Page 1

LED LIGHTING KEY TO BUILDING MANAGEMENT IOT

TECHNOLOGY BRINGS OPTIONS FOR URBAN DELIVERY VEHICLES

FOODSERVICE EMBRACES SCM SOFTWARE

Food Logistics

WEST COAST PORT SLOWDOWN STILL STINGS

REEFER SHIPPERS HOPE EARLY IWLA/PMA CONTRACT TALKS ARE FRUITFUL

®

Global Supply Chain Solutions for the Food and Beverage Industry

OMNICHANNEL PUTS FOOD SUPPLY CHAINS THROUGH THE

E-COMMERCE GRABS A BIGGER SHARE OF FOOD SALES, DISRUPTING FULFILLMENT STRATEGIES

HOW TO CHOOSE A LOGISTICS PARTNER Issue No. 180 September 2016

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FoodLogistics.com

GROWING MARKET COMPLEXITIES REQUIRE CAREFUL VETTING

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ON THE MENU

OCTOBER 2015 ISSUE NO. 171

ON THE MENU

September 2016 ISSUE NO. 180

COVER STORY

Omnichannel Puts Food Supply Chains Through The Wringer

E-commerce grabs a bigger share of food sales, disrupting fulfillment strategies.

16

COLUMNS FOR STARTERS

COOL INSIGHTS

How To Comply With The FSMA’s Sanitary Transportation Of Human And Animal Food 14

The onus is largely on shippers to assure compliance with a key regulation of the FSMA. FOOD (AND MORE) FOR THOUGHT

TRANSPORTATION

Technology Brings More Options For Urban Delivery Vehicles 36

FEATURES

THIRD-PARTY & REFRIGERATED LOGISTICS

How To Choose A Logistics Partner 26

Growing market complexities require careful vetting of logistics partners.

Shifting customer needs place new demands on urban fleets, including expanding e-commerce. SOFTWARE & TECHNOLOGY

40 Foodservice Operators Embrace Supply Chain Management Software

Supply chain tools enhance forecasting, invoice auditing, demand planning and more. OCEAN CARRIERS & PORTS

West Coast Port Slowdown Still Stings

Pity The Reefer Shipper

6

Supply chain disruptions from port slowdowns to carrier bankruptcies hit reefer shippers especially hard.

50 Contract Manufacturers Can Add Value Through Vertical Integration Of Supply Chains More demanding consumers and increasing competition is driving contract manufacturing.

DEPARTMENTS

Supply Scan 12 Food on the Move 49 Ad Index 8

46

SECTOR REPORTS WAREHOUSING

Will LED Lighting Pave The Way For Building Management IoT? 32

Intelligent LED lighting saves costs and allows for the foundation of a building management system.

Two years after food shippers saw shipments spoil and sales stumble, there’s hope that early contract discussions will prevent a similar scenario in 2019.

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Published and copyrighted 2016 by AC Business Media Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage or retrieval system, without written permission from the publisher. Food Logistics (USPS 015-667; ISSN 1094-7450 print; ISSN 1930-7527 online) is published 10 times per year in January/February, March, April, May, June, July, August, September, October and November/December by AC Business Media Inc., 201 N. Main Street, Fort Atkinson, WI 53538. Periodicals postage paid at Fort Atkinson, WI 53538 and additional mailing offices. POSTMASTER: Send address changes to Food Logistics, P.O. Box 3605, Northbrook, IL 60065-3605. Canada Post PM40612608. Return undeliverable Canadian addresses to: Food Logistics, Station A, P. O. Box 25542, London, ON N6C 6B2. Subscriptions: U.S., one year, $45; two years, $85; Canada & Mexico, one year, $65; two years, $120; international, one year, $95; two years, $180. All subscriptions must be paid in U.S. funds, drawn from a U.S. bank. Printed in the USA.

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FOOD LOGISTICS | SEPTEMBER 2016

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www.foodlogistics.com

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FOR STARTERS

FROM THE EDITOR’S DESK

PITY THE REEFER SHIPPER T SOWINSKI

• Hanjin Shipping announced the filing for receivership and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters, declining to be named. Image courtesy of Hanjin at www.hanjin.com.

6

his month’s Ocean Carriers & Ports sector report looks at the prospect of early contract negotiations between the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA), which is expected to happen sometime this fall. It’s an understatement to say that importers and exporters of temperature-controlled food products are relieved to hear that the two sides are at least making an effort to avert the West Coast ports slowdown that occurred in 2014-15. The months-long slowdown that started brewing two years ago slammed reefer shippers especially hard. Containers filled with fruit, nuts, meat and other perishable food sat idle, then spoiled, while overseas buyers turned to other sources for these and other commodities. Agriculture is big business for many companies and economies. Growers in the state of Washington lost millions of dollars during the slowdown, with apple growers alone estimated to have lost nearly $100 million. The Washington Council on International Trade said in-state businesses lost roughly $769.5 million. Relationships between growers/ shippers were also bruised, some maybe permanently. I wrote the sector report in mid-August. Two weeks later came

FOOD LOGISTICS | SEPTEMBER 2016

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the announcement of Hanjin’s bankruptcy. Ports are turning away Hanjin vessels and terminals don’t want to work them for fear of not receiving payment. There is still a lot of holiday merchandise en route from Asia to the United States and retailers are naturally worried about the status of their cargo. On Aug. 31, South Korea’s maritime ministry said the carrier’s problems would impact cargo exports for two to three months, with about 540,000 TEUs already loaded on Hanjin vessels and facing delays. Rival carrier Hyundai Merchant Marine is stepping in to help by deploying 13 vessels on two routes served exclusively by Hanjin and the South Korean government is expected to solicit help from other global carriers too. The impact on big-box retailers, particularly with the holiday season coming up, is getting coverage in mainstream media; the plight of reefer shippers, not so much. I don’t know the volume of reefer cargo that is caught up in this latest supply chain disruption. The point is, no matter how seemingly small, the impact will be sizable. Cargo diversions, even if do-able, aren’t much help for time- and tempsensitive food products. I’m truly hoping that talks between the ILWU and PMA yield some results. Reefer shippers could really use a break right now. Enjoy the read.

LARA L. SOWINSKI, EDITORIAL DIRECTOR LSOWINSKI@ACBUSINESSMEDIA.COM

DETAILS

Published by AC BUSINESS MEDIA INC. 201 N. Main Street, Fort Atkinson, WI 53538 (800) 538-5544 • www.ACBusinessMedia.com

WWW.FOODLOGISTICS.COM PRINT AND DIGITAL STAFF Group Publisher Jolene Gulley Associate Publisher Judy Welp Editorial Director Lara L. Sowinski lsowinski@ACBusinessMedia.com Editor Ronnie Garrett rgarrett@ACBusinessMedia.com Managing Editor Elliot Maras emaras@ACBusinessMedia.com Associate Editor Carrie Mantey cmantey@ACBusinessMedia.com Web Editor Eric Sacharski esacharski@ACBusinessMedia.com Senior Production Manager Cindy Rusch crusch@ACBusinessMedia.com Creative Director Kirsten Crock Senior Audience Development Mgr Wendy Chady Audience Development Mgr Angela Kelty ADVERTISING SALES (800) 538-5544 Associate Publisher (East Coast) Judy Welp (480) 821-1093 jwelp@ACBusinessMedia.com Sales Manager (Mid-West & West Coast) Carrie Konopacki (920) 542-1236; ckonopacki@ACBusinessMedia.com National Automotive Sales Tom Lutzke (630) 484-8040; tlutzke@ACBusinessMedia.com EDITORIAL ADVISORY BOARD Smitha G. Stansbury, partner, FDA & Life Sciences Practice, King & Spalding Raymond J. Segat, director, cargo & business development, Vancouver Airport Authority Dr. Barbara Rasco, professor and interim director, School of Food Science, Washington State University Adriano Melluzo, vice president, national sales, Ryder CIRCULATION & SUBSCRIPTIONS PO Box 3605, Northbrook, IL 60065-3605 (877) 201-3915, Fax: (800) 543-5055 Email: circ.FoodLogistics@omeda.com LIST RENTAL Elizabeth Jackson, Merit Direct LLC (847) 492-1350, ext. 18, Fax: (847) 492-0085 Email: ejackson@meritdirect.com REPRINT SERVICES Carrie Konopacki (920) 542-1236; Fax: (920) 542-1133 ckonopacki@ACBusinessMedia.com AC BUSINESS MEDIA INC. Chairman Anil Narang President and CEO Carl Wistreich Executive Vice President Kris Flitcroft CFO JoAnn Breuchel VP Content Greg Udelhofen VP Marketing Debbie George Digital Operations Manager Nick Raether Digital Sales Manager Monique Terrazas Published and copyrighted 2016 by AC Business Media Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage or retrieval system, without written permission from the publisher.

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SUPPLY SCAN

NEWS FROM ACROSS THE FOOD SUPPLY CHAIN Daily Updates at FoodLogistics.com

MONDELEZ DROPS ITS BID FOR HERSHEY

Mondelez International Inc. ended discussions with The Hershey Company regarding a possible combination of the two companies. Hershey rejected Mondelez’s $23 billion takeover bid, which was announced in June. A takeover would have created the world’s largest confectioner and expanded Mondelez’s U.S. footprint. “As the world’s leading snacking company, we remain focused on successfully executing our strategy to deliver both sustainable top-line growth and significant margin expansion, and are well-positioned to continue to deliver value to our shareholders,” said Irene Rosenfeld, Mondelez chairman and CEO. The acquisition would have brought major changes to the confection supply chain, and given Mondelez control of the production and distribution of Cadbury chocolates in the United States, which Hershey holds the license to produce. Whether or not Hershey remains independent long-term is uncertain since the trust that holds majority ownership will reconstitute its board of directors in response to a Pennsylvania investigation of allegedly excessive compensation and conflicts of interest.

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CONTAINER SOLUTIONS GIANTS MERGE

Hoover Container Solutions, Ferguson Group and CHEP Catalyst & Chemical Containers (CCC) announced that they are merging to form Hoover Ferguson Group (HFG). The combined HFG business will provide all customers with products and solutions through a global network of more than 70 service centers and 550 expert team members. The merger is expected to be complete in October. Donald W. Young, Hoover chief executive officer, will lead the new company, supported by a team comprised of senior executives from Ferguson, CCC, Hoover and Brambles.

FDA EXTENDS CERTAIN FSMA COMPLIANCE DATES, ISSUES A DRAFT GUIDANCE

The U.S. Food and Drug Administration (FDA) is moving forward with implementing the Food Safety Modernization Act (FSMA), with the first major compliance dates beginning this month for large food facilities. While the major provisions are being implemented as planned, the FDA issued a final rule that extends and clarifies the compliance dates for certain provisions in four of the seven foundational rules. These changes are part of the FDA’s continuing efforts to make the rules as practical as possible, while still protecting public health. The provisions in the final FSMA rules remain unchanged, and the FDA also issued a new draft guidance to help the industry comply with certain requirements in the Preventive Controls for Human Food rule. Compliance dates are fast approaching for large food facilities that produce human and animal foods. Human food companies, other than small and very small businesses, will need to come into compliance with the Current Good Manufacturing Practice (CGMP), Hazard Analysis and Risk-Based Preventive Controls for Human Food rule by Sept. 19. The CGMP and preventive controls rules—together with the five other foundational rules that will be implemented over the next several years to strengthen FDA oversight of produce, imported foods, sanitary transportation and intentional adulteration—will create the preventive and risk-based food safety system mandated by the FSMA, and reduce foodborne illness.

HONEYWELL NEARS AGREEMENT TO BUY JDA SOFTWARE

Honeywell International Inc. is nearing a deal to acquire JDA Software Group Inc., a maker of software that helps businesses manage their supply chains, according to a person familiar with the matter, reported MarketWatch. The deal would value closely held JDA at around $3 billion. The acquisition would boost Honeywell’s shift into software. The company’s chief executive, David Cote, says about half of the company’s 23,000 engineers are now working on software, as opposed to heavy goods like jet engines and building control systems for which the company is best known. JDA sells software that helps hundreds of retailers optimize their supply chains and merchandising. It also provides warehouse management software to manufacturers and consumer products companies.

www.foodlogistics.com

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SUPPLY SCAN

NEWS FROM ACROSS THE FOOD SUPPLY CHAIN Daily Updates at FoodLogistics.com

OBAMA SIGNS GMO LABELING LAW; INDUSTRY APPLAUDS, ACTIVISTS CRITICIZE

President Obama recently signed S.764 into law, setting in place one national standard for genetically modified organism (GMO) disclosure that brings consistency, certainty and an end to restrictions on interstate commerce facing retailers, manufacturers and customers. While the Food Marketing Institute (FMI) and the Grocery Manufacturers Association (GMA) applauded the signing, activist group, Food Democracy Now!, said it will challenge the law. Food Democracy Now! said Obama wrote a blank check to Monsanto Company and Big Food, while betraying his 2007 promise when running for the White House. Attorneys for the organization will be mounting a legal challenge in the coming weeks over what it considers the law’s legal problems, including its infringement on the 14th Amendment of the Constitution that guarantees “equal protection for all.”

