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.
Supply Chain Matters has provided our readers visibility to emerging industry disruptors who are leveraging advanced technology and platforms directed at supply chain related business process and asset needs. Such visibility included the entry of Uber and Lyft and their potential to move beyond people transportation.
We now bring visibility to Nikola Motor Company and its ongoing development of a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One.
According to this manufacturer’s founder, the name Nicola was named from electrical engineer Nikola Tesla, whose last name is now affixed to one of the most visible automotive industry disruptors. Similar to electric car manufacturer Tesla, even before the first prototype truck is produced, Nicola’s founder indicated last week that the manufacturer has booked 7000 reservations, each accompanied by a $1500 deposit, totaling more than $2.3 billion in cash. Any tractor-trailer fleet manager will probably view $1500 as a pittance sum when considering the purchase of a Class 8 semi-tractor truck. None the less, the fact that 7000 organizations are willing to queue-up in line, with five months remaining until physical product unveiling, indicates something special in product development.
Founder and CEO Trevor Milton indicates that Nicola’s technology is 10-15 years ahead of any heavy equipment truck manufacturer in fuel efficiencies and emissions. According to the firm’s web site, the Nikola One will feature 4 times the horsepower, 2.2 times the torque and twice the miles per gallon of a standard diesel powered Class 8 tractor. Acceleration from zero to 60 miles per hour under load is claimed as 30 seconds, twice as fast as an average diesel powered vehicle. The vehicle features six-wheel drive, allowing the vehicle to both push and pull loads. With 6X6 regenerative braking and air disk brakes, the combined electric and compressed natural gas (CNG) powered semi-truck claims to stop nearly two times faster than any other semi- truck on the market – cutting stopping distance in half.
Once more, this upstart is offering a compelling opportunity that will allow owner-operators and fleets to get into a new Nikola One and know their total cost of ownership every single month, regardless of fluctuating fuel costs and miles driven. The Nikola Complete Leasing Program will offer unlimited miles, unlimited fuel, warranty and scheduled maintenance, all for only $5,000 per month. Then for no additional cost, tractor-trailer fleet operators’ can trade-in for a new Nikola One every 72 months or 1,000,000 miles, whichever comes first. Whether a customer drives 8,000 miles per month solo or 16,000 miles per month as a team, total fuel cost is covered by Nikola. Tax, title and license not included.
As noted in a recent press release, the average diesel truck burns over $400,000 in fuel and racks-up $100,000 in maintenance costs over a million miles, and Nicola claims these costs are eliminated with its lease program.
That seems to be quite a compelling financial proposition, hence the current pent-up interest. Class 8 truck sales have been very depressed of-late because operators have been very reluctant to invest large sums of investment in new trucks with the current financial dynamics of fleets and today’s lower cost of fuel. Nikola could add a whole new dimension, but obviously, has to convince transportation operators that the technology indeed performs as claimed and what Tesla is generating for customer advocacy, Nikola can do the same among a highly conservative lot of buyers.
There has long been skepticism as to whether anyone could develop a compelling electric powered heavy duty truck. It is only a matter of time before a manufacturer addresses such skepticism and it seems that Nikola is positioning itself to be that manufacturer.
Obviously, this is a manufacturer to watch over the coming months. The company indicates that it has completed a seed round of funding and is working of a milestone of $300 million in round A funding to be completed by the truck’s initial launch, which is currently targeted for early December of this year.
Sustainability efforts could well get a huge boost is this technology does come to market. Then again, with all of the advanced hype and pre-orders, other established manufacturers may have something to say or an action to initiate regarding such a disruptive technology.
© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
In prior Supply Chain Matters blog declarations, this Industry Analyst has declared a belief that the recent ground breaking Paris COP21 Agreement on stemming global climate change provides both a profound call to action as well as a significant opportunity– an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself.
After receiving a direct Tweet from consulting firm BearingPoint regarding the latest results of its 5th Supply Chain Monitor survey on sustainable supply chain efforts, this analyst remains even more convinced on the need for moving such initiatives beyond functional to line-of-business level efforts.
