subscribe: Posts | Comments | Email

Some Positive Supply Chain Food Safety Efforts at Chipotle Mexican Grill

0 comments

Supply Chain Matters has featured several streaming commentaries focused on Chipotle Mexican Grill, and on the business and supply chain impacts related to the past series of food related illnesses including E-coli, salmonella, and norovirus that date back to 2015. Finally, we have some positive and more encouraging news to share with our readers.  Chipotle logo Some Positive Supply Chain Food Safety Efforts at Chipotle Mexican Grill

Excuse the pun, but our biggest beef with the restaurant chain has consistently been its outward arrogance, and in not communicating definitive efforts to mitigate food safety concerns across the entire supply chain. Our take was one that management initially had not publicly grasped the full magnitude of its brand crisis, and supply-chain wide implications. The elephant in the room has been consumer perceptions of ongoing food safety and whether this chain had taken all necessary measures to ensure that the series of incidents that occurred in 2015 would not be repeated, at least by insuring that controlled, network-wide management and quality focused practices were being addressed.

Our observations have questioned why this company has relied solely on sales and marketing tactics to bring previous loyal patrons back. Our last update related to Chipotle in December of last year, echoed reports of building pressures on senior management manifested by continued disappointing financial performance results. Monies spent on new marketing initiatives were not resonating with loyal patrons. Employee turnover at restaurants was reported as 130 percent, defeating efforts for increased employee training on food safety measures. Declining sales and profits seemed to be defeating efforts of following through on supply chain food safety initiatives.

However, new information now encourages us.

In March, the Director of Food Safety for the restaurant chain, recruited shortly after the crisis, addressed the Food Processing Suppliers Association Annual Conference. A published April report by FoodBusinessNews.net highlights efforts that have taking place since the 2015 incidents. Dr. Dale Dexter, Manager of Food Safety Programs indicated that the company has come a long way in the past 16 months, but it was also an interesting ride.

Noted was that the food safety initiative scoured every ingredient that suppliers utilize. While previously, raw beef was brought into restaurants, two of chain’s beef suppliers are now required to practice sous-vide cooking to control food-borne risks prior to shipping to individual restaurants. Efforts were also made to initiate similar practices on raw chicken, but that effort was curtailed because the quality of taste did not pass the standards of founder Steve Ells. Chorizo sausage supplies are now subject to high pressure processing before being shipped to restaurants. For produce, two employees at individual restaurants are typically brought in two hours before opening to blanch raw fruits and vegetable in a five-second boil to kill any food borne bacteria.

Restaurants are now equipped with in-duct air purifiers and ice machine sanitation systems. A partnership with Ecolab includes food safety audits and mentioned is utilization of a Supplier Management and Traceability program. The chain has now adopted a paid sick leave policy and restaurant employees are monitored for signs of sickness, supported by a hotline of on-call nurses.

These are positive steps, and should be commended.

From our lens, communication and updates of such efforts should not only been shared at an industry forum, but broader platforms as-well including general media. Such initiatives and progress reports should have been the mission of Chipotle’s marketing and public relations efforts month ago.

This week, Chipotle announced the appointment of a Chief Restaurant Officer. Scott Boatwright was a prior senior vice president of operations at Arby’s Restaurant Group. The announcement indicates that Mr. Boatwright’s responsibilities will be- “enhancing the guest experience, developing and leading field leadership teams, developing strong teams inside the restaurants, and enhancing operational efficiency.”

There is no mention of insuring that ongoing food safety initiatives are consistently implemented and maintained across all restaurants.

Here again, a communications and mission commitment opportunity lost.

As a supply chain social medium, we are now willing to add some praise to Chipotle’s ongoing efforts to address supply chain wide food safety mitigation. But the job is never complete.

For food related industry, and for food related supply chains, marketing efforts are not only about products and services, but also about food safety efforts across the entire supply chain, including restaurants.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Another Example of SKU Proliferation Leading to Cost Complexity

0 comments

Yesterday in one of our news feeds, we came across a report on FoodBusinessNews regarding snacks producer Snyder-Lance, and it efforts to address an ongoing challenge to increase profitability. We view this report as a typical current day example of how the C-Suite turns to the supply chain as a prime barometer and facilitator of needed cost savings.

