OFC 2015: Shorter supply chains ‘bring producer benefits’

Shorter supply chains are benefitting producers and big retailers – but not always by an equal proportion, delegates at the Oxford Farming Conference were told.

Many multiple retailers had introduced their own ways of reducing the number of links in the supply chain, said Laurence Olins, chairman of fresh fruit suppliers Poupart.

“The shortening of the supply chain is characterised by either shortness in time or distance, the frequency of processes or the number of intermediaries between producer and consumer.”

See also: Full coverage of the Oxford Farming Conference 2015

But two parts to the supply chain required further examination, Mr Olins added. The first was the physical supply chain. The second was supply chain management.

Reducing the number of physical links could be achieved by the delivery of produce direct from farms to retail distribution centres.

It could also involve packing produce into retail packaging at source, the use of retailer vehicles to backhaul from farm to depots or delivery to local stores by farmers.

All these initiatives had driven down costs to the grower in terms of distribution and packing, reducing the number of times a perishable product was handled.

This reduced the time taken to bring produce to the consumer in a fresher condition, thereby giving it a longer shelf life, said Mr Olins.

But most of these initiatives require collaboration from the multiple retailer.

“This sometimes complicates the issue, but also means that the full value of any savings are shared between producer and customer – and not always equitably.”

Often the opportunity to deliver direct to depot was curtailed due to the retailer nbeing unable to handle direct deliveries, said Mr Olins.

But on balance it was fair to say that the shorter and more direct the chain of distribution and packing, the more it was to the grower’s advantage.

When it came to supply chain management, the picture was different, with some costs associated with financial and physical changes inevitably falling on the producer.

Supply chains solely managed by the retailer were clearly the shortest and could help solve mutual problems, explained Mr Olins.

But this type of relationship was best suited to larger growers whose product range was not overly complex, he added.

Given the directness between retailer and producer, such relationships could drive out costs from the supply chain.

But in practice, ultimate savings were not always achieved due to complications of dealing with very large retailers.

“A farmer with a direct customer representing a high proportion of his production is very dependent on that customer maintaining their volumes and paying a fair market price.”

Using an intermediary to manage a supply chain could suit growers of all types and sizes, but their presence would clearly add cost, said Mr Olins.

“To justify their cost, the intermediary must provide extra services and investment that neither the customer or the grower can provide themselves.”

This could include marketing the crop, financial support, guaranteeing continuity of supply, product development and technical support.

The third way a supply chain might be managed was by a combination of the two methods. UK supermarkets including Tesco, Sainsbury’s, Asda and Morrisons were doing this.

The combined model of supply chain management was still in a fluid state and had seen complexities enter the chain, said Mr Olins.

“The real challenge is whether the various forms of supply chain management are benefitting growers. This, I believe, depends very much on how involved the farmer is in the chain.”

Farmers should take the supply chain serious – and review arrangements often enough to ensure that it works to their business’s best advantage.

“There are cost savings the shorter the chain but there are many challenges to achieve them.”