Last week, the United States Congress passed new federal legislation related to the labeling of food ingredients, specifically food products made from genetically modified organisms (GMO’s). The new regulations are expected to be signed by President Barack Obama. These new requirements have drawn mixed perceptions among consumers as well as industry participants and will lead to further language interpretations along with process and technology changes in the months and years to come.
While the Grocery Manufacturers Association lauded the bill passing as a tremendous victory for consumers and common sense, general and business media are noting quite different perceptions.
The new labeling regulations supersede tougher measures already passed by the State of Vermont that went into effect in July. That Vermont law required food manufacturers and grocery chains selling prepared foods in the state to explicitly label food containing GMO ingredients by January 0f 201. Some leading food producers had already initiated efforts to comply. According to news reports that we have reviewed, this new federal legislation renders the Vermont law null and void.
The new federal food labeling legislation allows regulators up to an additional two years to determine the new federal guidelines while smaller food manufacturers would have up to three years to comply. The compromise federal bill spreads out the timetable for conformance and introduces the ability of food manufacturers to utilize QR codes as a means of transmitting full disclose of GMO ingredients. The new federal regulations passed in what the New York Times described as: “.. after a battle that cost food and biotech companies hundreds of millions of dollars (Of lobbying) over the last few years.”
As business media notes, within the core of this ongoing debate is a reality that the vast majority of corn, soybeans and other crops grown across the United States are currently genetically engineered to avoid pest and crop losses. One U.S. Senator predicted certain future litigation challenging the new regulations. For instance, the U.S. Food and Drug Administration (FDA) interprets the current bill’s definition of foods as not including the many products containing refined oil and sweeteners. The U.S. Agriculture Department, designated to oversee enforcement of the new labeling regulations disagrees with the FDA interpretation.
Perhaps the most controversial aspect is that the new law allows food companies several options to disclose ingredients. According to reports, producers can either add additional text to existing physical labels, place a yet to be determined symbol on product packaging to denote GMO ingredients, or utilize a “digital link” such as QR bar code that consumers can scam with a smartphone that would transfer detailed information from a dedicated web page. The latter option is drawing pointed controversy because current industry data seems to indicate that only 20 percent of current shoppers actually scan a digital code on grocery items to retrieve such information. Proponents also point out anything short of full physical label disclosure will inhibit full disclosure. They further point out that the use of digital media penalizes consumers that currently do not own a smartphone with scanning capabilities.
In spite of all of this ongoing controversy, leading food manufacturers have the opportunity to rise above the noise and take the lead on measures of full disclosure.
Regardless of the ultimate timetable, there are obvious food supply chain implications. They include the ongoing transition to more organically sourced farming and food ingredients which will take additional years of transition to complete. The other obvious implication is greater transparency related to the entire food supply chain.
As Supply Chain Matters has noted in many prior commentaries, most all of this activity should come under the broader umbrella of incorporating broader aspects of sustainability in ongoing business objectives. By our lens, advanced technology in providing full end-to-end visibility of product, ingredient and supplier sourcing will be the new table stakes in providing consumers the visibility they desire. Producers who elect to drag their feet are delaying the inevitable, and open the door for industry disruptors to gain the trust and confidence of consumers and grocers that actions are being taken to assure both visibility as well as longer-term sustainability for healthier products.
©Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.
Yesterday, E2open announced its acquisition of Orchestro, a Cloud based demand signal repository and analytics platform provider catering to Retail and CPG Industry Omni-channel business process fulfillment needs. Financial details of the acquisition were not disclosed, which is not a surprise since E2open was taken private in February of 2015.
This acquisition comes on the heels of the firm’s acquisition of product demand sourcing provider Terra Technology in March, and a further indication of an unfolding strategy centered on expanding technology support for specific industry related supply chain B2B and B2C business process network needs.
This author and industry analyst has had the opportunity to have been briefed by both vendors within the last nine months.
Orchestro’s concentration has been on demand-driven CPG companies requiring what that firm describes as an analytical edge. This technology provider was founded in 1999 primarily as a data harmonization services provider, and morphed to target specific CPG and Retail industry needs. The firm’s marketing message currently reads:
“We harmonize, analyze, and monetize demand data across omni-channels to drive profitable actions both in-store and online.”
