HAVI Supply Chain +ISSUE 1 2016

Opportunity for

OPTIMIZATION —

Delivering

FRESH—

The Fresh

PROMISE—

SUSTAINABILITY

OFFICES

NORTH AMERICAHAVI Global Solutions USA (Chicago)3500 Lacey Road, Suite 600Downers Grove, IL 60515United States of AmericaPhone: +1 (630) 493-7400Fax: +1 (630) 493-7599 E-mail: haviglobalsolutions@HaviGS.com

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EUROPEHAVI Global Solutions Germany GmbHSchifferstraße 16647059 DuisburgGermanyPhone: +49 (0) 203 7090 2600Fax: +49 (0) 203 7090 2790E-mail: info-europe@HaviGS.com

HAVI Global Solutions UK LTD3 Furzeground WayStockley ParkUxbridgeMiddlesexUB11 1EZUnited KingdomPhone: +44 (0)20 8606 3118Fax: +44 (0)20 8561 9850E-mail: info-europe@HaviGS.com

LATIN AMERICAHAVI Global Solutions Latin AmericaAv. Garcia del Rio 2477, 9 BBuenos Aires C1429DEAArgentinaPhone: +54 (11) 4519-0690Fax: +54 (11) 4519-0690 ext. 111

HAVI Global Solutions, LLC (HGS) is a consulting, design and

execution company dedicated to helping our customers grow

smarter by delivering strategic and operational competitive

advantage. Leveraging our industry-leading experience, global

reach, expert competencies, and capabilities in packaging,

promotions, analytics, supply chain, sustainability, recycling and

waste solutions—we help our customers better manage risk,

achieve operational excellence, and realize their growth strategies

while addressing the most demanding, complex challenges across

their business value chain.

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This Issue

4MARKET INSIGHTS

6VANTAGE POINTDon’t Overlook the Opportunity for Optimization

8INDUSTRY INSIDER Defining Fresh and Delivering the Fresh Promise

10 INDUSTRY INSIDERTop Five List for Managing Risk in Delivering Fresh

11 FOCUS ON THE CONSUMERWho is Leading the Charge in the Demand for Fresh in the U.S.?

12 INDUSTRY INSIDERSustainability: The Magic Word

14ASK THE EXPERT Scott Saunders

16CASE STUDY FOCUSFinding Clarity in Chaos

18IN THE NEWS

18 AROUND HAVI

19 ON THE ROAD

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STORM-READY Smarts

IBM’s Intelligent Operations Center (IOC), created in conjunction with The Weather Company, injects Big Data into processes where communities are preparing for natural disasters.

IOC taps into weather-tracking algorithms to follow storm patterns, providing governmental and emergency organizations up-to-the minute information about the worst-hit areas. The predictive data and live updating allows emergency responders to know where to send help without guesswork. IOC also allows responders to simulate dangerous weather events in order to predict where problems will most likely occur, rather than relying solely on traditional weather forecasts.

_Moore-Colyer, R. (2015, June 22). IBM Unleashes Big Data

Analytics Tools to Tackle Extreme Weather Events, Incisive

Business Media. Retrieved from http://www.v3.co.uk

EARLY WARNING SYSTEMS: Proactive Measures from the Automotive Industry Automotive supplier Borg Warner has developed a Supplier Performance Monitor using data from its own SAP system plus third-party data that is fed through an artificial intelligence algorithm similar to Google’s search engine. The proactive monitoring system allows Borg Warner to identify potential problems early on and respond to them while they are still manageable. German automaker BMW uses an even more forward looking risk management approach, systematically sorting through social media postings, emails received, and press reports to identify early warning signals (e.g., quality problems, labor issues, shipping delays) before they develop into problems of significance. BMW’s algorithm is based on a two-stage language-sorting engine created in partnership with a University of Manchester academic.

_O’Marah, K. (2015, July 30).

Big Data and Risk are a Match Made

in Heaven, Forbes. Retrieved from

http://www.forbes.comMA

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ADVANCES IN Smart Shipping

According to the International Monetary Fund (IMF) global economy growth forecasts, port congestion is expected to worsen in 2016 in response to projected cargo volume increases of approximately 3.6 percent. With only a small percentage of container terminals intentionally built to handle close up (ultralarge) container ships (ULCS) greater than 10,000 twenty-foot equivalent units (TEU), congestion management solutions include smart container tracking and a smart port environment.

_MacAdden, V. (2015, November 17). The Connected Future of the Intermodal Industry at Intermodal Europe,

ORBCOMM. Retrieved from http://blog.orbcomm.com

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_Sheffi, Y. (2015, September 9). China’s Slowdown: The First Stage of the Bullwhip Effect, Harvard Business Review.

Retrieved from http://www.hbr.org

SURVIVING China’s Slowdown

For supply chains across the globe, the severity of China’s recent economic slowdown and related uncertainties triggered the first stage of a bullwhip effect on planning and operations.

In response to the implosion of the Shanghai Stock Exchange (SSE) Composite Index, stock markets worldwide declined sharply as investors fled investments exposed to higher risk due to a reliance on Chinese commodities. Financial experts are reviewing companies that have successfully ridden stage-one bullwhip economies in the past, such as in 2008, to uncover possible solutions to today’s crisis. Examples include office supplies giant Staples overhauling its IT infrastructure to merge two networks in an effort to improve its operations. Home improvement retailer Home Depot adopted a new distribution strategy, consolidating cross-docking flow centers to improve delivery efficiencies.

