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UK Food Standard Agency Completes Blockchain Pilot for Food Supply Chain

UK food regulator the Food Standard Agency (FSA) has successfully accomplished a pilot using blockchain technology according to an announcement published July 2. This was reportedly the first time blockchain has been used as a regulatory tool to ensure compliance in the food sector.

The pilot was implemented in a cattle slaughterhouse, where both the FSA and the slaughterhouse were authorized to access data in order to improve transparency in the food supply chain. In July, the agency is looking to launch another pilot, which will allow farmers to access data about animals from their farm. Sian Thomas, Head of Information Management, said:

“Our approach has been to develop data standards with industry that will make theory reality and I’m delighted that we’ve been able to show that blockchain does indeed work in this part of the food industry. I think there are great opportunities now for industry and government to work together to expand and develop this approach.”

In the future, the FSA states that they will attempt to replicate the program in other plants. The agency said that in order for blockchain to be permanently implemented, it must be an industry-led initiative, as the current data model is used only for the collection and communication of inspection results.

Blockchain continues to gain momentum in the supply chain sector, potentially reducing inventory management and enabling greater efficiency. Recently, a group of companies including Walmart, Nestlé SA, Dole Food Co., Driscoll’s Inc., Tyson Foods Inc., and Unilever NV teamed up with IBM in order use blockchain technology for tracking food globally through its supply chain.

Last month, Microsoft partnered with supply tracking solutions provider Ardents to develop a new product tracking platform using blockchain and artificial intelligence. The system reportedly offers end-to-end traceability and visibility from the point of origin along the whole supply chain, allowing users to trace single product items within a case.


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CO2 shortage: Why it really matters for the UK’s food and drink supply

A shortage of CO2 gas is starting to bite. From pig processors to beer firms, the lack of carbon dioxide is hitting production. Booker, a wholesaler to bars and restaurants, is rationing sales. And soft drinks giant Coca-Cola says its UK bottling plant was interrupted by the shortage.

Trade journal Gas World, which first revealed there was a problem last week, said it was the “worst supply situation to hit the European carbon dioxide business in decades”.


What is CO2 used for?

CO2 is widely used in the food processing and drinks industries. It puts the fizz into beer, cider and soft drinks, and is used in food packaging to extend the shelf life of salads, fresh meat and poultry.

The gas is also seen as the most humane way to stun pigs and chickens before slaughter.

Carbon dioxide is also needed to create dry ice, another product extensively used in the food industry to help keeps things chilled in transit.

The gas is also widely used outside the food and drinks sectors. CO2 is needed for certain medical procedures, and is used in the manufacture of semiconductor devices and by oil companies to improve the extraction of crude.

Carbon Dioxide is used across the food and drink industray, from farming to extending the shelf life of products

Why is there a shortage?

A lot of CO2 is, simply put, created as a by-product from ammonia production that is used in the fertiliser industry. Other sources are bio-ethanol plants.

However, a number of big mainland European fertiliser plants closed down for routine maintenance. And in the UK, only two of five plants that supply CO2 are operating at the moment.

Peak consumption for fertiliser is the winter, so chemical companies have traditionally scaled back production as summer approaches. Also, the current low price of ammonia means producers have little incentive to restart production quickly.

It’s a case of bad timing that several plants wound down operations together, just as demand for food and drink was being ramped up by the good weather and football’s World Cup.

Who has been affected?

Coca-ColaImage copyrightAFP/GETTY IMAGES

The impact has been felt from the big drinks companies to the small bottling firms. Heineken said its John Smith’s Extra Smooth and Amstel were hit, while Coca-Cola production was interrupted until fresh CO2 supplies arrived.

Tesco-owned Booker, a big supplier to restaurants and bars, has started rationing customers to ten cases of beer. And Ei Group, Britain’s biggest pub operator, said some beer brands were in short supply or not available.

Scotland’s biggest abattoir – which handles 6,000 pigs a week – has temporarily closed, with animals being sent to England for slaughter. But that is only a temporary solution, as these abattoirs, too, are also low on carbon dioxide.

