Intelligent Agrifood Chains and Networks

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Author: Michael Bourlakis | Ilias P. Vlachos | Vasileios Zeimpekis

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Intelligent Agrifood Chains and Networks

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Intelligent Agrifood Chains and Networks Edited by

Michael Bourlakis Kent Business School University of Kent Canterbury Kent UK Ilias Vlachos Department of Agricultural Economics & Rural Development Agricultural University of Athens Athens Greece Vasileios Zeimpekis Department of Financial & Management Engineering University of the Aegean Chios Greece

A John Wiley & Sons, Ltd., Publication

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This edition first published 2011 © 2011 by Blackwell Publishing Ltd. Blackwell Publishing was acquired by John Wiley & Sons in February 2007. Blackwell’s publishing program has been merged with Wiley’s global Scientific, Technical and Medical business to form Wiley-Blackwell. Registered Office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK Editorial Offices 9600 Garsington Road, Oxford, OX4 2DQ, UK The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK 2121 State Avenue, Ames, Iowa 50014-8300, USA For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com/wiley-blackwell. The right of the authors to be identified as the authors of this work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress Cataloging-in-Publication Data Intelligent agrifood chains and networks / edited by Michael Bourlakis, Ilias P. Vlachos, Vasileios Zeimpekis. p. cm. Includes bibliographical references and index. ISBN 978-1-4051-8299-7 1. Food–Storage. 2. Food–Transportation. 3. Business logistics. 4. Agricultural industries. I. Bourlakis, Michael. II. Vlachos, Ilias P. III. Zeimpekis, Vasileios. TP373.3.I577 2011 664.0068′7–dc22 2010041146 A catalogue record for this book is available from the British Library. This book is published in the following electronic formats: ePDF 9781444339871; Wiley Online Library 9781444339895; ePub 9781444339888 Set in 10/12pt Times by SPi Publisher Services, Pondicherry, India

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2011

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Contents

Foreword Contributors 1 Introduction Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis 1.1 Introduction 1.2 Scope and structure of this book 1.3 Conclusions References 2 Food and Drink Manufacturing and the Role of ICT Fintan Clear 2.1 Introduction 2.2 Industry structure 2.3 Food consumer trends and food legislation 2.4 Information systems and food manufacturing 2.5 Food manufacturing and supply chains 2.6 Conclusion References 3 Retail Technologies in the Agrifood Chain Michael Bourlakis 3.1 Introduction 3.2 Food retail logistics 3.3 Information technology in food retail logistics 3.3.1 Bar codes 3.3.2 Electronic data interchange 3.3.3 Data processing and information 3.4 Conclusions References 4 Basic Principles for Effective Warehousing and Distribution of Perishable Goods in the Urban Environment: Current Status, Advanced Technologies and Future Trends Nikolaos Stragas and Vasileios Zeimpekis 4.1 Introduction

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4.2 The nature of perishable foods 4.2.1 Current needs and inefficiencies 4.2.2 Official authorities and legislation for perishable foods 4.3 Warehousing operations 4.3.1 The role of warehousing 4.3.2 Types of warehouse facility 4.3.3 Warehouse operations 4.3.4 Storage of perishable goods 4.3.5 Storage inefficiencies of perishable foods 4.4 Distribution process 4.4.1 Goods distribution in urban environments 4.4.2 Types of urban freight distribution 4.4.3 Routing factors that affect urban freight distributions 4.4.4 Dynamic incidents in urban freight distributions 4.4.5 Current status in urban distribution of perishable goods 4.4.6 Distribution inefficiencies of perishable foods 4.5 New technologies in warehousing and distribution 4.5.1 Technologies for perishable food storage 4.5.2 Technologies for distribution of perishable food 4.6 Conclusions and future trends References 5 Emerging Footprint Technologies in Agriculture, from Field to Farm Gate Spyros Fountas, Thomas Bartzanas and Dionysis Bochtis 5.1 5.2 5.3 5.4

Introduction Precision agriculture Robotics in agriculture Fleet management 5.4.1 Framework 5.4.2 Algorithmic approaches 5.5 ICT technologies in agriculture 5.5.1 ISOBUS system 5.5.2 Traceability systems based on radio-frequency identification technology 5.5.3 Wireless sensor networks References 6 Telematics for Efficient Transportation and Distribution of Agrifood Products Charalambos A. Marentakis 6.1 Introduction 6.2 Technological prerequisites for telematics 6.2.1 Wireless communications 6.2.2 Positioning systems

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6.2.3 Geographical information systems Application of telematics in freight transport and distribution Investing in value of information Distribution of agrifood products: current status and needs The use of telematics in distribution of agrifood products Potential for advanced and value-adding applications 6.7.1 Vehicle routing and monitoring 6.7.2 Safety 6.7.3 Value-added applications References 6.3 6.4 6.5 6.6 6.7

7 RFID: An Emerging Paradigm for the Agrifood Supply Chain Louis A. Lefebvre, Linda Castro and Élisabeth Lefebvre 7.1 Introduction 7.2 RFID technology 7.2.1 Overview of RFID technology 7.2.2 Current drawbacks to RFID adoption 7.3 RFID potential in the agrifood supply chain 7.3.1 RFID drivers in the agrifood industry 7.3.2 RFID opportunities in the agrifood supply chain 7.4 RFID and traceability processes in the agrifood supply chain 7.4.1 Tracking and tracing 7.4.2 Food-source tracking and animal-health monitoring 7.5 RFID and quality control management processes 7.5.1 The cold chain 7.5.2 Product recalls 7.6 RFID and manufacturing processes 7.6.1 Work in progress 7.7 RFID and warehouse and distribution processes 7.7.1 Warehouse processes 7.7.2 Inventory processes 7.8 RFID and asset management processes 7.8.1 Mobile asset management 7.8.2 In-transit visibility 7.9 RFID and point of sales processes 7.9.1 Automated check-out 7.9.2 Smart shelves 7.9.3 Marketing improvement 7.10 Conclusions References 8 Food Quality and Safety Ilias Vlachos 8.1 Introduction 8.2 Food supply-chain management

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8.2.1 Food safety 8.2.2 Quality assurance schemes 8.2.3 Food safety in supply chains 8.3 Information systems 8.3.1 Information systems and foodborne diseases 8.3.2 Forecasting food safety 8.3.3 Decision-support systems for food safety management 8.4 Case studies 8.4.1 Methodology 8.4.2 Food company profiles 8.4.3 Results 8.5 Discussion References

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Traceability in Agrifood Chains Ulla Lehtinen

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9.1 9.2 9.3 9.4

151 153 155 159

Introduction Traceability and food safety legislation Traceability systems Traceability techniques 9.4.1 Global Trade Item Numbering and other barcode systems used in traceability 9.4.2 Radio frequency identification 9.4.3 New technologies References

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E-business Applications in the European Food and Beverages Industry: Evidence from the Wine Sector Michael Bourlakis and Ilias Vlachos 10.1 10.2 10.3 10.4

Introduction E-business applications: a typology E-business applications for agriculture and the food industry The role and use of ICT in the European food and beverages sector 10.4.1 Online selling 10.4.2 Impact of online selling on companies 10.4.3 E-procurement 10.5 Precision vine growing with satellite imagery 10.5.1 World wine production and consumption 10.5.2 World wine marketing and distribution 10.5.3 Use of satellite imagery in winemaking 10.5.4 The application – oenoview 10.5.5 The profile of the companies involved 10.5.6 Operations management 10.6 Conclusions References

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The Impact of Information and Communication Technologies on the Organisational Performance of Microenterprises: Evidence from Greece Ilias Vlachos and Panayiotis Chondros 11.1 Introduction 11.2 Literature 11.2.1 ICT compatibility with human resources practices, management, education, training, trained personnel and skills 11.2.2 The impact of ICT on SME performance 11.2.3 Perceived safety, trust and online transactions 11.3 Methodology 11.3.1 ‘Go-Online’ programme 11.3.2 The sampling procedure and sample 11.4 Results 11.4.1 Demographic variables 11.4.2 ICT influence on business performance variables 11.4.3 The effect of ICT applications on business performance 11.4.4 Barriers to ICT adoption 11.4.5 Factor analysis 11.4.6 Univariate analysis 11.4.7 Hierarchical regression 11.5 Discussion 11.6 Managerial implications 11.7 Limitations/future research 11.8 Conclusion Acknowledgements References

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Warehouse Technologies in Retail Operations: the Case of Voice Picking Aristides Matopoulos

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12.1 Introduction 12.2 Retail warehouse operations 12.2.1 An overview of warehouse operations 12.2.2 Warehouse order picking and the emergence of voice picking 12.3 The AB Vassilopoulos case study 12.3.1 Grocery retailing in Greece 12.3.2 Company background 12.3.3 A view of the company’s warehousing and distribution operations 12.3.4 Analysis of AB’s warehouse operations 12.3.5 Insights from the implementation of RF picking and voice picking 12.4 Conclusions Acknowledgements References

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Leveraging RFID-enabled Traceability for the Food Industry: a Case Study 209 Angeliki Karagiannaki and Katerina Pramatari 13.1 Introduction

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13.2 Background 13.2.1 RFID in supply-chain management 13.2.2 Traceability 13.2.3 RFID-enabled traceability 13.3 The context 13.3.1 The case study: a frozen food company 13.3.2 The warehouse and its operations 13.4 Alternative RFID implementations 13.4.1 RFID decisions 13.4.2 RFID improvement opportunities 13.5 The selected RFID project 13.5.1 Description 13.5.2 The functionality of the proposed traceability system 13.6 The pilot implementation 13.6.1 Evaluating the RFID-enabled traceability system 13.6.2 Results 13.7 Conclusions Acknowledgement References

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Intelligent Agrifood Chains and Networks: Current Status, Future Trends and Real-life Cases from Japan Mihály Vörös and Masahiko Gemma