The report outlines a “comprehensive and aggressive performance improvement plan” that a result of recent first-quarter financial results falling behind management expectations., according to the interim CEO. A number of factors were attributed to the sub-standard performance that were described as category softness, lower net price realization, unfavorable mix, cost headwinds and certain execution lapses. Some or most of these phrases should be familiar to our readers in consumer packaged goods, food, and beverage companies since most of the industry has been whiplashed by many of these same forces.

What is rather interesting and noteworthy are statements that overall business complexity drive increases in costs. Snyder-Lance has identified five priorities to attack the complexity problem which include manufacturing and supply chain streamlining efforts. That includes a realization that a proliferation of SKU’s (stock-keeping units), half of which only contribute a reported 5 percent of revenues, the other-half, the majority of revenues.

SKU proliferation is a familiar challenge in supply chain business planning, one that dates back quite a few years in CPG and consumer brand-oriented product areas.

There are many causes.

Companies that undergo periods of active merger and acquisition cycles will often inherit both added distribution channels as well as associated SKU’s. Likewise, companies with inherit multiple channels of distribution are often subjected to such risks.

The snack food area is particularly vulnerable because snacks are often subject to impulse buying within multiple outlets including neighborhood convenience stores, dispensing machines, convenience restaurants, food purveyors catering to service firms such as airlines, passenger trains, ferries and the like, and the typical member warehouse and retail grocery chains. A new market twist is that of online grocery basket shopping which online providers such as Amazon, Wal-Mart, Target, and other online retailers have introduced.

In fact, this analyst is of the belief that SKU proliferation is again becoming a more widespread problem because of the new realities of online retail. Retailers themselves are finding themselves bloated with SKU’s to address different sales channels, be that physical store where snacks are purchased in bulk or online on an induvial basis.

Another challenge that Sales and Operations (S&OP) teams are quite familiar with is the relationship dynamics of sales and marketing, who advocate for creating separate SKU’s for what they believe will be new and upcoming customers. After all, a separate SKU allows the new customer to gain personalized product and at the same time, more definitive tracking of a channel’s sales volume.

There is little doubt that SKU Proliferation indeed can drive complexity and supply chain inventory and distribution costs. Advanced inventory management or inventory optimization tools help in identifying and addressing problem areas. The resolution, however, involves a lot of internal supply chain cross-functional and external sales and marketing collaboration. It is also a condition and a watch out that should be factored in the analysis of the increased costs related to supporting today’s more focused online business models.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


2017 Industry Specific Prediction- Consumer Packaged Food and Beverage Supply Chains

Comments Off on 2017 Industry Specific Prediction- Consumer Packaged Food and Beverage Supply Chains

In our recently unveiled 2017 Predictions for Industry Supply Chains (Available for complimentary downloading in our Research Center), we elected to include Consumer Packaged Food (CPG) and Beverage supply chains in our industry-specific predictions. We have included this industry in our industry-specific predictions for the past three years and already, industry dynamics of activist investors surrounding the industry are once again underway, and the supply chain stakes are becoming far higher and likely destructive.

Consumers have not wavered in their more health-conscious view of food and beverage consumption and their shopping preferences continue to shun traditional processed foods. They demand healthy food choices containing natural and sustainable ingredients. Throughout 2016, these trends continued to be reflected in the business and financial performance of globally branded food producers who now continue to be challenged in achieving single-digit top-line sales and profitability growth. Global observers such as the Economist question whether the global expansion and presence model has run out of steam because of diminishing financial returns.

As what occurred in 2016, declining profits and meager sales growth continues to spawn activist investors to influence certain CPG, food, and beverage firms to consolidate. The prime disruptor in this industry remains Brazil based 3G Capital and specifically Heinz-Kraft Foods. A report from Fortune describes the 3G Capital playbook as a “meritocracy” that is on track to consume the food industry. The model includes wholesale replacement of an existing senior management team and what is often described as a blitzkrieg of cost cutting predicated on zero-based budgeting tenets. This model is further described in the analogy of a swimming shark with tendencies of buy, squeeze and repeat with the next target.

When 3G acquired Heinz, upwards of 7000 job cuts were initiated while five production facilities were shuttered. Earnings Before Interest and Taxes (EBITA) improved by 8 percentage points over an 18-month period. Heinz then acquired Kraft in 2015, and reports point to upwards of an additional 5000 in headcount reductions. A recent published Fortune report cites research firm AllianceBerstein as indicating that Kraft-Heinz is already 88 percent towards its goal to cut an additional $1.5 billion in annual costs by the end of this year.

