quality through the chain

requires a chain of custody and the adoption of standards. This chain of custody cannot be delivered

through point-to-point integration. The pet food recalls of 2007 are a ‘watch out’ on what can happen

without proper quality controls on inbound materials for the 2nd and 3rd tiers of the supply chain.

Recommendations The cadence of business is faster, the complexity of the process has increased, and the food network

is clearly a multi-tier, and multi-party opportunity. The good news is today there are solutions that can

help close this gap in the form of B2B networks. To use these technologies, aggressively build an

end-to-end vision to automate processes within the food networks. Here are three recommendations:

Focus on End-to-End Flows. While most interactions are currently focused on buyer/seller

relationships, the greatest progress happens when there is a focus on end-to-end flows and the

automation of multi-tier relationships.

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Structure Incentives on Win-Win Value Propositions. Progress happens the fastest when

incentives are aligned across the supply chain to support collaboration. Together, as trading

partners, brainstorm how to structure incentives to fuel multi-party efforts.

Incent Parties to Share and Use Data. In the building of collaborative relationships, incent trading

partners to share their data and use your data in driving better outcomes. For example, today 7% of

food manufacturers incent retailers to share data and process orders through B2B networks.

Summary The value of automation in the food network is increasing. The technology is improving, but the

trading partners in the value network must drive adoption. When they do, it offers greater promise to

manage price/cost decisions, ensure traceability of food products, and provide a safe and secure

supply chain. What could be more important in a food supply chain than delivering on these three

basic elements?

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Appendix: Demographic Data In this section, we share the demographic information of survey respondents as well as additional

charts referenced in the report to substantiate the findings.

The participants in this research answered the surveys of their own free will. There was no exchange

of currency to drive an improved response rate. The primary incentive made to stimulate the

response was an offer to share and discuss the survey results in the form of Open Content research

at the end of the study.

The names, both of individual respondents and companies participating, are held in confidence. The

demographics are shared to help the readers of this report gain a better perspective on the results.

The demographics and additional charts are found in Figures A–D.

Figure A. Survey Respondent Overview

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Figure B. Respondent Demographics: Company Size

Figure C. Role within the Company of the Respondents

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Figure D. Supply Chain Agility Importance vs. Performance

Other Reports in This Series This report is a follow-up report to prior reports that examined the flows of the extended value chain.

The purpose of this report is to understand the evolution of FOOD NETWORKS.

What is the Value of Vendor Managed Inventory. Published in June 2014

Supply Chain Visibility in B2B Networks, Published in March 2014

EDI: Workhorse of the Supply Chain. Published in February 2013

Supply Chain B2B Networks, Who are the Players? Published in April 2013

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About Supply Chain Insights, LLC Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering

independent, actionable, and objective advice for supply chain leaders. If you need to know

which practices and technologies make the biggest difference to corporate performance, turn to us.

We are a company dedicated to this research. We help you understand supply chain trends, evolving

technologies and which metrics matter.

About Lora Cecere Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and

the author of popular enterprise software blog Supply Chain Shaman currently read

by 5,000 supply chain professionals. She also writes as a LinkedIn Influencer and

is a contributor for Forbes. Her book, Bricks Matter, (co-authored with Charlie

Chase) published on December 26th, 2012. She is currently working on a second

book, Metrics That Matter, to publish in Q4 2014.

With over ten years as a research analyst with AMR Research, Altimeter Group, and Gartner

Group and now as a Founder of Supply Chain Insights, Lora understands supply chain. She has

worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a

year on the evolution of supply chain processes and technologies. Her research is designed for the

early adopter seeking first mover advantage.