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14.1 Introduction 14.2 General concepts and roles of the local food systems for improvement of quality of life 14.3 Development of local food systems in Japan 14.4 Examples of local food systems in Japan 14.4.1 ‘Budoubatake’ farmers’ market (privately-owned company) 14.4.2 ‘Rokko Blessing’ farmers’ market (JA-managed company) 14.4.3 ‘Michinoeki’ farmers’ market in Ukiha City (mixed-ownership company) 14.5 Consumer support for local markets 14.6 Conclusions References 15

The Use of Telematics in the Daily Distribution of Perishable Goods: The Case of NIKAS SA Vasileios Zeimpekis 15.1 Introduction 15.2 Background 15.2.1 Real-time fleet-management systems 15.2.2 Travel time prediction for fleet-management systems 15.3 A real-time fleet-management system for dynamic incident handling 15.3.1 Requirements elicitation process 15.3.2 System architecture

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15.4 Simulation testing 15.5 Real-life testing 15.5.1 Profile of the company 15.5.2 System operation and test case scenarios 15.6 Conclusions Acknowledgments References

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RFID-enabled Visibility in a Dairy Distribution Network Daniel Hellström and Henrik Pålsson

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16.1 Introduction 16.1.1 Problems with traditional roll containers 16.1.2 Introduction of the new roll container 16.1.3 The core problem when introducing a new roll container 16.2 Achieving visibility 16.2.1 System setup – useful data to be collected, and control mechanisms 16.2.2 Identification technology solution 16.3 Jönköping dairy implementation 16.3.1 Implementation outcome 16.3.2 Expanding the implementation to include four DCs 16.4 Cost-benefit analysis with ROI calculations and sensitivity analysis 16.5 Lessons learned 16.5.1 Implementation process 16.5.2 Indirect benefits from having visibility 16.5.3 Technology insights 16.6 Concluding discussion References

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Conclusions Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis

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17.1 Evolution of the food chain 17.2 Technologies in the food chain, key benefits and implications 17.2.1 Implications for food managers 17.2.2 Implications for large food companies and SMEs 17.3 Concluding remarks References

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Index

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Foreword

The food sector is the largest economic sector in the European Union. It consists of a complex, global and dynamically changing network of trade streams, food supply network relations and related product flows. Food supply networks are subject to dynamically changing circumstances, including fluctuations at primary production due to changes in weather or climate, which affect supply, demand and prices, and also the quality of raw material, variations in food consumption due to seasonality or the westernization of diets in Asia. Other related issues include the development of alternative uses of raw material such as bio-fuel, and, not least, the changing attitudes of society towards the consequences of the food system’s activities for environmental, social and economic issues, captured in the term ‘sustainability’. To cope with these challenges as an industry and to secure the global availability of food that is affordable, safe and of the quality and variety expected by consumers, agrifood chains and networks need to improve the flexibility and efficiency of coordination activities within the food supply network. Flexibility in the coordination of food supply networks must be robust enough to easily adapt to the wide range of possible future scenarios that food supply networks might have to face. The potential for efficient, flexible and effective coordination of agrifood chains and networks lies in the emergence of internet-based information and communication technologies. Technologies such as RFID, e-commerce and telematics provide proven potential for the improvement of efficiency in coordination and transaction processes. In particular, these technologies provide opportunities for improved flexibility in coordinating supply and demand in dynamic supply network environments. However, in contrast to many other sectors of the economy, the adoption of intelligent technologies to improve efficiency, flexibility and effectiveness is low in the food sector, especially by small and medium-sized enterprises (SMEs). The consequence of this is clear as in Europe 99% of companies in the food and beverage industry are SMEs, creating 49% of the sector’s turnover and employing 61% of the sector’s workforce. This book provides a crucial contribution to the uptake of available and emerging intelligent technologies by businesses in agrifood chains and networks. It is an extremely valuable source of knowledge and practical experience for students, public officials and managers in the food sector that will help them to sustain and strengthen the competitiveness of companies in the food sector. PD Dr Melanie Fritz University of Bonn

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Contributors

Thomas Bartzanas CERETETH Volos, Greece Dionysis Bochtis Aarhus University Tjele, Denmark

Daniel Hellström Packaging Logistics Department of Design Sciences Lund University Lund, Sweden

Michael Bourlakis Kent Business School University of Kent Canterbury, Kent, UK

Angeliki Karagiannaki Department of Management Science & Technology Athens University of Economics & Business Athens, Greece

Linda Castro ePoly Research Center Mathematics and Industrial Engineering Department École Polytechnique de Montréal Montreal, Canada

Élisabeth Lefebvre ePoly Research Center Mathematics and Industrial Engineering Department École Polytechnique de Montréal Montreal, Canada

Panayiotis Chondros Agricultural University of Athens Botanikos, Athens, Greece

Louis A. Lefebvre ePoly Research Center Mathematics and Industrial Engineering Department École Polytechnique de Montréal Montreal, Canada

Fintan Clear Brunel Business School Elliot Jaques Building Uxbridge, Middlesex, UK Spyros Fountas University of Thessaly Volos, Greece Masahiko Gemma Waseda University Tokyo, Japan

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Ulla Lehtinen University of Oulu Oulu, Finland Charalambos A. Marentakis Department of Industrial Management & Technology University of Piraeus Piraeus, Greece

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Contributors

Aristides Matopoulos Department of Technology Management University of Macedonia Thessaloniki, Greece Henrik Pålsson Packaging Logistics Department of Design Sciences Lund University Lund, Sweden Katerina Pramatari Department of Management Science & Technology Athens University of Economics & Business Athens, Greece

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Nikolaos Stragas SAP Consultant ISW Consulting Ltd Metamorfosi, Athens, Greece Ilias Vlachos Department of Agricultural Economics & Rural Development Agricultural University of Athens Botanikos, Athens, Greece Mihály Vörös College for Modern Business Studies Tatabanya, Budapest, Hungary Vasileios Zeimpekis Department of Financial & Management Engineering University of the Aegean Chios, Greece

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1

Introduction

Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis

1.1

INTRODUCTION

Food has a fundamental position and enjoys a central importance in our society as it ensures health, happiness and political stability. Consequently, the management of food chains and networks is one of the most important aspects of the modern food industry. Typically in a food chain, the raw products are produced in one part of the world, are pre-processed, transported, refined, processed and repacked by a long chain of food and transport companies, and are finally distributed to the end customer in another country or continent. Food is difficult to handle along long supply chains, however, because it represents limited resources of biological raw material, has limited storage and handling time after entering the supply chain, and spoils easily if incorrectly handled or processed. These issues can lead to various logistic problems in modern food supply chains that can severely affect product quality and freshness (Bourlakis and Weightman, 2004). Neverthelesss, the end consumer expects to purchase high-quality food for reasonable prices, and the modern food industry aims to meet these expectations. Consumers are increasingly demanding new information and greater detail regarding the growing and processing of food products. Conventional supply chains are having a difficult time adjusting to these new demands for information. As a result, producers continue to grow those products they are familiar with rather than the products consumers want. In addition, the food industry is generally characterised by a fairly stable demand and is relatively predictable: with the exception of seasonal products, if food demand forecasts are precise enough, the supply chain can be organised to achieve maximum efficiency levels. Moreover, profit margins in this sector are often so low that this kind of optimisation is almost a necessity. Today, most countries have put much emphasis on food safety and other quality attributes. This has resulted from food scares and the inability of some domestic regulatory systems to prevent contaminated products from reaching store shelves. Indeed the modern food industry is quite complex and problems in the logistics management of food, for example in storage and shipping, may result in serious consequences for consumers. In the next few pages the key elements of the theme of this book, i.e. supply chain and intelligent (and information) technologies, will be defined and analysed. Specifically, supply chain management (SCM) can be seen as the management of relations to and from suppliers Intelligent Agrifood Chains and Networks, First Edition. Edited by Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis. © 2011 by Blackwell Publishing Ltd. Published 2011 by Blackwell Publishing Ltd.

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in order to provide better value to the customer at an acceptable cost. Christopher (1999, p. 29) stresses that SCM is ‘based upon the idea of partnership in the marketing channel and a high degree of linkage between entities in that channel’. A significant part of SCM consists of logistics management and a definition of logistics is provided by Christopher (2005) as: The process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through cost-effective fulfilment of orders.

In the supply chain, products and services flow from suppliers through production, distribution and retail to the end customer. On the other hand, financial information and purchasing data move in the opposite direction (i.e. from consumers). The optimal integration of the product, information and financial flows is the essence of SCM. Furthermore, access to the best supplies, more efficient distribution and higher levels of customer service are sources of differentiation and competitive advantage (see, for example, Bourlakis and Bourlakis, 2005; 2006). Recurring problems in supply chains relate to stock-outs due to longer-than-forecast lead times or to excess stock resulting from over-optimistic forecasts (Zinn and Liu, 2001). The peculiarity of the food industry is the perishable nature of the core product. The latter requires specific handling times and conditions, as well as the need to monitor the origin of the product and the substances that go into it along the supply chain. The positive role that information and communication technology (ICT) can play in effectively tracking the information flows becomes evident in this case. Numerous definitions have been provided for ICT in general, but a definition linking ICT to logistics and supply chain management has been given by Fitzgerald and Willcocks (1994). They note that ICT is the supply of information-based technologies while logistics information systems are organisational applications, more or less information technology based, designed to deliver the logistics and supply chain information needs of an organisation and the defined stakeholders. New and more sophisticated technologies are increasing the capacity to develop and introduce new processes and new products with distinct and differentiable traits. More specifically, emerging technologies, such as telematics and radio frequency identification (RFID), are very promising and can improve the processes of supply chain execution in the food industry by supporting a number of real-time applications such as product monitoring and control as well as support track and trace services (for a generic discussion for these issues, see, for example, Giannopoulos, 1996; Finkenzeller, 2003). RFID comprises a reader/scanner/interrogator and a transponder that can read or write data content using a specified radio frequency (see, for example, Spekman and Sweeney, 2006). At a simple level, RFID involves tags that emit radio signals and devices called readers that pick up the signal. These wireless systems allow for non-contact reading and are effective in manufacturing and other environments. RFID has established itself in a wide range of markets, including livestock identification and automated vehicle identification systems because of its ability to track moving objects. It is a fundamental element of the EPCglobal Network. Telematics is the convergence of computing and communications technologies using telephone or radio to link computers for the exchange of messages. This wireless communications system is designed for the collection and dissemination of information, and particularly


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refers to vehicle-based electronic systems, vehicle tracking and positioning, and online vehicle navigation and information systems. The basic premise of telematics is obvious: by giving access to any form of knowledge anywhere, it speeds up the diffusion of information, saves time, increases collaboration between individuals and groups, and improves the quality of decisions (see, for example, Goel, 2007). By combining RFID technology and telematics, a series of real-time services can be offered, such as traceability and fleet/product management and control. Traceability and control of food items along the food supply chain makes it possible to gather information about the global handling history of items. This knowledge improves stable high-quality supplies and quality management, makes product recall easier, helps in reducing production, transport and storage times, improves delivery-on-demand and adds information value to food products for consumer declarations.

