Perishable SC Team#1 Batch D - Copy

8/7/2019 Perishable SC Team#1 Batch D - Copy

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INDEX:

SL.NO TOPIC PAGE NO

1 Introduction

1. Background and need of supply chain

2. A diagrammatic representation of a

traditional supply

3

4

2 The perishable supply chain- an overview 5

3 Literature Review 5

4 Peculiarities of perishable Supply Chains 7

5 Reducing spoilage in perishable Goods storage 8

6 Example of a perishable Supply Chain managed by

Reliance fresh.

10

7 How to manage supplier relationships for

perishable products ( upstream):

11

8 Conclusion 12

9 Group member details 13

10 Bibliography 14



SUPPLY CHAIN OF PERISHABLES

INTRODUCTION :

1. BACKGROUNG AND NEED OF SUPPLY CHAIN:

The concept of supply chain is to view the various components of logistics process that is

from the procurement of raw materials right up to the customer as one single unbroken chain

of links, where the whole is greater than the sum of its parts. In short a supply chain is

concerned with all the activities involved in making a final product available to the end

customer from its procurement stage.

The supply chain strategy or design can act as a core competency of an organisation as it is in

the case of DELL Computers, Wall mart stores or ZARA the apparel manufacturer. In

the same way the failure of many E –businesses can be attributed to the weakness in their

supply chain. While designing the supply chain the most important thing that has to be borne

in mind is that the design of supply chain will depend upon the nature of the product. For example in the case of perishables that have a short life span the supply chain design very

responsive with facilities such as cold storage and faster transportation facilities available.

An effective supply chain helps a firm to:

Building a core competency using its supply chain in overcoming its competition and

satisfying its customers.

Cost reductions

Reduction in lead times

Reduction in intermediaries leading to lesser wastage and cost.

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Can help in increasing the overall profitability of a firm.

Help to maintain optimum inventory and investment in business.

Can help to efficiently manage relationship with its suppliers and customers.

Can help a firm differentiate itself in the competitive environment.

2. A DIAGRAMMATIC REPRESENTATION OF A TRADITIONAL

SUPPLY CHAIN WITH VARIOUS STAGES OR FLOWS:

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THE PERISHABLE SUPPLY CHAIN – AN OVERVIEW:

Managing perishable items pose a significant challenge in the supply chain environment.

Food stuffs, dairy products, green vegetables, flowers, fruits are all examples of perishable

items. These perishable items have a finite usable lifetime, and pass many hands during its

movement from source to destination. The study of the supply chain of perishable products is

particularly important because they account for more than 50% of supermarket sales, and the

potential for extra profit from managing these items has been estimated at 15%. Also the

frequency of usage by consumers is very high and there is always demand for these items

which vary a lot depending upon the prevailing prices. But demand for these items can never

be zero. Perishable goods were among the first commodities carried by air. With years of

operating experience, airlines have developed very effective handling techniques for chilled

and frozen products, providing shippers with optimum, cost-efficient packaging methods for

these time and temperature sensitive commodities.

The traditional model of vegetable retailing in India involved vegetables being sold in

small stores on the road side where there were no formal rules regarding weighing,

bargaining and quality issues leave alone cold storage and sophisticated supply chains.

Products travelled slowly and inefficiently before they reached the end customers suffering

from mark-ups, wastages and quality losses all the way.

LITERATURE REVIEW:

In developing supply chain strategies for perishable food products, we build upon two distinct

research streams: models for perishable inventory management and supply chain design

structures. We summarize the most relevant research in each of these streams and integrate

the concepts into a more general model for the supply chain for perishable products.

Numerous models for managing the inventory of a perishable product have been developed .

Of particular relevance to the current study are models that deal with degradation of product

quality and value over time. In most early studies on perishable inventory, perishability is

defined as the number of units of product that outdate (perish). Hence, the decay is not in

terms of value, but in the number of units, and the decay is modeled with a probabilitydistribution. For example, Ghare and Schrader (1963) develop an EOQ distribution to

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model item deterioration. Shah (1977) extends the model to allow for shortages and

backlogging, and Tadikamalla (1978) examines the case of Gamma Distributed deterioration.

Giri and Chaudhuri (1978) and Chakrabarty et al. (1978) extend these models to include

situations in which demand rate is dependent upon either the inventory level or time. Somepapers do consider deterioration in product value over time. Weiss (1982) examines a

situation where the value of an item decreases non-linearly the longer it is held in stock.

Fujiwara and Perera (1993) develop EOQ models for inventory management under the

assumption that product value diminishes over time according to an exponential distribution.

However, they assume that the rate of deterioration of product value increases with the age of

the inventory. More recently, Ferguson et al. (2006) apply Weiss’ model to optimal order

quantities for perishable goods in small to medium size grocery stores with delivery

surcharges. Research on the perishability of fresh produce indicates that, unlike these models,

the loss in product value and quality is at its highest rate immediately post-production

(at harvest), and the rate of loss in value declines until the produce finally “spoils”

(Hardenburg et al. 1986, Appleman and Arthur 1919). To date, the perishability models

that have been developed only consider inventory management: determining appropriate

levels of perishable stock to meet demand. Ferguson and Ketzenberg (2006) examine the

value of information sharing. between retailers and suppliers for perishable products. Their

research focuses on retailer replenishment policies when information is shared. Ferguson

and Koenigsberg (2007) study the effects of firms selling leftover perishable products at a

lower price in competition with fresh product.

