Supply Chain Management in Perishables:A Produce Application

R. Thomas Schotzko and Roger A. Hinson

The objective of supply chain management (SCM) is to remove time and cost from supply chains, improvingprofitability and/or competitiveness. It is possible through conceptual advances, utilization of computerhardware and soflware, and other advances in electronic technology. Busiiess literature is used to detlne theconcept. Most applications and benefits have resulted from alliances between large retailers and largepackaged goods vendors. Specific applications of SCM in the produce industry, with emphasis on factorssuch as perishability and production variability, are discussed. Firm-size implications are important. Whilesmall and mid-sized growers may find the cost to be hig~ the innovation of logistics provided by outsidesuppliers is an alternative. A third-party provider was interviewed; its approach and services aredocumented; and industry implications are discussed.

Concentration, integration, coordination, andindustrialization are terms that have been used withregularity in recent years to describe changes invarious segments of the food system. These con-cepts provide a context for what is happening, forthe rate of change, and at least partially, for whychange is occurring. At the same time, the businesscommunity has been remolding models of competi-tion especially with respect to the notion of arms-length transactions between firms that operate withina product supply chain. To reduce system-widecosts, firms are using conceptual advances andtechnological sophistication to pursue new alterna-tives regarding “how.” In today’s business vernac-ular,the term most commonly used to describe thesystem-wide approach is supply chain management(SCM).

As an initial working definition, Coyle, Bardi,and Langley (1996) define SCM as both tiormationmanagement and the physical flow of raw materialsand ftished goods—the “mechanism allowing asupply chain of multiple entities to be managed as asingle, profit-maximizk g firm.” SCM is the termused here to encompass those activities associatedwith achieving efficiencies in a supply chain. Effi-cient consumer response (ECR) is a related foodindustry application (Kurt Salmon Associates,1993). The ECR initiative focuses on selected ele-ments within the broader SCM concept.

R. Thomas Schotzko is extension specialist, Department ofAgricultural Economics,WashingtonStateUniversity,Ihdhna%WA, and Roger A. Hinson is associate professor, Departmentof Agricultural Economics and Agribusiness, LSU AgriculturalCenter, Baton Rouge, LA.

Since setting the pace in terms of logistics ef-ficiency during much of the mid-century, the foodindustry has lagged other industry components inimproving system efficiency (Kurt Salmon Asso-ciates, 1993 ). Meanwhile, general merchandisemass retailers were removing time and cost fromthe dry goods product categories. The traditionallogistics function has been refined iuto SCM andis an area of interest in terms of both applicationand research.

In theory, SCM is a seamless system in whicheverything from raw materials to ftished product isproduced on demand and delivered “just in time” tothe next stage of production. Seasonality, perish-ability, and the time lag between planting and har-vest associated with crop production complicate theapplication of SCM to flesh produce. In addition,weather affects yields and causes quantity suppliedto deviate from optimal levels.

Objectives and Methodology

The purpose of this paper is twofold. The SCMparadigm will be reviewe4 pardcukly with refmenceto implications for the food industty and the producesector. Tha third-party logistics-one of the innova-tions associatedwith SCM—VVWbe presented in tamsof a specific company application. Methodologically,the paper’s first component will w relevant businessliterature to define SCM and to suggest implicationsfor the food indnstty. For the second component aleading third-party provider of logistics-one with atraditional produce focus-was interviewed to=-tain its use of SCM innovations, the kind of servicesthat it provides, and the kinds of customers that it hasbeen able to attract.

18 July2000 Journal of Food Distribution Research

Evolution and Definition

of Supply Chain Management

Supply Chain Management Dejlned

Ross (1999) breaks the evolution from businesslogistics to SCM into four phases. A focus on internalefficiencies by fiuwtion meant that the lirm’s trans-portation and logistics fiuwtion was responsible forreceiving raw materials and shipping finished products.A focus on internal efficiencies across fimetions fol-lowed as production was coordinated with the logisti-cal aspects of the iirm. Theq in the seareb for efficien-cies across firms within the cha.@informational flowswere needed to coordinate firms into behavior as asingle profit-maximiAn g entity. Last and ongoing is avisionary process by the members of one chain toident@ potential opportunities-utilizing the coreeompeteneies of the chain in alliance with f%ms (orchains) outside the existing chain-to develop newproduct or service chain%which could create a domi-nant presenee in the newly identified market.1 Anexample of this last phase might be the Internet-basedgrocery stores, where orders are placed with a com-pany online and then picked and delivered by employ-ees or other service providers.

