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The Implications of the ConAgra Food Safety Case

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This week brought significant and perhaps troubling news to food and consumer product goods producers and their respective suppliers distributing products throughout the U.S.. Business headlines noted that a ConAgra Foods business unit agreed to plead guilty to a federal misdemeanor charge and pay an $11.2 million fine in conjunction with 2006-2007 salmonella outbreak involving the firm’s Peter Pan and Great Value branded peanut butter products.

At the time, the salmonella outbreak occurred across 47 states and sickened a reported 700 people. The outbreak was eventually traced to a manufacturing facility in the state of Georgia. As part of this week’s plea agreement, ConAgra admitted it had been aware of some risk of contamination prior to its voluntary recall. After this outbreak, ConAgra subsequently made was is reported to be significant upgrades to its manufacturing facility along with instituting advanced safety protocols.

This news is significant for this industry in a couple of rather important dimensions.  This week’s fine, although meager by today’s liability standards, is noted as the largest fine levied to-date in a food safety case. Once more, over these past months, federal authorities are now demonstrating intent to hold both companies and their individual executives accountable for food safety. According to The Wall Street Journal, since 2013 the Justice Department has won convictions or guilty pleas involving four criminal cases against food companies or the executives that run them.  The WSJ notes that in most of the recent cases, successful prosecution occurred even without proof that officials acted with criminal intent, which was a difficult hurdle for investigators to previously overcome. The significant nuance of holding executives accountable without proofing criminal intent has reportedly jolted the food industry, given its broad implications. That implies that executives are now legally accountable for food safety, and that might be interpreted to include senior supply chain executives. Certainly, we are not lawyers, and industry supply chain leaders are advised to seek out specific opinion from in-house legal counsel.

Food companies are now stepping-up efforts to improve food safety including investments in new technologies to monitor any signs of contamination or erosion in quality and to speed-up data analysis. That, in reality, may be good. However, it opens the doors to added sensitivities as to when manufacturers should recall food products, and the types or levels of internal documentation required as proof of proactive response to suspected contamination and/or disease.  The industry may well experience an increased rate of recall actions out of abundance of caution, as these new nuances are more fully understood.

The takeaway for consumers is hopefully safer food products in the coming months.  For supply chain management teams, the implication is added cautions and increased scrutiny of individual production, storage and distribution practices related to food production. Any notion that assuring proactive food safety practices is not my job is now null and void.  Food safety is every executive’s and every employee’s concern.

Bob Ferrari


Supply Chain Matters Update Three- JDA Software FOCUS 2015 Conference

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Supply Chain Matters pens this commentary from JDA Software’s FOCUS 2015 conference being held this week in Orlando Florida. In our previous two dispatches, we updated readers on the day one opening keynote sessions and on our impressions of JDA’s technology direction.

Our perceptions of JDA’s past FOCUS events included an observation that despite its Manugistics and i2 Technologies roots in supporting the supply chain technology needs for both discrete and process focused industries, there appeared to be more concentrated amount of customer messaging directed at retail industry needs. With the new challenges brought about by Omni-channel customer fulfillment needs, the challenges of retail industry are indeed prominent. But, industry supply chains are infinity connected together, as industries such as consumer packaged goods, consumer electronics and others are far more focused on customer centricity.

Day two of this year’s FOCUS keynotes featured a customer theme. Presenters included senior supply chain executives from Edwards Lifesciences and PepsiCo.

This author has long admired PepsiCo’s supply chain capabilities, and candidly, has not garnered the recognition that it deserves. PepsiCo and specifically the Frito-Lay group have led the way in Direct Store Delivery (DSD) and packaged product promotional PepsiCo presentation at JDA FOCUS 2015support programs that custom assemble and deliver end-of-aisles promotional product. This morning, Rich Beck, Senior Vice President of PepsiCo Global Operations addressed the timeline of PepsiCo’s supply chain transformation journey that dates back to the early nineties that includes former Manugistics and i2 Technologies and other applications. Under Beck’s leadership, transformational efforts have accelerated. Interesting enough, the relationship with JDA technology is a 20 year legacy, which is somewhat extraordinary in the supply chain best-of-breed technology industry.

Transformation is continuous and moving forward. Pepsico’s supply chain teams are now focused on the next phase, which includes an emphasis on device mobility in all supply chain applications, further adoption of cloud-based delivery IT infrastructure along with leveraged use of Internet of Things (IoT) technology in connecting manufacturing with the supply chain. There was additional mention of piloting a virtual control center environment allowing teams to remotely monitor and adjust manufacturing volumes based on product demand. Each of these broad initiatives is directed at five specific business priorities, including product innovation, enhanced execution and driving additional cash returns. Once more, environmental sustainability remains an important dimension and includes elements of clean water, zero landfill usage, innovative packaging, sustainable agriculture and other initiatives.