ORACLE WILL ACQUIRE NETSUITE

Oracle entered into a definitive agreement to acquire NetSuite Inc., a cloud-based software company. The transaction is valued at $109 per share in cash or approximately $9.3 billion. “Oracle and NetSuite cloud applications are complementary and will coexist in the marketplace forever,” said Mark Hurd, Oracle’s chief executive officer. “We intend to invest heavily in both products—engineering and distribution.” “NetSuite has been working for 18 years to develop a single system for running a business in the cloud,” said Evan Goldberg, founder, chief technology officer and chairman of NetSuite. “This combination is a winner for NetSuite’s customers, employees and partners.” “NetSuite will benefit from Oracle’s global scale, and reach to accelerate the availability of our cloud solutions in more industries and more countries,” said Zach Nelson, Netsuite chief executive officer. “We are excited to join Oracle and accelerate our pace of innovation.” The evaluation and negotiation of the transaction was led by a special committee of Oracle’s board of directors consisting solely of independent directors. The special committee unanimously approved the transaction on behalf of Oracle.

LOGILITY ACQUIRES INTEGRATION SOLUTIONS PROVIDER ADAPCHAIN

Logility, a provider of collaborative supply chain optimization and advanced retail planning solutions, acquired privately held AdapChain, a developer of advanced integration solutions. AdapChain’s technology speeds and simplifies the complex integration of supply chain with enterprise resource planning (ERP) solutions through a proven template-based approach. AdapChain’s AdapLink (now Logility Voyager AdapLink) enables companies to enhance their supply chain capabilities by quickly integrating the rich transaction and master data from their enterprise systems with Logility Voyager Solutions. The acquisition builds on years of collaboration between AdapChain and Logility to develop an application with proven ERP templates that redefine and simplify supply chain integrations for companies around the world. According to the company, as the business environment grows increasingly more complex, companies find their ERP and related enterprise business solutions do not offer the breadth and depth of capability provided by Logility’s advanced planning and optimization solutions.

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LINEAGE LOGISTICS ACQUIRES CONSOLIDATED DISTRIBUTION CORPORATION

Lineage Logistics, a warehousing and logistics company backed by Bay Grove, acquired Consolidated Distribution Corporation (CDC), a third-party logistics and redistribution company based in Lombard, Illinois. With the acquisition of CDC, Lineage becomes the largest customized redistribution network in the United States. Financial terms were not disclosed. CDC is a foodservice supply chain logistics company and the largest independent multi-concept redistribution provider in the nation. Its redistribution operation serves the retail and manufacturing industries, as well as the foodservice franchisors and purchasing cooperatives of the nation’s most recognizable restaurant brands. With access to multi-temperature warehouses in Illinois, Georgia and Texas, CDC adds to Lineage’s facility network of over 600 million cubic feet across 113 facilities in 22 states.

MCDONALD’S REMOVES ARTIFICIAL PRESERVATIVES FROM ITS BREAKFAST MENU

Breakfast menu items at McDonald’s— including pork sausage patties, omelet-style eggs and scrambled eggs—no longer contain artificial preservatives. New buns no longer have high-fructose corn syrup, including the buns used for Big Macs and McChicken sandwiches, according to USA Today. The upgrades are the latest attempt by the chain to remake its image for a customer base that’s become more concerned with eating healthy and natural food.

www.foodlogistics.com

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FOOD ON THE MOVE

LOGISTICS TRENDS IN OUR INDUSTRY

MAERSK HALTS SERVICE TO 10 CHINESE PORTS Maersk Line, the world’s biggest container shipper, decided to stop services to and from 10 ports in China in an effort to reduce costs, according to Reuters. Maersk Line, like other container shipping companies, was hit by historically low freight rates in the first half of this year due to a slowdown in global growth and many new, larger vessels being added to the market. Maersk Line

said it would stop serving ports in Chizhou, Luzhou, Yingkou, Jinzhou, Rizhao, Yueyang, Lijiao, Taiping, Jiao Xin and Nansha. The ports are currently served by feeder vessels that move goods to larger ports where mega-vessels with a capacity of up to 20,000 20-foot containers take over, and transport the goods to ports mostly in Europe and the United States.

DOMINO’S LAUNCHES FIRST-EVER PIZZA DRONE DELIVERY SERVICE IN NEW ZEALAND

Domino’s Pizza Enterprises Limited teamed up with Flirtey on the first commercial pizza-by-drone delivery model. The two companies exhibited the first stage of their partnership with a demonstration of pizza delivery by drone in Auckland, New Zealand. The demonstration was conducted under civil aviation rules and marks a final step in Flirtey’s approval process, following which the partnership will expand with flights to customer homes later this year from a select New Zealand store.

RAILEX TO SUSPEND SERVICE IN THE SOUTHEAST

Railex LLC is ending service to the Southeast, but expects a future return, according to “The Packer.” The rail logistics transporter of refrigerated perishables planned to cease operations in Jacksonville, Florida, by mid-August. Railex was unable to properly structure its operations at the undersized Jacksonville building it was operating from through a short-term lease. The company is working with the Union Pacific and CSX railroads to identify a service plan that will allow timely deliveries to southeastern customers through a new location.

NFI ACQUIRES UNITED EXPRESS SERVICE INC.

NFI Industries acquired United Express Service Inc., expanding its brokerage offering in the mid-Atlantic and southeastern regions. Terms were not revealed. NFI, with facilities and operations throughout North America, is one of the largest privately held integrated supply chain solutions providers in North America. NFI continues to invest in the service to enhance and complement its suite of supply chain solutions, consisting of dedicated transportation, warehousing, transportation management, intermodal, global logistics and real estate.

DAT SOLUTIONS’ MONTHLY FREIGHT REPORT

Buck-a-MileRipe Conditions Backhauls for a Truckload Live On ByRate Mark Montague Hike By Mark Montague Mark Mark Montague Montague is an is industry industryrate rateanalyst analyst for forDAT DATSolutions, Solutions, which which operates operates the DATthe network DAT network of load boards of load andboards RateView and rate-analysis the RateViewtool. rate analysis He has tool. applied He his has expertise applied his to logistics, expertise to logistics, rates, andrates routing and routingfor formore morethan than 30 30years. years.He Heisisbased based ininPortland, Portland,Ore. Oregon. For For information, more informavisit tion, www.dat.com. please visit www.dat.com.

12

Four Compared years ago, to July I wrote 2015, a post van freight for ourvolume 17 increased cents for vans). But insurance, labor, a mile. DAT Freight IndexbuckRates company 17 percent blog in July, titled:while “Thereefers Death of gained the 5.2 percent. equipment, Despiteand other operating costs have have not rebounded as expected Buck-a-Mile the higher volumes, Backhaul. truckload ” rates fell for all spot gonemarket up. Operational costs couldn’t be this year, and truckers are feeling the equipment At the time, year those overcheap year—a hauls trend seemed for 14 months. covered The rate at $1 a mile in 2012, and they can’t squeeze. Spot van rates were 19 percent to declines be going in away. July were In March less steep 2012,compared only one to the befirst covered half ofnow. lower in April than they were in April 2015. major 2016,van especially lane paid forthe vans carrier and reefers, $1 per mile: which fell 6.5Yet, percent I regret to say, the “buck-a-mile” Reefer rates were down nearly 16 percent. Philadelphia and 6 percent, to respectively, Chicago, at 48compared cents forto the2015.backhaul Bucking the persists on U.S. truckload lanes. With the cost of diesel now rising, expect line-haul typical trend, portion July’s plusvan a fuel rates surcharge exceeded ofthe June average During for the week ending May 21, the spot rates to climb. But any added margin 52 thecents. first time in six years, with a 1.4 percent (2 cents average perspot mile)van rate out of Denver was will go into the tank and not the bank. increase. Of course, Reefer truckers rates were fell 1.7 spending percentmore (3 cents per $1.09 mile), a mile, but with Denver to Stockton paySince the buck-a-mile backhaul lives than that’s$4relatively a gallon for strong diesel compared in 2012,to and the 5.2 percent ing 91average cents. Chicago-to-Los Ángeon, use it to your advantage: Taking a low adecline lot of other in July costs of the hadprevious risen well sixabove years. les paid $1.04 amid stiff competition from rate for a relatively short distance can be a historical With large levels. fleets Truckers withdrawing were turning trucks from the rail.marketplace, Dallas-to-Los Angeles paid $1.05, smart move if you can use it to reposition their shippers noses are upbeginning at dollar-a-mile to assign freight moreand freight toAtlanta-to third-party Los Angeles was $1.11, Allenyour truck for better opportunities. Check rightfully logistics providers so. and freight brokers. If these town-to-Chicago trends continue, was an even $1—every your load board and pair that low-paying spot Today, market thevolume price ofcould fuel isexceed way down 2015 and levels this region quarter, of the country had a major van lane lane to a high-paying head haul. Here’s so meaning is the average higher rates fuel surcharge on the spot (around truckload freight where market. the average was in the vicinity of a hoping that better times are on the way.

FOOD LOGISTICS | SEPTEMBER 2016

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www.foodlogistics.com

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FOOD ON THE MOVE

LOGISTICS TRENDS IN OUR INDUSTRY

FMC COMMISSIONER HALTS OCEAN ALLIANCE AGREEMENT, SEEKS INFORMATION

FLORIDA EAST COAST RAILWAY CELEBRATES FIRST BIG SHIP VIA EXPANDED PANAMA CANAL The Florida East Coast Railway (FECR) recently celebrated the arrival of MOL Majesty, the first neo-Panamax vessel to transit the expanded Panama Canal bound for PortMiami. The MOL Majesty is part of the G6 Alliance Transpacific PA2 service, originating in Asia. Miami-Dade County Mayor Carlos Gimenez and Panama Canal Authority Administrator Jorge Quijano were among the guests who joined PortMiami, the FECR and other partners to welcome the MOL Majesty.

The FECR re-established on-dock intermodal rail service at PortMiami, allowing import and export cargo to be loaded directly onto, or off, awaiting trains, linking the port to 70 percent of the U.S population in four days or less. The FECR can also facilitate the transloading of international freight into fewer domestic containers for inland moves to markets such as Memphis, Tennessee; Chicago, Illinois; Cincinnati, Ohio; and Dallas, Texas.

Doyle Commissioner William P. Doyle of the U.S. Federal Maritime Commission (FMC) voted in favor of requesting additional information (RFAI) from the Ocean Alliance parties, effectively halting the agreement until the filing parties answer the questions proposed in the RFAI, according to MarineLink.com. Once those questions are answered and filed with the commission, a new 45-day clock commences. The Ocean Alliance agreement was filed with the commission in July and would have become effective on Aug. 29, absent commission action. The Ocean Alliance parties, which include COSCO Container Lines, CMA CGM (with APL), Evergreen Marine Corporation and Orient Overseas Container Line, are looking to go live with the alliance in or about April 2017. “I pay special attention to competition matters, especially to small businesses, downstream participants and the upstream— supplier and vendor markets,” Doyle said. “We’ve been down this road before with language proposed, but not implemented by the P3 Alliance and the language in the existing 2M Alliance.”

