The horse meat scandal in 2013 put the focus on food supply chains and, not surprisingly, has led to more legislation. Alex Whiteman reports on how the market is changing.
There are numerous legislative changes being pushed through the food sector. Applying a single set of standards globally is of course most beneficial to suppliers. And reducing the waste of time and expense involved in catering to a multitude of different country legislations is a priority.
One core area of legislative focus is temperature control. Chris Sturman, CEO of the Food Storage and Distribution Federation, says: “Quality and safety is vital. And now we have our new friends at the Food Fraud Office to consider.”
In particular, driving out refrigerants from the supply chain that present a threat to the environment is receiving a lot of attention from legislative bodies.
“These new laws are based on driving up prices to force out the current blend of refrigerants – F gases in particular,” says Sturman. “Of course this will have a huge impact, not only on the supply chain but at the bulk head. Supply will be reduced by as much as 79 per cent.”
Leveraging up prices to force companies to abandon their use of such harmful refrigerants as F-gasses will have, according to Sturman, firms such as ThermoKing longing for additional refrigerant blends. However, there are potential dangers with this approach. Sturman says that these changes are responsible for mildly explosive alternatives being sourced.
“Alternatives will come through soon enough to avoid impact, but care will be required,” he says. “Alongside this, we are also seeing an influx of new legislation regarding repair and maintenance.”
Air cargo has grown to play an increasingly important role on the movement of perishables. Daniel Johnson, IAG Cargo’s manager of global products, points out that IAG has dedicated more than 26,000 sq ft of space to chilled facilities; there is also a fleet of refrigerated vehicles to maintain temperature end-to-end.
“We are investing at our facilities in Madrid,” says Johnson. “And we have expanded our prioritise product, which provides a same-day connection.”
In addition to the facilities, investment has been made in the carrier’s fleet, with IAG bringing on board a number of Boeing 787s – otherwise known as the Dreamliner – that offer superior temperature controls to existing aircraft.
There are also changes in levels of traceability, in part advanced by 2013’s horse meat scandal. Such scandals may have been avoided if food distributors and retailers had total end-to-end traceability of their supply chains, as is demanded of the pharmaceutical industry.
Mark Wilson, supply chain consultant at Indigo, says: “Food manufacturers are feeling a lot of pressure because of tighter regulations and a greater emphasis on quality assurance, which is coming from end consumers and retailers.
“As a result of food scares in recent years, retailers, especially when working with own brand label manufacturers, want to protect themselves from any scandals and need high levels of traceability.”
Wilson says that at the same time, demand for quality control automation has increased because manufacturers need to reduce the administrative overheads of compliance with regulations like HACCP and provide a very fast turn around for retailers looking to have multiple deliveries per day.
“A lot of the food manufacturers we deal with are private label producers, working for the supermarkets – about 80 per cent of their throughput to retailers is private label,” says Wilson. “Retailers put a lot of pressure on them and there are always supply chain improvement initiatives going on to strip out margins and improve quality.”
Product traceability requirements, road speed restrictions and duty of care – when it comes to delivery, this means driver monitoring – need to be adhered to. And apart from obeying access restrictions and speed limits, it is also imperative that logistics companies comply with Driver Hours of Service regulations.
Charles Nockold, marketing and business development director at Paragon Software Systems, says that this area of “last mile” delivery is often focused in urban regions.
“This is where there are increasing regulations and residential requirements to contend with,” says Nockold. “As population and congestion increase, together with intensified pressure on environmental considerations, we may well see more restrictions on when trucks can enter towns and cities and what routes they can take.”
Nockold says such restrictions make it very difficult for food logistics operators to maintain the efficiency and reliability of their delivery operations – especially when they also have narrow delivery windows to contend with, due to school times or residential requirements.
Johnson says that there is now greater demand for perishable goods, and this greater demand has been matched only by the greater expectation that accompanies it. Meeting the standards expected while also complying with rafts of new legislation being brought in presents its own series of issues.
IAG became IAG with the acquisition of Iberia and the teaming up of the Spanish airline with IAG’s other core member, British Airways. With this union, IAG was presented with access to the Latin American region via Iberia’s existing route network.
“Core markets remain Europe,” says Johnson. “It is imperative that we meet the standards imposed by both DEFRA and European policy.”
To meet these needs, IAG Cargo has applied universal standards across the entirety of its network: “Perishables travel by air because of the speed offered,” he says. “But there’s no point if deliveries are slowed down landside. We have applied universal standards across all aspects of our responsibility.”
In December 2014, IAG Cargo awarded its new London Heathrow perishables handling contract to Worldwide Flight Services (WFS). This new service provides customers with direct collection from the airport, which reduces effort, time and distance.
“Speed to market has become imperative for importers,” says Johnson. “The new contract with WFS allows us to have produce available within 90 minutes.”
More than 40 per cent of food consumed in the UK comes from overseas, with Sturman noting that a significant quantity comes in from Europe.
Wine, and fruit and veg, have long been imported so the systems are well developed. However, this brings us back to the horsemeat scandal, and how it could have been avoided if there was total visibility in the supply chain from source to consumer.
“Spain, Portugal and Italy all provide a large quantity of perishable goods to the UK,” says Sturman. “We’ve produce coming through from Calais via Dover and then Norbert Dentressangle and Kuehne + Nagel are offering a lot via airfreight.”