A number of frameworks have been proposed for supply chain design. One of the first was

introduced by Fisher (1997), who devises a taxonomy for supply chains based on the nature

of the demand for the product. For functional products (stable, predictable demand, long

life cycle, slow “clockspeed”) Fisher argues that the supply chain should be designed for cost

efficiency; for innovative products (volatile demand, short life cycle, fast “clockspeed”) he

maintained that the supply chain should be designed to be fast and responsive. Lee (2002)

expands upon Fisher’s taxonomy by suggesting that the supply process could be either stable

or evolving. A stable supply process has a well established supply base and mature

manufacturing processes. In an evolving supply process, technologies are still early in their

development with limited suppliers. Kopczak and Johnson (2003) extend the framework to

include coordination of activities across companies, improving information flows, and

collaborative redesign of the supply chain as well as its products and processes. Lee and

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Fetzinger (1997) introduce the concept of delayed product differentiation, or postponement .

They showed that delaying final product definition until further downstream in the chain

reduces variety in the early stages (in effect, making the product more functional). This

creates opportunities for supply chain designs that can be efficient in the early stages andresponsive in the final stages. In their studies of reverse supply chains, Blackburn et al.

(2004) find that, for returned products that lose value rapidly over time, the supply chain

should be responsive in the early stages and efficient in later stages. These studies suggest

that supply chain strategies based on a simple choice between efficiency and response can be

inappropriate when the product undergoes substantial differentiation or change in value as it

moves through the chain. We show that this is the case for perishable produce: the value of

the product changes significantly, and the appropriate supply chain structure is one that is

responsive in the early stages and efficient in the later stages.

PECULIARITIES OF PERISHABLE SUPPLY CHAIN:

The challenge for managing perishables is that product value deteriorates significantly

over time in the supply chain at rates that are highly temperature and humidity dependent.

These changes in product value make conventional supply chain strategies inappropriate. For

many products, a decision about supply chain strategy involves a choice between

responsiveness and efficiency. The appropriate choice depends on how the product changes

in value over the time interval between production and delivery to the customer.

Temperature control must be monitored

Short product life extending from days to weeks

Long production lead time

Short sales cycle

Low final salvage value

Uncertain demand

Transportation and interim storage at the distribution centre affect the final quality of

the saleable product.

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Customers are quick to judge the product based on their appearance and remember

when a product does not meet their expectation.

Generally faster modes of transport such as flights are used for perishable products for

a speedy delivery to end customers.

Cold storage is necessary for some fruits and vegetable and meat.

Need for a responsive supply chain is predominant over a efficient supply chain

REDUCING SPOILAGE RISKS IN PERISHABLE GOODS STORAGE:

The first thing that comes to mind for most of us when we think about spoilage is an image of

the contents of our refrigerator the last time we had an extended power outage or the

compressor burned out. Ice cream in a puddle on the bottom of the freezer, wilted lettuce in

the vegetable drawer, sour milk and melted butter. Now magnify this several hundred times

over and you will begin to get an idea of what a typical commercial cold storage or

supermarket spoilage loss looks like.

Aside from the trouble and expense of cleaning up the mess, there are issues with disposal,

restocking and lost sales. a supermarket manager was asked what his biggest headache was

when dealing with a spoilage loss and the answer was surprising customer perception. He

was most concerned about the negative impression left by empty shelves and mop buckets

next to the freezer case. A close second was the interruption of daily operations. Deliveries

and restocking slowed to a crawl during the cleanup.

In commercial cold storage, it is not unusual to have to move the product into refrigeratedvans or even across town to another facility during the cleanup. Disposal of spoiled product,

aside from being costly, can often involve government agencies. Due to high bacterial levels,

spoiled product is often deemed hazardous waste, the disposal of which may require

considerable bureaucratic red tape. While the trouble and expense of a spoilage loss goes well

beyond inconvenience, there is another, even greater concern. That is the risk of spoiled or

contaminated product reaching the consumer. We have all read in the newspapers about

multi-million-dollar lawsuits resulting from the consumption of tainted products in the

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marketplace. These are some of the methods to prevent and reduce product spoilage in a

perishable supply chain:

. Inspect and Review: A thorough receiving inspection combined with a review of transport

temperature records is the best way to prevent poor quality product from becoming part of

your inventory. The nature of the product and its packaging influence how receiving

inspections are performed. Visual inspection for damage to packaging, swells, discoloration

and other indications of product mishandling is the most common means of confirming

product acceptability. Except when used to evaluate fresh meats and produce, visual

inspections often yield insufficient information about the exposure of the product to unsafe

storage conditions.