C.H. ROBINSON SET TO ACQUIRE APC LOGISTICS

C.H. Robinson entered into a definitive agreement to acquire APC Logistics, a provider of freight forwarding and customs brokerage services in Australia and New Zealand. The two companies have had a longstanding exclusive agent relationship for business in Australia and New Zealand. The agreement is subject to certain customary closing conditions, including regulatory approval. APC Logistics is a privately held international freight forwarder, providing ocean, air, customs brokerage and consultancy services, currently serving more than 3,000 customers and suppliers. Founded in 1974 and based in Melbourne, Australia, APC Logistics employs approximately 300 people, and has seven offices in Australia and two offices in New Zealand. Once the deal closes, C.H. Robinson will integrate APC Logistics into its global forwarding division and single global technology platform, Navisphere. www.foodlogistics.com

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SEPTEMBER 2016 | FOOD LOGISTICS

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COOL INSIGHTS

BY DON DURM

HOW TO COMPLY

WITH THE FSMA’S SANITARY TRANSPORTATION OF HUMAN AND ANIMAL FOOD

I

DURM

Don Durm is vice president of customer solutions for PLM Trailer Leasing, a fleet management company specializing in refrigeration transportation services. He is a 25-year veteran of the industry, and recognized as an authority in fleet operations and regulatory compliance.

n April 2016, the Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA) published its final rules for Sanitary Transportation of Human and Animal Food (STF). The rule will be enforceable April 6, 2017, establishing requirements for shippers, loaders, carriers by motor or rail vehicle, and receivers involved in transporting human and animal food. The STF final ruling identifies shippers as the primary responsible stakeholder when it comes to determining appropriate standards for sanitary and safe transportation of food products. The FDA defines shipper as a person who initiates movement of food by motor or rail vehicle. Carriers, loaders and receivers must implement the shipper’s written requirements within transportation operations and must maintain that record for one year. Shippers will now have to deliver written documents on the sanitary conditions of equipment and transportation operations to both loaders and carriers. Shippers will start by implementing a food safety review, including an analysis of hazards and riskedbased preventive controls to trace the transportation supply chain to ensure food will be transported in a sanitary and safe manner.

Trailer Spec and Design Shippers will educate themselves about transportation equipment design and construction, and the impact on preventing food from becoming unsafe during transport. They will ensure that the materials in construction can be adequately cleanable. They now must develop written carrier requirements for

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vehicle specification design and maintenance of equipment to ensure sanitary conditions during transport.

Shippers will trace the transportation cold chain to ensure that all equipment food-contact surfaces can be adequately cleaned for the product type, and develop written carrier procedures to clean or sanitize the equipment. This can include procedures for different load types to prevent cross-contamination.

tion by non-food items in the same load or previous load, and protection of food from cross-contact must also develop and implement written operating procedures. Shippers will establish written procedures, specifically related to maintaining food safety, which must be developed and shared with all parties involved in transporting perishable foods. These plans include specifications or parameters for packaging, temperature control, sanitation and handling.

Temperature Controls

Preventive Controls

Shippers will establish written temperature profiles and tolerances for carriers and loaders during transport to include the loading, transportation movement and unloading phases. They can establish a pre-cooling requirement of the equipment before loading begins. Additionally, they will provide written temperature controls during transport, but may expand to require temperature records and data exchange to document food was delivered within expectations. Shippers will develop how the carrier is to handle and document temperature violations should they occur during transport.

Although STF rules will not be enforceable until April 6, 2017, shippers have to comply with another FSMA rule, Preventive Controls for Human Food, that becomes enforceable for most businesses on Sept. 19, and regulates registered food facilities to include those holding food. Registered facilities must have written procedures for transportation, so many loaders and carriers may see shippers provide written procedures ahead of the STF enforcement date of April 6, 2017.

Sanitation Compliance

Extensive Requirements Shippers of food that requires temperature controls, preventing contamination of readyto-eat food from touching raw food, protection of food from contamina-

Action Steps The International Refrigerated Transportation Association released the “Refrigerated Transportation Best Practice Guide” to assist shippers and carriers with the FSMA, and is offering it for free on its website.

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COVER STORY

BY ELLIOT MARAS

OMNICHANNEL

PUTS FOOD SUPPLY CHAINS

E-commerce grabs a bigger share of food sales, disrupting fulfillment strategies.

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he smartphone has upset the apple cart. As retailing goes mobile, no product segment is struggling harder to adapt than food. This year, grocery e-retail sales will hit double digits, according to research sponsored by Unata, an e-commerce platform. Where 8 percent of consumers bought groceries online in 2015, that figure is expected to reach 17 percent this year. To say that the food supply chain is dragging its feet in response to this change would be an understatement. Because of the complexity of overhauling distribution and logistics, the technologically savvy pure-play online retailers, known in some quarters as “bas-

ket bandits,” are eating the brick and mortar retailers’ lunch. According to the consultancy Brick Meets Click, the pure-play cadre, led by Amazon, has captured 84 percent of online grocery visits and 59 percent of online grocery spending. Even with AmazonFresh still in a limited rollout, Amazon grabs close to half of all online grocery trips (48 percent), compared to 15 percent for mass and club retailer sites, and 21 percent for non-Amazon sites. The percentage of shoppers that have bought groceries from Amazon in the past 30 days has jumped 25 percent since 2013. “We also found an Amazon multiplier effect,” says Bill Bishop, chief architect of Brick Meets Click. “As online grocery trips per month increase, so does Amazon’s share of trips. They are continually working on making buying easier, and supermarkets need to respond.” www.foodlogistics.com

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MULTICHANNEL SUPERMARKETS

• Because of the complexity of over-

DIRECT COMPETITORS

10% 6%

hauling distribution and logistics, the technologically savvy pure-play online retailers, known in some quarters as “basket bandits,” are eating the brick and mortar retailers’ lunch.

84%

Source: Brick Meets Click

BASKET BANDITS AMAZON = 48% ALL OTHERS = 36%

SHARE OF TOTAL ONLINE GROCERY TRIPS

Wal-Mart recently shot back with a free 30-day trial for its twoday delivery service, supported by a multi-billion-dollar investment in eight e-commerce warehouses and an expanded curbside pickup program and delivery network.

Food Retail At A Crossroads Decision makers in the food supply chain are aware of the challenge, but lacking Wal-Mart’s resources, most are hamstrung by the magnitude of overhauling their fulfillment systems to serve the omnichannel market. Many supermarkets have allocated separate fulfillment operations for e-commerce as opposed to an omnichannel strategy that would allow them to leverage all of their resources against their entire customer base. Escalating commercial real estate costs do not tell the entire story. www.foodlogistics.com

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Any hope that they signal investment in omnichannel fulfillment, as some media reports have indicated, are tempered by a reality check with Chris Cummings, Colliers International’s director of its Food Advisory Team. “I have not seen the spillover yet into our business on the distribution side,” says Cummings. “I think they [food retailers] will try to work these things out within their existing real estate footprint for understanding the model before going out to try to acquire more real estate.” Cummings thinks food e-commerce retailers are making their forays with center-ofthe-store products that are not temperature controlled. The refrigerated and frozen warehouse operations are far more expensive. “There is no doubt that we will see it,” he says with a look to the future. “The ability to integrate systems and physical operations can be an obstacle,” says Gary Allen, vice president of supply chain excellence at Ryder Supply Chain Solutions. “It is difficult to provide visibility, order allocation and inventory control across the various channels.” “A critical element of a successful omnichannel commerce solution is full visibility of inventory and transactions, distributed order management, and a unified view to the path of purchase,” says Allen. “Typical omnichannel solutions combine web-based commerce with brick and mortar storefronts and distribution operations.”

Supply Chain Versatility Needed

There is no doubt that we will see it

One challenge food supply chains face in achieving omnichannel fulfillment is the need to allow customers (food e-commerce to change their delivery times. investment in “If something changes in a customer’s schedule and they need to cold storage.)” change their delivery time because Chris Cummings, Colliers International they won’t be home, retailers need to have technology in place to ensure that the driver can be alerted and can easily reschedule and reorder the sequence of delivery drops,” says William Salter, CEO and president, Paragon Software Systems Inc., a provider of vehicle routing and scheduling software. “You need to be able to give customers control and the ability to interact with the retailer through the retailer’s website or web interface to update the transport planner and let you know when they will or won’t be home so

OMNICHANNEL TOOLKIT AT A GLANCE Material-handling systems are being embraced as a means of getting products into the hands of the consumer more quickly, according to Paul Laman, vice president of DMW&H, a material handling systems integrator. Laman says the average omnichannel DC is greater than 250,000 square feet with clear ceiling heights of 36 to 40 feet to accommodate multiple mezzanine levels for processing and shipping individual orders. Typically, these DCs are built in areas where they can reach the most consumers and stores quickly and cost-effectively, such as major metropolitan areas. Typical equipment used in omnichannel fulfillment includes: • Inventory management system that spans the entire supply chain for achieving real-time visibility. • Distributed order management system to decide cost-effectively whether to drop orders into a DC, e-commerce fulfillment center, combination DC, or store to meet customer service levels. • Warehouse Management System. • Warehouse Control System to direct the flow of materials within the warehouse and communicate with all the material handling equipment. • Conveyors for moving products around the warehouse to appropriate locations. • Sortation units that deliver items to shipping locations. • Picking/packing systems for directing workers what to pick, how many, where to pick or pack, etc. Some DCs are starting to use robotic picking technology. • Automatic Storage and Retrieval Systems (AS/RSs). • Miscellaneous: Robotics, goods-to-person, transportation management systems, RFID, equipment to apply labels to cartons, etc.

SEPTEMBER 2016 | FOOD LOGISTICS

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COVER STORY continued

are other issues that distributors must focus on. “Because of this, distribution issues are a high priority for companies in the food and beverage industry,” Laman says. “These distributors are striving to continually optimize operational performance and cost within their warehouses and must typically use automation to accomplish this. Material handling solutions bring better efficiencies, cost reductions and faster fulfillment.” Laman says omnichannel retail supply chains must include the following elements: • Real-time visibility into the entire pool of inventory to reduce safety stock and inventory carrying costs. • Dynamic control over access and allocation of inventory in real-time. • Processing and shipping of individual orders at the lowest

cost, either direct-to-consumer or direct-to-store or for clickand-collect. • Fully automated distribution that the number of failed deliveries processes that will increase is reduced for the retailers.” “In the direct-to-consumer side productivity and fulfillment of omnichannel fulfillment, all the rates using material handling resources of the supply chain are equipment. focused on transparently serving • Flexible fulfillment paths to a single shopper who has placed a meet demand, regardless of single order,” says Paul Laman, vice which channel it comes from. president of DMW&H, a material • Maximized efficiency in every handling systems integrator. part of the supply chain to meet Laman says, “Consumer expect customer expectations. fresher, healthier products and sus• Minimum cost to serve. tainable packaging. In addition to When online orders began to driving e-commerce, these expectagrow in popularity, retailers divided tions have also fueled exponential their fulfillment centers into either growth in the quick-serve, vending a store fulfillment DC or an e-comand wholesale sectors.” merce DC, or both, with strict Food storage and distribution division between the two. Many requires tight operational tolerretailers have since recognized the ances to ensure safe handling that need for a holistic view of inventomeets government regulations. ry to fill orders from any channel. Proper inventory turnover, cold Some are actually putting smaller chain management and traceability DCs closer to the end-customers and/or fulfilling orders from the stores. Developing an omnichannel supply chain strategy requires rethinking the number and location The pure-play food e-commerce players have fine if needed.” of DCs, as well as their layout and tuned the packaging and delivery aspect of online “It’s taken a lot of hands-on work from people design features. order fulfillment. who are experts at it,” he adds. “The complexity of the fulfillThese pure-play merchants tap different delivery The all-wheel drive has been a worthwhile ment process models, including outsourcing to ride sharing investment, given the amount of services. residential streets the vans travel has definitely Door To Door Organics, one of the larger in the winter. increased,” says pure-play subscription-based food e-commerce Veestro, another pure-play food Vikram Balasumerchants, manages its own 75-vehicle fleet of delivery service, specializes in bramanian, senior all-wheel drive, Chevy cargo vans. Aaron Peele, fresh-made, frozen meals that get vice president of the company’s outbound logistics manager, says shipped in insulated containers minimizing the number of steps between packing through FedEx. The shipping product strategy and delivery has proven critical to efficiency, prod- fee is based on the size of the at MercuryGate uct quality and customer satisfaction. order. Veestro has both a la carte International Inc., The Midwestern company assembles its packag- offerings and subscription-based a transportation es manually in its DCs, says Peele. The company meals. Deliveries take two to seven management uses cardboard boxes, gel packs and crinkle paper days, depending on when orders for refrigerated items, and an insulated sleeve are placed. • Veestro is moving to denim system (TMS) with dry ice for frozen products. Once packages Most Veestro customers rely on scraps to pack its meals for provider for both are assembled, loaders put them in delivery vans. the service for the convenience of delivery. Denim has proven food retailers and Telogis’ route optimization algorithm has alnot having to shop. The average more efficient than Styrofoam. manufacturers. lowed the company to identify critical metrics like order is $220, says Mark Fachler, The scheddeliveries per route. The algorithm has delivered a Veestro founder and CEO. 5 to 10 percent decrease in miles per order. There The company ships Monday through Wednesday uled pickup option is the domhas also been a noticeable reduction in the amount so everything arrives the same week. inant supermarket option. of manual intervention. “It’s become a much more The company manually packs the food in trays Nevertheless, customers are data-driven, informed route optimization versus using Styrofoam, but it is switching to denim, looking for end-to-end soluplaying ‘connect the dots,’” Peele says. which Fachler says is more efficient. tions, including last mile delivery, Because a portion of customer orders change Close to 85 percent of Veestro’s product is every week, the company uses a blend of static produce since the company specializes in plantBalasubramanian says. Parcel and dynamic routing. “We want to keep things the based meals. Most of the providers are southern and less-than-truckload (LTL) same as much as possible, yet be totally different California farms. deliveries are important options.