Small UK bottling firms have also been hit. In the West Midlands, Holden’s, which has 80 customers, shut down last Friday until further notice. “I’m left with people sitting around doing nothing,” said operations director Mark Hammond.

Also in the West Midlands, a firm called The Beer and Gas Man, which provides CO2 to 750-plus pubs which use the gas to force drink through pipes and taps, has run out of supply.

Will we run out of beer and meat?

We seem to be a long way from this, although food and drink trade groups say much depends on how long the CO2 shortage continues.

The British Poultry Association said its members are “living day-to-day” in order to conserve dwindling CO2 supplies.

Morrisons supermarket has suspended online deliveries of some frozen foods due to a lack of dry ice (created from CO2). Ocado has done the same.

The Scottish Pigs Producers’ co-operative is not ruling out meat shortages and higher prices but does not want to be alarmist. And British Meat Processors Association chief executive, Nick Allen, said the situation was getting “pretty tight”.

PigsImage copyright Reuters

What is the government doing?

There seems to be very little activity at the moment.

The Department for Environment, Food & Rural Affairs (Defra) says it “is aware that there are reports of a CO2 shortage”, and is in contact with the industry and gas suppliers “to understand the implications of the situation”.

That prompted one food trade body to tell the BBC: “They (Defra) will certainly have to wake up soon if this shortage continues for much longer”.

However, there is very little the government can do to force CO2 suppliers to ramp up production. The situation is, said a government spokeswoman, “still industry-led”.

Is there an end in sight?

There have been suggestions in the industry that supplies could start returning to normal in early July. Trade journal Gasworld reported that the shortage is likely to continue for the next week at least.

However, trade groups for both the food and the drinks sectors have criticised CO2 suppliers for a lack of communication, leaving them unable to plan for the future.

It’s also likely that some companies will be given priority as supplies return to normal. Meat producers have asked for priority treatment, given that the welfare of animals is involved.

And smaller companies fear they will be put at the back of the queue as CO2 companies satisfy the demands of their biggest customers first.


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How IBM builds blockchain for Walmart

Frank Yiannas, VP food safety at Walmart, set a challenge for his staff.

He gave them a pack of mangoes and told them to find out where they had come from. Six days, 18 hours and 14 minutes later they came back with an answer.

The mangoes had also been tracked by blockchain as part of a pilot scheme, and by looking on the blockchain the point of origin took just 2.2 seconds to find.

Before Yiannas set the challenge to his staff, he had worked with Stephen Leng, supply chain solutions portfolio and blockchain leader at IBM, to create a blockchain system to shadow Walmart’s traditional monitoring processes.

The implications of blockchain on food safety are huge, said Leng, who was speaking at a CIPS Bedfordshire and Hertfordshire branch event. “Five percent of all product recalls in the US cost over $100m – that could kill a category.”

Case in point was a massive spinach salmonella outbreak that hit the US in 2015. It took weeks to resolve and spinach was cleared off shelves across the country, killing sales for that period. “When they found out where it came from, it came from one small supplier who had used the wrong process in one field,” said Leng.

Food safety was one of the first blockchain applications Leng worked on, despite the challenges. The easy option would have been to start something already semi-digitalised. Food safety, on the other hand, was “full of people, messy processes, waste, and products going off”, he said.

The first proof of concept IMB and Walmart worked together on was tracking a pork supply chain in China. “[We could see] it’s been cut, it’s been processed, it’s been despatched, it was at this temperature – all of those process steps were just uplifted to the blockchain and put onto a dashboard so anyone could see them,” he said.

The team then wanted to see if they could replicate the results with a completely different product, mangoes from South America.

In this pilot, Leng’s team uploaded all supplier certificates to the blockchain. Certificates can be a huge problem for retailers because they need to be up to date, the wording needs to be correct and they have to be audited – Walmart has more than 50 people checking certificates. The result: “We were able to display all the data around that movement of mangoes to the shelf in a very simple way,” said Leng.

