- THE MAGAZINE
- FOOD MASTER
This is not a pretty picture for most processors. All the savings go to retailers and all the costs go to food and beverage processors. Can you change your processing operations to smaller production runs, lower inventory quantities and radically altered distribution operations? What is the manufacturing impact of shorter production runs? The most common effects are higher changeover costs due to frequent changeovers and reduced production time because of the downtime needed to execute the changeovers. Changing your processing and packaging operations may involve significant re-engineering and capital investment. This is not something you can do quickly. The alternative is to suffer added costs for inventory; continue today's production runs; stockpile the difference between demand and inventory; and expect that it balances over time. Neither approach is attractive. The change in distribution operations may be equally disruptive. A warehouse tuned to picking and shipping single SKU pallets in truckload quantities is not the same warehouse that picks cases, builds mixed SKU pallets, and ships in less than truckload quantities. What if the retailer wants the cases to be smaller, e.g. 30 count instead of 100 count? Now, everything must change.
The good news is that you have the time to plan and execute the changes you'll need. The bad news is that an inexpensive solution is not obvious. You might consider a third party logistic provider (3PL) as a solution, in which case you'd continue your operations as you do today. Instead of shipping to the retailer's distribution center, you ship to the 3PL, which translates single SKU pallets into mixed SKU pallets and full truckloads into less than truckload shipments. It may solve your compliance problem but it adds costs that most processors can't afford.
One answer: 3PLs and processors form their own consortium where the 3PL gets goods from multiple processors with the same or overlapping customer base. The 3PL transforms each processor's transportation paradigm from a series of less than truckload shipments into full truckloads direct to stores with multiple SKUs from multiple food processors. This has been tried with limited success, usually in industries besides cold storage. It's usually been pushed by a forward thinking 3PL and resisted by defensive-minded manufacturers. ("I don't want my product on the same truck with their product.") The big manufacturers may be able to do this with their own resources or through a dedicated 3PL. The mid-tier food and beverage processors should look to this "consortium concept" as a means to challenge the big players and win against them (or at least get to cost parity) rather than as a means to win against other mid-tier competitors. Plan now or starve later.