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COVER STORY continued Orders that once were shipped in pallet quantity are quickly changing to

layers and case level orders.” Tom Steininger, Dematic North America

One advantage of MercuryGate’s solution is that parcel delivery is built into its TMS platform. “It allows optimization of parcel,” he says. Users can combine parcel delivery, pickup option, LTL and full truckloads in the planning before doing the execution. Supermarkets are leading the expansion into fresh food e-commerce in comparison to other supply chain nodes, Balasubramanian says. For dry goods, however, he says manufacturers and distributors are equally involved in the process. The manufacturers and distributors are offering drop ship fulfillment of orders that are oftentimes placed with retailers. Manufacturers and distributors are more challenged than retailers

ASSOCIATED FOOD STORES MEMBER TAPS E-COMMERCE PLATFORM Swensen’s Markets, a grocery chain serving Twin Falls, Idaho, has teamed with Rosie, an online grocery shopping platform for mobile and web, to launch its e-commerce service called FOOD2U. Rosie is among a growing number of technology companies that assist food retailers and wholesalers with e-commerce fulfillment services. Swensen’s is a member of Associated Food Stores (AFS), a cooperatively owned wholesale distributor serving nearly 500 independent supermarkets in eight states, which selected Rosie in 2014 as its recommended e-commerce partner. Rosie enables consumers to shop online from local stores for same-day delivery or in-store pickup. Rosie partners with leading independent retailers and their wholesalers to provide e-commerce, delivery, omnichannel marketing and data services. Wholesale customers besides AFS include Associated Wholesale Grocers, CERTCO, Olean Wholesale Grocery and Associated Grocers of New England. Retail customers include Niemann Foods Inc., Broulim’s Fresh Foods, Clark’s Market and Buehler’s Fresh Foods. Visit rosieapp.com for information.

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in that they are less likely to have as many DCs to serve as forward delivery points. Supermarkets are more likely to have stores to serve this function.

Automation Needed “There are still very few companies willing to invest in ‘all-in’ automation, choosing instead to address ‘islands’ within their operation which may justify the spend,” says Bryan Duncan, director of solutions sales at Wynright Corporation, a subsidiary of Daifuku North America. “If a company has wild swings in business, either due to seasonality or holiday business, it becomes very difficult to deploy ‘high automation’ for those short periods of time because of the financial impact.” “Even some companies who have invested heavily have done so on almost a trial basis to see if this approach will actually improve their bottom line or their overall operations,” Duncan says. “Many have returned to a more conventional fulfillment approach. Forecasting growth in terms of dollars and SKUs is very tricky at this point in the young life of omnichannel fulfillment.” E-commerce orders require different processes than store orders. Products are picked from warehouse shelves at the direction of workers who use automated picking technologies like pick-to-light and pick-tovoice. Both technologies allow workers to accurately and quickly pick items for an order using both hands.

All About Technology According to Brian Neuwirth, vice president of sales and marketing at UNEX Manufacturing Inc., a provider of picking solutions: “It is important for them to use some type of storage

shelving or carton flow solution that facilitates FIFO (first in, first out). With FIFO, food and beverage companies are sure that the items that are being picked to fulfill an order are the inventory that has been there the longest, so that the items’ expiration dates are still good. Omnichannel fulfillment success is basically all in the technology, which has to be implemented properly.” Neuwirth is one of many observers who sees omnichannel driving increased use of RFID technology in the food supply chain. “With the use of RFID, retailers can know where an item is located and in stock,” he says. “As omnichannel retailing requires a holistic view of inventory, using RFID tags to keep track of inventory is key. RFID enables frequent inventory counting, which enables inventory accuracy. With omnichannel, retailers need to have an exceptional sense of inventory. In order picking, pickers can scan RFID tags, which could trigger an ERP system to reorder that item for inventory.” Meanwhile, “Many food companies are challenged by this change,” says Tom Steininger, market development director at Dematic North America. “Orders that once were shipped in pallet quantity are quickly changing to layers and case level orders, and in some companies, moving into eaches. “Small order quantities can create issues that drive up transportation costs as well,” Steininger adds. “Cubing of trailers by means of order consolidation and smart planning is a very attractive benefit of automation and software.” Chris Bryson, founder and CEO of Unata, a provider of digital solutions for grocery retailers, says that, “It’s clearly being viewed as something that needs to be supported in order to remain competitive. The major challenges are getting old systems to work with new systems.” Legacy systems for inventory and pricing were originally not designed to support e-commerce. “Getting those systems to talk to your e-commerce platform does require work,” he says. www.foodlogistics.com

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COVER STORY continued

Eyes On AmazonFresh A big uncertainty is when Amazon will launch AmazonFresh nationally, Bryson says. The food retail industry has a limited amount of time to invest in omnichannel infrastructure. Besides Amazon, Bryson says Kroger and Wal-Mart are even bigger threats to most supermarkets, based on their national footprints and the investments they have made in omnichannel fulfillment. “They’re both national players and they seem to be fully committed to going national,” he says. “With direct-to-consumer

orders, there are typically large fluctuations in demand,” says Dan Grimm, vice president of solutions strategy at JDA Software, a supply chain software provider. There are also shorter order fulfillment cycles. “In some cases, they may only have a few hours to fulfill that order,” he says. To address this, companies are introducing more automation. “Picking an individual order for a customer has a lot more labor associated with it,” says Grimm.

DC Footprints To Shift “You’re going to have to be closer to your customer the same way that Amazon is,” he says. “Within those facilities I may have to re-evaluate what I have for warehousing and transportation systems. My transportation system may not have been geared for partial shipments or courier. My warehouse might have been designed around midsize orders instead of each picking. In

You’re going to have to be closer to your customer the same way that Amazon is.” Dan Grimm, JDA Software

many cases, those systems can’t adapt, based on how old they are and how monolithic they are.” The shorter fulfillment cycles have raised interest in intelligent planning, Grimm says. “If I can do my forecasting, my replenishment, my order management, and my TMS and warehouse management systems (WMS) together, now what I can do is really share information and share capabilities. Now I can come up with better plans that can actually be executed on, and I can execute better because I have better visibility of what’s coming down from a planning perspective.” The growth of single orders and shorter fulfillment cycles brings the need for more visibility throughout

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the entire supply chain, including distributors, manufacturers and farms. “Being able to have one view of your inventory across all your selling channels, knowing what you have in your warehouse, what you have in transit, the inventory across your entire network is very important,” says Todd Craig, chief marketing officer at LogFire, a cloud-based WMS system. “I have to be able to understand my inventory position down to the individual unit, down to the rack, down to the store shelf, in a back room, or in a warehouse,” Craig says. “It’s easy to take an order. The hard part is fulfilling it and making sure the customer experience is top notch.” Cloud technology allows faster implementation than a more traditional on-premise system, says Craig. In addition, upgrades are faster and easier. “The cloud provides that network effect where you get real-time visibility,” he says. Having multiple servers and different versions of software has made it difficult for some companies to integrate with partners’ systems, which has made it difficult to deliver on their strategies, says Diego Pantoja-Navajas, CEO, founder and chairman of LogFire.

the hard commitments. But there will be, because the consumer side is going to drive those decisions.” One of the biggest challenges e-commerce poses is order unpredictability compared to traditional retail, Reader says. The percentage cost of delivery also rises as the size of the order falls, Reader notes. Automation, from order management through delivery, will be needed to manage

these costs. “As the order line count drops, there is a fair amount of investment unless the volumes are very high,” he says. He thinks it is possible there will be RFID tags on individual food packages. “There are a lot of advantages to RFID; reduced handling costs, higher pick accuracy, shorter times for order fulfillment, creating customized loads; you could go on and on about the potential benefits,”

Who Is The Omnichannel Customer? While many companies feel pressured by e-commerce, the ability to interact with customers through multiple channels promises benefits, says Kevin Reader, director of business development and marketing at KNAPP Logistics Automation, Inc. “There are lots of business reasons on the demand side for omnichannel,” he says. “An omnichannel customer is worth more than a single channel customer.” The food industry has invested less than other sectors in understanding the consumer through e-commerce interactions, Reader notes. “The scale of the investment is quite large,” he says. “Nobody has taken the gloves off and is making www.foodlogistics.com

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| FOOD LOGISTICS

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COVER STORY continued

he says. “This all comes together to perform lower cost, higher performance; the costs are going to get to a point where it’s a reality.” “A lot of that testing is focused on the best way to get close to the customer logistically,” Reader says.

HOW RASTELLI FOODS GEARED UP FOR E-COMMERCE Rastelli Foods Group, an independent specialty food retailer, set a goal in the last few years of achieving enough business volume to support a sustainable e-commerce business. As a part of this initiative, the company invested in inventory management and order fulfillment systems that support retail, foodservice and e-commerce. The company now commands a nationwide e-commerce presence, which is its fastest growing sales channel. Rastelli’s e-commerce grew from 4 percent of the company’s total business in 2014 to 15 percent in 2015. “It is initially costly to ship frozen products in coolers with dry ice across the country, so we had to grow our business and significantly increase our orders and shipments to achieve critical volume freight and fulfillment material discounts,” says Ray Rastelli III, company vice president. Putting the logistics in place to execute e-commerce delivery and shipping while maintaining quality and managing cost was the biggest logistics challenge, he says. “We are fortunate to have a global consolidation and shipping arm as part of our portfolio,” he says. “It was a matter of refining the process and changing the model from B2B to B2C in the case of e-commerce.” Rastelli handles its own deliveries up to a 15-mile radius of its own store locations, and relies on FedEx and UPS for the majority of deliveries. The retail, foodservice and e-commerce inventory is all housed in the same database, separated by warehouse codes. Some products are specific to certain channels, but most products fall into at least two of the three. The e-commerce orders are managed with a custom-built system and a new e-commerce platform from ROC Commerce. Rastelli’s customer service team uses FedEx and UPS tracking information to track orders. The team uses the same information to update customers on orders.

Ultimately, companies will adopt more automated solutions. The expansion of e-commerce has increased the volume of food orders through the TMS, which in turn is utilizing more carriers to fulfill orders for shippers, says UNEX Manufacturing’s Neuwirth. “Parcel shipments are growing in numbers because of this also,” he says. “Some retailers are using Uber-like companies to fulfill orders.” Schneider National Inc., a transportation and logistics provider, recently acquired two companies to assist with last mile delivery for e-commerce orders, Watkins & Shepard and Lodeso. These acquisitions complement its Final Mile service, which provides customized home, commercial and retail delivery with white-glove service. “People want things quicker and quicker, and since price can be shopped on the Internet very quickly, speed of delivery is one thing everyone will push on,” says Robert Elkins, senior vice president and general manager for dedicated special and supply chain management at Schneider National Inc. “What we are hearing is the goal needs to be seven days or less and will require SKUs being positioned in strategic locations throughout the country.” Khaled Naim, co-founder and CEO of Onfleet, a cloud-based, subscription-based transportation management software focused on food, says: “The delivery of grocery prepared meals is definitely a growing space. The software provides route optimization, dispatching and real-time tracking. “Demand planning is critical for executing deliveries,” Naim adds,

• Rastelli Foods Group does all of its own deliveries up to a 15-mile radius of it store locations. E-commerce is the company’s fastest growing channel.

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“so that the drivers are available when the orders have to be delivered. Companies are building demand prediction algorithms so that they staff appropriately.” Some restaurant chains are struggling with integrating their legacy POS systems with online order fulfillment, he says. Companies that have closed POS platforms have issues integrating with application programming interfaces (APIs).

Home Delivery Challenges As retailers and product manufacturers add delivery services, they are opting for different models. Outsourcing to 3PLs, ride sharing services and couriers are all being used, but Naim says no single model has dominated the landscape. He sees autonomous vehicles playing a role in the next couple of years. One hurdle companies have to address is making sure the drivers are equipped with smartphones that can run the software.