Ross (1999) explicitly recognized the need toadapt to an ever-changing business environment:

. . . a continuously evolving manage-ment philosophy that seeks to uni~ thecollective productive competencies andresources of the business functionsfound both within the enterprise andoutside in the firm’s allied businesspartners located along intersecting sup-ply channels into a highly competitive,customer-enriching supply system fo-cused on developing innovative solu-tions and synchronizing the flow ofmarket-place products, services, and in-formation to create unique, individual-ized sources of customer value. (p. 34)

Ross (1999) considers SCM a business phi-losophy that incorporates, but goes beyon& tradi-tional supply- channel management techniques, suchas TQM and JIT. Metz (1998) oflkrs five successfactors that provide a metric against which to meas-ure supply chain performance. These are:

‘Evolution is evidenced by Blackwell and Blackwell (1999),

● an “overriding pervasive customer focus.” Evq

participant in the chain must have access to in-formation about what consumers want and whenthey want it through advanced use of iuiiorrna-tion technologies, and must incorporate this in-formation into the deeision-making process.

● facilitating collection and sharing of informa-tion and data on a real-time basis fi-om the re-tail site backward. Chain participants wouldmanage logistics and production to minimizeinventories, share data across firms, share ilrrn-level costs, and minimize chain response time.

● quantitative performance measurement, to bemeasured against the goals established for thechain and not just individual ftrms. Kuglin(1998) suggests measuring the process withcustomer satisfaction, quality of deliveries tothe customer, and order-to-delivery cycle time.The final measure is the supply chain cost. Theorder-to-delivery cycle time is a cash flowmeasure. Activity-based costing (ABC) pro-vides the necessary details in determiningg thetotal costs (Kahn and McAllister, 1997)

● use of cross-fimctional teams. Coordination ofactivities associated with the production andmarketing of a product or service requires en-hanced communication between functionalgroups, within and between firms, to improvethe overall efficiency.

● attention to human fhetors aud organizationdynamics. Both ROSS (1999) and Ku@in (1998)place siguifieant emphasis on human resources.Ross argues that “ultimately, what a company ora whole supply channel is really selling theircustomers is not products and servicesbut the en-richment value of the skills and knowledge pos-sessed by the people who work within the or-ganization and outside in its partner companiesand SUp@itXS.”(j).291)

The alliances required for successfid SCM are

a challenge because they imply a higher-than-tradi-tional level of trust and information-sharing.

Incentives for SCM Adoption by Food Retailers

Rapid adoption of SCM in the grocery sectorcame with the entry of multi-line discount mass

Schotzko, R. 17tomas and Roger A. Hinson Supply Chain It4znagement in Perishables 19

merchandisers into the food category (Kurt SalmonAssociates, 1993). These retailers rapidly gainedmarket share and growth through cost-cutting,largely based on the early adoption of logisticsadvances. Wal-Mart, an example of Ross’ fourthphase, experienced a successfu~ industry-sponsoredvendor-partnering program in the early 1980s. Thisprogram was fmused on specific clothing iterns andwas designed to reduce cost and stock-outs. Theexperiment increased the level of in-stock and otherkey measures more than expected, and Wal-Martmoved toward the SCM model across merchandiselines. Its entry into food merchandising in the late1980s, and its rapid market penetration through the1990s, signaled the importance of this new paradigmin maintaining competitiveness in food retailing.Wal-Mart rose to third largest food retailer in theUnited States, with sales of about $32 biUion in1998 (AIFD, 1999). The Kroger Company retainedthe top position only because it acquired anothergrocery chain.

The period of the mid-to late 1990s was a sig-nificant mergerkwquisition period for the retail foodsector. The combined effects of the entry of firmslike Wal-Mart and stagnant sales have caused f~sto search for higher profits through achievingeconomies of both size (mergers/acquisitions) andscope (SCM) in order to ensure survival. As a resultretailers generally are perceived to have gainedmarket power within the food system and are thedriving force for the implementation of SCM (Pro-gressive Grocer, 1996).

