1. Food Supply Chain Overview ISQA 458/558

2. Food Supply Chain  Structure  Definition  Trends

3. Consumer Food & Beverage Manufacturing Wholesaler, Distributor, Agent or Broker Retailer Food Service, Schools or Gov. Farm, Ranch, Fishery or other provider Agricultural Producers The Supply Chain Players

5. Food Producers (raw materials)

6.  Number of Farms increasing for vegetables, crops and hay, animals & eggs, but declining for most other things.

7. Trend toward more small and very large farms, loss of the middle Segment (family farms versus corporate farms)

8. Farmers & Producers  > 2.1 million farmers & ranchers 125,000 of them control 75% of production  Sales $375 Billion  Focus 650,000 cattle ranchers 500,000 hay farmers 330,000 grain and oilseed farmers 100,000 fruit and nut farmers

9. Food Manufacturers and Processors  26,000 companies in US & $540 Billion in Sales Meat products 18.5% (4 firms control 80% of market) Bakery 16.6 % Fruits & Vegetables 14% Dairy 10.7 % Sugar, candy, grains, oilseeds, seafood. Etc.  Make up 70% of grocery sales, 10% are unprocessed, and remainder = non-food  100 large firms control 75% of all processed food

10. Wholesalers, distributors, agents and brokers roles  Whole group = 33,000 players ($600 B)  Wholesalers/Distributors: Purchase groceries and related products from processors or growers and resell to retailers, institutions, and other companies  Manufacturer’s sale branches: Wholesale operations maintained by processors to market their own products  Agents & Brokers (w/ above ~4700): Wholesale entities that buy or sell as representatives of others for a commission and who do not usually handle the product.

11. Food Service Vendors  580,000 vendors ($580 B) 40% full service restaurant 37% limited service 6.1% education 4.4 % hotels  $580 Billion in sales  3 companies control most food service management contracts ½ spent on food away- from-home typically at full-service or fast-food restaurants

12. Retailers  More than 210,000 stores (sales $584 Billion) 32,000 Supermarkets (stores with sales > $2 Million) ¾ of all grocery stores are operated by corporate chains Retailer power - 4 retailers – 40% market share  Typical store has 25,000 items and inventory turns 14 times/yr Produce turns 58 times/yr Non-food turns 4-6 times

13. Logistics Providers  Cover movement, storage, management of inventory Transportation Storage facilities Third parties for managing products and information  800,000 warehousing and transportation firms.  Increasing outsourcing to third parties

14. Driving Forces and Trends affecting the industry Consolidation of the Supply Chain TechnologyRegulation Environmental Factors Management Orientation/philosophy

15. Consolidation Corporate Farms Mega-Manufacturers Largest Chain Restaurants? Largest Grocery Retailer?

16. Largest Chains by Number of Units?  Subway, 24,722  McDonald’s, 14,098  Starbucks, 10,821  Pizza Hut, 7,600  Burger King, 7,231  Dunkin’ Donuts, 7,015  Wendy’s, 6,594  Dairy Queen, 6,187  Taco Bell, 5,670  Domino’s Pizza, 4,907  Who would be number one in sales?  McDonalds (34 Billion in 2011)

17. Example Brands  Consolidation of Organic & Natural Food Horizon Kashi Ben & Jerry’s Nantucket Nectars Celestial Seasonings

18. Consolidation Animation Consolidation Animation https://www.msu.edu/~howardp/organicanimation.html

20. What does this consolidation mean for the supply chain members?  You are a food product innovator and want to bring your product to market?  How might consolidation create interesting business opportunities?

21. Who is “The Food Industry”??? The Food and Agriculture Industry Farming & Growers Raw Ingredient Processors Function Food Ingredient Manufacturers Consumer Packaged Food Manufacturers Distributors Retailers (traditional/non-traditional) Foodservice Establishments Non-Food Industries Chemical Suppliers Utility Suppliers Packaging Suppliers Equipment Manufacturers Transportation Industry Analytical/Testing Environmental Industry Information Management Key Constituents Government Agencies/Political Media Employees/Unions Stockholders/Boards/Wall Street Advocacy Groups Academics/Foundations Medical Community Consumers

22.  Integrated systems of: RFID (Radio Frequency Devices) Bar Coding Facility Software Management Systems Internet (on-line purchasing usage)  20% of Food Wholesalers  40% of Restaurants  15% Food Processors  Results Improved food inventories More efficient distribution Better customer service levels  Note: Food stock-outs still cost industry 7-12 billion/yr. Technology

23.  Government oversight is increasing Two main bodies  U.S. Department of Agriculture  Food and Drug Administration  Product Liability & Traceability  Food Tampering/Security  Import/Export restrictions and trade barriers Regulations

24. Environmental Factors: The big squeeze

25. Environmental Factors  Pesticide and Herbicide use  Excess Fertilizer and animal waste runoffs from large farms  GMOs  Others?  Leads to supply chain shifts: practices, certification, market opportunities, regulation increases, and purchasing policy changes.

26. Management Orientation/Philosophy  Food Industry slow adopters of philisophy from mainstream manufacturing Just-in-time: JIT Sustainability Quick Response or Efficient Customer Response (ECR) Collaborative planning, forecasting and replenishment

27. New Performance Assessment/Metrics Better, faster, cheaper Environmental, animal treatment, wild lands, community commitment

28. Other trends  Shift in power from food manufacturers to food retailers  Increases in the number and scope of “vendor participation programs”  Increases in slotting fees (fees charged to manufacturers to “rent” shelf space in the retail store).