What About B2B? Omnichannel fulfillment also supports B2B orders. While the food industry already has established protocols for B2B fulfillment, companies will need to reconsider their B2B systems as technology offers new efficiencies. “The food industry is in some ways ahead of the curve in B2B commerce because they understand the need,” says Glen Coates, CEO and founder of Handshake, a cloud-based B2B commerce platform. The challenge is coming into the post-smartphone era. “The food sector is one of the ones where we are most likely to encounter some sort of legacy solution when we start working with a new customer,” Coates says. “The reason is the food industry is shipping in such high volume, it’s such a quick turning industry in terms of turnover at the shelf level. It has been clear to them for some time that the benefits of customizing how their supply chain works, through technology, are real.” www.foodlogistics.com

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3PLs

BY KAREN E. THUERMER

HOW TO CHOOSE A

LOGISTICS PARTNER Growing market complexities require careful vetting of logistics partners.

T

oday food companies find that to succeed, they need to concentrate on what they do best: develop, manufacture and market their products. For that reason, they need third-party logistics (3PLs) providers that can play an increasingly important role in their supply chain against the backdrop of ongoing SKU proliferation, expanding food safety rules, and more fresh and perishable goods in the pipeline. Often they find that warehousing, distribution and transportation, among other services, are best outsourced to 3PL experts. While some companies may have added logistics functions to their internal operations, many have found supply chain management to be

Frank McGuigan of Transplace says automated execution is important for a 3PL.

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time consuming and complicated— say nothing of it being a hard asset expense. Plus there are other layers of the business: import/export regulations; transportation options; inventory management; warehouse bypass programs; consolidation; different handling of product based on its seasonality and place of origin; even blending, labeling and packaging. “A local broker might be best,

Kenny Lund of Allen Lund Co. stresses the need for collaboration.

or a larger broker with a national presence that has multiple offices,” comments Kenny Lund, vice president of support operations, Allen Lund Co., a transportation broker and logistics provider. Some companies see supply chain management as important to their own businesses. “We’re starting to see the title of chief supply officer more than ever before,” says Loraine Yalch, vice president

Mark C. Smith of Penske Logistics cites the importance of metrics.

Loraine Yalch of Armada notes the need to continually examine networks. www.foodlogistics.com

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3PLs

continued

says. “Ten years ago, companies primarily focused on getting product on time and delivered as cheaply as possible.”

Vetting Your 3PL

⇧Transplace seeks to provide the optimal blend of logistics technology and transportation management services.

⇩ Penske Logistics uses metrics to measure its performance in areas such as on-time delivery, fill rates, order accuracy and labor rates.

28

of business development at Armada Supply Chain Solutions. “They are now part of the executive team.” In fact, businesses now recognize that supply chain is not just a cost center. “It can drive the bottom line profitability of the company,” Yalch

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But one size does not fit all in the 3PL world. For that reason, it’s important to vet 3PLs and take a hard look at their capabilities, specializations, and ability to customize solutions to meet specific requirements. “Make sure they’ve done it before,” comments Mark C. Smith, area vice president for Penske Logistics. “Make sure they have documentation in place to handle the supply chain portion of food, whether refrigerated or ambient, and have document processes for food safety management, along with ways to recall and check.” Frank McGuigan, president and chief operating officer of Transplace, a 3PL, says, “I hear from shippers every day that you have to have a deep first-hand dive into the provider’s capability. Ultimately, in the 3PL space, proven capability is king.” To make certain a 3PL meets needs and requirements, it’s a good idea to meet 3PLs at their locations to understand how they operate with their food customers and to see what processes are implemented day-to-day. “Find out how capable the 3PL is in automated execution,”

Smith says. “Can they actually do what you need to track and trace the product all the way through for your product type? Dry ambient food trailers are different than general freight trailers. Same with warehousing.” Technology capability is critical. Today, there are more sophisticated optimization and shipping rating scenarios than ever that can support real-time management and temperature updates. But, as McGuigan points out, many systems don’t have the scale and depth to support the sophistication that is occurring through SKU proliferation and other demands in the food chain. Critical also is visibility and guarantee of processes so that the customers and the brand can be comfortable. “We enable 3PLs to help our customers, particularly those in the cold packaging world, customize their services, convert product to finished goods to create new SKUs for their end customer, and launch them on behalf of that brand,” says Jason Tham, CEO at Nulogy, a software provider. “In doing so, they have to ensure that they have the technology, controls and processes in place. They need a technology provider.” By leveraging cloud technology, Nulogy establishes the processes within the technology for the 3PL and ensures visibility throughout

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3PLs

continued

We advocate across the entire supply chain to help define what a company’s

supply chain strategy

should be based on—its brand strategy.”

the 3PL’s supply chain to guarantee their brand customer that there is automation, compliance, proper enforcement, visibility, transparency and agility in their customer’s distribution and operations. McGuigan stresses the 3PL should have a proven, Lean Six Sigma culture that demonstrates it has the infrastructure to support continuous improvement. “If you buy this service like a commodity and do not vet in the right way, you can go down a very difficult path,” he says. “We see that all of the time.”

depending on the products,” Lund says. “It’s important to work together to establish what information must Loraine Yalch, be given to the driver who picks Armada Supply Chain Solutions up the shipment, and the loader, because he is the handoff from the shipper to the trucking company.” Collaboration is a Must Information regarding how Collaboration is especially necthe product is loaded, as well as essary to build trust given the new timelines, needs to be clear and Food Safety Modernization Act documented. Information must be (FSMA). Lund sees collaboration detailed and timely. key in establishing best practices “This includes the terms if the seal between transportation companies is broken, and whether or not there and receivers. is even a seal on the load. At what “There are so many best practices temperature should the shipment go out? Does it need to be protected from freezing?” DESIGN | OPTIMIZATION | ANALYSIS Lund asks. According to McGuigan, Transplace spends around five days with customers to analyze their brands’ current and future state before it writes one single line of code. “We visit a cross dock before we do anything,” he says. “We have conversations with all stakeholders. That process creates a baseline and roadmap for financial service performance, and user and food safety requirements.” OCT 19 He also insists that the process is ongoing. “If I never formerly re-engage to audit, manage and measure, then I’m not cultivating a collaborative Contact us Wednesday for a highlight reel of relationship,” he says. best practices to achieve operational success. “You need to have that institutional engagement to make sure that collab+1 (919) 237-4846 | www.optricity.com | | oration continues on an th

30

FOOD LOGISTICS | SEPTEMBER 2016

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⇧ By continually examining transportation networks, companies can boost their agility to better respond to marketplace changes as well as the evolution of business and brands, according to Armada.

ongoing basis.” Smith maintains that collaboration needs to include metrics and utilize the audit. “Metrics are good because they show you a trend to where things are going,” he says. “They give you a reference point if you’re getting off track. Audits make sure you are complying.” Yalch warns that one of the challenges in food logistics is managing independent functions such as warehouse operations and transportation providers in “silos.” “Yes, companies need people to help operate warehouses, manage transportation or perform certain other functions,” she states. “But if those functions are siloed, you have challenges seeing the big picture,” she says. Armada, which operates as a 4PL, offers a layer of management oversight. “We advocate across the entire supply chain to help define what a company’s supply chain strategy should be based—on its brand strategy,” Yalch explains. “We then design and orchestrate the supply chain to support that.” The idea is to find a partner who can bring technical expertise to the table so that the company does not have to make investments in systems and technology continually. Such technical support offers visibility into the business’s supply chain and analyzes supply chain planning. “For example, the 4PL www.foodlogistics.com

9/7/16 4:18 PM


will look at how the supply chain is functioning today; where there are inefficiencies,” Yalch points out. Once this is done, the network can be engineered and designed to take issues out of the network. “Then you execute what remains,” she says. In the case of transportation services, a company might find that a percentage of transportation functions shouldn’t exist in the first place and should be consolidated. “It’s worth the time to do engineering and planning work to decide what is optimal design and what you can physically execute,” she says. Yalch emphasizes the importance of continually examining networks. “Business and brands evolve. So do their logistics,” she remarks. Whereas supply chains were once very linear functions because food products basically were made, warehoused, delivered and consumed, today’s consumption points are changing. Consumers may choose to purchase their food from the grocer, a restaurant or

online. Think omnichannel, Amazon and Blue Apron. “The supply chain has to be managed differently to be agile enough to respond to consumption, wherever it happens and however it happens,” she says. For that reason, Yalch sees more and more companies today realizing the value of a 4PL. “It goes counter to putting all of your eggs in one basket,” she says. Companies may multi-source distribution relationships on key items because they want redundancy. But in logistics, that can create inefficiencies. “There is value in having a single entity that can sit over that and see the end-to-end supply chain from a strategy standpoint, and act as strategic partner to help figure out the best way to leverage all of those parties in your supply chain,” she says. Sometimes what might appear to be inefficient at one node is being caused some place else. The goal is to find the root cause and collectively develop solutions. And while Yalch stresses that

many foodservice companies should look at how to manage their supply chain in a more demand-driven way, this is not necessary for every single item. “The response for promoted items is very different from the response for staples such as eggs and milk,” she explains. “Then there are perishables, even things that don’t perish such as packaging—items with a short shelf life and those that are seasonal or promotional. Properly segmenting the items is critical, and knowing what is important to manage, and what manages itself, because demand is predictable and consistent over time,” she says. Agility in a supply chain is critical to managing those different segments appropriately. That’s because more companies, regardless of industry segment, are competing for the same consumer dollar.

If I never formerly re-engage to audit,

manage and measure, then I’m not cultivating a collaborative relationship.” Frank McGuigan, Transplace

Karen E. Thuermer is an Alexandria, Virginia-based journalist who has been writing about logistics for several decades.

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SEPTEMBER 2016 | FOOD LOGISTICS 31 www.necs.com

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SECTOR REPORTS WAREHOUSING

BY ELLIOT MARAS

WILL LED LIGHTING PAVE THE WAY FOR BUILDING MANAGEMENT IOT? Intelligent LED lighting saves costs and sets the foundation for a building management system.

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• LED lighting is built on an intelligent digital platform. Photo used with permission of Cree Inc.

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32

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he Internet of Things (IoT) is bringing major improvements to facilities management. One such improvement is a building management system (BMS), a computerized control system that can manage and monitor a building’s mechanical and electrical equipment, including ventilation, lighting, power systems, fire systems and security systems. The opportunity to invest in a BMS often presents itself when a company installs a computerized lighting system. The current wave of interest in intelligent LED lighting will present many companies with the chance to invest in a BMS, which can provide efficiencies and energy savings beyond that of the building’s lighting system. LED lighting will drive the adoption of building management IoT. First, intelligent LEDs are ubiquitous and expanding. McKinsey & Company, a research firm, expects the U.S. market share for LED lighting to reach 45 percent in 2016 and 70 percent by 2020 as the market moves rapidly toward 100 percent LED adoption. Second, every LED light is built on an intelligent digital platform. Sensors and 48" 9mm) (121communication wireless devices can piggyback on this digital framework, enabling temperature and humidity monitoring, RFID readers, device tracking, emergency alerting, cameras and more. 96"

m) (2438m Supermarket Realizes Benefits 10"

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Buy-Low Foods5.8"minm)Langdon, (147 Alberta, Canada realized some FOOD LOGISTICS | SEPTEMBER 2016

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• In non-retail areas, the LED lights are uniform throughout the building, save for some style characteristics. Photo used with permission of Cree Inc.

of these benefits after installing intelligent LED technology in one of its stores. The building’s LED fixtures communicate wirelessly with each other to automatically create a lighting network and intelligently group lights together, eliminating the process of manually commissioning each light. The technology is designed to simplify daylight harvesting, motion sensing, adaptive lighting and dimming without third-party devices, additional wires or manual commissioning. Louie Pulice, business development coordinator for Buy-Low Foods, began looking for solutions to make the lighting at the company’s new Langdon store as cost-efficient as possible without sacrificing the shopper experience. He looked to Dan Melchior, a senior designer at Opal Engineering who worked on previous Buy-Low projects, to help develop a lighting plan that would meet the company’s standards, while lowering operating costs.