According to the BearingPoint survey summary, Sustainable is the new green for supply chain.
To cite a specific finding:
“In 2015, the green supply chain is widely seen as a strategic priority: if it isn’t already, it will be in the next 1-3 years.
Having a green supply chain is now high on the agenda for 59 percent of European companies, and for 51 percent of U.S. companies. Considerably more U.S. companies (2 percent compared with 6 percent of European companies) see it becoming an important priority in the short term (the next 1-3 years), as they strive to close the gap and bring their activities in line with Europe.”
The report notes that European supply chain respondents indicated they have already harvested most of the low-hanging fruit of carbon reduction initiatives. The study authors indicate that the data suggests that in the post COP 21 period, they perceive a revival of green awareness that includes more social responsibility efforts in overall supply chain sustainability plans.
Consider that according to this study, 70 percent of European based companies currently view the social aspects of supply chain as a strategic priority in their supply chain management efforts with an additional 12 percent indicating that would be the case in the next 1-5 years. The report further observes that the U.S. has raised its social responsibility game, which is attributed to the fact that U.S. activity has also lagged European efforts by a visible margin.
Regarding the notion of raising sustainability efforts towards a broader objective of sustainable business, there was an interesting finding:
“Although CSR (Corporate social responsibility) departments exist in many companies now, they don’t necessarily have the broad view or the decision-making power to move things forward to the degree needed.”
The authors go on to note that companies now need to implement professional management concepts to plan, execute and control their extended sustainable supply chain management activities to include internal and external incentive systems required to drive change.
That is encouraging data to state the least. Including social responsibility under the sustainability strategic umbrella adds a broader strategic mission implying higher organizational and executive level stakeholder interests.
The data is quite interesting and reinforces that industries are indeed approaching another crossroads in the COP 21 era of global climate change and sustainability efforts.
Is your supply chain organization, or better still, are your company executives taking this view?
Readers can download the full BearingPoint study at this 5th Supply Chain Monitor web link.
Supply Chain Matters provides an important follow-up to the ongoing diesel emissions scandal and brand crisis associated with Volkswagen. Today, in announcing its financial performance for the first quarter of 2016, the company surprised many by actually reporting respectable operating and net profits. VW characterized such results as “respectable” considering the challenging conditions and further re-iterated that it has the financial resources to weather the current emissions scandal.
Last September, the U.S. Justice Department initiated a wide ranging investigation into alleged use of software installed in nearly a half-million diesel powered cars that make these vehicles appear to have cleaner air emissions than they actually do in operation. Volkswagen has since acknowledged that the vehicle software installed in some U.S. diesel powered passenger cars make it appear that the vehicles conform to U.S. emissions standards. Since that time, there has been a series of internal and external investigations, management accounting and other management actions and/or missteps related to this situation.
Despite group sales revenue being down 3.4 percent from the year-earlier period, operating profit climbed to €3.4 billion, while net profits fell to €2.3 billion ($2.6 billion), down from the €2.9 billion reported in the year-earlier period. Automotive division’s net cash flow attributed to operating activities declined by a hefty 45.8 percent but total corporate-wide was slightly up because of a nonrecurring gain on the sales of LeasePlan. According to a published commentary from the Associated Press, the Volkswagen brand made only 73 million euros in the quarter, down from 514 million a year earlier, leaving an operating margin of only 0.3 percent.
It would therefore appear that the company’s broader brands and operating groups, in particular the highly profitable Audi and Porsche Divisions, are financially making-up the difference in the ongoing crisis. Many manufacturers, not of the sheer global size and breath of Volkswagen would have suffered more financial implications.
In the announcement of financial performance, VW CEO Matthias Mueller states:
“2016 will be a transitional year for Volkswagen that will see us fundamentally realign the Group. Nevertheless, we remain confident that our operating business will again record solid growth this year. The Group’s robust financial strength and earnings power are key to our ability to take the necessary decisions calmly and diligently and to resolve the strategic policies that will shape our future with the necessary determination”
Today’s announcement of Q1 financial performance did not include any updates on financial contingencies related to ongoing actions related to the emissions scandal. The company outlook for the remainder of 2016 expects 2016 sales revenue for the Volkswagen group to be down by as much as 5 percent.