WAITING GAME: Blackberries In what Wendy’s executives claim has been its most difficult supply-chain challenge in recent history, the company spent 14 months searching for blackberries to complement a salad planned for this coming summer. The challenge of finding enough fruit—nearly two million pounds of blackberries—to supply its 6,500 North American restaurants proved more difficult than expected. Wendy’s normally reviews two to five suppliers for each

type of produce it uses, but the company went through more than 30 before finding a pair that could supply enough blackberries. According to Anthony Gallino, vice president of sales at California Giant Berry Farms, most blackberries are sold to grocery stores, leaving minimal supply for restaurants. In order to meet Wendy’s high volume demands, growers had to plant extra blackberry bushes, which take three years to produce mature fruit.

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Jargon, J. (2015, August 18). Fast Food’s Big Challenge: Fresh Ingredients, Wall Street Journal.

Retrieved from http://www.wsj.com

VANTAGE POINT

DON’T OVERLOOK the Opportunity for Optimization

HILE A SUPPLY CHAIN manager’s goal is quite simple in theory (get the right products to the right location, at the right time, for the best price possible), often times, like the example of commuting to and from work, the process to achieve this goal can be difficult. Changing variables can impact supply chain efficiencies just as construction, traffic and detours can disrupt a commuter’s usual driving route and force him to find an alternate path. Sometimes, a longer route may prove to be a more expedient path, especially when the typically optimal route is hampered by an accident. The driver needs to adjust his course of action and change his route in response to the variables impacting his commute. Arranging suppliers, manufacturing facilities, warehouses and distribution centers is a similar activity and not a one-time exercise to be completed every few years. In a quickly evolving and dynamic marketplace, such a static approach to network design leaves companies (like the commuter who is not able to follow his typical route) vulnerable to risk when variables fluctuate drastically on a frequent basis.

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by

PAN CHEN

Vice President,

Analytics & Supply

Chain Services

DYNAMIC NETWORK MANAGEMENT:

What’s Next in Network Optimization More often than not, tasks that should in theory be simple

are not. A commute to work can become difficult and

circuitous if unexpected lane closures and detours are

presented. Inclement weather and uprooted trees in the

road may cause more reroutes on the drive home.

variables that should be evaluated on an ongoing basis to ensure an optimized network. Some variables such as geopolitical issues, weather related transportation disruptions and natural disasters are uncontrollable, meaning a system must be able to adapt regardless of consumer demands and trends. Consider how weather patterns have changed in the last few years and the impact this has had on shipping, distribution and ingredient availability. Companies must be able to respond quickly and nimbly to variables impacting the supply chain. Collaborating across departments and along the chain to make small revisions to the system on an as-needed basis can have a significant impact on the overall network and ultimately profitability.

To successfully manage supply chains, businesses should start by regularly evaluating variables that could impact supply chain efficiencies if they were to change. Consumer demand, fuel costs, location of ingredients and product components, transportation capacity and supplier production capacity are just a few of the variables that can change quickly and require an equally fast evaluation and response. Consumer demand is typically the most rapidly changing variable and is extremely difficult to predict, analyze and respond to effectively. Most companies can create generalized forecasts of what their businesses will look like over the next 12 to 24 months based on trends, but it is tough to anticipate what will drive these trends and how they may change throughout the year. Having the ability to adopt new plans and make changes, from shifting logistics within an existing supply chain to moving different products to different locations to keep up with changes in demand, in real time is important. In addition to changing consumer demand, which is effected by outside influences such as seasons and holidays as well as social media, flash trends and sales, there are countless other

DON’T OVERLOOK the Opportunity for Optimization

Incorporate Flexibility Flexibility can come in the form of multiple suppliers, arranging supplier and distributor contracts with product volume ranges, and using shares or service levels instead of precise measurements.

Define Scope Define the capabilities and metrics that need to be monitored. These metrics can come in the form of volume including rate of change in demand of a product. Understand the sensitivity of the different drivers used in the network model and do so at a granular level since even small changes to the system can have wide-reaching effects on the supply chain.

Identify Relevant Data Sources Sequencing the supply chain network and determining where information sources lie can help companies collect relevant data needed to monitor and analyze their networks. Look to include product volumes, item hierarchies/category definitions, suppliers, product costs and network structures in data sources.

Develop a Network Monitoring Platform Identify information sources throughout the supply chain and summarize the metrics in consistent and concise dashboards reports. Then, develop automated processes to reproduce these reports on an ongoing basis.

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Prioritize and Optimize Review the dashboard reports with key supply chain partners on a regular basis to develop and maintain a consistent flow of information. This flow will help prioritize where you can optimize your network and eventually execute the optimization process. When organizations set up the system effectively from the beginning to support dynamic network management, optimizing the system on an ongoing basis becomes easier and automatic.

Implement Changes Based on the data collected and analyzed, implement necessary changes to optimize the supply chain. These changes will be different for each supply chain and will range from different modes of transportation to modified purchase agreements and different types of suppliers.

Identify Flexible Partners When selecting supply chain partners, companies should identify those with the ability to meet changing needs. There are constant variables that evolve differently depending on the company, so select partners who are committed to network optimization (they walk the walk as opposed to debating whether a forecast is right or wrong) and can respond and adapt to changing circumstances with your team.