The limitations of visual inspections makes continuous monitoring and recording of storage

conditions, combined with point-of-origin quality assurance, an essential part of verifying

product quality. Many trucking companies today rely on miniature, solid-state temperature

recording devices to confirm whether proper storage conditions were maintained during

transport. These matchbook-sized devices are inexpensive and provide high-resolution

temperature readings over the entire duration of the transport period. The use of miniature

temperature recorders benefits both the trucking company and its customers by eliminatingguesswork.

Maintain Quality: With the quality of the received products established by inspection and

review of temperature documentation, the facility’s primary focus is then on maintaining

proper storage conditions. Ensuring reliable operation of the equipment used to maintain

normal storage conditions is the cornerstone of spoilage prevention. This is achieved through

a combination of well thought-out system design, balanced operation and disciplined

preventive maintenance practices.

Control Costs, Minimize Losses: By far the majority of spoilage losses are the result of

undetected loss of refrigeration. In most instances, the spoilage occurs over a period of less

than 24 hours and when personnel are not present to detect the problem. The rate at which

spoilage can occur is dependent upon a number of variables. These include the amount of

time the storage space can maintain temperature during a refrigeration outage, the perishable

character of the products involved, ambient (outside) temperatures, and the nature of equipment operation during the spoilage period.

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As a general rule, the lower the average storage temperature and the larger the storage space,

the more slowly spoilage is likely to develop. This is because the thermal mass of the product

acts as a “safety net” to prevent spoilage. Smaller storage spaces, like display cases or small

walk-in coolers and freezers, can experience a spoilage loss in just a matter of hours. This isparticularly likely if the equipment gets “stuck” in a defrost mode of operation, resulting in

the continuous transfer of heat into the space.

Temperature Alarms: The use of automated temperature alarm systems offers an

inexpensive solution to the problem of undetected loss of refrigeration. These systems use

temperature sensors to provide instantaneous warning whenever space conditions stray from

ideal.

Inventory Control: The final step in spoilage prevention is attention to product condition

and shelf life during the storage period. Most often, this aspect of product protection is a part

of the facility’s inventory control process. Technological advances provide ever more

efficient means of tracking product lots based on date of manufacture or product expiration

date. Bar coding and other forms of product identification have markedly reduced the risk of

shipping or selling “expired” products. Emphasis on reducing inventory through just-in-time

delivery of perishable goods also helps lessen the likelihood of the use or sale of substandardgoods.

EXAMPLE OF A PERISHABLE SUPPLY CHAIN MANAGED BY

RELIANCE FRESH:

Reliance Fresh intended to bring high quality fresh food to the customer at an affordable

price and a pleasing environment enforcing high quality and hygiene bringing high value to

the customers. In order to provide customers with high quality food items like vegetables and

fruits at low cost Reliance Fresh always buys directly from farmers, and never from

wholesalers and other intermediaries. For example leafy vegetables, tomatoes and green

chillies in one of the outlets in Mumbai is sourced directly from farmers in the nearby

districts. This in effect gets translated to lower prices by at least 15% to 20%. By going

directly to farmers Reliance retail wants to dis- intermediate the supply chain and eliminate

waste . This means “fresher products at lower costs.”

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For vegetables Reliance Fresh also enters into contract farming with farmers where it

provides the farmers with high quality seeds, technical know-how and guarantees assured

market for their products at prices higher than the prevalent wholesaler. Reliance has

therefore tried backward integration so as to secure its supply and bring efficiency in thesupply chain. Goods from farmers are brought to large warehouses from where they are

supplied to the stores. A sophisticated cold chain facility and several trucks to preserve and

supply the vegetables are also provided by Reliance Fresh. The perishable items are procured

at the district level, ensuring that each district can has the authority to procure products

quickly at a cheaper rate. By cutting out middle men their commission, loading, unloading,

and transportation charges are reduced. Thus they follow a policy of “pay farmers more”

and “sell fresh vegetables at even low prices” to urban customers.

Procuring agricultural perishables ( fruits and vegetables)

Supply chain for fruits and vegetables

HOW TO MANAGE SUPPLIER RELATIONSHIPS FOR PERISHABLE

PRODUCTS (UPSTREAM):

Perishable items:

Fruits and Vegetables

Perishable items: Diary

products

Perishable Items:

Bakery Items

Contract farming Partner supplier

relationship

Multiple suppliers

Arms length supplier

relationship

Milk is directly procured

from MILMA

Arms length supplier

relationship

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Diary products from

AMUL

CONCLUSION:

For a perishable supply chain the design has to be responsive since the product life is

small.

Moisture and temperature needs to be managed properly so as to reduce spoilage and

increase life

Contract manufacturing and procuring materials removing intermediaries can save up

cost, reduce wastage and ensure faster movement along the supply chain.

Proper inventory control needs to be maintained . this is done by supplier relationship

management , RFID , Bar Code reading etc

While transportation and intermediary storage temperature control can effect the

quality of the product

Perishables were one of the earliest items for which air was used as a means of

transport.

Potential savings from reducing spoilage has been estimated to be nearly 15%.

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Perishable SC Team#1 Batch D - Copy

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