Reports indicate that a tentative agreement was reached with U.S. authorities in federal court in San Francisco to buy back or repair upwards of 500,000 vehicles. Attorneys for Volkswagen owners have until June 21 to file a final settlement with the court.
This supply chain industry analyst just returned from attending the Institute for Supply Management (ISM) 2016 annual conference held earlier this week. This is the conference where purchasing and supply management professionals gather for added learning, education and insights related to supply chain management and in particular, supply management’s role in contributing to required business outcomes.
I walked away from this particular conference with many positive impressions, some of which will be shared in subsequent Supply Chain Matters commentaries.
Overall attendance was impressive as well as the profiles of those attending. I was especially pleased on observing the many Millennials in-attendance, more so than I have observed in the many supply chain conferences this author has attended over the years. That is indeed great and a testament to perhaps the growing attraction to careers in supply chain management. Praise to ISM’s conference planning teams for putting together an overall agenda that featured many topics related to do’s and don’ts of procurement management as well as a number of panels that addressed skills, talent and career management topics. In that light, I also had the opportunity to hear from five of this year’s 30 Under 30 Rising Supply Chain Stars which was equally impressive. More on that will also be forthcoming in a subsequent posting as-well.
One very impressive presentation I would like to highlight was presented by Ian Hope Johnstone, Head, Sustainable Agriculture for Global Operations at PepsiCo. His presentation addressed how this global based food and beverage producer is advancing sustainability in agricultural practices across a spectrum of farmers. Further addressed was PepsiCo’s ongoing Sustainable Farming Initiative(SFI).
In a previous commentary addressing the global and industry supply chain ramifications of the recent COP21 Paris Climate Agreement, this author came to a realization, that the recent ground breaking COP21 Agreement on stemming global climate change provides both a profound call to action as well as a significant opportunity- an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself. It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond functional to line-of-business level efforts. Through Supply Chain Matters, my hope is to provide specific examples of such efforts, and clearly I can now cite PepsiCo’s ongoing efforts as a benchmark example of the context of business sustainability.
PepsiCo’s sustainability umbrella is indeed broad and includes sustainability needs related human, environmental, talent and global citizenship initiatives. No doubt the firm’s dynamic Board Chairperson and CEO, Indra Nooyi has been a guiding and important C-Level sponsor for such efforts and resources. Within the firm’s 2014 Sustainability Report, Ms. Nooyi articulates very powerful statements that communicate the broader requirements for sustainable business. One of those statements is here noted:
“Weaving sustainability into the very fabric of our organization is a way to help future-proof our business for the changing world around us.”
PepsiCo’s sustainability umbrella therefore extends beyond procurement and umbrellas the entire value-chain and the many dimensions of doing business.
In his presentation, Johnstone highlighted the compelling need that food production must double by 2050 amid constrained land environments, an aging farm population and the ongoing climate changes impacting our globe today. Once more, he validated that consumers are highly influencing sustainability needs, being much more demanding of health conscious and protein-based foods, along with demanding visibility to where particular food products are sourced.
From the procurement lens, PepsiCo’s Sustainable Farming Initiative is both consumer and supply chain facing linking the two toward common objectives. The Procurement criteria now include a diamond visual that includes Service, Quantity, Price and recently added Sustainability as buying criteria. Sustainability includes security of supply over a much longer-term window, ten or more years in many cases. Noteworthy was PepsiCo’s procurement team efforts in listening to and collaborating with various farmers on efforts required to reduce water consumption, smarter agricultural practices and respecting the data ownership needs of farmers.
This global food and beverage producer clearly recognizes that no one corporation can succeed in farming sustainability without actively working with other consumer products producers such as Land of Lakes, Kelloggs, McDonald’s Unilever and others in an industry consortium for addressing common standards in sustainable farming practices and in consistent water and land conservation and renewal practices.
For further information, our readers can review PepsiCo’s dedicated sustainability web page.
In our Part Two commentary I will address some other personal highlights from this year’s ISM annual gathering.