Optimizing networks requires companies to take different approaches to manage the characteristics of their commodities or goods. Although there is no single approach to network optimization, these seven general steps, outlined in HGS’ white paper “Dynamic Network Management: The Next Step in Network Optimization”, can help companies achieve network optimization:

Implementing a dynamic network approach means having processes in place for monitoring supply and demand information on a regular basis, having the technology to provide data in real time and having consistent processes of communication between marketers, planners, supply chain managers and partners throughout the supply chain. For companies that take the time to optimize their networks, their supply chain becomes a competitive advantage.

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DEFINING FRESH and Delivering the Fresh Promise

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With an estimated global value of $26 billion, the fresh

produce market is now one of the most profitable sectors

in the food and drinks industry and is forecasted to

continue to grow. The concept “fresh” is used by many,

but is not consistently defined.

INDUSTRY INSIDER

by

JASON MALMASSARI,

Senior Director of

Promotions Management

and

DANI SCHOOLEY,

Director of Supply

Chain Solutions

FOR SOME, THE TERM refers to food procured directly from the source, or as close to this as possible, while for others, fresh can also mean freshly prepared goods, such as “made-to-order” burgers or hot dogs. Supply chain managers must establish a precise definition of what “fresh” means to consumers and determine the implications of that definition. Doing so will help their organization keep up in this fast-paced, unpredictable industry. These tasks, combined with the increased complexity of transporting fresh goods and the sustainability issues that entails, also present challenges for even the most mature/sophisticated supply chains.

DEFINING ‘FRESH’

Supply chain processes are difficult to manage in any industry, and the fresh food sector is especially difficult. Before organizations start planning for the increased complexities fresh food brings, they must establish what the consumer is looking for, and how he or she defines fresh. The U.S. Food and Drug Administration states that the term “fresh,” when used in labelling of food, suggests

that the food is unprocessed, in its raw state and has not been frozen or subjected to any form of thermal processing or any other form of preservation (although refrigeration is permitted). Industry definitions of fresh and consumer perceptions of which foods are fresh do not always align though. For instance, consumers tend to think that pre-packaged bread is less fresh than an unpackaged loaf on the bakery shelf. By packaging the product to avoid deterioration, the packaged bread could be more ”fresh” than a loaf that has been lying in a baker’s shop window for a day. Yet, when asked which loaf of bread likely is fresher, most consumers would probably select the unpackaged loaf. Once the perception and demands of the specific target audience have been established, the next step is for organizations to address any challenges these demands present. This could range from packaging, labelling and displaying food in a way that resonates with their customers’ ideas of fresh, to raising awareness of the time from farm to table in order to educate the consumer on the freshness of an item. The perception challenges and education gap underscore that it is more important than ever for organizations to conduct sufficient customer research to ensure brands are appealing to their target audience’s specific interpretation of the term.

DELIVERING THE FRESH PROMISE

The customer is king, and once the challenge of understanding what he or she means by “fresh” has been addressed, brands need to tackle how to deliver fresh foods. For instance, if customers define fresh as being locally and organically sourced, supply volumes and continuity will be an area to focus on as these products tend to come from smaller farms with limited harvests. If “fresh” means having salad prepared “on the spot,” the challenge is different and the organization may need to focus on worker skill development to ensure proper risk management and avoid contamination. One thing is clear, no matter the scenario, when a fresh component is added to the supply chain, the supply chain process requires additional planning, scrutiny and management. Increased costs through the use of refrigerated vehicles, added complexities due to food and quality assurance procedures, and reduced time frames due to perishability of items, are a few factors that make meticulous planning even more crucial. It can also be easy to overlook the fact that sometimes fresh might not make sense. Consider a food supplier that prepares individually packaged sliced apples for sale in supermarkets and convenience stores. The apples are preserved with a chemical that guarantees them a shelf life of 60 days. With the goal of offering retailers and their customers a fresher alternative, the supplier replaces the chemical preservative with all-natural lemon juice. As a result, the shelf life of the prepared apples is reduced by half. The supplier now needs to find a new source for the lemon juice and also needs to adjust planning with the apple grower and retailers to account for this reduction in shelf life. The supplier may need to source fewer apples more quickly and get them into stores faster. This affords less time to react to unforeseen changes in supply and demand. If there is consumer demand for sliced apples that last for 60 days, the supplier needs to ask if it really makes sense to change the preservation method. Similarly, a brand that commits to offering fresh avocado on its U.S. menu year-round may need to source from outside the U.S. since the domestic growing season for avocados typically is February through September. How will international sourcing impact the supply chain and timelines? Are there customs and food safety issues (ability to track

and trace) associated with imported foods? Are there taste differences between domestic and internationally sourced ingredients?

THE SUSTAINABILITY QUESTION

As with all aspects of the supply chain, the question of sustainability is never far away. While many consumers demand fresh foods all year round, they are also becoming increasingly aware of the environmental impact of these demands. With the majority of packaged food items now stating precisely where the ingredients were sourced, customers are asking how far their items have travelled and how big is the carbon footprint. Organizations should use this opportunity to educate consumers on the steps they have taken to ensure high levels of sustainability within the supply chain. This not only educates consumers on the broad environmental factors involved, it can also build significant brand loyalty in an environmentally-conscious age.