After several discussions with CDm2 LIGHTWORKS, a dealer and integrator of lighting products, Melchior selected LED lighting from Cree Inc., an innovator of LED lighting technology. Melchior and Bryan Lortie, vice president and director of sales at CDm2 LIGHTWORKS, presented a three-year payback plan to the supermarket’s development team. They provided product samples, photometric data and a payback analysis comparing traditional technology to modern LED technology. Construction included LEDs for all of the store’s lighting—the public areas, employee areas, refrigerated and frozen space, cooking area, loading dock, exterior lighting and parking lot. Melchior selected suspended LED ambient lights for the store’s aisles. He chose LED troffers—rectangular light fixtures that fit into a modular dropped ceiling grid—in the deli/bakery areas and offices. Both products feature a 90-plus www.foodlogistics.com

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10"

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9/8/16 11:49 AM


SR: WAREHOUSING continued

• Wall-mounted, extendable LED dock lights can be pushed into the back of a truck during unloading. Photo used with permission of Larson Electronics LLC

color rendering index (CRI) and consistent color temperatures. Melchior also selected surface ambient luminaires inside the freezers and coolers, and LED high-output luminaires for the parking lot. The loading area has a wall-mounted, extendable LED light known as a dock light that the loaders can push into the back of a truck while unloading deliveries. The dock lights are manually controlled. “This gives them additional light that shines into the back of their trucks, so they can see what products they’re bringing in and out,” Melchior says. “Most delivery trucks don’t have lights in the interior in the back.” There is typically one dock light per overhead door. “Inventory control clerks sit in the back of the store and, as deliveries come in, they accept the delivery so the store staff can use those lights, and then, when the delivery is done, they just turn them off,” Melchior notes.

LEDs Offer Multiple Benefits LEDs offer more versatile lighting at a lower cost than fluorescent and metal-halide lights. They also reduce air conditioning costs since LED lights emit less heat. Intelligent LEDs use advanced sensing technologies, wireless networking and metered data to fundamentally change how lighting is used or not used. It also allows a building to restrict illumination to when and where it is needed. The LED lighting saved the store $8,745 in annual maintenance costs. Melchior also notes that the LED lights, which consume less energy than fluorescent lights,

34

FOOD LOGISTICS | SEPTEMBER 2016

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generate additional savings as the cost of electricity rises. “Since the opening in 2014, we haven’t had an issue and we were really pleased with the end result,” says Pulice. The lights in the retail area have a higher CRI count. Despite that, the LED lights are uniform throughout the building, save for some style characteristics. The end result is high-performing, aesthetically pleasing white light that dramatically improves the visual appearance of fruits, vegetables and meats. “When we built the store and opened it up, there were a lot of comments on how comfortable it was,” Pulice says. “In the past, when you looked at an LED, it blinded you. With Cree, people seem to really like the light level and have a comfortable shopping experience. Even at night, it’s really impressive.” “The quality of light is non-intrusive and the diffusers provide a soft, even distribution down the aisles,” says Melchior. Buy-Low Foods since included the lighting in its new store in Clearwater, British Columbia, Canada, and upgraded a Meinhardt Fine Foods store with Cree LED lighting. The company is looking to utilize the LED system for its next three Nesters Market stores in 2016. The system allows a store to adjust the light to make a customer shopping experience unique to a specific store. For example, the company’s Nesters Market stores

lean toward lower light levels to give a more comfortable/cozier shopping experience.

Management System Integration The energy controls are integrated into one BMS, Melchior says. The control system in the Langdon store is from Micro Thermo Technologies, which specializes in integrating monitoring software, refrigeration controls, power controls, lighting, and heating and air conditioning for food retailers. “It monitors everything that runs through the store,” Melchior says about the energy controls system. By logging into the system, “food store managers can tell what’s on or off.”

Enterprise Asset Management Cree is expanding development into enterprise asset management. With its SmartCast Power over Ethernet (PoE), customers can employ one-button building commissioning of up to 1,000 intelligent devices at one time, and the SmartCast Manager application can enable advanced energy-saving strategies like task tuning and real-time visibility of energy use. The scalability of SmartCast PoE extends further when networked and connected to other devices. It can monitor and adjust for occupancy patterns, resource utilization and more.

• LED lighting provides aesthetically pleasing white light that improves the visual appearance of fruits, vegetables and meats. Photo used with permission of Cree Inc.

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SECTOR REPORTS TRANSPORTATION

BY ELLIOT MARAS

TECHNOLOGY BRINGS MORE OPTIONS FOR

URBAN DELIVERY VEHICLES

Shifting customer needs place new demands on urban fleets, including expanding e-commerce.

⇩ The Peterbilt Model 325 boosts fuel economy 30 percent compared to Class 5 cab-overs. Image courtesy of Peterbilt.

36

V

ehicle selection has become more complex in the food industry for many reasons: new regulations, more fuel-saving technologies, alternative fuels and a chronic driver shortage. Companies serving urban customers also have to consider vehicle size, turning radius, maneuverability and security. Pallet volumes and the characteristics of the customers’ receiving docks also weigh heavily in urban delivery vehicle selection decisions. Basic cost of ownership considerations, meanwhile, are the same for urban delivery vehicles as other equipment: depreciation, fuel, insurance, financing, repairs, fees and taxes, opportunity costs and maintenance.

FOOD LOGISTICS | SEPTEMBER 2016

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Seafood Delivery Demands Santa Monica Seafood Company, a seafood processor and distributor, found improved fuel economy is possible, even when hauling 16-foot bodies, maneuvering in tight spots. “We’re getting more than a 30 percent boost in fuel economy with our Peterbilt 325 as compared to the Class 5 cab-overs we’re running at our Rancho Dominguez, San Diego and Phoenix locations,” says Vince Cigliano, director of special projects. “It shows we’re not overworking the truck like we are the cab-over. The Peterbilt is matched to our application.” “Our drivers were a little concerned at first about the turning radius since we go into some tight spots. But the trucks handle well and turn sharply, plus the drivers love the ride,” he says. With a processing and distribution facility in Rancho Dominguez, California, seafood arrives daily and is parceled out on pallets for local deliveries or transported in 53-foot trailers to cross-dock facilities in Las Vegas, Phoenix, San Diego, Sacramento and Atascadero, California. “From there [in all but one location], we use medium-duty Peterbilt Model 325s and Ken-

⇧ Amigos Foods, a Hispanic food distributor, recently deployed a Peterbilt Model 220 cab-over to service some of the tighter driving areas.

worth T270s with 16-foot bodies to handle loads with six pallets,” says Cigliano. “We also use Peterbilt 337s with 18-foot bodies, which can handle up to eight pallets. Once loaded, the trucks cover their territory and make 17 to 25 stops each day, six days a week.” The 18 PacLease units have the PACCAR PX-7 with 240 horsepower (hp) or the PX-9 engine with 260 hp. The 18 PacLease units feature the PACCAR PX-7 engine with horsepower ratings of 240 to 260. They’re matched to Allison automatic transmissions and were specified with fuel efficiency in mind. Amigos Foods, a Hispanic food distributor, recently deployed a Peterbilt Model 220 cab-over to service some of the tighter areas. “Because of its cab-over design, the www.foodlogistics.com

9/8/16 11:47 AM


⇦ The prototype FTR from Isuzu with an NRR reefer unit simplifies urban deliveries for food.

turning radius is outstanding and it’s just what we needed,” says Manny Rangel, Amigos Foods chief financial officer.

the vehicle that they have to utilize,” Perry says. “Once in that Class 8 tractor and pup trailer type of design, transitioning to a straight truck [medium duty] type of delivery model is a little more difficult to achieve because it requires a major overhaul and redesign of your entire delivery network,” he says. “Even if [organizations] have a mature distribution facility built in

Cargo Management

Food Hauler Concerns Food haulers are looking to maximize fuel economy, image and driver retention in their selection of urban vehicles, says Jim Browning, a national account sales executive with PACCAR Leasing Company (PacLease), the leasing arm of PACCAR Inc., the parent company of Kenworth, Peterbilt and DAF. In trying to attract and maintain drivers, a premium piece of equipment appeals to a larger driver pool, Browning says. This includes a well-insulated cab, electronics, drivability, performance and brand reputation. He thinks the image a brand represents is actually more important in attracting and retaining drivers than anything else vehicle-related.

Delivery Network Design The design of the delivery network impacts the type of vehicle that Ryder System Inc. advises for its commercial customers, says Scott Perry, vice president of supply management and global product management for Ryder fleet management solutions. The choice is often between a pup truck delivery model and a straight truck delivery model. “The types of customers they are servicing and the type of logistics network they are operating have a huge impact on the configuration of www.foodlogistics.com

FLOG0916_36-39_TransSECTORReport.indd EM CM RG.indd 37

the local market, the type of equipment they are able to leverage, whether a straight truck or tractor, refrigerated or dry van, depends upon the type of product that they’re transporting, as well as the type of deliveries they’re making,” Perry notes. “If they’re delivering to a customer that has a traditional service dock and they need a dockhigh vehicle, then a medium-duty truck or tractor with pup trailer will

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It’s booming. [E-commerce] is going to be huge

in the next two years.” Brian Tabel, Isuzu Commercial Truck of America

probably be what’s most viable.” “Conversely, if they’re servicing a customer via a ground delivery, then they may need something that’s a little lower to the ground like an Isuzu straight truck. It has a much tighter turning radius. It doesn’t have as large of a footprint on the roadway and is able to navigate through metro markets well. It can facilitate a ground delivery a little bit easier. That would really have a big impact on the configuration of the actual assets.” Some companies are attracted to alternative fuels delivering in highly congested areas. “Even there, the alternative fuel vehicles are generally being utilized in markets where state or local incentives are strong,” Perry says. Perry recently noticed some distribution delivery vehicles doubling as grocery home-delivery trucks. Some retailers are using vehicles

⇧ The Kenworth T270 gets selected for its fuel efficiency and ability to maneuver in tight driving areas.

with integrated rear storage compartments as mobile stores that can either go direct to the consumer’s home or be positioned centrally in a metro area where the consumer can come to the vehicle. “It’s a pretty interesting concept of how to get goods to the AT 3GTMS, WE DELIGHT OUR CUSTOMERS. OUR 100% CUSTOMER end user and evidence of SATISFACTION RATING IS UNMATCHED IN THE INDUSTRY. the role that virtual shopping is having on consumer habits,” he says.

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E-Commerce Brings Change E-commerce expansion is introducing a set of considerations for companies involved in e-commerce delivery. According to research from the ARC Advisory Group, e-commerce revenues grew for survey participants by 51 percent over a recent five-year period and are expected to continue to grow through 2020. For Isuzu Commercial Truck of America, the e-commerce delivery market is an expansion of the home-delivery venue that has long been a company focus, says Brian Tabel, executive director of

Photo Credit: Fortna.com

SR: TRANSPORTATION continued

marketing. The company’s models from its NPR-HD to its NRR are being used in this service. Tabel thinks medium-duty trucks may play a big role in e-commerce fulfillment. “Once you throw a reefer unit in there to keep product cold and make multiple deliveries, if you use a cutaway van, you’re not going to have the maneuverability or the visibility,” he says. “The duty cycle of our truck is a lot longer than a cutaway type van.” “It’s booming,” Tabel says of e-commerce delivery. “It is going to be huge in the next two years.” Van manufacturers aren’t ignoring e-commerce, however. “With 64 configurations of Transit and 25 configurations of Transit Connect available from the factory, Ford vans offer customers unmatched flexibility and power of choice,” says Yaro Hetman, Ford brand manager for the Transit, Transit Connect and E-Series. “Our dealers can help customers choose and equip the appropriate Transit Connect compact van or full-size Transit cargo van for their specific application, considering how much cargo the customer needs to carry, parking requirements, delivery routes, refrigeration needs, etc. Our upfitters offer refrigeration for both Transit and Transit Connect vans.” A short-wheelbase Transit www.foodlogistics.com

9/8/16 11:47 AM


FORD CREATES E-BIKE TO FOLD INTO VANS Urban delivery fleets in the not-too-distant future could have an innovative option to help reduce gas burned and time wasted waiting at red lights and searching for parking spots. Ford Motor Company recently created a prototype electric bike that folds into the back of a van for use by couriers, electricians and delivery services. Instead of driving a van through crowded city streets, fleet drivers can park it and ride the e-bike to their destination, helping save time and money. Alternatively, a driver/rider team can work together, with the driver dropping off riders at a hub to make deliveries via bike, then meeting up with them at the next stop, eliminating the need to search for parking. Up to three Ford e-bikes can be stored in a Transit Connect van. The MoDe:Pro e-bike is helping Ford study how electric bicycles work with cars and public transportation to help commuters and fleets in urban areas. The e-bike is among 25 experiments Ford launched as part of Ford Smart Mobility, the company’s global plan to help change transportation through innovation in connectivity, mobility, autonomous vehicles, customer experience and Big Data. “There are so many ways to get around a city, but what is really needed is a way to connect all of these transport options together,” says Ken Washington, vice president of research and advanced engineering at Ford. “Being able to seamlessly move between cars, buses, trains ⇧ Ford is studying how electric bicycles help fleets in urban areas. and e-bikes, and react to changing