We extend a Supply Chain Matters Tip of the Hat to Pepsico’s extended supply chain Supply Chain Matters Tip of the Hat Awardteam for their extraordinary and continuous transformational efforts along with demonstrating that advanced technology, social and environmental responsibility can make a difference in supply chain business process capabilities.

Kudo’s to this year’s JDA FOCUS planning team for featuring a customer keynote that demonstrates the notions of a food, beverage, snacks and agricultural producer, a customer-centric driven supply chain with direct interactions and collaboration with various retail supply chains.

In our remaining commentaries related to this year’s FOCUS conference, we will highlight major announcements and other observations.

Stay tuned.

 

Bob Ferrari

Disclosure: JDA Software is one of other sponsors of the Supply Chain Matters blog.


Not a Good Week for Food Related Supply Chains in the U.S.

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From a supply chain disruption perspective, this week has proven to be a rather concerning one for food related supply chains within the United States. And, there may well be added implications in the weeks to come.

Two developments have dominated business and general media; a widespread outbreak of a strain of bird flu that is currently spreading across upper U.S. Midwest states, and a listeria outbreak that has forced a well-known branded producer to suspend sales of its entire product line-up.

Avian Influenza Outbreak

An Iowa chicken farm raising upwards of 3 million chickens is the latest to suffer the effects of what is being described as sharp escalation of bird flu that, according to one report, is rattling the U.S. poultry industry. Iowa is reportedly the largest producing state for egg production. The latest outbreak reported yesterday brings the estimated total number of chickens and turkeys affected by avian bird flu to nearly 8 million.

The largest two turkey producers, Butterball and Hormel Foods have each reported significant supply chain challenges as outbreaks occurring in Minnesota and Wisconsin are where turkeys are predominantly raised.

To mitigate the further spread of the virus, farmers must destroy all birds confirmed to have the virus. The Governor of Wisconsin declared a state of emergency earlier this week authorizing state officials to issue quarantine directives related to feed and poultry.

The states impacted thus far include Arkansas, Iowa, Minnesota, Missouri and Wisconsin. No human cases of avian influenza have been detected and U.S. health officials indicate the current outbreak poses no human health risk. None the less, consumers are obviously rattled and concerned by the news. Farmers and meat processors are on high alert and are taking measures to monitor stocks as well as visitors to farms.

Listeria Related Product Recall

The other important development concerns Texas based Blue Bell Creameries which on Monday, widened  a series of voluntary recalls to now include all of its branded ice cream, frozen yogurt, sherbet and frozen snacks branded products distributed among 23 states and various international locations.  The recall was prompted after samples of Blue Bell Ice Cream recallchocolate chip cookie dough ice cream tested positive for the potentially deadly disease, listeria. Thus far, health officials have traced 8 reported illnesses amounting to three deaths which have been linked to contaminated ice cream, but active investigations continue. According to an FDA advisory and a Blue Bell press release, the illness was tracked by health officials to a Blue Bell production line in Texas, and later to another production line in Oklahoma. Consumers are warned not to eat the recall products and throw away or return any purchased product.

Blue Bell itself has taken relatively swift action by actively removing products from retailers and other food service facilities it serves. A statement from Blue Bell’s CEO Paul Kruse apologizes to consumers along with a firm commitment to fix the problem. Blue Bell is implementing a “test and hold” process for all products made at all of its manufacturing facilities, meaning that all products will be tested first and held for release to the market only after the tests show they are safe. Other actions include daily cleaning and sanitizing of equipment, expanded testing and additional employee training.

As is the usual for these types of recalls, the recall news spreads fast and wide with the amplification of the Internet and social media.  At this writing, we performed a Google search of the terms “Blue Bell listeria’ which yielded over 2000 web postings thus far. From our tracking of previous high visibility product recalls, there will likely be more short-term impact to the brand before this situation is resolved.

Supply Chain Matters applauds Blue Bell for taking such prompt and far reaching actions. Not many consumer packaged goods companies would recall the entire product line.

Bob Ferrari

 


More Clear Signs of Turmoil and Changes for CPG Producers and Their Supply Chains

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The turmoil among consumer product goods focused supply chains promises to increase with the implication of today’s business media headlines concerning Nestle and Unilever. These implications relate to ongoing merger and acquisition developments and the continuing effects of foreign currency headwinds, which are negatively affecting U.S. producers while positively impacting European based firms.

While speaking at its Annual Meeting this week, Nestle’s Chairmen acknowledged that the combination of H.J. Heinz and Kraft Foods, being orchestrated by 3G Capital Partners and Berkshire Hathaway would create a formidable competitor, particularly in the United States. Because of this, the global CPG provider indicated to shareholders that it will accelerate its shedding of marginal performing businesses.