Acquisitions govern growth as opposed to just organic sales growth.  The CPG industry is now consumed with the threat of 3G, and as Fortune observes: “The entire food industry is “3G-ing” itself before Kraft-Heinz can do it to the companies.” Fortune writes: “The whole food industry is speculating who’s next.” We concur and we predicted that there will indeed be another major acquisition involving a major branded CPG company in 2017.

Little did we know that it would come so soon and with far broader scope.

Dynamics Already Underway and the Stakes Increase

Last week featured the news of what our prediction included although the target and size was a big surprise. Kraft-Heinz issued a $143 billion acquisition offer for global CPG provider Unilever. While the offer was quickly rejected as insufficient, and subsequently withdrawn, the implications are far larger and once-again reverberating across the industry while all await the next shoe to drop. The Economist headline was: Barbarians at the Plate: 3G Missed Unilever but its methods are spreading.

Within the past few days Campbell Soup and General Mills reported disappointing sales and earnings. Campbell’s cited mistakes in its fresh-foods business unit that included a recent product recall and decision to harvest carrots while they were still small. Late last week, General Mills reported weaker than expected revenues from sales of yogurt and soup along with weakened consumer demand. The firm’s outlook for the remainder of its fiscal year that ends in May is expected to decline by 4 percent.

Today, The Wall Street Journal reported that Unilever is now pivoting from the Kraft-Heinz attempted acquisition with its Board now deliberating on options to deliver greater short-term value for shareholders.  That could include the sale of the firm’s current food division or attempting an acquisition of its own in the personal care area.

Meanwhile, speculation abounds as to what will be the next target for Kraft-Heinz. Names such as Mondelez International, Campbell Soup, Coca Cola Company, General Mills, Kellogg, and others are being tossed about.

With such a backdrop, pressures increase on remaining CPG food and beverage companies along with associated food suppliers.  By our lens, the survivors are those that embrace innovation and find ways to best accommodate today’s consumer choices.

Industry Supply Chains Buffeted from the Impact

In the middle of such forces are CPG focused industry supply chains that continue to be pressured for additional cost reductions and productivity savings. This will unfortunately, continue and at a more intense pace.  At the same time, visionaries continue to believe that the future still comes from process and technology enabled innovation and in sourcing, planning and marketing healthier and more organic food products. Thus, many food supply chains have heavy requirements for continuous new product introductions and in developing distribution strategies that accommodate an entirely different customer fulfillment need. Coupled with that is satisfying consumer needs for visibility into all levels of the food supply chain and specifically where food has originated.

All the above will be the primary agenda for CPG and beverage supply chains in the coming year. The winners are supply chain leaders who educate senior management on the differences of supply chain as a cost center vs. a business innovation enabler. They will also be those that can keep a laser focus on the end-goal, meeting and accommodating far different consumer preferences with changed thinking and distribution methods. Many will need to be equipped to deal with our other 2017 predictions such as responding to the perfect storm in the requirements for skilled supply chain talent across many supply chain, procurement and distribution dimensions along with the needs for advanced technology to support more predictive decision-making.

Bottom-line, the CPG industry remains in a state of defense and apprehension, and by our Supply Chain Matters lens, industry supply chains will pay the inevitable price in needs for further cost and headcount reductions along with blocked efforts to instill added product, process, and resilience to overall business support capabilities.

Stating the Obvious

Sometimes, a blog such as ours needs to be blunt in viewpoint to provoke additional thinking or changed mindset. The wave of activist investors surrounding the CPG food and beverage industry is destructive to supply chain capability and innovation, and the timing could not come at the worse time.  CPG industry supply chains and their network of food suppliers require the ability to support a business need for healthier and more organic food choices for consumers.  This wave of zero-based budgeting and cost cutting will not likely achieve that objective, and we as consumers, will have limited choices for healthier food. It is a race to the bottom with notions that the survivors gain the spoils.