1.2

SCOPE AND STRUCTURE OF THIS BOOK

This edited book aims to investigate the field of emerging technologies in managing agrifood chains and networks from a number of perspectives. The main issues that will be tackled are as follows: ●

●

●

Current status: Chapters 2–4 present the current state in food logistics and indicate the major problems that are faced during production, warehousing, transportation and retailing in connection with ICT. New technologies and future trends: Emphasis is given to new technologies and intelligent systems that are able to process time-dependent information, handle dynamic incidents (e.g. the increase of temperature in a storage area) in real-time and support logistics operations in food logistics management. These technologies include telematics (e.g. real-time fleet and product management) as well as RFID, which can be implemented in the execution part of the supply chain, including warehousing, transportation and retailing. These issues are covered in Chapters 5–9. New technologies in action: The book also presents real-life case studies in Chapters 10–16 that describe the solution to an actual food logistics problem that combines systemic and logistics approaches. These case studies show how RFID technologies and telematics have been implemented in production, warehousing, transportation and retailing in order to address real-life problems.

This approach means that there are a few introductory, and to some extent theoretical, chapters (Chapters 2–4) that will familiarise the reader with the scope of the book. From these chapters academics, researchers, students and other interested readers will gain the necessary background in terms of the interplay and interrelationships between the food supply chain and ICT. Building on that background, the new technologies are emphasised in Chapters 5–9 to increase the reader’s knowledge in that area. Lastly, Chapters 10–16 cover the practical and applied dimensions of the issues examined in the previous chapters, and case studies are illustrated. These case studies involve the use of intelligent information technologies by major food chain members, such as leading national and global food manufacturers and retailers (e.g. Arla, Alpha Beta Vassilopoulos/Delhaize Group, Nikas, etc.). On a chapter by chapter basis the book is organised as follows.


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Chapter 2 is written by Fintan Clear and presents the role of ICT in the food and drink manufacturing sector. It presents the structure of the sector, followed by an overview of food legislation, consumer trends and traceability. The way in which ICT supports manufacturing processes is examined and this is followed by an analysis of how ICT supports supply chain processes from the perspective of food manufacturers. The chapter provides some ICT adoption data and critiques of ICT implementation. In Chapter 3, Michael Bourlakis discusses the issue of retail technologies in the food supply chain. More specifically, this chapter aims to introduce the reader to the food retail logistics function and its evolution over the past few decades, examining its key elements, such as composite distribution, outsourcing and warehousing. The major technologies used in the food retail logistics function are also analysed, including electronic point of sale and electronic data interchange. Chapter 4 is written by Nikolaos Stragas and Vasileios Zeimpekis. It focuses on the analysis of the basic principles for effective warehousing and distribution of perishable goods in urban environments. More specifically, it presents the current status of warehousing and distribution in the cold chain, and describes a series of advanced technologies such as RFID, smart labels, data loggers and fleet management systems. It also proposes some future trends in the area of technology. In Chapter 5 Spyros Fountas, Thomas Bartzanas and Dionysis Bochtis describe the advanced technologies and methods in the production stage in agriculture. They show how these can provide an efficient integrated in-field production system in terms of vital parameters such as product quality, resource usage, economic feasibility and environmental impact. It covers precision agriculture, field robotics, RFID technology, automated data recording and fleet management. Chapter 6 is written by Charalambos Marentakis and it analyses the use of telematics in the efficient transport distribution of agrifood products. It gives a brief overview of the technological prerequisites and components of telematics systems and applications, and deals with the application of telematics in freight business operations. The chapter also describes the benefits that a company may gain by investing in information-gathering systems and shows how telematics can support the distribution of agrifood products. Chapter 7 focuses on RFID technology and is written by Louis A. Lefebvre, Linda Castro and Élisabeth Lefebvre. The chapter starts with a review of RFID technology, including a brief description of RFID system components and a discussion of some barriers to its adoption. It then investigates the potential of RFID at all levels of the food supply chain. The chapter includes an analysis of the potential benefits of this technology for different core business processes in the food supply chain, namely traceability processes, quality control processes, warehouse and distribution processes, asset management processes and point-of-sale management processes. In Chapter 8 Ilias Vlachos presents the results of his research in food quality and safety. The chapter reviews the relevant literature in food supply chain management and its effect on food safety. It then describes the method used to collect empirical evidence from the Greek food sector, presenting the analysis of the data and its interpretation. The chapter concludes with a discussion of the author’s research results and future research directions. In Chapter 9 Ulla Lehtinen discusses the issues of traceability in the agrifood sector. The chapter underlines the importance of food safety and food quality, which has led to the development of traceability systems. The author provides information about the characteristics of traceability in the agrifood sector and describes the traceability standard EN ISO


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Introduction

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22000:2005. The chapter also describes tracing and tracking technologies such as barcodes, microcircuit cards and voice recognition systems. In Chapter 10 Michael Bourlakis and Ilias Vlachos review the e-business applications in the food sector with an emphasis on the wine sector. Evidence from a large quantitative survey conducted by e-Business Watch is used to develop a taxonomy of e-business applications. Precision vine-growing with satellite imagery is discussed in depth as a exemplary study of the practical achievements of e-business applications. Wine companies can gain great benefits throughout the supply chain from satellite imagery, but there is a matter of excessive costs for small companies. Wine cooperatives can better afford such a cost, as shown in the presented case of ICV. In Chapter 11 Ilias Vlachos and Panayiotis Chondros discuss e-business evaluation and entrepreneurship in the Greek agri-food sector. The authors use a two-step cluster analysis to investigate and identify business groups in Greece with common attitudes towards digital penetration. They highlight the presence of significant groups with common digital attitudes towards e-business adoption. In Chapter 12 Aristides Matopoulos presents the importance of ICTs in retail warehouse operations. The chapter initially overviews the characteristics of warehousing operations and then the order-picking process is analysed along with the most important methods currently employed, with the emphasis on voice-picking. A case study of a major international food retailer (Alpha Beta Vassilopoulos, which is part of the Belgian retail group Delhaize) is provided. The case study emphasises the way the warehouse for fruit and vegetables operates and, drawing from a real company project, presents insights from the implementation of radio-frequency picking and voice-picking technology. In Chapter 13 Angeliki Karagiannaki and Katerina Pramatari describe work (in the form of a case study) undertaken for a company that deals with frozen foods. The work involves the requirement analysis, development and pilot implementation of a RFID-enabled traceability system. Based on the experience gained, several considerations are presented by the authors that could provide valuable feedback to other organisations interested in moving to a RFID-enabled traceability scheme. Intelligent agrifood chains and networks in Japan are examined in Chapter 14 by Mihály Vörös and Masahiko Gemma. The chapter analyses the general concepts and roles of the local food systems towards the improvement of quality of life, and includes a section on the development of local food systems in Japan. Three cases of local food systems in Japan are analysed in connection to ICT: Budoubatake Farmers Market, Rokko Blessing Farmers Market and Michinoeki Farmers Market. Chapter 15 is written by Vasileios Zeimpekis and deals with perishable distribution operations in an urban environment. The chapter describes a real-time fleet management system that continuously monitors the execution of the distribution plan, detects significant deviations that require rerouting, solves the related optimisation routing problem and transmits the revised plan to the vehicle, all in real time. The system has been tested in a leading Greek food manufacturing company (NIKAS), where each vehicle distributes a prespecified set of orders along a preplanned route. In Chapter 16 Daniel Hellström and Henrik Pålsson analyse the value of visibility/ traceability enabled by RFID technology in a diary distribution network. This real-life case study provides an in-depth description of a core problem, the RFID solution to the problem, the implementation process and challenges, a cost and benefit analysis with ROI calculations and a sensitivity analysis. The case study focuses on RFID implementation at Arla Foods Group, which is one of Europe’s largest dairy companies and produces exclusively milk-based products.


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Chapter 17 provides an opportunity for the editors to summarise their thoughts on the theme of the book. They briefly describe the evolution of the food supply chain over the past few decades and the relevant ICTs in the food chain, and analyse the major benefits emanating from the use of ICTs in that chain. They also elaborate on subsequent implications for a range of stakeholders, such as large food companies, small and medium-sized enterprises and food managers.

1.3

CONCLUSIONS

There is a scarcity of books dealing with the critical role of intelligent technologies in the agri-food chain, and the editors believe that this book fills a considerable gap. The book contains chapters that have theoretical and applied aspects, and cover many real-life cases. The editors are confident that this book will become an invaluable source of knowledge for researchers, managers, students, policy makers and any other person having a strong interest in intelligent information technologies and food chains.