Orchestro’s lighthouse customer listing includes very well-known CPG and food and beverage names including Campbell’s, Coca Cola, General Mills, Kellogg’s, Kraft, Mars, PepsiCo, among others. The primary customer target has been product category managers seeking more intelligence related to product promotion execution, new product introduction effectiveness, broker effectiveness as well as inventory optimization. In essence, Orchestro supports the needs of CPG firms to establish an enterprise-class demand signal repository which today is a more complex challenge because of the rapidly expanding focus on Omni-channel customer fulfillment. The firm’s TANGO Insights service supports needs for deeper analytics utilizing interactive dashboards and results. A complementing TANGO Science service provides support for more predictive analytics and workflow support for product promotions and on-shelf availability. Recent interest has come from various S&OP teams seeking more specific methods to be more predictive related to supporting changing product demand and in-stock requirements in an Omni-channel environment.
If reader’s have not gathered thus far, this latest acquisition has a common theme with that of the Terra Technology acquisition, that being a more concentrated focus in supporting high profile consumer product goods producer’s unique customer-facing needs as well as a deeper emphasis on providing an end-to-end platform supporting complex distribution and Omni-channel customer fulfillment. As noted in our prior commentary related to the Terra acquisition, the strategy unfolding is to augment E2open’s synchronized supply chain execution platform with augmented capabilities in supporting product demand planning and sensing. Once more, there is an obvious common thread among the customer names of both acquired vendors.
From a technology market perspective this latest E2open acquisition is from this author’s lens, signifies another shot across the bow to existing supply chain planning and demand management best-of-breed providers such as JDA Software, Kinaxis and other smaller, specialized analytics firms who have been targeting larger CPG manufacturers and their supply chain ecosystems. The augmentation of analytics with an end-to-end supply chain execution platform is a different approach that involves far more members of the overall supply chain ecosystem. Once more, E2open has gained an initial foothold in many of these stellar accounts.
We again re-iterate that the benefits of technology acquisition only come with subsequent integration of technology, people and business process expertise. In the specific case of Orchestro, the customer base is somewhat product management focused with different needs than the broad supply chain management community.
In order to be able to conduct its current wave of acquisitions, E2open made significant cuts in prior headcount resources and support budgets in order to regain profitability, thus this latest acquisition adds more speculation as to whether E2open needs to reinvest in its own business needs, beyond just a direct sales team.
We therefore advise existing customers of Orchestro and of Terra Technology to await the specific elements and timetables of the planned integration of all of this augmented technology. On paper, the strategy and the approach toward integrating customer fulfillment execution with deeper analytics and process intelligence is sound. But as with many of these efforts, the proof and the long-term success come with follow-through and without added distractions.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
The added costs for fulfilling online orders are likely to increase over the coming months because of the current boom in overall demand for large-scale distribution and warehouse space across the United States as well as other regions.
Reuters reports that real estate investment trusts (REITs) that weight their portfolios towards warehouse and distribution real estate holdings have now become the favorite of Wall Street interests because of the current pent-up demand for additional space from retailers. The report specifically mentions logistics real estate services provider Prologis, which counts Amazon as its largest customer, as raising rents a record 20 percent in the first three months of this year. The report cites Morningstar data as indicating that fund ownership in real estate investment firms such as Prologis and Duke Realty Corp. has increased 30 percent or more in the last quarter.
The trend was further reinforced by a recent announcement from the world’s largest commercial real estate services and investment firm, CBRE Group that indicated that- “Voracious global demand for e-commerce fulfillment centers fueled a 2.8 percent year-over-year increase in prime logistics rents globally, led by double-digit percentage gains in U.S. coastal markets.”
According to a recent CBRE report, six of the top 10 markets with the fastest growing prime logistics rents globally were within the United States. Among what CBRE ranks as the Top 10 Global Logistics Hubs by Prime Rent Growth:
- New Jersey
- Inland Empire
- Midlands, United Kingdom
- Santiago Chile
- Ciudad Juarez Mexico
- Los Angeles- Orange County
- Dallas- Fort Worth
- Seoul South Korea
The Wall Street Journal recently published an infographic indicating current areas of warehouse space under construction across the U.S… That mapping indicates the largest double-digit increases in construction of warehouse space focused in the Dallas-Fort Worth and Houston areas, Los Angeles and Inland Empire, Chicago, Atlanta and Greenville/Spartanburg SC areas. From our lens, that data would indicate broad geography coverage for online fulfillment needs.
And, cost increases are not just confined to warehouse and distribution space.
We have brought reader attention to increasing rate increases by the major parcel transportation and delivery firms, including added surcharges and handling fees. As consumers continue to purchase online items that are larger, more bulky and heavier, there has been increasing demand for logistics delivery services. That is providing opportunities for traditional less-than-truckload (LTL) carriers who are increasingly being called on to provide additional delivery services to support online purchases of hard line goods. This will likely require some LTL providers to invest in augmented technology and logistics assets, which will add to rates charged.