One must wonder what the end-state really implies, short-term investor rewards or industry supply chains with very little capability to support required process, technology, and product innovation.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


2017 Predictions for Supply Chain Management- Guest Contributions

Comments Off on 2017 Predictions for Supply Chain Management- Guest Contributions

We just completed our unveiling and deep-dives on our 2017 Predictions for Industry and Global Supply Chains and the complete 44-page Research Advisory report is now available for complimentary downloading in our Research Center.

We now feature compilations of the many external guest contributions that were received from our readers.  holding the future 300x211 2017 Predictions for Supply Chain Management  Guest Contributions

A Thailand and Southeast Asia Perspective

In mid-January, this author noted a published report from Thailand’s Bangkok Post, The state of supply chain management in 2017.   This article was penned by two supply chain consultants with extensive experience in Thailand and the rest of Southeast Asia and observed: “that most supply chains still struggle with the basics and are not in any position to realise benefits from new tools and technologies.” We reached out by email to authors Barry Elliott and Chris Catto-Smith, (acknowledged  readers of Supply Chain Matters) and received very insightful additional feedback comments. Each has been practicing supply chain management consultants in this region for the best part of 20 years. Responding to our specific question as to whether their observations vary from one industry or another, or in upper or lower tiers of the supply chain, the response was no, it does not. “Little advantage is taken of the SCM body of knowledge, partly due to not knowing what they (SCM teams) don’t know and partly due to NIH (not invented here).” Clarified was that there are certainly shiny exceptions but interest levels to learn and implement the basics are somewhat challenging.

We share this input because it provided us a grounding to the realization that not all geographic regions feature the same capabilities and tendencies toward transformation, and that should remain an important context towards planning of 2017 initiatives and skills development.

 

Supply Chain Skills and Talent Management

Employee reference check provider AllisonTaylor shared Noteworthy Trends to Watch in the Career and Work Balance area to share with Supply Chain Matters readers.

  • Workplace well-being and flexibility has risen dramatically in importance and becomes critical for attracting new talent.
  • As highly tech-savvy employees continue to enter the workplace, new internal communications tools such as text messaging, live chat and instant messaging will increasingly replace traditional email.
  • Blended workplaces, where freelance workers team up with full-time employees, become increasingly predominant.
  • The reference checking process takes an unconventional turn as employer’s are more likely to call job seeker’s former supervisors, rather than follow traditional routes of contacting HR.
  • References become a powerful extension of a job seeker’s resume.
  • Virtual reality tools begin to revolutionize recruiting and training.

 

Business and Supply Chain Technology

Fusion Worldwide Chief Operating Officer Paul Romano shares his predictions for 2017.

  • Memory will continue to be an issue. Memory manufacturers have finally gotten what they wanted- increases in ASP’s after years of drought and cuts. The good news for them is that the end does not seem to be in sight. A convergence of factors will continue to    drive issues in memory. We may see things let up there and there but expect problems to exist for much of the year.
  • The pace of mergers and acquisitions will not let After a year that saw some blockbuster M&A’s, many are hoping to take a ‘wait and see’ attitude. Not so fast. With business picking up in many sectors, companies are looking for ways to expand as well as round out portfolios and offerings. Expect the M&A activity to continue     unabated into 2017.
  • The sharing economy comes to the supply Companies such as Uber and Airbnb ushered in the      sharing economy. Next up, the supply chain. Most efforts have been directed towards the consumer. However, as interconnectivity and the concept of the digital supply chain gain traction, expect to see attempts to create efficiencies and opportunities around the supply chain. Uber is already in the package delivery business; could we see an Airbnb app for  short-term use of unused factory, warehouse, or line space, perhaps?
  • 3D Printing becomes the disruptive technology many predicted two years ago.
  • The outcome of the Brexit negotiations is already affecting trade flows between the UK and the EU and leaves a big question mark on how big or small the impact will be.    This can potentially devaluate the Euro even more against the dollar which will impact European OEM’s trading in USD.

 

2017 Predictions Related to the Food Industry

We spoke with Bill Michalski, Chief Solution Officer at ArrowStream, A SaaS technology provider for food service supply chains, concerning his predictions for the food industry. His input was that the number one priority for 2017 is making food safety and traceability a top priority and would remain the largest area of focus in the near future as-well. In our discussion, Michalski emphasized that the year ahead will reflect the notions of when urgency meets the reality of food safety in terms of full product traceability for any given restaurant chain. A further challenge remains off-contract purchasing and non-vetted suppliers among larger food chains. Michalski concurs that traceability and supply chain sustainability initiatives can be linked for broader business benefits.