REFERENCES Bourlakis, C. and Bourlakis, M. (2005) Information technology safeguards, logistics asset specificity and 4th party logistics network creation in the food retail chain. Journal of Business and Industrial Marketing, 20(2/3), 88–98. Bourlakis, M. and Bourlakis, C. (2006) Integrating logistics and information technology strategies for sustainable competitive advantage. Journal of Enterprise Information Management, 19(2), 389–402. Bourlakis, M. and Weightman, P. (eds) (2004) Food Supply Chain Management. Blackwell Publishing Ltd., Oxford. Christopher, M. (1999) New directions in logistics. In: Walters, D. (ed.) Global Logistics and Distribution Planning. Kogan Page, London. Christopher, M. (2005) Logistics and Supply Chain Management: Creating Value-Adding Networks, 3rd edition. Financial Times Prentice Hall, Harlow. Finkenzeller, K. (2003) RFID Handbook: Fundamentals and Applications in Contactless Smart Cards and Identification. John Wiley & Sons, New Jersey. Fitzgerald, G. and Willcocks, L. (1994) Outsourcing information technology: Contracts and the client/vendor relationship. Research and Discussion Paper 94/10. Oxford Institute of Information Management, Templeton College, University of Oxford, Oxford. Giannopoulos, G.A. (1996) Implications of European transport telematics on advanced logistics and distribution. Transport Logistics, 1(1), 31–49. Goel, A. (2007) Fleet Telematics – Real-time Management and Planning of Commercial Vehicle Operation. Springer, New York. Spekman, R.E. and Sweeney, P.J. (2006) RFID: from concept to implementation. International Journal of Physical Distribution & Logistics Management, 36(10), 736–754. Zinn, W. and Liu, P.C. (2001) Consumer response to retail stockouts. Journal of Business Logistics, 22(1), 49–71.


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Food and Drink Manufacturing and the Role of ICT

Fintan Clear

2.1

INTRODUCTION

According to the UK Food Safety Act (1990), ‘food’ is defined as ‘any substance or product, whether processed, partially processed or unprocessed, intended to be, or reasonably intended to be ingested by humans. It includes drink, chewing gum and any substance, including water, intentionally incorporated into the food during its manufacture, preparation or treatment’ (HMSO, 1990). The effective and careful handling of materials is key to efficient manufacturing processes, whatever the industrial sector, though arguably it is more critical in food manufacturing given both the perishable nature of the product and its ability to cause harm and even death to humans. Food processing began with attempts to preserve foodstuffs (e.g. drying, salting, pickling) and over time such processes have developed to include also, amongst others, bottling, canning, freezing, freeze-drying, chilling and dehydration. More recently Hughes (2004) notes processes such as ‘modified atmosphere packaging’ (related to chill chains) and ‘sous-vide’ (cooking under vacuum). In terms of the level of processing required, Atkins and Bowler (2001) note a range of interventions ranging from ‘natural’ to ‘industrial’. Processed foods such as frozen vegetables, pre-packed beverages such as tea and coffee, and butchered animal meats that may be packed and then frozen represent the natural end of this range. Products such as reformed meats (e.g. chicken nuggets), meat-substitute products based on soya, canned ‘fruit’ drinks, which may contain artificially-introduced chemicals, and soft-form ice-creams represent the industrial end. Between these extremes lie the majority of processed and manufactured foods such as ready-to-eat chilled and frozen foods, milk, egg and potato powders, pastas and pizzas, each of which will have a varying content of natural and artificial additives. To get a sense of the industry’s size, Millstone and Lang (2003) note that, globally, the food industry spent around $20 billion in 2000 alone on additives to improve the colours, flavours, textures and shelf-life of products. However, while statistics and analysis on the food trade and food manufacturing abound – from bodies such as the UN Food and Agriculture Organisation, the European Commission, and UK sources such as the Department for the Environment, Farming and Rural Affairs (DEFRA) – in relative terms the academic literature ignores food manufacturers (Van Donk et al., 2008).

Intelligent Agrifood Chains and Networks, First Edition. Edited by Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis. © 2011 by Blackwell Publishing Ltd. Published 2011 by Blackwell Publishing Ltd.


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Table 2.1

Manufacture of food products and beverages, 2005.

Subsector (code)

Firms

Turnover (£m)

GVA at basic prices (£m)

Employment (000s)

GVA per 1000 employees (£m)

Average firm turnover (£m)

Meat products (15.1) Fish products (15.2) Fruit and vegetables (15.3) Vegetable, animal oils and fats (15.4) Dairy products (15.5) Grain and starch products (15.6) Animal feed (15.7) Other food products (15.8) Beverages (15.9) Total (15)

1 005 386 441

13 751 2 220 5 048

3 395 537 1 753

112 18 40

30.3 29.8 43.8

13.3 5.8 11.4

32

1 218

121

2

60.5

38.1

533

6 767

1 103

29

38.0

12.7

121

3 324

992

14

70.9

27.5

490 3 180

3 692 21 465

692 9 171

13 185

53.2 49.6

7.4 6.8

795 6 983

16 100 72 523

4 000* 21 304

51 464

78.4* 45.9

20.3 10.5

Source: DEFRA (2007). GVA, gross value added; *2004 figures.

The structure of this chapter on food manufacturing begins with an examination of the sector’s structure, followed by an overview of food legislation, consumer trends and traceability. Then an examination is made of how information technology (IT) supports manufacturing processes and this is followed by an analysis of how information and communications technology (ICT) supports supply-chain processes from the perspective of food manufacturers. This will include some ICT adoption data and critiques of some ICT implementations.

2.2

INDUSTRY STRUCTURE

The UK agri-food sector comprises a number of industries described as agriculture, fisheries, food and drink wholesaling, food and drink retailing and food service industries (Curry et al., 2002). In 2006 these industries accounted for a gross value-added sum of £79.4 billion and in the fourth quarter of 2007 they employed 3.7 million people (DEFRA, 2008). Food and drink manufacturing contributed £21.2 billion (DEFRA, 2008). The food supply chain is a series of links and interdependencies that take in primary producers, manufacturers, wholesalers, retailers, agents, logistics providers and shippers, encompassing enterprises running from ‘farm to fork’. Focusing on food and drink manufacturing, Table 2.1 gives a breakdown of industry subsectors as defined by DEFRA (2007). The table shows each of these with its Standard Industry Code (SIC) and by number of firms, turnover, gross value added, employee numbers and related quotients. The largest subsector on a number of counts is ‘other food products’, which includes the manufacture of bread, cakes, biscuits, sugar, confectionary, pasta, sauces, tea and coffee. According to the average firm turnover figures in the final column, the largest firms appear to be in the grain, oils and beverages subsectors, which DEFRA (2007) argues


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Table 2.2 Number of employees in UK agriculture, fishing and food manufacturing sectors, June 2001 to June 2005.

Agriculture and fishing* Manufacture of food, beverages and tobacco Total

2001 (000s)

2002 (000s)

2003 (000s)

2004 (000s)

2005 (000s)

272

251

224

224

239

482

466

458

446

435

754

717

682

670

674

*Seasonally adjusted. Source: Boothby et al. (2007), citing Labour Market Trends, Feb 2006, National Statistics website via Keynote 2006.

tend to be highly capitalised, with relatively low labour requirements and therefore relatively high labour productivity (as shown in the penultimate column). Food and drink manufacturing includes a broad swathe of activities, taking in primary processing activities such as cereal milling, all the way to more complex activities such as the manufacture of ready meals, which may require many stages of production. DEFRA figures show food and drink manufacturing encompassing 6947 enterprises (including 9015 manufacturing sites) and 394 000 employees (DEFRA, 2008). Evidence from Ireland shows that smaller food manufacturers are reducing in number, a result, Cantillon et al. (2006) argue, of manufacturers’ failure to understand the developing market and their under-performance in generating Irish and British retailers’ sales and margins. Table 2.2 includes detail for the years 2001 to 2005 for the manufacture of food, beverages and tobacco, and shows a decline in employment from 482 000 to 435 000 over the period. Nevertheless the food manufacturing (etc.) sector remains the UK’s largest manufacturing sector and additionally is a key customer for UK agriculture, buying 75% of its output (FDF, 2007). This latter sector (described in Table 2.2 as ‘Agriculture and fishing’) shows a decline in employment similar to that in manufacturing over the period. Food and drink manufacturers evince a heterogeneity of size and product scope, ranging from large multi-billion dollar transglobal operations, with a host of production sites and product ranges (e.g. Nestle, Unilever), all the way to small individual cottage industries with perhaps single product offerings. Using 2006 statistics, breakdown by ‘local unit’ and employee size band for the food and drink manufacturing sector (ONS data cited by Boothby et al., 2007) shows 5190 production sites in the UK with between 0 and 9 employees (where zero employees implies a sole trader), 2465 sites with 10 to 49 employees, 1120 with 50 to 249 employees, and 420 with 250 employees and more.1 Structural changes within the food sector have led to high concentration ratios of food manufacturers and processors within the European Union (EU; Atkins and Bowler, 2001), a phenomenon that has been noticeable in the UK agri-food industry. Cox et al. (2003) assert that concentration in most parts of the UK supply chain has been the result of backward vertical integration initiated by the powerful retail buyers. The power imbalances that exist 1

While this ONS data uses employee numbers to classify local units, employee numbers is one aspect by which the European Commission defines whole enterprises. Thus a ‘large’ enterprise has 250 employees and more, ‘mediumsized’ enterprises have between 50 and 249, ‘small’ enterprises have between 10 and 49, and ‘micro’ enterprises between 0 and 9. Taken together, micro, small and medium-sized firms constitute SMEs (small and medium-sized enterprises).