As we have further highlighted, the largest high profile retailers such as Amazon and Wal-Mart continue to aggressively invest in more internal and owned resources in augmenting their own parcel transportation, logistics and last-mile delivery networks under the banner of premium, free shipping services. That is obviously part of the reason for the current building and investment boom underway. A continued competitive battle fueled by multi-billion investments adds to the supply-demand imbalances and speculators to drive up costs further.
However, other retailers with limited financial resources are now faced with the realities of even more increasing cost challenges associated with online customer fulfillment. No doubt, something will have to give. Either retailers will become more creative in prime, no-cost free- shipping membership programs that can offset the effect of added fulfillment costs or the largest retailers with financial scale will become more dominant retail fulfillment platforms.
Our takeaway for retail and B2C focused supply chain organizations and procurement services teams is to up your game in supply chain network modeling and strategy implications. Insure that you factor the real possibilities of more added costs in distribution, logistics, transportation and inventory carrying costs. The coming months may well be very challenging, including the upcoming 2016 holiday online fulfillment surge which will more than likely test limited capacity in certain key areas, forcing teams into more costly alternatives. Be wise, be pro-warned, and conduct rigorous scenario based planning.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Wal-Mart, the world’s largest retailer held its annual meeting at the beginning of this month, and business and general media has provided lots of subsequent news coverage.
During the annual investor meeting held on June 2nd that included upwards of 14,000 attendees, Wal-Mart CEO Doug McMillon urged employees and investors to reimagine the future of the retail landscape. He further added that the retailer is picking up the pace of change, and from the overall supply chain lens, winds of significant change remain evident for many months to come. Such a change will place added burdens on suppliers to insure that Wal-Mart maintains both its global leadership role but also its needs to added profitability.
Many published reports related to Wal-Mart over these past two weeks point to the retailer as being at an important crossroads in terms of its long-held dominance in pricing and convenience. We call particular reader attention to a published Economist article: Walmart- Thinking Outside the box, (Paid subscription required) which provides an in-depth perspective on strategies and business needs.
From an online perspective, Amazon continues as the dominant online retail platform, providing online shoppers with both competitive price and convenience. With further expansion in household consumables, grocery and other foods, Amazon will increasingly encroach on the Wal-Mart customer. Wal-Mart itself has invested a reported $10.5 billion within new information technology to enhance its online web presence and fulfillment capabilities. In January, both existing IT groups were also merged together into one singular group. Yet, industry media reports that online sales slowed to a 7 percent growth pace during the first quarter, below company and investor expectations.
CEO McMillon observes that his team has paid very close attention to current retail industry trends including the growth of online, and that his firm will dominate by executing a strategy that leverages the combination of online as well as physical distribution and retail store presence. Stores will serve both as a retail destination as well as an extension of online in customer pick-up and returns.
Within physical stores, the retailer has invested $2.7 billion in higher wages and employee training, but at the same time, consolidated its physical retail footprint by closing 269 stores. Efforts are once again underway to spruce-up stores, clean-up aisle clutter and include more fresh produce offerings. The retailer further announced that over the coming months, Wal-Mart will return to an aggressive pricing strategy, promising to once again reduce prices on a number of offered items.
This leads to the supply chain challenge that is currently underway, namely, to compensate for all of the added investments in operations and online capability, suppliers will have to divvy-up additional cost and price savings. In a sense, this is nothing new for Wal-Mart’s suppliers; however it appears as though it is taking on more aggressive dimensions. We initially highlighted stepped-up supplier pressures in April of last year, and consequent supplier push-back attempts in September.
One of the largest and most loyal suppliers to Wal-Mart has been global consumer packaged goods producer Procter& Gamble. The business relationship has extended for decades and today, P&G garners in excess of $10 billion in revenues from Wal-Mart alone.
Today’s edition of the Wall Street Journal features a front-page article: Wal-Mart and P&G: A $10 Billion Marriage Under Strain (Paid subscription required) that provides added insights into supplier relationships with the retailer. Over year ago, Supply Chain Matters highlighted a similar WSJ report on the intense competitive pressures of both firms, when the retailer elected to offer Persil, a European branded laundry detergent alongside P&G’s Tide branded detergent across Wal-Mart’s retail stores.
This latest report indicates that both firms: “are increasingly butting heads as both try to wring more revenue out of their slow-growing businesses.” The retailer in-essence is pressuring for reductions in prices for best-selling goods as it furthers efforts to invest in new capabilities, while P&G is attempting to protect both volume and profitability of its largest brands.