 

Service Parts Inventory Management

Synchron’s CMO Gary Brooks’s 2017 Technology Supply Chain Predictions calls for service parts inventory management and pricing optimization to grow in interest because of the increasing realization that both capabilities are key revenue levers for the aftersales supply chain. Brooks further predicts that Cloud-based technology has become critical for the supply chain and that adoption rates will rise further. “Supply chain players will need to embrace the full potential of cloud technology or risk falling even further behind in 2017.” Other predictions are that predictive analytics will finally be mainstream in the supply chain and aftersales market, and that driverless vehicles and drones play a bigger role in supply chain.

 

If there are any other 2017 Predictions that readers would like to share, please send them along and we will compile them for sharing.

 

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Yet Another Setback Concerning a Noted Mexican Restaurant Chain

1 comment

This Supply Chain Matters posting serves as another update on our now streaming commentaries related to the ongoing business and supply chain challenges involving Chipotle Mexican Grill.  Specifically, we refer to the past series of food related illnesses including E-coli, salmonella, and norovirus that date back to 2015. This week there has been a new development, one that makes us wonder aloud if senior management really grasps the extent of the chain’s continuing challenges.  Chipotle logo Yet Another Setback Concerning a Noted Mexican Restaurant Chain

Our last update commentary in late October reflected on the restaurant chain’s September-ending financial performance. Management appeared to reflect an upbeat perspective and announced several new initiatives directed at broadening menu options and fulfilling online orders including mobile ordering technology, along with consideration for airing more television commercials. To further efforts in improving food safety in restaurants and the supply chain, the chain’s CFO pointed to an establishing an independent Food Safety Advisory Council made up of some of the country’s foremost experts in food safety and food microbiology.  There were indications that the chain was expanding regional executive leadership to help improve staff training and the individual guest experience. Our take was one that management may now have grasped that you do not manage a brand crisis solely via sales and marketing tactics to bring previous loyal patrons back. The elephant in the room has been consumer perceptions of ongoing food safety and whether this chain had taken all necessary measures to ensure that the series of incidents that occurred in 2015 would not be repeated, at least by controlled, network-wide management and quality focused practices.

This week, investors once again punished Chipotle stock after the firm’s co-CEO Steve Ells indicated at an investor’s conference that he was not at all satisfied with the rate of recovery and specifically: “I’m particularly not satisfied with the quality of the experience in some of our restaurants.” At face value, that might have been a positive statement by a senior leader in the early stages of addressing a quality crisis.

Mr. Ells apparently went on to declare that slow customer service threatens to turn off people if they come back to restaurants and that the current service experience is not perfect. In its reporting, The Wall Street Journal pointed out that employee turnover rates among Chipotle outlets, according to the firm’s CFO, was averaging 130 percent in July. An equity analyst was quoted as noting that workers were leaving for higher wage rates at other establishments.

In somewhat of a conflicting goal situation, declining sales, volumes and ultimately margins take away from the ability to pay higher wages and demand higher standards in food preparation and service. Now this week, a chain-wide hiring freeze has been imposed.

In one of our earlier Chipotle focused commentaries, we noted that a review of SEC documents indicated that compensation bonus performance payouts for the firm’s executives were solely based on meeting future higher stock price milestones. We questioned why operational performance milestones related to quality and service did not appear to be weighted as high. A few weeks ago, business media reported that a small group of activist investors were now pressuring management for change in board leadership and for greater value for the company’s stock.

Thus, the management vice impacting Chipotle tightens. Sales and stock growth comes from increased consumer loyalty, based on a fundamental tenant that the quality of the food and the overall experience is suburb. Restoring integrity in the quality and safety of food requires certain investment and remediation, and more importantly, continued training, audits, oversight and periodic testing.

Efforts directed at improved employee training and higher consciousness towards food safety likely has been for naught when high numbers of recently trained employees up and leave. The same holds true for local management. The long-term efforts of the Food Safety Advisory Council are now pressured by senior leadership concerns related to slower service. It could be that slower service comes from understaffed and under-compensated employees.

There are obviously many take-away learnings that can be derived from what is occurring at Chipotle but the chapters are still ongoing.

The questions raised are what comes next?

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


« Previous Entries