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Intelligent Agrifood Chains and Networks Table 2.3 UK own-label and branded market shares of chilled ready meals. Brand Tesco Marks & Spencer Sainsbury Asda Morrisons Waitrose Other own label Own-label subtotal Branded Total

Turnover (£m) 396 348 286 155 134 80 96 1495 46 1541

Market share (%) 26 23 19 10 9 5 6 97* 3 100

Source: Mintel, 2008. Rounding gives a market share for the own-label subtotal of 98%, but in aggregate terms this figure is actually 97%.

within UK agri-food chains reflect increased buyer concentration (Hingley, 2005) with a downstream shift of power away from producers and towards multiple retailers (Bourlakis, 2001). Given that the top four UK retailers now account for 75.6% of the national grocery market (DEFRA, 2008),2 the multiple retailers are seen as gate-keepers between producers and consumers (Lang, 2003). Thus Senker (1986; 1988) observes how the impetus for innovation in processed food is moving from branded manufacturers to retailers in the UK (cited in Cox et al., 2003). One of the most competitive areas for food chains is the ready-meals market. Such food products reflect the need for firms to meet individual consumer requirements much more closely, resulting in ‘innovative, value-enhanced commodities that sell for premium prices’ (Cox et al., 2002). Mintel (2008) figures in Table 2.3 show sales of chilled ready meals. With 97% market share, this sector is dominated by the multiple retailers and their ownlabel products (known in the USA as ‘private label’). In 1997 two-thirds of all product stocking units in Sainsbury’s stores were own-label, while in the USA fewer than one-fifth were (Cotterill, 1997). Examination of the UK frozen ready-meal market for 2007 shows a similar pattern to the chilled ready-meals field. Although the total market for frozen meals declined by 29% between 2003 and 2007 (from £684 million to £483 million), own-label dominance of this market climbed from 52% in 2003 to 62% in 2007. Birds Eye had 16% of the market in 2007, Heinz/Weight Watchers had 11%, Findus had 4%, with other manufacturers having 7%. Food manufacturers’ share of the UK frozen ready-meal market had therefore declined from 48 to 38% of the whole market sector between 2003 and 2007 (Mintel, 2008). The virtual oligopoly of food retailers has direct implications for the manner in which ICT is used in food and drink manufacture. Apart from financial stability, Fearne and Hughes (2000) note that electronic integration is a pre-requisite for firms trying to supply the large retailers. Desirable aspects in a trading partner, they observe, include an organisational

2

Tesco (31.5%), Asda (17.3%), Sainsbury’s (15.8%) and Morrisons (11.0%) accounted for 75.6% of the UK grocery market in the 12 weeks ending 7 September 2008 (DEFRA, 2008).


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structure and business culture that seeks to meet customer needs at all levels of the business, an ability to exploit and add value to market information, and an ability to measure and control the full costs of servicing customer requirements. All of these put a premium on the capture, storage and exploitation of information in digital form, and its seamless exchange with a trading partner. The large retailers appear to be looking to work with a smaller number of suppliers who have an ability to deliver to scale and with whom they can develop partnerships (Fearne and Hughes, 2000; Hingley, 2001). Thus an inability to offer in-depth informational collaboration using electronic means can bar food manufacturers from supplying the big retailers directly.

2.3

FOOD CONSUMER TRENDS AND FOOD LEGISLATION

In overall terms, the market is becoming ever more consumer-driven (McGuffog, 1999; Van Donk, 2000; Kinsey, 2003), obliging food manufacturers to respond with, for example, increased numbers of pack sizes, new product recipes and new products (Meulenberg and Viaene, 1998, cited in Van Donk et al., 2008). Some general food trends have been evident for a number of years, with Keuning (1990) citing a lowering emphasis on family meals, greater levels of eating out, ‘grazing’ (i.e. snacking), more demand for convenience and microwaveable meals, greater demand for quality and use of natural constituents, and also demands for food to meet special dietary needs. The UK food manufacturing sector has been obliged to respond to demands for fewer calories, less saturated fat and more polyunsaturated and monounsaturated fat, more complex carbohydrates, more fibre and less salt in processed foods, in addition to fewer food additives. Sales trends since 2003–4 show the UK population increasing its purchase of ‘healthy’ foods such as fruit, vegetables, fish and high-fibre breakfast cereals whilst decreasing purchases of ‘unhealthy’ foods such as soft drinks, sweetened breakfast cereals and confectionery (DEFRA/ONS, 2008). While Mintel (2008) note a shift towards home cooking and away from ready-prepared foods, nevertheless four in ten respondents in their survey cite convenience as often playing a role in their food-purchase decisions. Concerns for food quality have stimulated demand for alternative foods, including ‘functional foods’ or ‘neutraceuticals’: foods which have added nutrients such as vitamin C, zinc and Omega 3, for example, or added fibre (Food from Britain, 2006). This market was worth £2.8 billion in Europe in 2004 and was projected to be in excess of £1.7 billion in the UK by 2007 (Food from Britain, 2006). For those seeking to avoid adulterated foods (including genetically modified products), the demand for organic foods has risen during the last 10 years, with total sales in the UK for 2005 of £1.3 billion, or 2% of the total of food and non-alcoholic drink sales (Food from Britain, 2006). In tandem with these worries, concerns have grown about ‘food miles’ (i.e. the distance that foods travel before appearing in shops) and animal welfare. The pressures felt by food and drink manufacturers are added to by concerns about waste in foodsupply chains, both in terms of food product and food packaging. As an example, one body attempting to galvanise efforts by public and private sector alike is WRAP (Waste Resources Action Programme), a UK government-sponsored effort promoting greater carbon neutrality in industrial, commercial and domestic operations (http://www.wrap.org.uk). Shifting consumer trends are also influenced by demands for safer foods, with consumer trust in food producers being shaken in recent years by several food scares. Apart from incidences of salmonella, listeria and E. coli in processed food, BSE (bovine spongiform


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encephalopathy) and foot and mouth disease have had major implications for food chains in general and the red meat food chain in particular. These potent biological threats, allied with contamination (e.g. Sudan Red) and foreign-body scares, have led to more stringent EU legislation on the traceability of products through the different stages of production and distribution in the food chain. Thus EU Regulation 178/2002 (which came into force in 2005) requires that food and feed-business operators be able to identify any person from whom they have been supplied a food, a feed, a food-producing animal or any substance intended to be, or expected to be, incorporated into a food or a feed. In the USA, other imperatives can drive policy, but although the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 may be the product of concerns for national security, the demands for track–and-trace in food-supply chains have the same thrust – one that includes the capture of detailed records on receipt and shipment of goods (Hulme, 2005). Whatever the driver, food businesses need to have systems and procedures in place that allow for food lifecycle information to be captured and made available to the competent authority on demand within a few hours. Naturally the complexity of this task depends on the particular food or drink product under examination – a chilled meal, for example, with a large number of ingredients sourced from around the globe, and which includes meat or fish, naturally presents a more significant informational challenge than some less-complex food product with perhaps no meat or fish, a limited number of ingredients and local sourcing. The heterogeneity of food and drink products is reflected in the legislative framework governing food handling, manufacturing and processing in the UK, which is complex, with every food type having its own regulations and codes of practice. The Food Safety Act 1990 is important legislation in this regard, enabling the 2006 Food Hygiene Regulations and responsible for the establishment of the Food Standards Agency (FSA). The 1990 Act introduced due diligence for food producers, such that responsibility for ensuring the quality of food extends to include their upstream suppliers and is not just an exercise of control of foodstuffs within a producer’s domain (Hobbs et al., 2002). Food buyers are therefore required to take all reasonable steps to ensure that food received from upstream suppliers is safe. Fearne and Hughes (2000) find the use of the word ‘reasonable’ to be critical. The term is sufficiently vague, they argue, that retailers have been encouraged to take extraordinary steps to assure the safety of products from suppliers. Thus a desire to develop own-label products has encouraged the multiple retailers, in effect, to take control of the food chain ‘by instituting stringent quality assurance programmes with their suppliers, with a particular emphasis on traceability’ (ibid). Thus Fearne and Hughes (2000) observe that the 1990 Act has had the effect of driving vertical co-ordination backwards from the retailer rather than forwards from the grower/processor. From an informational perspective, the Food Labelling Regulations 1996 (as amended) requires that foods – with certain exceptions – should carry labels with information including the name of the food, a list of ingredients (in descending order by weight), a best-before or use-by date, storage information, name and address of the manufacturer, and whether the food has been irradiated. Certain foods (such as chocolate, condensed and dried milk, fruit juices, jams and honey) have their own particular regulations. Smith (2006) argues that the quality and safety of food is based on a number of factors, which include the quality of the air surrounding the food, manufacturing procedures, personnel discipline, equipment used, premises, raw materials, packing materials and validated quality-assurance procedures. However, while zero risk for those consuming food and drink is desirable, it is technically impossible to guarantee. In fact, the most frequently occurring


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reasons for food products not meeting consumer expectations are poor-quality raw materials, inadequate process control during production, poorly trained process operators and contamination by spoilage organisms, chemicals or foreign bodies (Efstratiadis et al., 2000). Nevertheless, efforts to minimise risk are fundamental to food safety controls. One internationally recognised approach to risk management in food supply is the hazard analysis and critical control point (HACCP) approach. This approach is viewed as a systematic method through which food safety hazards can be identified, monitored and continuously controlled. It necessarily requires a proactive and hence preventative approach to food safety. EU food-hygiene legislation recommends the use of HACCP. For example, EU Regulation 852/2004 (which applies to all food business operators except farmers and growers) requires food business operators, and especially those handling meat, to implement and maintain hygiene procedures based on the seven HACCP principles, including the establishment of documents and records to demonstrate the effective application of food hygiene methods. Such requirements have implications for food processors and the capabilities of their information systems. Folinas et al. (2006) note that there are two types of traceability information flows: (i) (ii)

The ‘one step up, one step down’ flow model. The aggregated flow model.