Connect van is the most capable in its class to navigate high-traffic environments, Hetman says, thanks to its turning diameter of 36.1 feet. “If a customer needs to maximize the amount of food the vehicle can carry, while still being able to enter parking garages, then the long-wheelbase, low-roof Transit van is a great solution,” he says.

traffic situations can make a big difference, both for commuters, and for those delivering goods and services.” Ford challenged its employees around the world to submit designs for e-bikes and the prototype MoDe:Pro e-bike was among the top designs from more than 100 submitted. The e-bike has a 200-watt motor with a 9-amp-hour battery that provides electric pedal assist for speeds of up to 25 kilometers per hour (or approximately 15.5 miles per hour). The e-bike charges when docked in the vehicle. The prototype e-bike offers technology inspired by the automotive industry. It includes a rear-facing ultrasonic sensor that enables a rider alert system to warn the cyclist when a vehicle is passing by vibrating both handlebars. It alerts motorists of the presence of the e-bike by illuminating handlebar lights. The MoDe:Pro e-bike works with a prototype app called MoDe:Link that is compatible with the iPhone 6. Real-time information from the app enables the e-bikes to deliver: • Navigation. Handlebar grip vibrations let the rider know when to turn. Turn signals are triggered automatically for safety. The app can identify bike-friendly roads, hazards and alerts, and is able to sense and communicate with other vehicles. • Multimodal navigation and smart routing. The app integrates journey planning with personal vehicle and public transportation networks, which can be filtered by cost, time and amount of biking. A map includes weather, parking costs and charging stations. • Speed and comfort. The electric pedal assist rate can be adjusted based on heart rate. The no-sweat mode lessens the requirement to pedal, allowing riders to arrive fresh at their destination. • SYNC compatibility. While the e-bike is stowed and charging inside the vehicle, Ford’s SYNC voice-activated connectivity system shows the app on the vehicle’s display. After users input a destination, the MoDe:Link app lists possible journeys, then provides step-by-step or turn-by-turn navigation. This can include driving to a train station, taking an e-bike onto the train, then riding the bike from the train stop to the final destination. The app also updates the route as circumstances change.

To maximize cargo capacity, total cost of ownership and fuel efficiency, the customer should consider the high-roof, extended-length Transit van, which provides 487 cubic feet of cargo capacity, he adds. “Many food delivery fleets may also want to consider the available 3.2L I5 diesel engine for the Transit van, since it delivers good

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fuel economy, even if the driver has to spend a lot of time idling in high-traffic areas,” Hetman says. E-commerce fulfillment gives urban delivery a higher priority for transportation service providers serving forward-thinking food companies. It marks the latest wrinkle in an already challenging urban delivery marketplace.

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SECTOR REPORTS SOFTWARE/TECHNOLOGY

BY ELLIOT MARAS

FOODSERVICE OPERATORS EMBRACE SUPPLY CHAIN

MANAGEMENT SOFTWARE Supply chain tools enhance forecasting, invoice auditing, demand planning and more.

M

anagement software is well-established in the foodservice industry, but it does not typically include supply chain management. As restaurant operators become more cognizant of the need to manage their supply chains, many are beginning to embrace supply chain management software. Ric Scicchitano, who formerly served as executive vice president of food and supply chain at Corner Bakery Café before recently moving to another fast casual chain, began researching a better way to control spending and inventory four years

Supply chain software improves inventory visibility for restaurants.

ago. There were more than 120 restaurants in the chain at the time. Scicchitano did not think there was enough control over inventory and purchasing, so he began to explore supply chain software. “The restaurant industry is low-tech,” Scicchitano says. “You’d be shocked to find out how many people don’t have a robust piece of software to manage their supply chain.”

After studying its options, the company deployed ArrowStream’s OnDemand supply chain software to improve inventory visibility. “OnDemand gives us the robust ability to see up and down the supply chain in every which way— what’s coming in, what’s going out the café doors,” Scicchitano says. “What’s the distributor inventory, what’s the inbound, what’s the outbound?” The data makes demand inventory forecasting easier. “When you manage the supply chain, you’re really trying to leverage the margin on your profit and loss (P&L),” Scicchitano says. “If I can take my food costs down from 25 percent to 24 percent, that’s a huge win on the P&L.” “Having visibility gives us the ability to make decisions in a timely manner,” according to Scicchitano. This is especially important

Demand planning software helped Corner Bakery Cafe expand its franchise operations.

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SR: SOFTWARE/TECHNOLOGY continued

in managing promotions, which is a major part of the business. It isn’t unusual for a restaurant organization to find distributors holding excess inventory once a promotion ends. “If you were watching it, week one and week two and week three into the promotion, you can rebalance the system,” he says. “You can tell manufacturers [to not] ship any more to that distributor. It’s really about timely information at your fingertips. You can react to the business proactively versus reactively.” Corner Bakery Café now checks with distributors in advance of promotions to make sure they have the necessary inventory. “How do we trust and verify that the people we pay to do their jobs are actually doing their jobs?” Scicchitano asks. The data is also helpful in negotiating contracts with suppliers. Suppliers want historical data.

ArrowStream’s OnDemand supply chain planning software allows an operator to see inbound and outbound inventory.

The OnDemand module includes suites such as limited time offers, less-than-truckload (LTL) management and quality assurance that the user can add to the base platform. Corner Bakery Café manages the supply chain for all of its company-owned restaurants, which are the majority. The franchisees

FOODSERVICE DISTRIBUTORS ADOPT GS1 TO MEET CUSTOMER DATA NEEDS GS1 global standards for foodservice distribution continue to gain use among foodservice distributors. With more than 110 member organizations worldwide, GS1 US brings U.S.-based businesses and communities together to solve supply chain problems through the adoption and implementation of GS1 standards. Shamrock Foods, a foodservice distributor, recently deployed GS1 standards to satisfy the increasing demands from its customers, notably school systems and health care providers, that require allergen and nutritional information. Shamrock recently developed a supplier connection process to allow vendors to publish product data and images in its electronic ordering system for customers. According to a 2015 GS1 report, more than 500 Shamrock suppliers publish product information, and share and synchronize data via the Global Data Synchronization Network (GSDN). Having the right pallet height for the warehouse, the exact weight for the logistics team, and the correct portion size for the sales teams and customers improved efficiency and customer service— underscoring the importance of data quality and completeness in today’s marketplace. Shamrock reported a 20 percent sales increase and a 15 percent demand gain for products that extended data attributes like nutritional information

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and product images. UniPro Foodservice Inc., a cooperative of 450 foodservice distributors, created a master data management portal in which manufacturers can publish core attributes, and marketing and nutritional attributes. All the data synchronizes with the portal via the GS1 GDSN, giving members an efficient way to access quality product images and information. Manufacturers can now distribute information about their products to UniPro’s member locations. Sales reps and members save time researching products, and can make more informed purchasing decisions. Distributors need value-added allergen and nutritional information for customers. The UniPro portal provides a resource for distributors to know what’s in a product. It used to be up to UniPro members to find the supplier sales rep or go to a website to get this information. This was a time-consuming process. UniPro now works with manufacturers to publish attributes like weight, case size, carton size and shelf life, along with nutritional data, ingredients and allergens.

manage their own supply chains and they are given access to the software as part of their franchise arrangement. Corner Bakery Café has inventory, food cost and point-of-sale systems for its internal operations separate from ArrowStream. The most difficult part of deploying the platform was learning to use it. “It takes training,” Scicchitano says. “You have to understand how the reports run; you have to understand how the queries run; you have to understand the architecture.” The ongoing customer support is very important.

Better Invoice Control The most immediate benefit was being able to check distributor invoices. “We got charged quite STUDY CASE a bit of overcharges,” Scicchitano says, reflecting on what it was like prior to having the software. “We are saving pretty big money.” The company previously verified prices manually. There were 4,000 invoices a week. “There’s just no way a human being can audit that,” he says. “Some things just weren’t happening without the system.” Whatever the annual fee was, the company paid for it within the first two months, he says. The savings come mostly from distributor and manufacturer price verification. In some cases, manufacturers overcharge distributors.

Shamrock F

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Managing promotions inventory better also delivered savings. Additionally, team productivity improved. The time required for certain clerical tasks was reduced, allowing employees to spend more time on analysis.

Management Firm Benefits Managing supplier agreements at the supplier level is a challenging daily task for restaurant auditing teams. Restaurant Partners Procurement (RPP), a specialized procurement management company, represents multi-unit restaurant groups throughout the United States, says Eric Sheen, president and CEO. Distributor contracts are loaded into the OnDemand software for clients. The auditing team tracks all discrepancies and communicates daily with distributor contract compliance to secure credits for any overcharges. “We manage over 5,000 pricing contracts daily and 20 percent of

contracts have misinformation due to errors at the distributor level,” Sheen says. “Ninety percent of [errors] are in the distributor’s favor,” he says. “With the ArrowStream auditing system, we can correct it right then and there. It allows peace of mind at the chief executive officer, chief finance officer and operator level that everything’s pulling with 100 percent accuracy on every order.” “The system integrates with the distributor every day,” he notes. “So as our store operators place an order, we know in real time if that contract is pulling correctly. “Furthermore, we know that the operator is being compliant to a hard-product specification,” Sheen says. Should an operator buy the product outside of the program or if the distributor sends an unapproved substitute product, RPP will know. “We can see the inventory level into the warehouse at any time, including purchase orders on the way,” he adds.

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When bringing on a new distributor for a client, RPP and the distributor work with the software integration team to map the data together so all companies’ data sets are identical. The system flags any incorrect contract prices a distributor may enter on an invoice, even for items not under contract.

How do we

trust and verify that the people we pay to do their jobs are actually doing their jobs?” Ric Scicchitano, Corner Bakery Cafe

Improved Partner Relations “Because of our daily oversight, the distributors are now paying much more attention because they know that we’re one of the very few customers that monitor and catch these errors,” Sheen says. “It forces them to micromanage the contract loading process much closer. By doing this, it’s easier to correct a problem on the front end, while maximizing everyone’s time.” Some RPP clients only utilize its auditing services. The OnDemand software allows RPP to audit more cost-efficiently than the cost of an in-house staff.

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SR: SOFTWARE/TECHNOLOGY continued

Technology is changing the way that we buy, the way we source and the way we move boxes around.” Eric Sheen, Restaurant Procurement Partners

that we buy, the way we source and the way we move boxes around,” he says. “Computers are more efficient than humans are as long as there is a competent and qualified team member entering and managing the information.”

Proactive Management Possible RPP also manages distribution, logistics, sourcing, cost-effective products and operational performance at the store level for clients. “We spend a lot of time looking at every item to ensure a company is aligned to the right spec that best represents its brand and guest profile,” Sheen says. “As an example, if you have the wrong trash liner specification and you’re a 20-unit chain, you may be leaving $50,000 a year on the table. We make sure that the trash liner that the distributor specs is the right spec for a client’s needs.” “Technology is changing the way

“We can solve a problem before a problem happens,” Sheen adds. An example would be a distributor running out of inventory prematurely. This would be visible to the supply chain software. “We can see where the trucks are. We can see when the truck’s due to arrive,” he says. RPP used a manual system as recently as two years ago. “It’s really been our silver bullet for our clients’ business,” Sheen says of the software. “It also provided a safety net for our distributors and they value the additional oversight.” Overhead and cost are significantly reduced, he adds.