IBM is not just working with Walmart on its food trust platform. There are a number of participants including Kroger, Wegmans, Doll Foods, Driskel, Nestlé, and Unilever, among others, and Leng predicts eventually suppliers will be told they need to be on a blockchain.

Blockchain for business has some key differences to the technology used for cryptocurrencies like Bitcoin, said Leng. It will be a closed environment where participants need to be invited to the service and where no one can be anonymous.

Also, while cryptos use algorithmic proofs to validate transactions and maintain anonymity, on blockchain for business the validation will be done by humans approving transactions.

“The validation of the transactions and the approvals of the transactions are done by the participants of the blockchain – they’re approving it because there’s a consensus around that blockchain,” said Leng.

“It’s like a social network more than anything else, because we all have to agree,” he said.

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How to you managing your Indirect Procurement?

Over the last five or so years, there has been a dawning realization within companies that spending on indirect goods and services is a big area of opportunity for creating efficiency and cost savings. This is not news to those of us within the profession. However, the need to do better is prominent towards achieving set goals hence, we are constantly asking the following questions.


Are we employing the right professionals?

To begin with, you ask the question ‘What kind of talent is needed?’ At the highest levels of the profession, the skills people want are the ability to analyze market demands and industry trends and put together an excellent sourcing strategy. This takes very good business acumen because we’re looking at suppliers across everything from their financials to their ability to be able to produce and deliver in different geographies to how well can they manage the customer experience.

It’s a very broad business evaluation, and it requires a person who can really spread themselves across lots of functional areas from finance to marketing to sales to relationship building and customer satisfaction skills.

Are you taking a strategic approach to your company’s indirect procurement processes?

Investing in these indirect procurement management solutions can allow for in-depth analyses, provide real-time data for better decision making, reduce your risk of working with new vendors, quicken the onboarding process, allow for easier and safer payment processing, reduce cycle times, allow for greater visibility into your category spend, and increase overall efficiencies so you can reduce the costs associated with the function. It can provide insights into opportunities, identify potential areas for savings, and alert you to liabilities that you should be controlled before they hurt your business.

Is the execution of your processes the best in practices i.e ‘tactical or strategic function’?

Many organization has not clearly defined what role the indirect procurement plays at a corporate level. In many cases, indirect procurement is relegated to the simple task of acquiring goods and services upon request. As a result, there’s no clear sense of responsibility for the efficient purchase of goods and services. Having an established, structured and standardized procurement process is essential—and procurement specialists and software can help. The fact is indirect procurement is just as valuable as direct procurement and should be managed in the same strategic way.

Are you achieving an optimal use of your existing systems?

Optimisation of the systems is necessary toward achieving profitably. So have you created optimal plans that include the resources provided by your partners? Drive these plans from an intimate understanding of real demand and profitability-driven segmentation policies. This would result in optimising your indirect expenditures and trade off significantly with an effect on your bottom line. You cannot neglect this function any longer.




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10 Steps to a More Profitable Supply Chain

Does this story sound familiar? It’s 7:00 p.m., your warehouse team has just finished their final picks for the evening, your fleet has been loaded based on standard routing calculations, and you’re ready to pack up shop. Then that dreaded moment happens — a member of your sales team calls down to the warehouse: “Our best customer needs more ‘x’ by tomorrow or they’ll go somewhere else.”

It turns out, however, that the customer that made your people jump through hoops is, in reality, an underperformer from both a gross margin and gross profit perspective. In fact, unknown to the sales force or anyone else, this “best customer” has been in the bottom quartile of your customer portfolio for several years. Worse, that “critical” sale just cost you more money to process than it produced in profit.

If your distribution business serves a wide variety of accounts across a range of industries, then the question likely is not if this problem is happening, but how often.