Most food businesses use the first flow model, one that is suggested by EU legislation (178/2002). This sees some traceability information filtered and retained at each stage of the supply chain, with other data transferred to the next stage of the food chain to follow the product. Thus the final consumer receives only a subset of the food-chain data, which typically includes basic product features such as origin and quality. Although the consumer will not have access to all the information generated along the food chain, the intention is that such data can be recovered by tracing upstream through the different processors/suppliers/ distributors and their data stores if necessary. Folinas et al. (2006) note that the other flow model aggregates all food-chain data so that it follows the product from ‘farm to fork’. This model is usually undertaken in the case of organic food, fresh fish and meat, for which particular production and treatment methods have been followed, and for products that need to specify that they are free of genetic modification (FSA, 2002). However, as with any insurance system, it is only at a time of crisis that such traceability systems get tested, with product recalls requiring integrated working or joined-up thinking by local government, food manufacturers, retailers and logistics providers. Although the Curry Report (2002) argues that ‘full electronic traceability of livestock should be achieved as soon as possible’ (p. 50), in practice there is a broad range of traceability methods by which data within a food supply chain is captured and stored, ranging from paper-based systems, through hybrid systems that combine paper with machines, and end-to-end or ‘seamless’ electronic systems that exploit high-technology such as radio frequency identification (RFID). In any transformation activity – such as cooking – inputs can differ substantially from outputs. For example, apples, flour, milk, butter, sugar, salt and spices, subject to processes, including preparation, mixing, baking, finishing and packing, can be transformed into apple pies. Full traceability of the constituents would see consignment details for each input captured appropriately and stored in digital form. As transformation activities take place, operational data is collected (e.g. input volumes, chemical constituency, temperatures and process durations, etc.) to supplement consignment details. Finally output


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data (e.g. allocated best-before dates) and logistics data (e.g. dispatch date and time) can be captured and consolidated into an electronic record for the food product’s lifecycle. A subset of data from this record then follows the finished apple pie as it moves downstream from food manufacturer to the consumer, either directly to retailer or indirectly via a wholesaler. Full electronic traceability – for livestock as for any other food source – therefore requires that all actors involved in the supply of foodstuffs (primary producers, manufacturers, retailers, agents, logistics providers, etc.) be in a position to collect data and to transmit it in some precisely defined electronic form to trading partners. Thus when a food scare dictates expeditious data gathering back up the supply chain, the sources and processing undergone by suspect products can be determined in short order. The relative efficiency of such traceability systems is dependent therefore on the manner in which different data capture methods along a food chain can be integrated (Folinas et al., 2003). Such integration begs questions of firms and their business processes in a sector where historically a partnership philosophy has been absent, especially upstream in food supply chains (Hughes, 2004). So even if the technology to support integrated electronic working is relatively cheap, in order to encourage electronic traceability, UK business support agencies (e.g. BusinessLink) and sector trade associations (e.g. the Institute of Grocery Distribution and the Food and Drink Federation) feel the need to offer guidance to food manufacturers and their suppliers on what constitutes good practice. Such advice might cover, for example, technology adoption, skills development, and pointers to case studies highlighting implementation successes. This is in the face of complaints, for example, that so-called experts push ways of working that are not relevant to the food and drink sector (Pendrous, 2006).

2.4

INFORMATION SYSTEMS AND FOOD MANUFACTURING

Information technology and information systems can be used in a number of spheres in food manufacturing (as implied above), such as controlling manufacturing processes, managing material flows, receiving data from suppliers, sending data to customers and maintaining an audit on production activity for process conformance and product traceability. In this section, information systems and their role in serving manufacturing processes is examined first, followed by examination of how such systems support food manufacturers in their supply-chain processes. In simple terms, food processors add value by transforming raw materials into (semi-) finished products. This requires the provision of manufacturing plant, machinery and labour and the deployment of transactional aspects such as the transport of materials into, through and out of the plant, and processes including goods receipt, manufacturing, packaging, storage and dispatch. Traditionally, manufacturers have focused on minimising costs while meeting quality standards (McGuffog, 1999). In this vein the larger manufacturing concerns since the 1970s have exploited IT-supported materials handling systems such as materials requirements planning (MRP) and then manufacturing resource planning (MRP II) to manage materials flows and inventories in line with production schedules. The two meanings for ‘MRP’ display an evolution in informational terms over the scope of control. Nevertheless consumer demand for greater variety, quality and freshness have added to the commercial pressures in food chains for cost reduction and hence the adoption of new ways of working (McGuffog, 1999). Enterprise resource planning (ERP) systems, which seek to


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offer greater enterprise-wide capabilities, have been advanced as key to meeting these needs in tandem with food safety needs. A food manufacturer can avail themselves of a number of different systems to monitor, control and integrate production activities. Van der Vorst et al. (2005) outline the nature of information systems operating in an advanced production facility. On the factory floor will be machinery or robots responsible for food manufacturing processes such as cutting, blending, heating, sorting, etc., and which will rely on embedded information technology including sensors, actuators (that perform some mechanical action such as starting and stopping a machine, making adjustments to settings, etc.) and a programmable logic controller by which the machine is controlled. Such machinery may incorporate a digital control system (DCS), which will allow human operators to manually interact with it and take reports. This DCS can be linked into a supervisory control and data acquisition (SCADA) system, by which a series of different machines (and hence a production line) might be monitored and controlled. In turn the SCADA system may be linked to, and integrated with, an ERP system that will have enterprise-wide oversight over production and allied activities. The ERP system and its functional modules may sit on increasingly powerful desktop computers whose processing power can be deployed in a local setting across local area networks and in nonlocal settings across wide area networks, some of which may be wireless-enabled and global in scope. In terms of the underlying logic, the information systems described here could be applied to almost any manufacturing facility, whatever the industry sector. Key aspects that will differentiate food and drink manufacturing from other industries in broad terms are hygiene and traceability requirements. Taking a food hygiene perspective, an enterprise-wide ERP system can be used – or so ERP providers argue – to monitor and assure quality standards, and to undertake recording of materials traceability and labour use in production. In this way, if necessary, data for product recall based on material inputs, batch and /or production dates can be supplied automatically to a firm’s departments, its trading partners upstream and downstream in the food chain, and food standards authorities. Business performance can be monitored in real time, with a granularity that extends from business departments down to individual product and batch, along with labour usage and consumption of packaging materials, and the integration of financial and payroll packages. Such ERP systems can enable the automation of various functions, including purchase order management and the generation of invoices, dispatch and transport documentation, and facilitate customer portals that provide online access for clients to view invoices, delivery status, production status and traceability information. Relevant data can be delivered to PC desktops, personal digital assistants and mobile/cell phones. This is a brief overview of how ICT can be employed within manufacturing. The question then arises as to the prevalence of such ICT and the adoption levels of, for example, ERP systems within the food and drink manufacturing industry. Definitive academic data on this subject is scarce, although some evidence on ICT usage within the sector is discussed below. Table 2.4 shows ERP usage statistics, findings from an e-Business Watch (2006) survey of the food and drink manufacturing sector across a number of European countries.3 3

In all, the e-Business Watch 2006 survey included 14 081 enterprises from 10 sectors in 29 European countries, including EU member states. Data from this survey has been extracted for 10 countries (Czech Republic, Germany, Spain, France, Italy, Hungary, The Netherlands, Poland, Finland and the UK) to constitute a dataset called the EU-10. The food and drink manufacturing sector has been determined by enterprises classified as having NACE group DA 15 activities.


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Intelligent Agrifood Chains and Networks Table 2.4

ERP system usage.

Survey sample Micro firms Small firms Medium-sized firms Large firms Food and beverage (EU-10) firms All 10 sectors (EU-10) firms

Number having ERP system 4 17 33 66 10 11

Source: e-Business Watch survey of 775 firms using computers, 2006.

The data records ERP occurrence at one level only (i.e. no discrimination is made in terms of the extent to which ERP systems are deployed within enterprises and the function of ERP modules applied). However, an average of 10% of the 775 firms using computers in the sample have an ERP system (against an average for the 10-sector survey of 11%). The influence of size is apparent, with 66% of the large firms in this sample using an ERP system, while the figure for medium-sized firms is 33%, for small firms 17% and for micro firms 4%. In a US study, Ilyukhin et al. (2001) argue that trends in process control and instrumentation show that the food industry has been a laggard in comparison with other sectors in the adoption of new technologies. On the basis of the evidence in Table 2.4, this charge does not appear to have validity as far as ERP systems are concerned, at least from a sector-wide perspective. However, while technology providers such as Oracle and SAP offer case studies on ERP application in food manufacturing, academic research on the subject is limited. Otles and Onal (2004) have made a rare study of the area, and they note that initial ERP implementations amongst food and drink manufacturers are focused on financial and order management processing, and only latterly have such implementations been expanded to allow firms with more complex food manufacturing demands to be accommodated (such as responses to biological emergencies and the need for disassembly). It appears that before 2000, many food firms installed ERP systems purely in order to cope with the millennium bug issue (Otles and Onal, 2004). In any event, Davenport (2000) argues that application of ERP systems is problematic, with only 10 out of the 100 firms examined in a multisector study getting definitive value from their ERP implementation. In another rare academic study on ERP systems in food and drink manufacturing, Tsamantanis and Kogetsidis (2006) echo Davenport’s concerns and note the complexities that ERP implementations can bring and the major difficulties encountered by one firm in the Cypriot brewing industry in doing so. Trade researcher Pendrous (2006) notes distrust of IT vendors by small firms as a result of a failure to get returns on their ERP investments. Even though some small firms in the food sector will be nimble (Hughes, 2004) and more than equal to the challenges raised by the electronic mediation of trade, the mass of small businesses are characterised by a paucity of resources and expertise (Levy and Powell, 2003; Fillis et al., 2004; Quayle, 2004; Simpson and Docherty, 2004). For these businesses, any complications arising through technology adoption and new ways of working can have serious implications for their viability.