These firms use existing belly hold space to carry cargo: “There’s a lot of meat from Australia coming in too,” says Sturman. “All in all, there’s a lot of integrated logistics in the food sector taking advantage of existing modes of transport.”
With food coming in from overseas, there are concerns not only about food miles but also traceability and poor employment practices. Some retailers are offering local produce through farm shops, and to a lesser extent, through markets. These are proving to be growth areas as consumers increasingly choose to ‘buy local’. Improved connectivity and tracking from source is helping to improve traceability, but it is not as critical as products such as meat and dairy produce. Poor employment practices have led to initiatives such as Fair Trade.
One form of transport often overlooked for national distribution is rail, which Sturman believes could cater to the food sector if the issue of reliability could be tackled. In the short-term though, this does not look realistic but as urban logistics comes more and more to the fore, there could be space to grow. Sturman points out that consolidation is liable to present another hurdle to overcome.
Mergers between suppliers are driving improvements in supply chain efficiency through consolidation and optimisation. For example, the adoption of a single, common IT platform allows for efficient centralised control. Combining operations in itself can be a complex and time consuming process, and is not to be underestimated.
Sturman says that while there have been mergers, which in turn has led to a tightening in margins, he does not see it having too big an impact – at least where he is concerned in terms of the provision of temperature controlled facilities.
“Nobody but NFT, with its new facility at Tilbury, is building new facilities,” he says. “In fact, others seem reticent to spend.”
Mergers inevitably mean that suppliers can increase process efficiencies, according to Wilson. “One merger in particular between two food manufacturers has significantly improved efficiency by reducing the level of internal logistics required within the group, for example reducing the need to transport goods internally between sites,” he adds.
The growth of discount retailers, such as Lidl and Aldi, is putting pressure on their larger rivals such as Tesco and Sainsbury. The discounters operate where margins are already tight. This has contributed to the pressure on competing food retailers to reduce operating costs and employ greater automation to streamline operations. Increased market saturation means that retailers have to look more closely at location planning to ensure sufficient trade catchment while also factoring in optimisation of their transport operations.
“Tesco and its ilk are forced to compete with the likes of Aldi and Lidl who operate a different model with a lower store footprint and much smaller range of products,” says Wilson. “The other supermarkets are trying to compete by offering lower prices too, but they have much greater overheads and when consumers enter a Tesco or a Morrisons their expectations about the products they will find are different from an Aldi or Lidl customer.”
Tesco customers want to see a large array of choice, which is cheap, says Wilson. For the retailer trying to manage a supply chain, it isn’t really a level playing field. In response to this, food logistics is becoming more demanding. Retailers want more frequent deliveries and some are adapting by doing more of the stock handling directly.
“Aldi and Lidl customers know they will get limited choice and they understand that’s the trade off for lower prices,” says Wilson. “For example, breaking up a large order into smaller, more frequent deliveries, ensuring they can respond more quickly to demand and that their transport fleets are being better use.”
Nockold says that Paragon is seeing some interesting outcomes from the deployment of Paragon’s new Arrivals Board option. This provides a web-based screen in the back of the store, giving details of the next planned delivery and the updated arrival time.
“This means that staff can be deployed efficiently in the store right up to when the truck arrives,” he says. “It also means there’s no need to dictate a narrow delivery window, particularly for ambient goods – which leads to more efficient routing and cost savings.”
Case study: Eden Farm boosts transport efficiency
Eden Farm, the frozen food and ice cream wholesale distribution company, has implemented a multi-depot routing and scheduling solution from Paragon Software Systems to help improve transport efficiency and customer service. The Paragon Multi Depot system provides a high level of specific driver, vehicle and route planning capabilities across the company’s nationwide transport operation.
Prior to implementing the Paragon system, Eden Farm’s sales team would accept orders while being unable to take into account the delivery logistics. The drivers planned their own routes and the company’s head office had no real-time visibility of the fleet to check that deliveries were running according to schedule.
Following a trial of the Single Depot system at its Bradford operation, Eden Farm upgraded to Paragon’s Multi Depot routing and scheduling software to cover operations in its London, Cardiff, Glasgow and Peterlee depots as well. Further functionality was added with Paragon’s INRIX-based road speed data and HERE Map Content with street level mapping for daily operational planning use.
“We use fewer vehicles in the depots now, and have greater visibility into our delivery operations, which in turn means improved customer service,” says Robert Gee, strategic manager of IT and operations.
“Head office can track all our delivery vehicles, and, not only does the system give us visibility into our actual operations, but it is also a scenario planning tool. Ours is a seasonal business, and the system allows us to plan for high-volume summer orders as well as to react to what-if situations, such as accommodating a customer’s request for an extra delivery.”
Case study: Tayto slashes mileage with virtual help
Snack manufacturer Tayto recently implemented a virtual warehousing system. The system, supplied by Bibby, provides a single ordering point for customers, which then builds multi-sku loads from stock in Tayto’s two major warehouses, and calculates the most cost-effective way of consolidating the load based on other orders in the system, transfer costs and warehousing expenses.
This then provides the cheapest route to market, while also making it easier for customers to order, as previously they would have had to place two separate orders depending on whether they were ordering snacks, stored in Corby, or crisps, stored in Scunthorpe.
Nigel Smith, Tayto’s group supply chain director, said: “The virtual warehouse system has been extremely beneficial for our business. It has slashed our annual food miles by around 40,000 a year, plus there are now 3,000 fewer pallet touches which means the risk of damage to our stock is far, far lower.”