Supply Chain Managementin Fruits and Vegetables

Physical and A4arket Characteristicsof Produce That Aflect SCM Potential

An overview. In terms of SCM, consider thedifferences between the produce sector and an in-dustrial manufacturing line. In manufacturing, asignal from a bar-code scanner can stimulate theorder for, and production o~ its replacement. Gener-ally, raw material and other product inventories arestorable and almost always are available. Work proc-esses an occur on a year-round basis which facilitatesplanning on inputs, such as labor. Production inputsarrive on a@-in-time basis. Output typically is soldin uniform weight packages. In produce, productionis seasonal and includes the risk of disastrousweather events. The crop must be harvested within

a defined window of maturity and has a fairly well-defined storage and shelf life. The potential forproduct deterioration and physical damage duringstorage, handling, and delivery adds another layer ofrisk to the system. At retail, as long as price look-up(PLU) codes are use~ data entry and other errorswill affect the need for back-up invento~.

In addition to the physical characteristics of pro-duce, the structureof the indus@ at the grower/shipperlevel affects SCM implementation in produce. Untilrecently, production of these commodities would havebeen described as fhgnwnt~ or comprised of many(mostly small) producers in many growing regions,with little vertical coordination. In recent years, pro-duction of the major produce iterns has become con-centrated in increasingly fewer, but larger, fhrms (Wil-SO%Tlwmpsom and Cook 1997).The 1997 Census ofAgriculture identiki 53,727 producers of melons andvegetables. Potatoes were grown by 10,523 farmers,and there were 106,069 orchard operations. For bothhits and vegetables, more than 60 percent of theproducers were udlizing less than 15 acres for thosecrops. However, nearly 30 percent of orchard acreageand more than 30 percent of the vegetable acreage wasassociated with f-s producing 1,000 acres or more.In to~ the large operations represent about 1 percentof the grower population. Many of the largest produc-ers have some form of vertical integration. Theseoperators are the early adopters of SCM because theyhave the capability to meet the product and technicaldemands of alliances with the largest retailers.

A significant portion of production continues tobe handled through a number of alternative market-ing methods ranging from direct matketing to directstore delivery. This includes the use of wholesalemarkets at both shipping and receiving points. His-torically, wholesale markets established prices.However, the spot market now determines price,based on established grade and size standards, formost of the volume in day-to-day sales.

Coordination implies relationships within thechain that extend beyond the spot-market transac-tion. Informal relationships within the spot marketdo occur, but the new environment leads to moreformal agreements that tend to downplay thepersonal side of relationships. Further, pricesnegotiated in formal agreements are not reportedin the public domain. As long-term agreementscover a greater share of the volume, publiclyreported prices will become less representative ofmarket conditions.

20 July 2000 Journal of Food Distribution Research

Due to the nature of the spot marke~ consumerdemand information gathered by retailers often isnot formally shared with other firms in the supplychain. Further, given the large number of items inthe typical produce section, retailers are not likely tohave very detailed information on consumer prefer-ences beyond grade and size for many stockeditems. Hence, current price signals based on gradeand size may not accurately reflect the Ml range ofconsumer preferences.

The lack of adequate information increases themarket risks for growers and shippers of seasonallyproduced crops. Seasonal production provides littleopportunity in the short run to adjust inventories orto change product specifications. Highly perishablecrops are further afllectedby the need for immediateshipment, regardless of price. Diversion to a proc-essing market, where one exist% can result in returnsthat do not cover the cost of harvesting.

An additional complication is that productquality may not be maintained through the system.Some produet deterioration occurs in transit andagain in the hands of the retailer. Prices and ship-ments publicly reported at the f.o.b. level reflectneither price adjustments due to product deteriora-tion nor the physical losses associated with thatdeterioration.

This discussion suggests that the applica-tion of SCM in perishables, such as produce, ismore difficult compared to packaged groceryitems. Perishability of these products always hasresulted in prompt handling. Now, the SCMmodel used in other product categories providesadditional guidance.

Retailers are perceived to have market powerthrough sheer size and through the belief that iniiorma-tion about consumer prefwence is asymmetric (whereretailers have this information but producers do not).To remain competitive, food retailers have beenpushed toward adoption of SCM. Producers whowould serve the large retailers also seem to have littlechoice and thus, are moving quickly to form partner-ships and to invest in technological advances.

Enhanced performance areas. Application ofSCM to the horticultural sector appears to require atleast three enhanced performance areas: communi-cation, coordination, and service.