PACKAGING FOCUS

Packaging plays an important role in preserving fresh ingredients and in promoting sustainability. Corralling strawberries in a clamshell, for instance, helps protect them from damage. Consumers are more likely to purchase unblemished fruit than bruised fruit so the clamshell also helps to reduce food waste. When the packaging itself is sustainable (made from sustainable materials), that is even better. Consider consumers’ demand for minimalist packaging and the popularity of natural-looking materials. Consumers are drawn to this form of packaging in aesthetic terms, and because they perceive it to be environmentally friendly. ➔

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carriers strike, etc.). A dynamic approach to network

planning that includes proactive monitoring of trends and

fluctuations on a regular basis will enable to you to adapt

quickly and make adjustments to your network to minimize

impact on the supply chain.

Leverage data to manage inventory. Successfully

managing inventory levels is more crucial than ever

in the fresh supply chain because of the inherently short

lifecycle of products. You may need to source smaller

quantities of food more often and move them to stores

faster than you would with packaged goods. Consider the

location of suppliers relative to distribution centers and

stores and the impact of transit and storage times on shelf

life in stores. Leverage historical and point-of-sale data to

track demand and adjust inventory levels accordingly.

Communicate across the supply chain. Sharing information in real time and communicating

with partners along the supply chain is essential in any

system, but especially with fresh where the vulnerability of

products and potential for obsolescence may require that

changes in distribution plans be made quickly. To foster

collaboration, establish clear communication channels

with suppliers, distributors, restaurants and stores and

ensure everyone has visibility into the system.

There are definitely risks associated with managing fresh

products in the supply chain and failure to anticipate and

plan for them can be costly, but the rewards for effectively

meeting consumer demand for their definition of fresh are

many and include increased sales and customer loyalty.

If the packaging of a product appears to be minimalist and non-excessive, consumers are more likely to feel confident that their carbon footprint will not increase as a result of purchasing the item. The increased demand for fresh ingredients and the supply chain complexities that accompany them are the reality of today’s world. If organizations are to take full advantage of this new window of opportunity, they must anticipate and mitigate the challenges associated with fresh at every level of the supply chain. This includes understanding how their customers define fresh, preparing the organization and supply chain to deliver fresh, being mindful of the sustainability impact of delivering fresh, and utilizing packaging to send the right message to consumers.

LET US HELP: From designing promotions that maximize fresh ingredients while limiting waste, to supply chain visibility and planning tools ensuring your fresh ingredients are in the right place at the right time, to packaging development and sourcing options to preserve, protect, and deliver your brand promise.

Fresh

CONSUMER DEMAND FOR fresh is trending high, yet

offering fresh in retail stores and restaurants does not

come without risk. Inherent risks of fresh—specifically, a

short shelf life—and fluctuations in availability of supply

present unique challenges for supply chain managers.

Here are five tips for managing risk in delivering fresh.

Know your customers. Fresh is interpreted and

valued differently by different people. Before jumping

on the fresh bandwagon, take the time to understand how

your customers define fresh so you can successfully meet

their needs.

Develop contingency plans. Fresh foods are

inherently risky due to their (typically) short shelf

lives. Consider how you will respond if a weather event

wipes out supply or if demand fluctuations result in too

much product in the system. Build flexibility into your

plans. Identify multiple suppliers and carriers in case they

are needed. Ensure track and trace systems are in place

and the appropriate measures are taken to preserve the

safety and freshness of foods. Being prepared to mitigate

known and unforeseen risks across the fresh supply chain

will reduce the likelihood of breaks in supply and potential

for damage to your brand’s reputation.

Optimize your network. Traditional network

planning exercises that occur every 18 to 24

months and rely on static assumptions to determine the

most favorable geographic layout of assets and supplier

locations leave you vulnerable to risk. Demand for fresh

can fluctuate and market conditions can quickly change

(i.e., additional stores open, weather diminishes supply,

TO P F IVE L I ST for Managing Risk in Delivering Fresh

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NIELSEN REPORTS THAT IN 2014, the average American household made more trips for produce and deli products and spent three percent more across fresh departments than in 2013ii. Leading the charge among fresh food enthusiasts are Millennials, or consumers born between the years 1982 and 2000iii, and their successors, Generation Z (born after 1995)iv. By 2018, fresh food consumption by Millennials is expected to increase more than 11 percentv. Having recently overtaken the Baby Boomer generation in population sizevi, the demands from this group cannot be ignored. Generally speaking, Millennials prefer fresh, prepared and convenient foods. They care about where foods are sourced and favor natural and organic ingredients. The Hartman Group reports that in 2014, 86 percent

of Millennials used organic food and beveragesvii,viii. Additionally, Millennials place a greater emphasis on the health attributes of foods when they make purchases than any other age group, according to a Nielsen Global Health & Wellness Survey. Clean labels—denoting foods without artificial ingredients and preservatives—and non-GMO foods are important to this demographic. Made-to-order and customizable menu options also appeal to Millennials. The growth of snacking across all age groups continues, but is especially prevalent among Millennials who seek healthy on-the-go options. According to Euromonitor, this demographic also eats more servings of whole fruits and vegetables during the day than Generation X, Baby Boomers and adults older than 63 yearsix. What is driving Millennials’ fascination with fresh and their interest in food? Millennials have grown up during a time of heightened awareness

of the power of foods to impact health. They are very conscious of the obesity epidemic and the negative effects of processed foods. They are wary of the use of pesticides and other chemicals on foods, and they have witnessed several food recall and contamination events. The most educated generation to datex and the most tech savvy, Millennials are accustomed to reading labels and researching products before they buy. Farmers markets, cooking shows and blogs, greater than ever access to ethnic foods and flavors (cinnamon horchata ice cream, anyone?), and the prevalence of online grocers and boxed meal delivery services have helped shape this generation’s attitudes about foods and freshness. Expect Millennials and younger generations to continue to drive food trends and their interest in fresh to endure. And, look for retailer offerings and restaurant menus to increasingly reflect this generation’s tastes and preferences.

