A Review of the Food & Beverage Sector – Part 1

Over the years we have done a lot of work in this sector. This post is the first in a series of five that describes 25 major relationships. These examine the supply chain from farm and field via manufacturers and processors to the retailer. Generally traditional ways of operating with partners is still evident with a focus on price, and traditional methods of dealing with ‘suppliers’ and retail customers resulting in poor collaboration from both sides and self-centred behaviours. Other fascinating revelations also emerged.

Baking, Brewing and Poultry 2004 -2008

 Background

In this section we describe 8 substantial UK relationships involving farmers, hauliers, intermediaries and manufacturers working in cereals supply chains. Each of their stories is shown below using their own words. Their overall relationship performance is compared in the chart below.

Farmers

“We are a very traditional business yet we have embraced new technology and produce a quality product. They sometimes treat us like commodity suppliers.”

“They expect they can come with little notice to pick up my grain. They don’t seem to realise that we work hard in all weathers in the depths of the countryside.”

“We are always having planning and quality disputes with their operations people. They keep us in the dark.”

Hauliers

“This food product needs specialist handling and must be delivered safely in optimum condition within a tight time window. If we get this wrong the load will be rejected at considerable cost and inconvenience.”

“It’s all about price. They negotiate until ‘the pips squeak’. And they always want it done now!”

“They don’t think that we are important. Nobody ever asks us what we can do to help.”

 Intermediaries

• Transport scheduling

“We can never get the farmers on the phone and they constantly complain that we turn up without notice.”

“Trucks don’t always arrive when they are expected. Sometimes farmers won’t load, sometimes they get stuck somewhere. However, they understand that dealing with trucks is not easy.”

“To improve the relationship I think we can look at the haulage issue together. It is one of our biggest costs and it can be a make or break.”

 “At certain times more honesty is required from their planning department in relation to timings of deliveries and in regard to deliveries not arriving on time.”

“I think we could give them more information about arrival times, but it would be very difficult and time consuming to do it.”

• Performance measurement

“We have a performance measurement system with one supplier, but not with the others.”

• Problem solving

“There are no problems with information flows. In fact, they are very good; they give me all the information I need. We don’t have a formal procedure for solving problems, but they are resolved successfully.”

“We’ve both tried to come up with further cost reduction ideas but neither side can agree.”

• Willingness to collaborate?

“We don’t talk about anything else other than price and volume. More information would not make a huge difference. If they pay market price we are happy to supply.”

 “It is a big issue when they buy from farms bypassing us. This undermines our position, gives the impression of false demand and increases prices.”

“We have started to explore building a closer relationship but we are uncertain about the customer’s understanding and long-term intentions.”

Manufacturers

• Opportunistic business model?

“I am buying a commodity product, which is bought against industry norms purely on price. It may be difficult to have a totally open discussion re price as my objective is to buy the cheapest possible and theirs to sell at the highest possible.”

“I would not like them to be a success at our expense.”

 Performance measurement

“We don’t have a true and detailed view of full costs. We tend to look at costs on too crude a level.”

“We spent a lot of time developing the performance measures but I don’t know how they are interpreting them or whether they are working.”

• Collaboration

“The quality of the product and service has improved since we started the relationship. They have understood what we can’t, and they deliver. Benefits are equally shared. We both get good things and we are now getting the next supply chain level involved.”

“I don’t believe that concepts such as innovation are thought of as being relevant to this chain. However, I do feel we have a good working relationship in general and that both parties would be willing to investigate these ‘new concepts’ to introduce new benefits and exploit new opportunities.”

“There has been some proactive stuff, like bringing the farmers to see us.”

“A more dedicated resource should be made available to develop the relationship, and to increase the gap between our competitors by creating a wider point of difference because the market is catching us up.”

Conclusions

This is a very traditional business that has run on transactional lines with a strong focus on price. Gradually it is dawning on the supply chain participants that collaborative working could provide increased benefits such as cost reductions, improved quality and, incentives to innovate and stay ahead of competitors.