(1) Communication. Traditionally, the flow ofinformation flom producer to consumer andback has been less than pdect. Information

from the producer level regarding volume andquality has been aided by USDA crop reports,so the retailer has some expectation of poten-tial volumes to move during the market season.Historic shipping patterns, crop reports, andanecdotal information about local and com-petitors’ planting decisions and growing con-ditions ofien are the best information availableto producers.

Prices for different product grades tellproducers which grades and sizes of fi-nits orvegetables are most preferred and have beenthe most direct market signal received bygrowers and shippers. Direct market signals arebased on time-honored traditions; however, theembodied information may not reflect prefer-ences adequately in terms of either breadth ordepth because, as this qualitative informationpasses through market layers, it can becomedistorted by motives of players in the system.

Information moving from producer (productavailability and charaetenstics) to retailer alsoappears to be incomplete and/or unused. Ship-pers’ manifests may include several crops, va-rieties, grades, and sizes. In a spot-market &nvi-ronment, a buyer’s concern is availability andprice today. From a seller’s perspective, shar-ing any information beyond that will only oc-cur if it is to their advantage. Hence, the guid-ing rule for the transfer of information fromshipper to buyer is likely to be “need to know.”The development of informal relationships inthe spot market probably improves the flow ofinformation. However, those informal relation-ships do not appear to have the strength ofcommitment around which to build longer-term marketing strategies. To the seller theymean repeat sales, and to the buyer, they meangreater confidence in availability and quality.

SCM has the potential to overcome some ofthe communication difficulties inherent in thespot-market environment. The timely deliveryof the right produet to the retailer’s distributioncenter requires that sales data be available toshippers on a reaI time basis. Also, sales histo-ries may be captured for use by the productionsector. Better data make it easier to forecastand plan warehousing and shipping activitiesfor stored products and to tailor productionplans for all crops, including those with limitedor no storage capability.

Schotzko, R i%omas and Roger A. Hinson Supply Chain Management in Perishables 21

(2)

Another SCM premise is that a chain’scompetitive position will be maintained pri-marily by continuously improving productquality. Product improvements involve appear-ance and eating quality (F’resh Trends, variousissues), but services provided by shippers areanother quality component. Baseline qualitydata generally are not available to producers inthe detail necessary to serve today’s increas-ingly segmented market. Internal product char-acteristics and the production practice changesneeded to impact those characteristics are oneexample. Low-volume commodities are espe-cially susceptible to this problem.

Coordination. At the grower-shippr leve~ coor-dination efforts rauge from none to fidl verticalintegration. Anecdotal information across cropsand across regions suggests that coordination islowest in those areas and for those crops whereproduction and grower size are small. For majorcommodities available year-round coordinationis occurring (see Wilsoq Thompso~ and Cook1997, for example).

Growers will be affected by new coordina-tion approaches. In a managed supply ch@shippers will play a greater role in specifyingcrops, varieties, production practices, harvesttiming, and production levels. For example,Washington apples are available in a widerange of sizes and grades. The warehouse mayfmd it beneficial to restrict the range of sizesand grades accepted from growers.

One area in which cmnrnunication is likely toremain problematic for the horticultural sector isthe identification and segmentation of consumerpreferences. Few major produce firms have thecapability of developing and marketing test po-tential new varieties or new strains of old varie-ties. Some industry organizations, such as theWashington Apple Commission (WAC), do havethat capability. The collection and diswmhationof infiormation-regarding consumer prefmencesby a third party, such as WAC, to all of its payingmembers-raises some interesting questions.Most pertinent to this discussion is the willing-ness of other links in the supply chain to provideinformation that will likely be shared among allsuppliers. One of the benefits of data-sharing isthat generated irdiormation can boost the effec-tiveness of new product introductions.

(3) Sewice Level. The serviee level in SCM leads tothe right price, quantity, place, and time to makethe sale. From each level of the systerILa set ofservices associated with the sale to the next levelmay be required. While the attributes of fruit andvegetable produets are difficult to improve afterthe crop is produc~ the real-time informationflow-to avoid out-of-stock editions, to pro-vide product to the customer in the right amountor to exchange data electronically in order tore-duce keypunching and Otherck?rictdCOStS-CUIlbe continually upgraded.

