SUPPLY CHAIN ANALYSIS: Maintaining Product Freshness

Asia is suffering from the growing pains of severely constrained cold chains, says Jeffrey Russell, Managing Partner, Supply Chain Asia Pacifi c, Accenture Singapore. While India has attracted the interest of the world by providing access to markets, manpower and materials, much remains to be done to knit its underdeveloped network of transport, distribution and logistics systems to global supply chains. Cold-chain infrastructure is largely absent in the country, which is currently covered by a complex and underserved distribution system of 5,161 towns and 638,000 villages. Transport delays and inadequate cold storage now cause 30 to 40 percent of fruit and vegetables to rot at the harvesting site or while in transit.

China’s situation is woefully similar. Its marketplace is one of the most competitive in the world. Nevertheless, only 15 percent of all perishable products are transported by refrigerated vehicles, compared to levels that hover around 90 percent in developed countries. In the recent climate of food scares and recalls, Chinese consumers have also had to deal with various levels of food poisoning due to improper handling, inadequate refrigeration, and a lack of cold-chain regulation and enforcement.

Obstacles
The reality is that the Third Party Logistics (3PL) industry is still in its infancy. Comparative scarcity of processing practices and a lack of government regulations has foiled cold-chain development in the region. Only 25 percent of the food Chinese citizens consume is processed, compared to about 80 percent in more developed countries. While these cold chains are regulated by an intricate network of authorities, there are few or no country-level laws or regulations governing food safety in the areas of storage, transportation, distribution and retail. Trade rules and customs rules are also complex, varying from region to region. Railcars are scarce and road vehicles are ill-equipped to handle large volumes. Poor coverage, high costs and insuffi cient capacity have also ruled out the widespread use of airfreight for perishable-food transport.

While transport is one culprit, inadequate storage is also to blame. Organized cold-storage capacity in India is low, with 3,252 stores offering an installed capacity of only 8.7 million tons. In China, coldstorage capacity covers about 25 percent of total output, which is low in comparison to the 70 to 80 percent in developed countries. Then there is the issue of proximity. Even though cold-storage warehouses are generally found in major port cities, few are near their supply bases.

Opportunity knocks
So the argument for an effi cient cold chain is strong. Good supply-chain management contributes to savings and effi ciency, waste reduction, and vast improvements in public health. The case for investment in Asia is compelling, even if these investments come with some inherent risks. Corporations investing in cold chains in China and India may have to live with smaller returns on their investments — more so than they are used to — for the initial period. Nevertheless, there is considerable room to maneuver. Current estimates put transportation and logistics costs for China’s perishable foods at about 20 percent of a product’s selling price. (In the US, it is four percent.)

The Chinese market wants a strong cold chain. Supermarkets want to increase their frozen-food shelf space to meet the gastronomic needs of an increasingly urban population. Frozen food is growing at an estimated annual rate of about 10 percent, and the annual output of processed frozen food is double that. Food and beverage manufacturers can improve their supply-chain effectiveness by concentrating on these six areas:

1. Use 3PLs
Most food and beverage companies have in-house logistics. Outsourcing these operations and concentrating on one’s core capabilities would be helpful. In fact, Accenture research has confi rmed this. High-performing businesses improve their operating model and sustain a competitive advantage when they outsource non-core competencies to service providers for which the work is a core competency. This could also be helpful where the products have to travel to various locations and require signifi cant coordination.

2. Benchmark leading practices
Food and beverage manufacturers should try to benchmark against leading practices in developed countries. Through a comparison, companies can identify their own performance gaps and develop new solutions.

3. Leverage special technologies
Non-electric cold containers which use pressurized carbon dioxide to reduce spoilage are available. Easy-to assemble insulated pallet containers are designed to provide excellent thermal protection for large payloads, while polyurethane-insulated containers are ideal for maintaining temperature in shipments over long periods or extreme temperature conditions. Other special packaging, materials and equipment are available on the market to extend product and shelf-life.

4. Invest in training
Extensive distance-learning programs for line and staff are available for nearly all aspects of supply-chain management. These can greatly improve an organization’s productivity and overall performance. These programs can also be customized to focus specifi cally on areas like receiving, inspection, cold storage and delivery.

5. Develop KPIs
Metrics such as distribution cost as a percent of sales, productdamage ratios and on-time delivery should be calibrated to ensure high performance.

6. Plan and forecast
Balancing demand and supply is particularly tough in emerging markets where physical distances are great, buying patterns erratic, and delivery and product quality less predictable. Deployment of planning/forecasting technology is vital. However, unique, situationspecifi c capabilities also are needed to understand supply conditions and make adjustments.