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The solution to this problem starts with a deeper understanding of customer profitability. It then requires that every team work hand-in-glove to not only execute core tasks — receiving, storage and shipping inventory — but more importantly know how to better manage the intricate network of vendors and customers, as well as each nuance associated with these relationships. Our experience working with midsize wholesale distribution businesses ($50 million to $500 million in revenues) has proved that balancing profitable growth is achieved when you put in place a logical, methodical and well-planned approach to optimizing your supply chain.
Below are 10 practical steps to help get you on the path to profitable growth.

1. Analyze historical trends

Historical transaction analysis can yield tremendous insight into how you have been interacting with your customers. This is your organization’s demand profile — the series of indicators that your team can begin to analyze to determine strategies to improve customer profitability at the individual account or aggregate organizational level.

Regardless of your current technology platform, you might be surprised at how much data you actually maintain regarding the history of your relationships with both customer and vendor sides of the supply chain equation. Analyzing sales history is critical: It tells you what your customers buy while analyzing purchase order histories reveals buying histories from vendors to meet your customer’s demand.

This relationship is at the core of your purchasing and sales ROI strategy and shapes the buying behavior of both your procurement function and your sales department’s behavior when interacting with your customers. Historical information, although not perfect, is almost always one of the best predictors of future activity.

2. Rank your customers and suppliers on gross margin

Rank both your customers and vendors based on a straightforward top-to-bottom gross profit analysis of quartiles, then determine which groups account for the greatest percentages of margin. This step has many advantages, as it provides a structure to manage both your procurement and sales function activity in the future and can lead to improved processes that hold your teams accountable regarding customer and supplier performance. Further, posting these quartiles in a visible place in your organization creates transparency so that there is no ambiguity regarding which customers and suppliers have been profitable over time — and which have not, period.

3. Refine your sales channel analysis

Begin by analyzing how your customer orders come in. Break these orders into discrete sales channels. Rather than designating a customer type as “chain,” “independent” or “single location,” refine the attributes of your sales channels to collect more information about the size and shape of your customers, including number of employees, whether it’s family owned, approximate square footage of their locations, even the number of parking spaces at the location.

These factors, plus potentially hundreds more, if identified and captured correctly as part of a more robust sales channel analysis, will give you insights beyond what is observable in your salesperson’s informal relationships with your customers. This is a key to understanding where your business really comes from and can help your teams prioritize effort on how to capture more of the markets where your business has strengths in the near term while working on how to develop other sales channels in the medium-to-long term.

4. Create a multidimensional customer/supplier analysis model

We have found that developing a multidimensional model as a next step can optimize the internal profitability analysis of customers and suppliers. This model should contain both quantitative and qualitative information, such as which customers have the highest gross margin and which ones may give you the key to their storage facility. The numbers alone do not tell the entire story, because you may be able to better prioritize your shipments to a specific customer location without sacrificing service quality or delivery timeliness.

Combine this multi-dimensional analysis with the top-to-bottom view established in Step 2 and your team will have two important views of both your customers and vendors: Where they sit among their peer groups, and where they sit within your entire organization. This creates a “level playing field” and allows for the more transparent exchange of information between your sales and operations departments regarding how to make the most profitable decisions for your organization.

5. Respect the 80/20 rule

Eighty percent of your profit will likely come from 20 percent of your customers. Just as important, the opposite is true: 80 percent of your variable (and controllable) operational costs can likely be attributed to the 20 percent as well.

A powerful tool called Pareto analysis can help you make more intelligent decisions using the 80/20 rule. It is a simple technique for determining the best course of action among many possible alternatives involving a grouping and scoring methodology to ascertain which organizational or department changes might result in the biggest “bang for the buck” if implemented. The resulting insights can be a catalyst for organizational change in the way that your procurement and sales teams view their own performance.

If your multi-dimensional model tells you one thing, it will be that much of your variable cost results from uninformed decision-making on both the inbound and outbound ordering sides of your business. A Pareto chart will enable your team to better understand the qualitative internal factors, or interdependencies between your departments, which cost you time and money on a recurring basis. Pareto analysis is a way to prioritize which pieces of your organization will require the most change from a business process or technology perspective, and it will allow you to manage the potential investment needed for change.