To illustrate the increased provision ofservice, shippers traditionally have paid to loada container or truck while buyers have arrangedand covered the cost of transportation. In SCWthe supplier may accept the additional respon-sibility of ensuring on-time delivery. Overtime, a formal relationship might commit atransportation provider to standards for productpick-up and delivery.

Category management is another serviceincreasingly provided by both wholesale fmsand trade associations. The Washington AppleCommission, for example, can assist retailerswith space allocations based on its own histori-cal sales data and annual marketing plans de-veloped with input fi-om both the shipper andthe retailer.

Another service now broadly accepted insome produce supply chains is “snickering.” Asticker placed on each piece of product has aPLU code to identifi (and advertise) the vari-ety and to relate the sale to the retailer’s in-ventory.

In principle, SCM assigns activities to thelevel in the chain that best enhances efficiency.While the issue of allocating costs and returnsis assumed to be easily resolved, retail consoli-dation appears to have shifted market powertoward the retailer. This shift could make it dif-ficult for the shipper to be compensated forserviees such as snickering. An alternative viewis that the provision of services by the supplieris a cost of partnering and that benefits pro-vided by the alliance will offset its costs.

Apples are one of the most importantitems in the produce section, yet the largestwarehouse in the largest producing state can-not supply all of the fruit needed by any ofthe top 10 retailers in the United States.

22 July2000 Journal of FbodDistribution Research

While the absolute volume handled by thelargest warehouse may equal or surpass theamount sold by the largest retailer, that vol-ume includes all grades and sizes. Since theretailer does not buy all grades and sizes, itmust buy from several warehouses to meetits needs. In Washington, strategic alliancesare forming among warehouses, but in everycase, a key element has been the merging ofsales operations. In a recent example, an alli-ance among three warehouses (WSFC, 1998)connects a major volume shipper, a firm thatspecializes in winter pears, and a third thatspecializes in low-volume, new varieties andspecialty packs. This particular alliancebroadens the manifest and improves produc-tion efficiency in the warehouses as each fo-cuses on a core competency. These alliancesenhance market presence and help countersome of the market power lost to retailers.Generally, to provide acceptable service lev-els to large customers, warehouses and othersuppliers must identi~ ways in which theirservices and people can enhance value.

Alternative SCM Implementation—The Third Party Provider

Another kind of company-the third party lo-gistics providw---has extended the potential benefitsof SCM to fms of all sizes. We summarize theapproach of one such company-C.H. Robinson(CHR, 1999)--based on information flom its website and ftom an interview with a company official(Lemke, 1999).

CHR describes itself as a non-asset-basedcompany, generating sales of about $2 billion in1998. Its customers select from a menu of serv-ices. As asset-based services are needed by CHR,it contracts with asset owners, such as truckingcompanies. The company commissioned devel-opment of proprietary computer software. Byspreading its value-added services over the logis-tics needs of many companies, CHR can acquireand use such advanced technology and can incor-porate up-to-date ideas about the reduction oflogistics costs. These costs are spread across allCHR customers who get the advantage of theknowledge base of a produce company and thecontacts and relationships that it has built overtime. The customer’s activities, for example,might include implementation of its strategic plan

for retail merchandising and marketing, and itwould then choose from CHR’S menu of servicesfor other needed fimctions.

In the produce industry, CHR basically acts as:

(1) a procurer of produce items. CHR is a marketmiddleman-procuring, taking ownership atthe shipper’s dock and selling at the cus-tomer’s warehouse. Produce is sourced do-mestically and internationally, packaged as ap-propriate, and transported, and

(2) a third-party, fidl-men~ logistics provider.

As a complete logistics provider, CHR wouldprefer to serve all of its customer’s needs. In thatscenario, CHR would handle all activities frompurchasing born the grower or shipper to productdisplay in the retail case. The customer would re-ceive a single invoice. Between purchase and dis-play, CHR activities might include production con-tracting, co-packing, transportation and warehousingservices, and catego~ management in the store. Asan example of its breadth, CHR can use contractprocessors of prepackaged salad to fill orders fromits 200 stock-keeping units (SKU).