WHO IS LEADING THE CHARGE in the Demand for Fresh in the U.S.?

Consumption of fresh foods in

the United States has grown 20 percent

over the last decade and shows no signs

of slowingi. According to The Gallup Study

of Cooking Knowledge & Skills report, 78 percent of

consumers are making a strong effort to eat more fresh

versus processed foods.

i https://www.npd.com/wps/portal/npd/us/news/press-releases/fresh-food-consumption-will-continue-to-grow-over-next-five-years-and-youngest- generations-will-be-driving-trend/ii http://www.nielsen.com/us/en/insights/news/2015/the-state-of-fresh-are-fresh-foods-really-stealing-sales-from-non-fresh-foods.htmliii https://www.census.gov/newsroom/press-releases/2015/cb15-113.htmliv http://www.businessinsider.com/afp-generation-z-born-in-the-digital-age-2015-2v NPD. “Where Is Fresh Headed?” (excerpt) http://krogermediaservices.weebly.com/uploads/2/7/4/7/27475747/npdfoeofferfresh.pdfvi https://www.census.gov/newsroom/press-releases/2015/cb15-113.htmlvii http://store.hartman-group.com/organic-natural-2014/viii http://www.ift.org/food-technology/past-issues/2015/april/features/the-top-ten-food-trends.aspx?page=viewallix http://www.foodnavigator-usa.com/R-D/Millennials-drive-snack-growth-reshape-how-Americans-eat-Euromonitorx https://www.whitehouse.gov/sites/default/files/docs/millennials_report.pdf

FOCUS ON THE CONSUMER

ET MANY COMPANIES are limited to measuring the sustainability of their own business operations and remain unable to extend this evaluation to their suppliers and customers. Now more than ever, there is a growing need to integrate environmentally sound choices into supply chain management. Failure to do so not only runs the risk of increased inefficiencies within companies, but also the further depletion of already scarce resources. In today’s economy, profitability and efficiency are among the key drivers for almost all organizations and many companies have seen a favorable ROI when working on supply chain sustainability projects. Sustainability is now rooted in the lexicon of Fortune 500 companies, with senior executives recognizing the difference a sustainable supply chain can make in terms of delivering long-term profitability. Supply chain sustainability is replacing monetary cost, value, and speed as the dominant topic of discussion in the professional community. Increasing environmental costs and growing pressure from consumers

who are now demanding eco-friendly products has led many organizations to look at supply chain sustainability as a new measure of profitable logistics management – a sustainable supply chain often makes for a profitable one. As the supply chain is becoming the competitive advantage for many industries, companies continue to invest in infrastructure, technology, transportation, process innovations, and new facilities in order to stay ahead. The Future Laboratory produced a ranking system entitled Three Tiers of Sustainability, identifying the different levels of sustainability achieved by various organizations. The majority of companies appeared in the first tier, successfully managing to implement everyday measures such as switching off lights and computers when they are not being used. Yet, it’s in the second tier when companies begin to embed sustainability into supply chain operations. In order to reach this level, companies must assess their environmental impact across a local range of operations. In terms of the supply chain, this could involve supplier management, product design, manufacturing rationalization, and distribution optimization. Companies in the third tier use auditing and benchmarking frameworks to give clarity around the environmental impact of adjustments to supply chain agility, flexibility, and cost in the supply chain network. One of the key requirements of a successful sustainable supply chain is collaboration. Principally, this involves sharing distribution lines with the aim of reducing waste, by ensuring that vehicles do not get sent out at half capacity and that deliveries to the same address are on the same truck. However, this practice has not been embraced as readily due to the

SUSTAINABILITY The magic word

Today is a dynamic time to be operating in the supply

chain industry. International commerce is increasing

at exponential rates and accessibility of markets and

products are changing the nature of business. At the same

time, global resources are rapidly depleting. Sustainability

is one of the most pressing worldwide issues that is

challenging almost every corporate conscience.

by

KLAUS RUETH,

Senior Director of Analytics

& Supply Chain Services

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INDUSTRY INSIDER

fact that many companies are afraid that collaborating with competitors will lead to the loss of commercial control. Investing in alternative modes of transportation and thinking outside the box, such as utilizing canal networks, plays an important part in reducing the cost and environmental impact of a company’s deliveries. The need for investment in reliable and robust data from suppliers is also increasing. Although existing business systems are able to collect a limited amount of sustainability data, most large businesses will look to software providers for more specific sustainability technology. In order to transform supply chains, we must critically assess the mind-sets and incentive plans of business leaders. At every organizational level, employees and employers must understand why sustainability is instrumental in achieving business success. Creating an incentive for business executives to migrate toward a more sustainable supply chain will increase the pace of change within organizations. Reducing costs and improving our environmental footprint are a powerful combination that many leaders should embrace.

The food service industry is a key market in which to carry out this transformation. In Germany alone, often considered the ‘Gold Standard’ for sustainability levels, a 2015 Worldwide Fund for Nature (WWF) study showed as much as 18 million tons of food goes to waste every year - not just at the consumer end (40%), but the majority within supply chains (60%). Better planning and increased sharing of data between different partners in the supply chain can significantly reduce waste and, as a result, make it more sustainable. This also has the potential to directly impact on cost of goods sold for the different supply chain partners.

