DOLEFIL SUPPLY CHAIN

Introduction

The global financial crisis has many at Dole Philippines (Dolefil) wondering what the implications would be on its operations. A local subsidiary of the Dole Food Company (Dole) of the United States, it is concerned about the adverse effect of the crisis on the demand of its products. Its main markets have been hit hard by the crisis – in the United States alone, 5.7 million jobs have been lost since the crisis pushed it to recession in December 20071. Japan has a similar fate - unemployment has increased 12.4% from a year ago2. Moreover, the end of the crisis is not yet in sight and the possible extent has been compared to the Great Depression of the 1930’s3. It did not help that during that time, Dole pineapples pile up in their Hawaiian factories, the stench polluting the air.4

Dolefil

Dolefil is the Philippine subsidiary of the Dole Food Company which is the largest producer of fresh and packaged fruits and vegetables in the world. Using pineapple planting materials brought from Hawaii, Dolefil started its operations in Polomolok, South Cotabato in 1963. Two years later, it shipped its first cases of canned pineapple products from its wharf in General Santos to New Jersey, U.S.A.

By 2008, it has agricultural operations in the municipalities of Tupi and T'Boli in South Cotabato, and Maasim in Sarangani Province. This is on top of the fully integrated agricultural and industrial facilities in Polomolok, Surallah and General Santos in South Cotabato. These facilities include a base plantation, two cannery complexes with a can and fresh pineapple packing plant; and a shipping and wharf operation with a box and labels plant (see Exhibit 1). Almost 6,000 employees find work in these facilities5.

Dolefil operates under the Dole Packaged Foods Asia division which provides the overall direction for the markets and production divisions in the Asia region (Exhibit 2). This supports Dole’s biggest markets in North America and Europe aside from covering the demands of Japan, China, Hong Kong, New Zealand, Philippines, Singapore, South Korea and Thailand.

Pineapple Demand

Demand for pineapples has been growing over the years and improvements in sea transport techniques have extended the reach of fresh pineapples. The demand is driven by trends towards healthy snacking and popularity of derivative products that are easy to prepare and consume. The largest market for packaged pineapples for Dolefil is North America (United States and Canada) with major presence in Europe (United Kingdom, Germany, Spain) and Asia (Japan, Philippines, South Korea). On the other hand, Japan along with South Korea, Singapore and New Zealand are the main destinations for the fresh pineapples. The aggregate imports of fresh and packaged pineapples in the United States and Japan are shown in Exhibit3.

Dedicated Dole sales organizations service demands of major retail and wholesale customers in the regions. They make the sales calls every year, get orders from the customers and forward them to Central Logistics, who then decide whether to send the order to Dolefil or Dolethai6 (Dole

Thailand) for production. Central Logistics communicate with the production facility and decide the shipping schedules and volume.

Production planning is set three years in advance, as it takes that much time to complete a growing cycle consisting of two pineapple harvests. Prior to the global financial crisis, the forecasted demand for 2008 of Dolefil’s processed pineapples was more than 21 million standard cases7. These total cases are comprised of canned pineapples, juice and concentrates and fruit bowls as given in Exhibit 4.

The demand for canned pineapples, fruit bowls, juice and concentrates follow predictable seasonal activities and observances. For canned pineapples, consumption rises during Easter, Thanksgiving and Christmas where they are a common ingredient to the food in the festivities. For fruit bowls, consumption is driven by healthy and convenient snacking for students going to school. It provides parents a ready option to their kids’ “grab and go” eating preferences. Demand for juice and concentrates on the other hand goes with the weather temperature and the need to quench one’s thirst - low on winter and high during summer.

Pineapple Supply

Approximately 70 percent of all the pineapple used in Dole’s worldwide processed products comes from Dolefil, with the remaining 30% coming from Dolethai. When Dolefil started operations, it leased a sprawling plantation to cultivate pineapples. Later it contracted growers to produce additional pineapples in their behalf. To facilitate this, they shared their technologies and expertise to contract growers, and provided them training and access to low-cost financing to support their production of pineapples. In return, Dolefil has exclusive rights to purchase their produce at the agreed contract price and quality. Currently 9,700 hectares are maintained by Dole while 7,300 hectares are planted by contract growers in three provinces of southern Philippines. In 2007, Dolefil harvested more than 600,000 tonnes of pineapples from these lands.

Large scale cultivation of pineapples is a lengthy and complex process (see Exhibit 5). Intensive preparation on the land and soil is needed prior to planting. Machinery is used to clean and till the field, design drainage systems and lay out pathways for maintenance. Specific variety of pineapple crowns is sown at certain arrangement and density to maximize yield. Dolefil plants the Mayan Gold 3 variety of pineapples for their fresh produce and the F-200 for their processed products.

A year after planting, the pineapple crowns can be forced to “flower” by spraying with ethylene - based chemicals8. Pineapple flowering may be delayed or uneven, and “forcing” facilitates uniform maturity and enables one to control the time and volume of harvest. Six months after forcing, the fruit is fully mature and ready for harvest.

The planting to forcing interval, however, is not fixed and can be delayed depending upon commercial requirements and the grower’s circumstances. Forcing at later months where the crowns are bigger results in bigger fruits at harvest but may eventually lessen the yield. Typically, cultivated pineapples yield two harvests, the second one coming from one of its shoots (called suckers) growing from the mother - plant stem. One can force the sucker eight months after the first harvest to produce a second or ratoon fruit six months later.