Size enables the company to serve the largestcustomers and to provide flexible service to smallcompanies that otherwise might deaJ in small vol-umes at high cast. Size also provides the financialcapability to access sophisticated control systemsthat include computer hardware and software, GIStracking of supply and product locations, and othercomponents of an advanced logistics system. At itsmost sophisticated level of application, CHR pro-vides category management for the retail produceseetion in seleeted regions for a national mass mer-chandiser, Data-handling procedures, developmentof supply chain intelligence, and the subsequent useof this information to make decisions about origins,modes, warehouse destinations, and timing of deliv-ery to stores are included, as are decisions aboutproduct display in the retail case. While this is aunique customer, CHR has a few other customersthat are large enough to employ SCM at this level.

CHR’S produce sales are about equally bal-anced between the retail channel and the foodservicechannel. Implementation of tiormation systems thatgenerate data sufficient for management of the storeand supply system has occurred more quickly withretail customers. To remain competitive, retailers arepressured toward SCM adoption.

Schotzko, R Zhomas and Roger A. Hinson Supply Chain Management in Perishables 23

CHR Customers’ Useof Electronic Data Interchange (ED~

The use of bar-code scanning to speedcheckout has been in place for years. All CHRretailer customers have this dat~ but the propor-tion of data users is between 50 percent and 75percent. Among these users, relatively little of theavailable information is a component of theirdecision-making framework. Generation and useof this kind of information among foodservicecustomers is lower. These fms generally aremore traditional in terms of business practices.Their customers vend products to the fma.1 con-sumer; the base is more stable; and demands aremore predictable.

One of the benefits of bar-code scanner data isthe ease of transmission to partners. Use and appli-cation of that data vary depending on the customer’scommitment to SCM:

(1) ata minimal level, some customers collect andtransmit data on formats, such as floppy disks.Historical records usefid for forecasting thenare created by CHR.

(2) some stores/chains generate, on a daily basis,one or two EDI reports. After electronic trans-missio~ CHR manually converts these into re-ports that provide useable sales information.

(3) the maximum application of SCM is theretail customer with a secure online pres-ence. There, vendors [such as CHR] can getsystem information, determine appropriatesteps to provide the required level of serv-ice, and take action, such as the creation ofpurchase orders. With these customers,there is a contractual agreement to providea set of services.

Even with the most sophisticated customers,SCM procedures and processes are not completelyautomated. Currently, product replenishmentorders for the next order period are created bymanual review of available information. Thecompany is building historical files as the basisfor computer-generated ordering for units, such asstores, warehouses, and production lines. Factorsthat would be included in the analysis are pricepoints, promotional commitments, and observedinventory levels.

Nature of Partnership/Alliance Agreements

Some CHR business relationships are withlong-standing customers but involve few activities inthe supply chain. These customers choose individualitems from the service menu and have relativelylittle concern about SCM. They typically are smallercustomers, and CHR is interested in continuing theserelationships. Wholesale terminal market customersare an example.

Larger customers usually have contractual ar-rangements with CHR. On the supply side, a co-packer agreement might speci& volume expectedduring the contract period and a method of speci&ing price. On the consumer side, contracts thatspecifj price and volume with the receiver tend tobe those through which an alliance is formed. Theagreement could be viewed as a business plan,speci.&ing what each party will do. This kind ofCHR customer might have applied SCM success-fidly in other product categories, but it recognizesthat its core interest in produce handling is not lo-gistics. Choosing to hire a third-party provider mayrelease resources to address other areas of need.These customers tend to use additional services fromthe CHR menu, including sourcing and categorymanagement. Contracts are more common with thefoodservice customers.

How CIYRReduces Cost

One of CHR’S stated business strategies is “noasset ownership.” T&s is a key to reducing costsbecause it permits optimization to the supply chainrather than to owned assets. Then, size enables thecompany to receive favorable rates horn the fullrange of transportation alternatives. Based on thesevolumes and the geographic breadth of customerlocations, transportation costs can be managed toreduce empty back-hauls and trip segments. Thiscross-customer optimization of loads from multipleorigins and customers to multiple destinations andcustomers provides savings. Sofhvare that can beused to make the seleetion of shipment and trans-shipment routes routine is being developed. Rela-tionships with grower/shippers reduce the amount ofhigher-cost, short-, or spot-market buying. Value--addedprocessing is done through a co-packer con-tract. These factors allow CHR to offkr packages ofservices at attractive prices. Savings can occur inseveral other areas. Reduced inventory levels, nor-mally held as a hedge against rislq may be possible.