We take a holistic approach to sustainability and recognize that supply chain costs and environmental impacts are tightly linked. As businesses and the supply chains behind them become more complex, driving supply chain efficiency with optimized planning capabilities is of strategic importance - both in maintaining costs and in driving brand trust through sustainability improvements.

Our experience in using one view of consumer demand throughout the supply chain has allowed supply chain stakeholders to source, make, and deliver products more efficiently.

Sustainability

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SCIENCE

THINKING

BASICS

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16ASK THE EXPERT

cott, tell us about yourself: I am the senior vice president of supply chain integration and analytics for HAVI Global Solutions (HGS). In this role, I am responsible for supply chain integration processes which include supply chain process development and deployment, data management, supply planning and distribution services, and analytics and supply chain strategy. Prior to HGS, I was the vice president of global supply chain at Moen Incorporated, one of the world’s largest producers of residential and commercial plumbing products. At Moen, I led global sourcing and procurement, planning, demand and supply management, distribution, domestic and international transportation, logistics, new product planning and sourcing (introducing more than 500 products each year), customer service and order fulfillment. I have an MBA in quantitative business

analysis and marketing from Cleveland State University and a BS in business administration from Bowling Green State University. I frequently speak at international events about my passion for integrating supply chains and processes to make change happen in organizations! My wife and I reside in Naperville, Illinois. We have three sons and are active in the JCM Foundation, working with Johns Hopkins University to find a cure for pancreatic cancer. I also serve on the board of Directors for the Girl Scouts of Chicago and Northwest Indiana. Tell us about your 3 V’s of Supply Chain, or the concept of managing from “Dirt to Dirt.”

The two key elements of running an efficient and effective value / supply chain (which include the supply and demand chains) are simple: timing and sizing. In practice, however, they are quite challenging. All chain decisions come down to when, where and how much and there are three focus areas —the three Vs—that the best supply chains manage and control to drive competitive advantage. The first is visibility, the ability to see events that are happening as close to real time as possible from “dirt to dirt” and all points in between. It is important to be able to convert data into information and insights to enable fact-based decisions quickly; for example, immediately adjusting to sales trends to ensure the right amount of product (size) is in the right place (time). This is driven by the next V, velocity, or speed and agility. The best companies have supply chains that can move quickly with precision in terms of product

movement and conversion of data into business intelligence. This ability to see and react quickly reduces the biggest challenge to all supply chains which is variability. The goal is to utilize visibility and velocity to reduce variability.

What innovations in supply chain management are best poised to significantly change supply chain in 2025? There is a story about a manufacturing plant that is down to one employee and his dog. The employee’s job is to make sure the plant is running. The dog’s job is to keep the employee from touching anything. The future of supply chain management is headed in this direction as the industry moves to more “no touch” systems and information command centers with full visibility from end-to-end. The intelligent learning of systems will lead to more “science” driven by facts and less “art” or “gut feeling” which can create many problems and system nervousness across the network. Algorithms and machine learning with robotics will drive decision support systems. The “no touch” supply chain will be similar to the dog example with the picture of the entire network like the command center at NASA. The CEO will be recognized as the leader of the extended supply chain which will drive the convergence of the functional organizations within supply chains, sales and marketing organizations. Companies will utilize the supply chain as a competitive weapon to drive growth! How has globalization impacted supply chain?

The ability to see events that are happening anywhere in the world at any time is creating significant challenges and opportunities for managing supply chains. The digital

AN INTERVIEW WITH SCOTTSAUNDERS Senior Vice President,

Supply Chain Integration

and AnalyticsThe goal is to utilize visibility and velocity to reduce variability.

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world and the speed to information forces organizations to pursue new levels of collaboration with all businesses and partners that are part of their end-to-end network. The question is not what company has the best supply chain? It is which extended supply chains are aligned with clear expectations and goals so all partners can win? This creates a synergistic effect of the 1 + 1 = 3 (if done correctly, 1 + 1 = 4 or 5 too). Powerful fact-based conversations and agreements are taking place at all touch points of the chain. Driving to one view of demand across the entire demand chain enables networks to optimize inventory levels while meeting customer service expectations through perfect orders (everything the customer expects in a product or a service and all transactions). The ultimate customer experience is fundamental to business growth.

How have changing consumer demands impacted supply chains? The “big data” emails that fill my inbox each day proposing the answers to all of my problems demonstrates the complexity of supply chains and underscores the challenges supply chain leaders face: Consumers want to believe that brands are focusing on their specific needs and catering to them as individuals. The vast amount of information about shopping preferences, likes and dislikes and history of behaviors will cause supply chains to have to react and “appear” to be very focused on meeting specific consumer demands. Supply chain leaders need to be able to look at the entire supply chain and make product placement and inventory decisions. Organizations can implement at “total lowest cost” to meet consumer expectations while delivering on the financial results the company expects. Consumers are looking for more transparency about what is in the products they buy and where those ingredients came from. This poses a challenge to supply chains to provide complete transparency and a high level of data accuracy in the systems.

How has technology impacted supply chain?