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2.5

17

FOOD MANUFACTURING AND SUPPLY CHAINS

Food and drink manufacturers sit in a chain between their raw material suppliers upstream and their finished goods customers downstream. Commercial demands by UK supermarkets for velocity, flexibility, quality, cost and service (Ryder and Fearne, 2003) mean manufacturers need to respond with reduced lead times, smaller batch sizes, postponement of the final form of manufacturing and packaging, and greater variety of handling units throughout the supply chain (McGuffog, 1999). Apart from the need to adjust internal operations, such demands imply close operational working with trading partners, and the use of supply-chain management (SCM) so that flows of materials and information, from raw materials to the end product, are synchronised to customer requirements (Stevens, 1989). SCM blurs boundaries between supply-chain entities through interfirm activities, such as the sharing of research and development, the placing of employees with other firms, the development of cost management systems across firms, collaborative inventory control and inventory placement decisions (Hill and Scudder, 2002). So, by definition, SCM goes well beyond the traditional function of materials management, for example. Information sharing is therefore seen as key to effective SCM, and when information flows seamlessly in both directions, the effect is to create a virtual supply chain (ibid). According to Cox et al. (2003), the competitive dynamics of the UK food manufacturing and retail sector were transformed in the decade leading up to 2003 as the result of the introduction of networked systems and EDI. Food sector firms use electronic data interchange (EDI) and leased telecoms lines to exchange a variety of business documents, including purchase orders, invoices and delivery schedules. With electronic funds transfer interfaces to financial intermediaries, these value-added networks (VANs) can also effect electronic payments. Significant cost savings can be made by use of EDI, with Jessup and Valarich (2003) noting how breakfast cereal manufacturer Nabisco managed to reduce the cost of processing an individual paper-based order from a notional $70 to less than $1. Nevertheless, the costs for use of a VAN and the hardware and software associated with EDI has meant that such electronic mediation has been restricted in the main to the large food manufacturers and their customers (i.e. the large multiple retailers). Definitive data on EDI usage for food manufacturing in academic sources is elusive but Hill and Scudder (2002) note a 72% level of usage by their sample of food-sector firms. In the e-Business Watch (2006) survey, of the 775 firms using computers in the sample of food and drinks manufacturers, only 6% of firms in the sample overall used EDI-based standards (arguably an analogue for EDI use). When broken down by firm size (based on number of employees), however, 67% of the large firms were shown to use EDI-based standards, with figures of 30% for medium-sized firms, 11% for small firms and 5% for micro firms. Where once electronic integration was a challenging task, with EDI applications offering complexity and significant expense (Vlachos, 2004), it is now arguably within the reach of even the smallest food firms to become e-enabled, given the ubiquity of internet access. The emergence of e-commerce and e-business has facilitated vertical electronic mediation through food chains, in addition to horizontal electronic mediation. Fritz et al. (2004) analyse developments in business-to-business (B2B) electronic trading platforms in the agrifood sector in the USA and Europe between 2000 and 2002, and find that, of the 85 platforms in existence in the year 2000, only 25 remained active in the sector in 2002. More research is required to evaluate such platforms’ function and value to the food chain – some of these


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Table 2.5

Electronically generated orders accepted by food and drink manufacturers.

Survey sample

Micro firms Small firms Medium-sized firms Large firms Food and beverage (EU-10) firms All 10 sectors (EU-10) firms Data

Accept orders from customers online

Receive up to 25% of orders online

Receive more than 25% of orders online

Use specific ICT solutions for e-selling

13 26 40

95 89 90

5 11 10

1 9 14

41 19

83 87

17 13

51 4

25

75

25

9

775 firms using computers

212 firms accepting orders online

212 firms accepting orders online


Source: e-Business Watch, 2006.

platforms, such as ICS FoodOne and Foods for Trade, appear to be classic trade directories rather than the online trading and negotiation mechanisms much vaunted during the dotcom boom. Fritz et al. (2004) note Tesco using the platforms WWRE and GNX (now since merged) for B2B activity. However, the question remains about how much neutral electronic market platforms such as these may be used by the large multiple retailers in the UK to source food and drink products. The evident power imbalance in the food chain and the relative monopsony the multiple retailers enjoy mean that suppliers and food manufacturers may be obliged to use proprietary platforms such as Tesco’s Information Exchange and Sainsbury’s Information Direct (SID) rather than neutral B2B platforms in order to stay in business. Definitive data for this supposition, however, are lacking. Table 2.5 shows data from the e-Business Watch (2006) survey on electronically generated customer orders accepted by food and drink manufacturers. The picture is somewhat variable in places but it is apparent that the sector average for orders received electronically (19% for the food and beverage category) in the sample of 775 firms is lower than the 10-sector average (25%). When the 212 firms accepting orders online are extracted from the sample, it is clear from the breakdown that for all firm sizes the majority accept only a minority of their orders online (i.e. up to 25%). A rather noticeable and perhaps surprising finding is that the proportion of orders accepted on line by large firms is not markedly different from the equivalent figure for medium-sized ones. Nevertheless, this could highlight the fact that food and drink manufacturers are obliged to use information systems other than their own as a means of collecting customer orders. Given the comments made above and the apparent failure of neutral platforms to gain significant market traction, the figure of 51% for the whole sector sample could imply that large firms use proprietary retailer platforms as a means of gathering electronically generated orders. Table 2.6 shows data for the incidence of online orders or eProcurement in the food and drinks sector, as revealed by the e-Business Watch (2006) survey. An average of 39% of the 775 firms using computers in the food and drinks sector sample placed orders online with suppliers, with the average for the 10-sector survey being somewhat greater at 48%. When the 385 firms placing orders online are extracted for analysis, large firms record a 70% rate,


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Food and Drink Manufacturing and the Role of ICT Table 2.6

19

Orders placed online by food and drink manufacturers.

Survey sample

Micro firms Small firms Medium-sized firms Large firms Food and beverage (EU-10) firms All 10 sectors (EU-10) firms Data

Place orders online

Place up to 25% of orders online

Place more than 25% of orders online

32 54 58 70 39

94 90 77 95 91

6 10 23 5 9

2 7 16 41 5

48

75

25

9


385 firms placing orders online

385 firms placing orders online

Use specific ICT solutions for e-sourcing


Source: e-Business Watch, 2006.

Table 2.7

Measures of supply-chain collaboration.

Micro firms Small firms Medium-sized firms Large firms Food and beverage (EU-10) firms All 10 sectors (EU-10) firms

Share documents in collaborative work space

Manage capacity/ inventory online

Collaborative design processes

Collaborative forecasting of demand

8 14 26 62 10

11 9 21 61 11

4 7 12 27 6

6 14 22 49 10

14

10

7

11

Source: e-Business Watch (2006). All data refer to 722 firms with internet access.

medium-sized ones 58%, small ones 54% and micro firms 32%. In an echo of the findings for orders accepted online noted above, the majority of firms, whatever their size, place only a minority of their orders online with suppliers (i.e. up to 25%), with large firms being the least interested in placing more than 25% of their orders online. Nevertheless, the survey cites the use of an apparent alternative (‘Use specific ICT solutions for e-sourcing’) for placing orders, and large firms make heaviest use (at 41%) of this avenue, as noted for the original 775-firm sample. Again, however, these data lack equivocation, and must prompt calls for further academic work on the subject. As a measure of supply-chain collaboration by food and drink manufacturers, Table 2.7 shows data from the e-Business Watch (2006) survey as a means of evaluating how embedded electronically mediated business practices are amongst food and drink manufacturers. Figures for the firms that ‘Share documents in collaborative work space’ show an average for the sector of 10% (of the 722 firms with internet access) as against 14% for the 10-sector sample. With a breakdown by firm size, it is noticeable that large firms (62%) are much


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more prepared to work electronically in this manner than smaller firms. Figures for firms that ‘Manage capacity/inventory online’ demonstrate similar findings, and the breakdown shows ‘large’ firms again scoring significantly higher than smaller firms for this aspect. However, one difference between the two sets of figures is that the sector average of 11% is slightly higher than the 10-sector average of 10%. The figures for ‘Collaborative design processes’, however, show a practice that is a lot less prevalent for food and drink manufacturers than the other two aspects discussed here, but not less than the overall figures reveal in comparison to the 10-sector average. Finally, in regard to ‘Collaborative forecasting of demand’, the overall figures shown a similarity with practice in other sectors: firm size breakdown shows almost half of large firms engaging in collaborative forecasting, with only 22% of medium-sized firms doing so. The e-Business Watch (2006) survey finds that the food and drink manufacturing sector overall shows a relatively good level of internal process integration with supply-chain activities, although size seems to be a dominant factor as regards the prevalence of ICT adoption. The interoperability witnessed is driven in part by regulatory constraints (e.g. the need for traceability) in addition to the need to maintain competitive advantage and to meet customer needs. Nevertheless, the authors highlight potential barriers to greater e-adoption because the industry has some unique characteristics, not least of which is the ‘complex value chain and the heterogeneous nature of the different players (e.g. farmers, input suppliers, manufacturers, packagers, transporters, exporters, wholesalers, retailers and final customers)’. Thus any need for coordination and synchronisation of the different entities, and use of ICT to enable such processes, is ‘hindered by their different business interests, cultural attitude and size’, which compounds the level of complexity in the small batch processes that typify the sector. If trust is critical for informational collaboration, then the Curry Commission (2002) makes for sober reading: ‘Relationships [in the farming and food industry) are, in many cases, confrontational and communications poor. The disconnection between supplier, processor and retailer is damaging efficiency’ (Curry, 2002, p. 14). Empirical research conducted by Fearne and Hughes (2000) highlights a lack of trust, for example, in the fresh produce food chain, where suppliers displayed scepticism in regard to the manner in which retailers conducted their commercial partnerships. Pointing to the pivotal role that buyers play in these relationships, the view expressed was that little had changed in retailer attitudes in recent years, with policies, for example, of rotating buyers on a regular basis making it difficult to build long-term relationships. Information sharing appeared to be limited, even with dedicated suppliers, one example being the fact that Tesco continued to charge suppliers for electronic point of sale (EPOS) data. Fearne et al. (2001) find that the food industry has been slow to adopt the partnership philosophy, with progress being particularly slow upstream in the supply chain, where Duffy and Fearne (2004) find a distinct lack of trust and a prevalence of adversarial relationships amongst trading partners. Even where information systems have been implemented in order to enable intra-organisational coordination, Taylor and Fearne (2006) cite problems with the integrity and appropriateness of demand trend data transmitted by the large retailers to suppliers. Data could be difficult to access or were incomplete in terms of longitudinal integrity. In all the food chains they studied there was a problem of data timeliness. For example, purchase orders from retailers to their suppliers would be transmitted around midday, thus giving suppliers only one or two hours to respond, given their vehicle despatch deadlines. Thus suppliers would respond by supplying from stock and would begin their production schedules at the beginning of the day without a clear idea of actual demand. Taylor and Fearne (2006) found,