24 Ju@ 2000 Journal of Food Distribution Research

CHR has not documented such savings but feelscertain that they exist. Another area of savings to acustomer is a reduced number of employees becauseCHR is providing the service.

SCM Adoption by Produce Suppiiers

Growers, according to CHR, have generallybeen slow to react to SCM. Recently, a few largerfirms have allied themselves with large retailersand foodservice customers. This can be a sourceof information to the grower about the customerbase, and they then might buy or try to developEDI capability. Growers usually do not providetransportation services. In contrast, another ap-proach by individual growers and organizations,such as cooperatives, has been value-adding ac-tivities, such as the placement of sales representa-tives in major markets and the provision of retailcategory management programs.

From the perspective of Cm the survival ofsmaller and mid-size grower/shippers and ware-houses is questionable. They lack the size and fina-ncialstrength to initiate expensive SCM applicationsand are not likely to remain competitive. Theiroptions are to partner with similar operations, withmarketers, or with customers. According to CHR,mid-size and small orange marketing associations—which cannot provide store-level analysis, au’’ornaticreplenishment or other SCM value aecumukitions—are an example of this situation.

Concluding Remarks and Implicationsfor Research

This discussion addressed the nature of SCMand some difficulties with its implementation infmits and vegetables, focused largely on the de-livery system that is common to the major com-modities. The guiding principles behind SCMwere presented through material found in thegeneral business literature and trade publications.This discussion provided the general outline ofSCM implementation by large business organiza-tions. The third-party provider approach, as ex-emplified by discussion of the C.H. RobinsonCompany, is an alternative organization of thesupply chain that can serve the largest retailers butis flexible enough to serve small and medium-sized supermarket fh-ms.

It seems clear that the SCM model is beingimplemented by business because its technological

sophistication can help reduce costs. As the adop-tion of firms becomes more competitive, othersare strongly encouraged to do the same by themarketplace.

There are research implications about the di-rection and rapid rate of change in the food industry.An important issue is whether the cost of SCMimplementation will enhance the competitiveness oflarge organizations at the expense of smaller ones.The implications of this new paradigm appear to benegative for small producers, distributors, andwholesalers. The coordination requirements impliedin SCM suggest that retailers will find advantages inminimizing the number of suppliers. The outlets thatwill be available to small business, other than directmarketing and supplying localized niche markets,are not clear. A competitive retail environmentencourages grower/shippers in the major producingregions to build organizations that can deliver year-round through storage and/or through contracts withproducers across geographic regions. The system forlow-volume commodities seems less coordinated.How this change in chain linkages will affect exist-ing market structure in those sectors of the produceindustry remains unanswered.

It is a commonly accepted view that the bal-ance of market power in the produce supply chaincurrently favors the retailer. If true, retailers mightrequire that additional services be provided at ship-per expense. Market access for specific products isanother issue. The role of summer fits and melonsin retail marketing plans creates access for thosecrops, but without this kind of leverage, accessmight not be maintained easily for other lesswell-known crops, or even well-known crops thatare produced in limited quantities.

If increased rwuket power has accrued to retaile-rs, identification of conditions that could balancethat power is of policy interest. Other topics includethe ease of tiding cooperators as SCM is acceptedmore broadly. The role of USDA grades and stan-dards in an SCM-based system is of interest becauselong-te~ well-specified relationships may makegrade standards superfluous.

Given the breadth of SCM, many other re-searchable topics could be identified. With thedecline in the number of players at both the f~st-handler level and the retail level, today’s competi-tion is different but keener. The primary objeetivehere has been to direct the reader’s attention to thenature of SCM. The relative importance of issues

Schotzko, R Zhomas and Roger A. Hinson Supply Chain A4magernent in Perishables 25

probably varies from one commodity or group ofcommodities to the ne~ and from one region of thecountry to another. Also, readers’ rankings of therelative importanw of these issues maybe a fimctionof their intellectual predilection.

References

AIFD (American Institute of Food Distribution). 1999. FoodInstitute Report, p. 8. Fairla~ NJ. 1 February.

BlackweH, Roger D. and Kristina Blackwell. 1999. “TheCentury of the Consumer: Converting Supply Chainsinto Demand Chains.” Supply Chain Management Re-view. Fall. ~. manufacturing.net/scl/scmr/archives/SC11.99/1 lchains.htm>.

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