Cloud Brings Benefits to Foodservice Foodservice chains are finding cloud-based platforms make it easier to provide information to distributor and manufacturer partners since the technology offers endto-end supply chain visibility, says Vishy Visweswaran, chief technology officer at SCA Technologies LLC, a cloud-based supply chain and cost management software provider. This is important since product demand volatility has exploded in the last few years since consumers have so many food choices. Commodity prices have also become more volatile. The time the restaurant has to go to market with a new product has fallen significantly. “A lot of supply chains are just catching on to that,” Visweswaran says. The demand for fresher and more sustainable products is also creating the need for promotions planning and execution algorithms. “They’re trying a lot of new products,” says

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Visweswaran of restaurants in general. The goal with promotions is to execute them profitably. Sustainable sourcing is a popular goal for many foodservice companies. Being able to track where the product comes from allows companies to deliver on these promises. Several companies stated, for instance, that their eggs will be from cage-free chickens in five years. These companies now have the means to monitor how well they deliver on these goals.

inventory, as well as supplier capacity, allowing for more dynamic product sourcing. Optimizing logistics and product forecasting can have a big impact on costs, Visweswaran says. These modules are reducing food costs by 3 to 4 percent, which is significant for foodservice. Chains are able to visualize cost impacts of changes in volumes, commodities, hedging and

operations processes, along with the ability to adjust prices across multiple forecast scenarios. They can also track and control performance-related cost metrics across the supply chain. Another benefit is integrating inputs from suppliers and the marketing/forecasting, treasury, supply chain, purchasing and finance teams onto one platform.

E-Commerce Brings New Demands E-commerce is also putting new demands on foodservice operators, says Visweswaran. A restaurant can know what product is available at a low cost for a given month and what product has high demand. The information can then be used to create a very profitable promotion. For this to happen, the supply chain has to be proactive with marketing, which Visweswaran says is not yet happening. Information available through social media can also help companies decide what to offer and promote, he adds. The data could be used to determine on-the-spot promotions. A lot of effort goes into improving the accuracy of the cost of goods forecast. Visweswaran says forecast accuracy improved in recent years. Companies are forecasting their food costs into the next 12 to 18 months with greater accuracy. The most commonly used logistics modules are the end-to-end network optimization module, distributor management module and logistics redistribution module. The logistics redistribution module allows a company to determine what to do with leftover pallets on a truck. “The software can help it dynamically decide whether to send product straight to restaurants or through a hub,” Visweswaran says. The sales and operations planning module allows restaurants to track distributor and supplier

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SECTOR REPORTS OCEAN PORTS

BY LARA L. SOWINSKI

WEST COAST PORT

SLOWDOWN STILL STINGS A

Two years after food shippers saw shipments spoil and sales stumble, there’s hope that early contract discussions will prevent a similar scenario in 2019.

46

ccording to the U.S. Census Bureau, 73 percent of U.S. agricultural exports and 65 percent of imports were waterborne in 2014, which illustrates the integral role that ports play in the global food supply chain. While ports in the New Orleans region dominate in the handling of bulk agricultural exports, the top five ports for containerized exports include Los Angeles, Long Beach, Oakland, Tacoma and Savannah. The top five ports for containerized agricultural imports are New York, Los Angles, Oakland, Long Beach and Houston. The relationship between the agricultural sector and ports is highly interdependent—agriculture relies heavily on ports to help in the safe and efficient handling and transportation of commodities through key gateways. In turn, rising volumes of agricultural shipments, including temperature-controlled shipments, are driving business for ocean carriers and ports. The agriculture sector is also a significant economic engine for states like California and Washington. Figures from the Washington Policy Center, an independent research organization in Washington State, show that agriculture

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adds $51 billion annually to the state’s gross domestic product and makes up 13 percent of the state’s economy. Chris Cargill, the center’s Eastern Washington director, notes that while Washington “is known for advanced technology and airplane production, the number of people working in the growing and food processing industries surpasses 160,000—more than Microsoft and Boeing employment combined.” He adds that, “Without the ability to export, Washington’s

USDA’S FAST FACTS:

• U.S. agriculture is expected to contribute $16 billion to the U.S. balance of trade in fiscal 2016 • Exports are forecast to reach $138.5 billion, while imports are forecast to reach $122.5 billion • Forestry and fishery products, and critical farm inputs such as fertilizer, feed and fuel also move on the U.S. waterway system • Agriculture Secretary Tom Vilsack noted that every $1 billion in farm exports supports roughly 8,400 jobs • The U.S. exports approximately one-quarter of the grain it produces. On average, this includes nearly 45 percent of the wheat, 35 percent of the soybeans, and 20 percent of the corn

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agricultural production would be severely limited. In 2014, the state exported more than $16 billion worth of food and agricultural products to people around the world, half of which were grown or raised in Washington. This included fresh fruit, vegetables, meat, wheat, seafood and dairy.” Japan ranks as the leading market for the state’s agricultural exports, followed by Canada, China/Hong Kong, Philippines and South Korea. Nonetheless, “The ability to move products at all came to a halt entirely in 2014 and 2015 because of the West Coast port shutdown, resulting in millions of dollars in lost revenue for state growers,” states Cargill. “Fresh fruit and vegetables rotted at the 29 ports along the West Coast during the strike. Washington state apple growers alone www.foodlogistics.com

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down, and that doesn’t include the global market share lost by growers, which may take years to recover, Cargill points out. TRANSPORTED The U.S. Department of BY WATER: Agriculture commented on the effects of temporary closures in its report, “A Reliable Waterway System is Important to Agriculture,” echoing Cargill’s concern EXPORTS that agricultural shippers may find it difficult to win back customers following the West Coast port slowdown. “U.S. exporters compete on the basis of world prices,” stated the USDA. “Temporary closures and restrictions on traffic in harbors and channels IMPORTS due to flooding, drought, sedimentation, groundings, natural disasters, man-made disasters, slowdowns, strikes, and lockouts can lead to congestion, delays, spoilage, diversion to other modes and ports, higher trans-

73%

65%

estimated they lost nearly $100 million. Other Washington farmers and growers were hurt as well, as their products became worthless while awaiting shipment.”

An analysis prepared for the Washington Council on International Trade estimates that in-state businesses lost approximately $769.5 million during the shut-

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portation costs and lost sales.” Furthermore, “Higher transportation costs can result in lower cash bids in interior markets. U.S. exporters may be unable to pass on higher transportation costs, as customers can purchase similar products from other countries.” During this year’s 16th Annual TPM Conference in Long Beach, California, Perry Bourne, director of international transportation and rail operations for Tyson Foods, recounted the impact of the West Coast port slowdown on his company’s chilled meat shipments. “We’ve had disruptions at the ports before,” he acknowledged, “but not like this.” Tyson took a hit of over $80 million to its bottom line in the third quarter of 2015 because of the port problems and the resulting demurrage charges that Tyson accrued with its rail carriers. “The sad part is it really increased costs for the shippers and we had no dog in the fight; we were dealing with impacts that affected our business and yet we had no control over them,” Bourne said.

ILWU, PMA to Discuss Contract Extension The current contract between the International Longshore and Warehouse Union (ILWU), which represents about 20,000 workers at 29 ports along the U.S. West Coast, and Pacific Maritime Association (PMA), the industry representative for 78 shippers, marine terminal operators and stevedores, expires on July 1, 2019. In August, the ILWU agreed to the PMA’s request to discuss an early extension of the contract. www.foodlogistics.com

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Jim McKenna, president of the PMA, has indicated that a “logical” extension of the contract would be for three to five years. He also appears committed to avoiding a repeat of the 2014-15 West Coast port slowdown. “Negotiations are more visible now. There is pressure on both sides, and pressure does a lot to get things done,” McKenna told attendees of the Agriculture Transportation Coalition annual conference in June. Not surprisingly, agricultural shippers are hopeful the two sides can reach agreement on a contract extension. A farm journal quoted Mike Steenhoek, executive director of the Soy Transportation Coalition, who said, “Such a contract extension will provide greater predictability of the supply chain for those industries, including agriculture, that depend upon West Coast ports.” In an Aug. 15, 2016 post on the Midwest Shippers Association website, Steenhoek explained that while containerized soybean and grain exports were affected by the West Coast port slowdown, U.S. meat exporters that ship via reefer containers were hardest

• The Northwest hit because the perishable nature of the meat cannot easily Seaport Alliance, which includes withstand supply chain delays. the Port of Seattle Highlighting the domino effect (above) and The Port that this had in the agriculture of Tacoma, saw a 12 percent jump in sector, Steenhoek noted that, “The domestic livestock industry imports during July 2016 compared to is our most important customthe same month er. Any harm absorbed by the in 2015. livestock industry will be felt by those soybean and grain farmers producing the food the animals consume. The West Coast port disruption was such an example.” The U.S. Federal Maritime Commission stated in its latest update, “U.S. Inland Containerized Cargo Moving Through Canadian and Mexican Seaports 2015: Diversion, Port Expansion, and Shifting Market Shares,” that port congestion is a leading cause for cargo diversions. Admittedly, there are numerous factors contributing to port congestion, including vessel alliances and the resulting impact on terminals, as well problems with chassis availability. However, deteriorating labor relations like those that materialized at West Coast ports during 2014-15 contributed in cargo diversions to competing ports in Canada and Mexico, the FMC stated.

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FOOD (AND MORE) FOR THOUGHT

BY JOHN C. LIDESTRI

Contract Manufacturers Can Add Value through Vertical Integration of Supply Chains

A LIDESTRI

John C. LiDestri is co-president of LiDestri Food and Drink, overseeing both sales and supply chain.

50

s a contract manufacturer for some of the largest consumer product goods companies in the U.S., when LiDestri Food and Drink goes looking to buy raw materials, more often than not, we’re looking to place a large—and probably standing—order. But we can’t always find exactly what we’re looking for on behalf of our customers or our own proprietary brands. Often, it’s more than a scarcity of materials that stalls our efforts. Supplies may not meet our quality requirements, be too costly or are not differentiated enough to fuel a unique product on the shelf. Sustainability is another growing concern for consumers, and therefore, for manufacturers as well. For all of these reasons, we are always exploring new and inventive ways to shorten or vertically integrate our supply chain. The strategy has its pros and cons. As “The Wall Street Journal” noted in a March story: “Vertical integration gives companies more control over critical elements of their supply chains, but it also places new demands on corporate leaders as they address questions of how far their companies can go in overseeing all stages of production.” Yet the production of fresh basil, craft whiskey and organic tomatoes are all new projects we chose to assume at LiDestri, so we can produce the finest, and most successful, products possible. Each of these examples demonstrates a different impetus for vertical integration in supply chain management and a creative solution to get the job done.

FOOD LOGISTICS | SEPTEMBER 2016

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Craft Whiskey: High Demand, Short Supply An explosion of demand for high-quality craft spirits, most notably, subtly balanced brown varieties such as bourbons and ryes, put distilleries on a growth curve that is even steeper than that of the craft beer craze in the 1980s. LiDestri has a large spirits portfolio, but we wanted in on craft whiskies and especially bourbons. But because aging is an important part of the bourbon-making process, we needed to find a partner who was already in the game. Our search ended fortuitously with Iron Smoke Distillery. Our investment will help Iron Smoke quickly ramp up production of its namesake applewood-smoked Iron Smoke bourbon, which is aged 18 to 20 months in virgin American oak, as well as its unaged counterpart, Rattlesnake Rosie’s Apple Pie Whiskey. Iron Smoke’s award-winning “dangerously drinkable” whiskey and bourbon will soon become more plentiful and widely available as a result of our partnership.

Tomato Varietal Offers Differentiation At the low-priced end of the spectrum, tomato and other pasta sauces have become commoditized, squeezing profit margins. Meanwhile, at the premium end, producers are increasingly looking for ways to differentiate their products and elbow into the profitable specialty market. So when one of our longest-standing customers, Newman’s Own, wanted to create the best-tasting organic pasta sauce on the market, we got creative.

For us to fulfill the request, we had to find a California grower who could plant and harvest 1.5 million pounds of a super flavorful tomato varietal, which was selected in a taste test in which it beat out Italy’s famed San Marzanos.

Basil Farm Assures Quality and Quantity As consumers are demanding healthier and natural foods, our customers are asking us to improve the quality of the ingredients in their products. Given the fact that much of our business is in pasta sauces, our need for fresh, high-quality basil is constantly growing. After evaluating every option, we decided the most effective supply chain solution for us is to grow and harvest our own basil in a climate-controlled hydroponic warehouse farm, where we can control quality and the supply stream. Currently, we are in the initial phases of promising trials that were designed to achieve optimal results. Evermore demanding consumers and always increasing competition makes navigating and mastering the supply chain in today’s food and beverage business more complex, yet more important, than ever before. Mastering vertical integration improves our product quality, price points and bottom line at the same time it fulfills customer needs. Most significantly, we found that viable solutions for successfully mastering vertical integration requires some combination of strategic partnerships, commissioning or otherwise incentivizing suppliers—and sometimes plain old just doing it yourself.

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Food Logistics September 2016  

Food Logistics is the only publication exclusively dedicated to covering the movement of product through the global food and beverage supply...