Successful pineapple cultivation is dependent on a healthy root system and it is important to prepare the soil for adequate supply of nutrients. After the ratoon harvest, the pineapple plants are “knocked-down” to recycle nutrients and increase the organic-matter content of the soil. The time between the knock-down and new planting (called "intercycle") is about four months to allow the plant materials to break down.

Aside from preparing the land and planting the pineapples, Dolefil’s Agriculture Division monitors the growth of the plants. Maintenance of the growing pineapples is done with fertilizers and pesticides at regular intervals. These fertilizers and pesticides are mostly imported from other countries.

In the Philippines, most of pineapple productions are maintained by multinational corporations such as Dole, Del Monte and Chiquita. The Agriculture Division prides itself with among the highest yield at harvest (tonnes/hectares) resulting in the Philippines having better aggregate yields compared to other nations. For instance, Thailand, which has more than100,000 hectares for pineapple production cultivated mostly by small independent farmers, has an average of 24 tonnes/ha to the Philippines 37.5 tonnes/ha (Exhibit 6).

Pineapple Packing and Processing

Twenty percent (20%) of the harvested pineapples are carefully packed and shipped fresh inside boxes where it has about a week of shelf life. The other 80% are delivered to the cannery for processing and packing just hours after harvest. These pineapples are unloaded from trucks to conveyor bands where the crowns are taken off for future planting. The pineapples are then mechanically sorted by size and a Ginaca machine9

automatically peels the skin, cuts the ends and removes the core of the pineapple. The resulting solid pineapple cylinders are then conveyed to tables for trimming and packing as slices, chunks, tidbits or crushed inside cans (see Exhibit 7). Other packing styles using plastic cups, plastic jars, pouches and packages for individually quick frozen fruits have also been developed (see Exhibit 8). Depending on the packing style10, the product shelf life can last up to two years.

Juice is likewise being produced inside the cannery. Juice production is derived from both the solid and liquid pineapple components. Solid components consist of the flesh that are not packable into slices, segments or crush, such as the pineapple core, the layer of flesh scraped off the shell and the cylinder ends removed by the Ginaca machines. Juices from liquid components pertain to all surplus juice obtained during any processing activity.

The amount of solid and liquid pineapple components recovered in the cannery depends on several factors. Recovery yield is highest when fruit size fit standard size cans. This allows the Ginaca machine to effectively cut the pineapples corresponding to specific can sizes. Damage during loading, transportation, unloading and conveying in the cannery system reduces solid recovery. Dolefil’s Cannery Division monitors all these and works on maximizing recoveries depending on the packing plan.

Aside from the pineapple fruits, crucial ingredients such as sugar and packing materials are needed in the canning operation. Sugar used by Doleful is imported from Australia and Thailand and refined in South Korea. Packing materials are manufactured by Dolefil although most of the raw materials are imported. Within the cannery, there is a can manufacturing plant and at the wharf, a box forming and labels plant. Materials for the cans (e.g. tin plates) come from Japan while papers used for manufacturing boxes are imported mainly from the United States. Other packing styles using plastic cups, plastic jars and pouches have also been developed. Although materials for labels are imported, these are printed locally at a printing press in Dolefil.

Shipment and Distribution

Once the products are labeled and packaged in boxes, they are ready for shipping at Dolefil’s wharf in General Santos or in Panabo. More than 14 million boxes of fresh pineapples and 21 million standard cases11 of packaged pineapple products are shipped from this port facility. A warehouse sits near to store them prior to transportation. Dolefil follows first-in first-out (FIFO) in product shipment based on packing dates.

Most of the packaged pineapple products are shipped to North America where Dole has port facilities in California, Delaware, Florida, Mississippi and Texas. It takes about four weeks for the ships to arrive in the west coast of the United States and an additional two weeks to the east coast. These include travel time to get into their mainland distribution centers or warehouses. In Europe, the products get shipped to Antwerp, Rotterdam, Oslo, Spain, and Hamburg. The voyages take between five to seven weeks.

For fresh pineapples, it takes about a week to reach their main destination in Japan. Utmost care is given to the pineapples during the voyage to control the conditions such that it arrives at the desired stage of ripeness. These require particular temperature, humidity/moisture and other ventilation conditions. Otherwise, spoilage may occur as a result of inadequate (rotting) or excessive (drying-out, weight loss) ventilation condition. To go about this, Dole invested in a dedicated refrigerated containerized fleet which is the largest in the world. The ships were designed exclusively to carry temperature controlled, refrigerated containers filled with tropical fruits like pineapples and bananas. To maximize capacity utilization, Dole set-up a subsidiary to offer shipping services to third parties, transporting fruits and other types of raw materials and dry cargo12.

Dolefil products are sold and distributed through a network of Dole regional operations in North America, Europe and Asia. These operations involve the distribution and marketing of fresh and packaged pineapples. The distribution centers are operated either wholly by Dole or through joint ventures with local distributors. Dole sales organizations service major retail customers such as large chain stores Walmart of the United States and Tesco in the United Kingdom or institutional customers such as Pizza Hut. Usually Dole enters into product and service contracts typically for a one- or two-

year term with its large retail customers13. Dole sales organizations also cater to wholesale customers including large distributors in North America, Europe and Asia. From these customers, the fresh or processed pineapples are eventually placed on the supermarket shelves or become an ingredient of their food services.

Discussion

A meeting among its managers and directors was called to assess the situation and identify actions Dolefil need to do in response to the situation.