One other revelation brought out was that unlike all other suppliers, P&G does not have a contract that governs supplier agreements. Rather, both parties rely on in-person relationships, emails and handshakes to address supply programs and other particulars.
Returning to the broader Wal-Mart supplier community, the retailer’s new U.S. chief executive is reportedly spoke directly with suppliers in February and delivered a stern message concerning needs to work more on inefficiencies. The WSJ cites indicates that several people that attended indicated that the retailer expects “healthy tensions” will suppliers and will be “maniacal about managing costs.” The U.S. CEO is further pushing his procurement team to fight more aggressively in negotiations with suppliers and all buyers are now required to attend a workshop conducted by a U.K. based negotiations consultancy.
We suspect that some of our readers who reside in supplier organizations doing business with Wal-Mart may have already encountered the effects of this renewed supplier management efforts.
Thus is the evolving strategy of Wal-Mart, evolve quickly in the new era of retail by leveraging all existing assets, fight for every consumer in price and convenience, invest aggressively in needed new capabilities and garner any and all compensating cost reductions and efficiencies from existing suppliers to meet required financial bottom-line outcomes.
In some sense, the more things change, the more an organization can revert back to prior methods. In the end, we continue to question whether pounding suppliers is counter-productive, since process, cost and product innovation comes from all tiers of any supply chain in joint collaboration efforts.
Earlier in the month, the U.S. Food and Drug Administration (FDA) issued long overdue guidelines targeted at cutting the daily salt content for both packaged food products as well as restaurant meals. When implemented, such guidelines are obviously going to impact food related supply chains, but a proactive approach could lead to both business and market opportunities.
The voluntary FDA proposal is directed at reducing the daily salt intake of consumers from the current average of about 3400 milligrams per day to a level of 2300 milligrams per day over the next decade. The new guidelines are an effort by the Obama administration to influence the food industry toward reducing the amount of ingredients such as sugar and fats within prepared foods in order to improve overall consumer health and consequently reduce medical costs.
These guidelines, as proposed, give food producers two years to begin cutting sodium levels in products, and up to ten years to make further cuts. The impact is expected to fall primarily on prepared-foods supply chain ecosystems.
As our food industry readers well know, salt is a fundamental ingredient in food, serving as both a form of a preservative as well as an enhancer of taste. Regarding the latter, taste preferences vary across the globe, within specific ethnic groups and within certain geographic regions.
In order to ascertain some industry perspectives on these guidelines, Supply Chain Matters had the opportunity to recently speak with Anton and Dagan Xavier, co-founders of product information dissemination provider Label Insight, a Chicago-based cloud-data start-up whose clients include the FDA.
Both of those gentlemen reminded us that previous efforts directed at reducing certain fat content of foods has led to some added augmentation with salt. One example is low-fat yogurts which both some perspectives, two-thirds of brands have high sodium content. Many readers are probably very aware of the high salt content that current exists in fast-food and other restaurant chains.
Never-the-less, reductions in sodium levels are happening around the world, with the United Kingdom leading in these efforts almost a decade ago. There have been many successes and from the lens of both Anton and Dagan, it all boils down to being transparent and open as much as possible. Actually, according to Dagan, it is broader than sodium and more about supply chain transparency.
An analogy that came to mind regarding Label Insight’s efforts in this area is that this provider provides performs something similar to an underwriter’s laboratory form of certification service. Founded in 2008, this provider’s tag line is that: “We are the brains behind grocery data” collecting, managing and transforming product information for food producers and consumers. While knowledge of product composition exists with food producers, other knowledge resides with farmers and suppliers. Label Insights analyzes products beyond just the label, to include generating over 15,000 attributes – such as nutrients and allergens – per product. These attributes come together to create a deep understanding of a product and can be customized to meet data views requested by retail, government and industry initiatives.
Both noted that consumers are seeking far more transparency in food ingredients, a requirement that manufacturers, retailers and food service providers have to respond to.
Our discussion further touched upon legacy global brands vs. new, more nimble brands that are now catering to global consumer’s desires for healthier foods, broader supply chain transparency and information dissemination. These up and coming brands have the advantage of setting the benchmark in more-timely product formulation innovation and information dissemination. However, bigger more global packaged and bulk consumer product goods producers have the experience in global distribution at-scale.
Moving forward, call for far healthier foods with great taste will come from a combination of efforts addressing higher sensitivity to consumer needs, more agile product formulation, and supply chain transparency. Those producers who cannot adapt will likely find themselves at a disadvantage to nimbler brands and product producers who recognize a fundamental change in consumer and regulatory preferences, and who can meet such needs in market-share growth.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.