Readers may recall that CPG industry icon Procter & Gamble is similarly involved in a shedding of non-performing or non-core businesses.

According to a report published by The Wall Street Journal, Nestle Board Chairmen and former CEO Peter Brabeck-Letmathe indicated that Berkshire Hathaway and 3G have “pulverized” the food industry.

The CPG company has already sold off ice cream and water related businesses, has struck deals to sell the bulk of its Jenny Craig diet business as well as an ice cream business and is reported to be in talks to sell its frozen food business. The CEO further indicated that Nestle needs to better leverage its global scale more effectively. According to the WSJ, that could imply even more added pressure on suppliers for better buying terms.

Earlier today, Nestle announced its operating results for the March-ending quarter. Those results included an overall 4.4 percent organic growth of which 2.5 percent was attributed to pricing moves. Sales increased a mere 0.5 percent with the effects of negative foreign exchange attributed to 4.5 percent. In its full-year outlook, the company remained committed to achieve organic growth of around 5 percent while improving margins.

That level of sales growth challenges many of today’s large global CPG producers.

The positive or not so positive shadow of foreign currency effects was further evident in the operating results of Unilever, whose first-quarter total sales rose 12 percent largely due to the effects of a stronger valued U.S. dollar, amounting to a 10.6 percent boost. Once more, Unilever indicated that factoring current exchange rates, its full-year earnings growth would be in the 7-8 percent range.

On the flip side, U.S. headquartered CPG producer Colgate Palmolive indicated a 9 percent negative impact on sales while Procter and Gamble indicated in January that it was anticipating currency swings to curb profit by as much as 12 percent.

Thus the pending Heinz-Kraft combination coupled with the current foreign currency shifts is indeed precipitating more industry turmoil. Many CPG businesses are being pitched for sale and/or consolidation.

When penning our Supply Chain Matters commentary related to the Heinz-Kraft announcement we opined that a clear message was now sent to consumer product goods supply chains that business-as-usual was no longer acceptable, and that further industry changes and developments were inevitable.

Add the current effects of currency and those in the industry negatively impacted may well initiate changes in product sourcing, promotion and distribution to help offset currency effects. Meanwhile, product innovation in more natural and less processed foods remains the key to longer term growth, whether by acquisition or by supply chain sourcing and development.

There is literally a new playbook for global based CPG firms and their respective supply chain teams, and be prepared for constant change in the months to come.

Bob Ferrari

 


Survey of Retail and CPG CEO’s Reflects Today’s Realities of Higher Costs Associated With Online Customer Fulfillment

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A new joint study of senior retail and CPG industry CEO’s conducted by PwC under the sponsorship of JDA Software confirms what many in our supply chain community have believed; the increasing profitability challenges being brought about by the higher costs associated to today’s online customer fulfillment demands.

This study, The Omni Channel Fulfillment Imperative, reinforces that an enormous amount of money, energy and time is being spent by retailers and consumer goods manufacturers to improve their Omni-channel fulfillment capabilities. While this may not be surprising given the current business environment, the report reveals an unexpected and disturbing fact: only 16 percent of companies openly indicate that they can fulfill Omni-channel demand profitably.

The survey itself included a reported 410 retail and consumer goods companies from eight different countries. The authors included some CPG company’s views in order to gain perspectives from both ends of the customer fulfillment supply chain, along with the reality that may CPG firms have increased their direct online fulfillment presence. Nearly 51 percent of responses were reportedly weighted toward the classification of top 250-1000 retailers, while 22 percent represented the top 250 retailers.

Supply Chain Matters had the opportunity to speak with Wayne Usie, Senior Vice President of Retail Industry at JDA Software about this study and its messages. Usie aptly pointed out that most retailers remain optimistic for top line revenue growth, they are acknowledging that their firms originally designed their supply chains around the bulk movement of goods from suppliers, through distribution centers and eventually to stores and consumers. Today’s business demands of Omni-channel and online customer fulfillment require a far different set of capabilities. The other important insight is that in their original design that emphasized distribution center centric flows, retail supply chains can often mask the true source of customer channel demand. That has a significant influence on how to plan and efficiently position inventory associated with today’s Omni-channel dynamics.

From our lens, other important perspectives brought forward by this study was the indication by 71 percent of CEO’s polled that Omni-channel fulfillment was a top priority for retail business. Keep in mind that merchandising and sales strategies have often been top priorities for retail businesses.  This different perspective, we believe, is the new reality of online and Omni-channel reflecting that the fulfillment supply chain has become an important focus.