When discussing challenges of technology with other supply chain leaders, the discussion of data quality is often dismissed and described as an IT issue. The lack of high quality master and transactional data is a potential constraint as companies aim to achieve higher levels of supply chain maturity. Studies have proven that supply chains that are more mature in terms of data quality, partner integration and total system performance metrics significantly outperform less mature networks. Companies need to be able to move faster in their technology development and can do so by implementing agile implementation processes and driving development utilizing tools such as Python and R. These open source tools can create opportunities to significantly reduce the costs of running integrated supply chain networks. Additionally, security will continue to be a very important concern for consumers with severe brand ramifications if there are breaches. And, e-commerce and digital technologies will continue to evolve at accelerating rates.

How have labor changes impacted supply chains? There is a global war for talent in the supply chain industry. In certain parts of the world, it is very difficult to even meet the hiring needs of businesses. Many universities have created programs in supply chain to accelerate the onboarding process and ability of new graduates to create value for employers. Organizations have to implement focused engagement models to ensure the development of this talent and create career roadmaps for all employees. The key is finding the right mix of data scientists and STEM (Science, Technology, Engineering and Mathematics) discipline graduates who also have the softer skills necessary for customer relationships, account management and leadership. Another challenge is the need to drive

FOOTNOTE: Scott received a Leadership Award for Inspiration by the HAVI Wise Women’s organization. He was also named by CLO (Chief Logistics Officer) magazine one of the top 20 logistics professionals internationally and received an honorable mention in the Fast Company “Fast 50.”

operational performance through continuous improvement coupled with the need to drive innovation. Often, there is a difference in skill and mindsets for these two business objectives. Traditional operations and supply chain organizations typically do great work on the cost management and ability to deliver on the numbers side. The new world is requiring the entrepreneurial startup mindset displaying agility in innovation which is not a competency developed in the traditional supply chain career path.

Is there anything else you would like to share about supply chain? The accelerated rate of change creates increased complexity and challenges for supply chain leaders. Factors that will impact the future include global regulation, commodity volatility, rapid technology change, climate change, “water is the new oil” and escalating geopolitical risk. Supply chain leaders need to understand and prioritize their specific end-to-end challenges and develop the right risk management strategies to optimize performance. In the future, companies will be part of many segmented supply chains to meet customer expectations, support business growth and manage actual and potential risk.

Factors that will impact the future include global regulation, commodity volatility, rapid technology change, climate change, “water is the new oil” and escalating geopolitical risk.

CHALLENGE

A QSR chain was launching a new product and encouraged franchisees to supplement the national marketing plan with local marketing tactics. Thousands of franchisees across the United States, excited about the new offering, immediately, and in record numbers, began implementing local promotional tactics to drive sales. Tactics included sampling, bundling, price discounting, giveaways and more across a variety of mediums—from social media and direct mail to radio advertisements. Corporate marketing was thrilled with the franchisees’ response, but struggled to determine which local marketing tactic was the most effective in driving sales and would best support the upcoming national promotion of the product. The chain planned to launch subsequent new related products and would develop a corporate marketing plan for each introduction based on the success of the latest launch.

FINDING CLARITY IN CHAOS: Quantifying marketing tactic effectiveness ensures product launch success

OVERVIEW

Quantitative analysis helps a quick service restaurant (QSR) chain identify the single most effective marketing tactic to drive sales of a new product nationwide.

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and adjusting for seasonality, geographic variation and the type/length of tactic, to determine the best offer. They also quantitatively analyzed each local tactic’s incremental sales contribution to the product line and overall category to determine the specific offers that increased sales the most. HGS was able to determine that one particular tactic increased sales of the new product by 180 percent, whereas others generated only 3.5 percent sales lift. This level of analysis and detailed insight enabled the chain to make an informed decision about which marketing tactic to employ for a national launch of the product (and subsequent similar product launches) as opposed to simply acting on gut feeling about what might be the most successful tactic.

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SOLUTION

The QSR corporate marketing team sought help from the Business Analytics team at HAVI Global Solutions. HGS has deep expertise in the QSR and Food Service markets, and their breadth of analytics experience across a promotion’s lifecycle, and their ability to manipulate very large, complex data into meaningful insights is unsurpassed. HGS’s business analytics group gathered data on a daily basis from each of the chain’s 10,000+ restaurant locations and processed this information quickly and efficiently to derive the insights that would be most helpful to the chain’s corporate marketing team. HGS analytically dissected each of the components surrounding the various local marketing offers, including isolating the effects of television advertising

HGS was able to determine that one particular tactic increased sales of the new product by 180 percent, whereas others generated only 3.5 percent sales lift.

BENEFITS

• Increased sales Identified the specific marketing tactic that increased product sales by 180 percent and category results by 115 percent.

• Improved promotion planning Made fact-based decisions about which marketing tactics would be most effective in driving sales of a new product.

• Enhanced field collaboration Empowered marketing teams with information about tactics they would not have otherwise had, enabling them to collaborate more easily with franchisees and share best practices.

• Saved time and resources Aggregated, summarized and manipulated large raw data sets very quickly to develop actionable insights that helped the chain make better business decisions, and freed up the franchisees to focus on their core competencies.

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IN THE NEWS

How to Ensure the Freshness of Your Supply ChainMaterial Handling & Logistics FEBRUARY 2016Jason Malmassari, senior director of promotions management, and Dani Schooley, director of supply chain solutions, share tips on how food manufacturers and retailers offering fresh products can optimize their supply chains in this contributed article.

