Organic produce Value Chain Analysis (OF0344)

Summary

Growth in the Organic food market has been rapid in recent years. According to the soil association, retail sales of organic food are now worth £1.2 billion – an 11% increase on the previous year. Organic Supply Chains have developed to serve different routes to the consumer. Some chains are simple and involve direct supply to the consumer through, for example, box schemes and farmer’s markets. However in the main greater complexity is involved. Some 75% of organic food is sold through the multiple retailers. Generally speaking, this introduces more stages into the supply chain and as a result there is more complexity.
All organic businesses have to be profitable and this requires them to operate efficiently. The Food Chain Centre has undertaken three projects dealing with organic producers supplying through multiple retailers. The projects applied the concept of ‘lean thinking’ and ‘value chain analysis’. The projects were led by the Food Process Innovation Unit, which is part of Cardiff University’s Lean Enterprise Research Centre. The Lean Enterprise Research Centre enjoys a global reputation in the application of lean thinking and their work demonstrates that businesses can use the concept to secure long term competitive advantage.
Lean thinking provides a way to do more and more with less and less – less human effort, less equipment, less time, and less space – while coming closer and closer to providing consumers with exactly what they want. In other words, the project focused on removing waste from supply chains and focusing on customer value. This is an established approach based on practices first developed in the Japanese motor industry. Lean thinking has become widespread in UK manufacturing and according to a recent survey by McKinsey it is what sets apart the best performing manufacturers.
Many companies that have embraced lean thinking have delivered dramatic improvements over a three year period including:
• 90% reduction in defects
• 90& reduction in response time to customer orders
• 75% reduction in inventory
• 50% reduction in space
• 50% reduction in variable costs
Organic production has some unique features that challenge the lean approach. These include:
• The ethical underpinning for many businesses involved in organic production
• The highly regulated nature of production that prohibits many practices prevalent in conventional food production
• The small scale nature of a substantial part of organic production
• The environmental factor – in that organic farming also makes a major contribution to higher levels of bio-diversity and lower levels of pollution
The Cardiff team are not typical consultants, neither are they experts in organic production. They are expert facilitators, guiding teams drawn from businesses and helping them to see their supply chains in new light. Each project starts from a recognisable product that consumers purchase. The three projects deal with organic carrots, potatoes and lamb. In each case more than one business is involved in getting the product to market. The project constructed a team with members drawn from each business within the supply chain and support from Cardiff University facilitators to draw a ‘process map’ of the current state of affairs, making sure to capture what is actually happening (‘warts and all’) and not what is supposed to happen. The Cardiff team then helped each project team to investigate issues such as:
• Do products flow through the chain as quickly as possible or are there unnecessary hold-ups?
• Do some activities add more costs than value? In which case what can be done about it? In particular, are there activities that add absolutely no value to the consumer that can just be eliminated?
• Have people learned to live with errors, treating them as inevitable or are they constantly striving to eliminate them?
• Are the right quality tests in the right place in the chain and are they working effectively?
• Are the right performance measures in place?
• When problems are identified, are they traced to their source and dealt with?
• Is the right information shared along the chain?
• Are there effective ordering and stock holding policies that impose heavy costs on suppliers?
The team then created a second map of how they would like the chain to operate in the future. Finally, they draw up an action plan of how to work in partnership to get there. The projects discovered that there were substantial opportunities to transform the profitability of business within the supply chain, whilst maintaining or improving customer value. These improvement opportunities include:
• Re-designing the layout of factory and farm
• Creating supply chain teams to focus on reducing faults at particular stages of the supply chain
• Forums for customers and suppliers to work jointly on improvement projects
• Agreeing to exchange information that is currently unavailable in a practical format
• Collecting new performance measures and sharing these more widely
• Making better use of Information Technology to share information
• Working in partnership, to increase long term commitment to supply chain objectives