Other profound findings were the indication that 67 percent of CEO’s believe that the cost to fulfill orders across channels is increasing, and that 88 percent (a near total consensus) cited transportation and logistics as a fulfillment capability that needs the most attention.  Supply Chain Matters believes that this is a reflection of the continued high costs trending of free or same-day shipping that is impacting retail supply chains, especially those with lower product margins. Much of the survey data reflects the threats brought about by global online retailers such as Amazon, Wal-Mart. The major global package carrier’s increase in rates and the shift to dimensional-based freight pricing this year has not helped and probably added even more concerns and needs for alternative methods.

Question 9 of this survey queered on likely internal challenges likely to occur over the next 12 months. Indications were remarkably equally balanced and also from our lens, point to many supply chain related implications including inventory management, effectively integrating physical stores with online business models and failing to consistently meet customer expectations across all channels. Reflecting on such a listing, we believe that the data is yet another revealing indication that not all customers can have the same fulfillment service-level dimensions, hence the need for more discernable supply chain segmentation strategies, aligned to expected customer service and business profitability needs.

The complete PwC Survey as well as a summary infographic can be accessed at this web link. (some registration information required). A further perspective of the survey can be garnered in a posting authored by Wayne Usie on JDA’s Supply Chain Nation blog.

Supply Chain Matters will reflect more on the effects of Omni-channel retail in our live coverage of the upcoming JDA FOCUS 2015 conference occurring later this month.

Bob Ferrari

Disclosure: JDA Software is a Lead sponsor of the Supply Chain Matters blog and a client of its parent, The Ferrari Consulting and Research Group LLC.

 

 


Predictive Commerce as an Enabler of Distribution Sensitive Industry Supply Chains

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The term Predictive Commerce has been brought forward in the context of connecting up and downstream, Omni-channel product demand sensing with an integrated, single-model, end-to-end supply chain planning and execution. In some sense, it can be viewed as an enhanced iteration of demand-driven supply chain response capability for complex distribution and long-tail product demand environments. hands-typing-2 Supply Chain Matters is of the view that this capability warrants further consideration by supply chain and sales and operations planning (S&OP) teams, in the context of a transformative effort requiring careful thought and investment.

Predictive Commerce was most recently brought forward in a recent published white paper from supply chain planning technology provider ToolsGroup, titled Predictive Commerce: Helping Companies Return to Growth.

This paper defines such capability as:

Predictive Commerce is a strategy that enables this shift (in planning methodologies) and revolutionizes the way companies think, see and plan their end-to-end supply chain. It connects supply chain strategy, planning and execution into an end-to-end planning process. The key technology enabler is a single underlying model”

This paper describes examples of predictive commerce applications that include real-time product demand sensing linked to dynamic replenishment processes. The example brought forward is a large coffee shop brand, namely Costa Express, leveraging machine telemetry feeds from 3000 self-dispensing coffee machines to trigger coffee bean, cups and flavored syrup replenishment needs among supporting distribution replenishment centers. In another retail industry example, product demand sensing is linked to dynamic replenishment and product segmentation to minimize last mile delivery costs by utilizing existing channel inventories. A further example is connecting product demand sensing and predictive orders with the needs for transportation capacity and optimization.

We concur and re-iterate that the most important takeaway for industry supply chain teams to ponder is that Predictive Commerce or other similar type capabilities that fuse supply chain planning and execution in a single information model require a transformative strategy that brings together such capabilities.  This is particularly important in an environment where  legacy applications or ERP backbone systems were implemented under the notions of planning and execution being two separate hierarchical processes and data sets that fed different  information streams back and forth. Today’s Omni-channel and online fulfillment demand streams are far more concentrated in SKU level and location specific planning and execution dimensions. That implies a single data model with far more granular data and information streams as well as requirements to plan inventory investments at multiple tiers of the supply chain.

The good news is that advanced information technology now available in today’s marketspace can provide such capabilities in a less disruptive manner.  A single data model approach opens far more enhanced capabilities in leveraging analytics and deeper supply-chain wide intelligence. It further paves the way for the ability to leverage more predictive and prescriptive planning methods for supporting near real-time customer fulfillment execution requirements.

In addition to technology, there are important people and business process elements to consider in such a transformation.  Business processes, whether internal or externally focused, need to be well understood by all participants and have an “outside-in” perspective.  Deep collaboration among customers and suppliers is essential.  Do not neglect the change management and skills impact for people in managing an overall supply chain environment. Especially those that are driven by complex by faster-moving, exception-driven events vs. day-to-day sequential business processes.

Predictive Commerce can indeed be a meaningful competitive differentiating capability for distribution and online fulfillment sensitive supply chains. Such a capability requires a transformative strategy, often aligned with supply chain segmentation. It is indeed a “crawl-walk-run strategy anchored in people, process and advanced technology.

Bob Ferrari

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog.  All rights reserved.

Disclosure: ToolsGroup is a current client of Supply Chain Matters ® parent, the Ferrari Consulting and Research Group LLC.


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