EVISIT HAVIGS.COM TO LEARN MORE

Lessons from Foodservice Progressive Grocer FEBRUARY 2016HAVI Global Solutions subject matter experts Scott Saunders, Eric Pfeiffer and Steven Rodgers spoke with Progressive Grocer about food safety in the restaurant business and shared best practices that grocery retailers could apply within their own operations.

EVISIT HAVIGS.COM TO LEARN MORE (The article begins on page 118 in the digital edition and the sidebar appears on page 120-121)

Are You Missing the E-Commerce Target? ted Magazine JANUARY 2016 Jim O’Rourke, director of supply chain solutions, shares tips with ted Magazine on how distributors can best benefit from their e-commerce strategies.EVISIT HAVIGS.COM TO LEARN MORE

The Path to a Greener Supply Chain Logistik Heute DECEMBER 2015 Andreas Roeder, senior director, talks to German trade magazine Logistik Heute about green supply chains.

EVISIT HAVIGS.COM TO LEARN MORE

Talent Shortage Is a Weak Link in the Supply Chain Industry Week NOVEMBER 2015 Karmen Gilbert, vice president of supply planning, and Frank Vido, director of supply chain planning, discuss common misconceptions about starting a career in supply chain management and share tips for people interested in the industry.

EVISIT HAVIGS.COM TO LEARN MORE

Fresh Is Best FMCG News NOVEMBER 2015 Klaus Rueth, senior director of analytics and supply chain services, looks at the evolving needs of millennials and how they impact the refrigerated food and drink sectors.

EVISIT HAVIGS.COM TO LEARN MORE (The article begins on page 40)

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AROUNDHAVI HAVI Global Solutions is a part of the HAVI Group. In this section, we share information we think might be helpful to you from across the business.

HAVI Ranks Among Best Private Companies for Leaders JANUARY 2016

Chief Executive magazine ranked HAVI number three in its “2016 Best

Private Companies for Leaders” listing. The ranking was published in

the January issue of Chief Executive magazine. Each year since 2005,

Chief Executive has sought to identify those companies that excel in

leadership development. The final, top-40 ranking consists of public

companies with over $1 billion in revenue and the top 10 private

companies. Rankings are affected by a company’s reputation among

its peers as a source for well-rounded talent. The percent of senior

management recruited from internal talent pools is another criterion.

E VISIT HAVIGS.COM TO LEARN MORE

ON THE ROAD

PRSM 2016 National ConferenceLong Beach, CA, North America APRIL 25, 2016 – APRIL 27, 2016The PRSM 2016 annual national conference is your opportunity to focus on learning and networking with 1000’s of other retail facilities management professionals across North America. HGS is participating in this event as a sponsor.

E VISIT HAVIGS.COM TO LEARN MORE

National Restaurant Association (NRA) Supply Chain Executive Study Group Spring 2016 Chicago, IL, North America MAY 19-20, 2016NRA’s biannnual meetings bring

you face-to-face with experienced colleagues and cutting edge ideas. Every contact and topic is focused on the responsibilities you handle. Meetings address issues such as commodity buying strategies, food safety and cost management — exclusively as they apply to the restaurant industry. HGS is participating in this event as a Platinum Sponsor.

E VISIT HAVIGS.COM TO LEARN MORE

European Foodservice Summit Zurich, Switzerland SEPTEMBER 27-28, 2016The number one European platform for the restaurant industry. Issues they discuss are trendsetting and on

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tomorrow’s agenda. Together they have created a think tank to analyse the most important changes in the industry as well as an annual forum where all participants may share their thoughts on a regular basis. The people who join the summit are the industry leaders who shape the European restaurant landscape for the future. HGS is participating in this event as an educational partner/sponsor.

E VISIT HAVIGS.COM TO LEARN MORE

57th Annual MUFSO (Multi-Unit Foodservice Operators) Conference Dallas, TX, North America OCTOBER 23-25, 2016 MUFSO brings together the restaurant industry’s top leaders, innovators, experts and change makers for 2 ½ days of high-caliber educational content laser focused on the restaurant business. Attendees can take advantage of thought-provoking keynote speakers, interactive panel discussions and highly engaging one-on-one interviews with industry visionaries, as well as unique networking opportunities and the latest in food and spirits. HGS is participating as an exhibitor in the Supplier Exchange in booth 610.

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HfS Research Names HGS to “As-A-Service Winner’s Circle” in New Supply Chain Management As-a-Service ReportMARCH 2016

HGS earned placement in the “As-A-Service Winner’s Circle” in the

newly released Blueprint Report, Supply Chain Management (SCM)

As-a-Service, from HfS Research, the Architects of the As-a-Service

EconomyTM. This is the second time HGS has been named to the

Winner’s Circle in an HfS Blueprint Report.

“Creating client value through supply chain as-a-service requires

not only excellence in operations but an ability as a service provider

to create accessible and actionable data wrapped with practical

business insights for clients as well,” says Charles Sutherland,

Chief Research Officer of HfS Research and author of the 2016 HfS

Blueprint on Supply Chain Management As-a-Service. “HfS placed

HAVI Global Solutions (HGS) in our As-a-Service Winner’s Circle

because of the way that HGS implements its leading vision for

supply chain management through excellence in operations

combined with analytical depth and actionable insights for

clients. HfS believes that HGS sees where this market is headed

and as a leading service provider is committed to meeting the

evolving needs of its clients in the new As-a-Service economy.”

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+www.havigs.com