6. Use benchmarking data and “key performance indicators” judiciously

Benchmarking data can be incredibly useful. Used improperly, however, it can be frustrating. Therefore, until you have a good handle on which customers and suppliers are core to your gross profit strategy, use benchmarks at the most macro level of your organization first. Understanding your internal cost drivers and specific relationships among your people will make benchmarking data much more useful to your business in the long run. Trying to live up to benchmarks can be a bit like herding cats if you haven’t cleaned up your internal processes and data first.

There has been debate over “key performance indicators” (KPIs) and how best to use them. Keep in mind that KPIs can be powerful tools, but it is critical to think carefully about which ones are most relevant to your current situation and which are more applicable for monitoring mid- to long-term trends. Consider developing KPIs around the functional interdependencies among your departments as outlined in Step 5. KPIs designed around the relationship between two or more departments responsible for the supply chain can be more valuable than KPIs designed to measure any single function.

7. Determine a single view of organizational profitability

If you’ve analyzed your customers and suppliers, quartile them, ranked them based on a multi-dimensional profitability model, determined the 20 percent that accounts for the profit and the 20 percent that account for all the problems, and compared your organization to other similar-sized businesses, you’re ready to provide a single view of profitability to your employees. Formalize it, post it, report it and set a vision for how the business will be done based on the analysis you’ve performed and why it makes sense for your business.

8. Standardize your processes and create a system of internal controls

Based on your newly designed view of organizational profitability, next, take a look at the functional alignment of your organization. You will likely find that unprofitable decisions have roots in a salesperson trying to ensure his “most important customer’s” satisfaction, with little understanding on how that one decision, or series of decisions over time, affects profitability downstream.

Gather your managers for sales, procurement, warehouse, customer service, and transportation. Your goal is to make sure they all have a common understanding of what constitutes a decision that is unprofitable to the business. This is a great opportunity to develop standard processes and internal controls that can help your team understand when they’re about to make an unprofitable decision. Give your management team measures to detect decisions that will produce off-strategy results. Map your supply chain from end-to-end, and ensure that everyone has the same view of upstream and downstream events and how they interrelate with one another.

9. Integrate your teams

Depending upon your organization’s size, consider developing cross-functional teams to manage customer accounts or industry segments. Get everyone involved and ensure that the team is aware of the goals with respect to managing the customers for which they’re responsible.

Imagine hearing a driver who actually delivers products to your customers discuss the potential to increase backhaul opportunities with your procurement team. Believe it or not, your drivers generally see everything that you don’t: They are your organization’s last touch-point with a customer order, and your suppliers’ first touch-point (assuming that you backhaul) when you purchase inventory. Give them the right tools to manage both sides of the relationship and you’ll likely find more qualitative data points to help increase the success of your teams.

10. Train your teams on standards, then urge them to develop better processes

At the end of the day, no information system, no matter how robust can be as effective as a well-trained teammate who can understand how to interpret the information. Although powerful information systems can aid in supporting your key business processes, systems are only designed to execute tasks — albeit millions of them.

Training your team involves ensuring a solid understanding of Steps 1 through 7. However, training further implies that you’ve developed standards and frameworks by which you will measure performance over time. Once you have developed the necessary tools and methods for training your teams, your goal is simple: Paint a clear picture of your organizational objectives and how each of them contributes to the whole. Then, align your performance management systems to your organizational objectives to promote adherence to the standard.

Development and coaching play a vital role in this step. Allow your teams a voice and create mechanisms to enable them to communicate underlying performance drivers that are inherent in the standards that have been set forth and create a path for continuous improvement. A well-trained team can improve their ability to execute and, in turn, develop new and better ways to execute.

In conclusion, identifying the unproductive, and unprofitable interrelationships among people, processes, and technology in your business is something that takes time away from looking at the top line — sales. But — and this is a key point — making the investment to rethink key elements of your logistics model will most certainly pay handsome dividends over time.¦

Understanding customer profitability provides a foundation for better serving your best, and most lucrative, clients
By Richard Davis with Grant Thornton
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