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however, that the EPOS data from the branch network would be available at the retailer’s headquarters typically some eight hours before. One apparent solution to this issue, which is employed by Sainsbury’s and used by a number of manufacturers and suppliers, including Nestle (the biggest food manufacturer in the world), is a system offered by systems provider EQOS (FCC, 2005). Promotions such as buy-one-get-one-free (BOGOF) can create such high levels of demand that within hours shelves can be emptied of stock. In order to ensure that a manufacturer/processor/supplier is made aware of demand at the branch level, the EQOS web-based system (intended to be low cost and easy to use) can inform suppliers of the level of demand at the branch level so that manufacturers, etc., can spot patterns of consumption behaviour and move product quickly to meet that demand (FCC, 2005). However, as yet such systems appear to be the domain of a small select number of suppliers who have the necessary flexibility to respond in real time to changes in consumption behaviour downstream. According to Welch and Zolkiewski (2004), a collaborative or relational (rather than a commodity and arms-length) approach can have its dark side. Cox (1999), for example, notes that becoming a preferred supplier may offer ‘an operational treadmill to oblivion’ for a food manufacturer, in that the buyer (i.e. a multiple retailer) will demand continuous improvements from that supplier such that they ‘are forever engaged in the vicious circle of efficiency and cost-led competition’ (Hingley, 2005). In the medium-term there are oligopolistic benefits for suppliers that survive the consolidation process, but buying organisations then use their power to aggressively apply leverage to supply survivors to maximise value for themselves (ibid). Cox et al. (2003) draw attention to the trend cited by Nolan (2000) of firms displaying a greater tendency towards networked forms of organisation, and employing new ICT methods by which to do so. Nevertheless, not all of the information is readily available in electronic form. For example, in a study looking at IT in food safety in the dairy sector, Deasy (2002) found that in many processing plants there is no real-time integration of raw materials and quality (or laboratory) data. Additionally, such plants had no electronic links between raw material handling, processing activities and finished goods, making traceability from the customer back to raw material sources difficult. In any event, networked communications bring new operational practices in their train, not least the requirement for firms to take steps to protect digital assets. If data integrity and hence data security are important, therefore, then the fact that half of 100 SME food processors sampled in a regional survey focusing on electronically mediated trade (however manifest) had no apparent security policy (Clear, 2007) may give pause for thought. Certainly a review of the literature by Dixon et al. (2002) looking at e-business adoption by SMEs noted concerns for security and privacy, in addition to a general lack of awareness of the potential of ICT, the lack of an IT skills base, concerns for high initial set-up costs and a lack of staff to implement ICT as common barriers in this regard. If these findings are indicative, then whatever the apparent benefits of greater informational integration argued by Curry (2002), there appears to be some way to go before integrated electronic working might be seen as a safe and comfortable norm for all small food and drink manufacturers.

2.6

CONCLUSION

Food and drink are different from nearly every other product (except pharmaceuticals) that can be manufactured, in that they are designed for human ingestion. Food scares have highlighted the potential that food has to poison humans. Additionally, consumers are now much


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more aware of the quality of food and ingredients (e.g. fat, sugar, salt, etc.) in terms of healthy living and are becoming more demanding in their requirements. In a food supply chain of links and interdependencies that takes in primary producers, manufacturers, wholesalers, retailers, agents, logistics providers and shippers, and which runs from ‘farm to fork’, manufacturers occupy a central role as the processors of raw materials into the finished goods that will ultimately be consumed by the public. So as the multiple retailers react to market trends and consumer demands for the provenance of food and food constituents, food manufacturers are obliged to follow suit. In common with many developed economies, the UK market is one in which a virtual oligopoly of multiple retailers dominate decision-making in food chains, and are able to insist that their suppliers – the food and drink manufacturers – are flexible in terms of product delivered (e.g. new product introductions, recipes and pack sizes), timely in the way they respond to fluctuations in demand, and competitive in terms of price. Additionally, while providing traceability for all food materials, these firms are expected to overperform in terms of adherence to regulations demanding stringent levels of biological control. In this realm, traditional spot purchasing is less common, as retailer monopsonists look for longer-term relationships with fewer suppliers. Key to meeting such demands appears to be the exploitation of integrated intra-organisational and inter-organisational ICT and networked forms of business organisation. Thus, in cases of food contamination, for example, where there is the potential for great damage to be caused to corporate reputations, product recalls that exploit data from integrated supply-chain systems in combination with speedy and effective communications can see such damage minimised for food manaufacturers and their trading partners. Effective traceability therefore requires all in the supply chain to collaborate. However, even though the Curry Report (2002) campaigns for ‘full electronic traceability …’, especially of meat and poultry products, ‘… as soon as possible’ (p. 50), the heterogeneity of actors within the sector, the broad range of traceability methods extant by which data within a food supply chain are captured (i.e. including paper-based systems) and, perhaps most tellingly, the lack of trust felt by some manufacturers in regard to their trading partners, may act to impede universal progress and immediacy of response. The e-Business Watch (2006) survey provides a snapshot of ICT adoption data with regard to a number of technologies, and argues that overall the food and drink manufacturing sector has a relatively good level of internal process integration with supply-chain activities. However, even though there is evidence that ICT is becoming a more pervasive tool within the food supply chain, other researchers note problems with technology implementations that should underline the fact that innovation based on new ICT is not necessarily a straightforward process. Additionally, it is noticeable that there appears to be a divide in adoption behaviour between large firms and their smaller cousins. As a number of researchers have pointed out, large firms have the resources, for example, to bankroll any implementation mistakes they make, and to learn from them; smaller firms do not enjoy such luxury in the main so implementation mistakes can threaten their business viability. The establishment of short-lived institutions such as the Food Chain Centre and their efforts to provide case studies in ICT implementation for food manufacturers and others are to be applauded, as indeed is some of the ongoing work by trade associations and trade journals in their efforts to inform and educate. However, some of the case studies drawn up on occasion look somewhat anodyne and highlight where things went right at the expense of where things went wrong. Apart from cataclysmic events (including food scares), which draw media and then academic attention, there is little case-study material that catalogues the downs as well as the ups of ICT innovation in food manufacturing. If, indeed, there is a will


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to preserve some of the heterogeneity that food manufacturers enjoy as a class, and to provide timely and pertinent advice to preserve this, then arguably there is a case for academic work that extends the few warts-and-all studies in the area, even if it is necessary to anonymise it.

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Millstone, E. and Lang, T. (2003) The Atlas of Food: Who Eats What, Where and Why. Earthscan Publications, London. Mintel Oxygen (2008) Chilled and Frozen Ready Meals – UK, May. Mintel, London. Nolan, R.L. (2000) Information technology and management since 1960. In: Chandler, A.D. and Cortada, J.W. (eds.), A Nation Transformed by Information: How Information has Shaped the United States from Colonial Times to the Present. Oxford University Press, New York. Otles, S. and Onal, A. (2004) Computer-aided engineering software in the food industry. Journal of Food Engineering, 65, 311–315. Pendrous, R. (2006) Keen to be lean…not a has been. Food Manufacture, October. Quayle, M. (2004) E-commerce the challenge for UK SMEs in the twenty-first century. Journal of Operations and Production Management, 22(10), 1148–1161. Ryder, R. and Fearne, A. (2003) Procurement best practice in the food industry: supplier clustering as a source of strategic competitive advantage. Supply Chain Management, 8(1), 12–16. Senker, J. (1986) Technological co-operation between manufacturers and retailers to meet market demand. Food Marketing 2(3), 88–100. Senker, J (1988) A Taste for Innovation: British Supermarkets’ Influence on Food Manufacturers. Horton Publishing, Bradford. Simpson, M. and Docherty, A. (2004) E-commerce adoption support and advice for UK SMEs. Journal of Small Business and Enterprise Development, 11(3), 315–328. Smith, D. (2006) Design and management concepts for high care food processing, British Food Journal, 108(1), 54–60. Stevens, G. (1989) Integrating the supply chain. International Journal of Physical Distribution & Logistics Management, 19(8), 3–8. Taylor, D. and Fearne, A. (2006) Towards a framework for improvement in the management of demand in agri-food supply chains. Supply Chain Management: An International Journal, 11(5), 379–384. Tsamantanis, V. and Kogetsidis, H. (2006) Implementation of enterprise resource planning systems in the Cypriot brewing industry. British Food Journal, 108(2/3), 118. Van der Vorst, J., Beulens, A. and Van Beek, P. (2005) Innovations in logistics and ICT in food supply chain networks. In: Jongen, W. and Meulenberg, M. (eds), Innovation in Agri-Food Systems. Wageningen Academic Publishers, Wageningen. Van Donk, D., Akkerman, R. and Van der Vaart, T. (2008) Opportunities and realities of supply chain integration: the case of food manufacturers. British Food Journal, 110(2), 218–235. Van Donk, P. (2000) Customer-driven manufacturing in the food processing industry. British Food Journal, 102(10), 739–747. Vlachos, I. (2004) Adoption of electronic data interchange by agribusiness organizations. Journal of International Food & Agribusiness Marketing, 16(1), 19–42. Welch, M. and Zolkiewski, J. (2004) Barriers to virtue: exploring the dark side of dyadic relationships. In: 38th Academy of Marketing Conference Proceedings. University of Gloucestershire, Cheltenham.


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3

Retail Technologies in the Agrifood Chain

Michael Bourlakis

3.1

INTRODUCTION

The rapid speed and wide extent of innovations in computers and information technology (IT) have had profound impact on the way that business is conducted. IT encompasses the gathering, processing, storage, retrieval, display and communication of information or data, normally by means of microprocessor equipment (Willcocks and Fitzgerald, 1993). Lockett and Holland (1991) apply this specifically to retailing. Linking IT to logistics, Fitzgerald and Willcocks (1994) noted that IT is the supply of information-based technologies, while logistics information systems are organisational applications that are more or less IT-based, and are designed to deliver the logistics information needs of an organisation and its stakeholders. This chapter aims to introduce the reader to the food retail logistics function and to discuss the key traditional technologies used in that function. We anticipate that most readers will not necessarily be familiar with both aspects. The analysis will also provide a solid platform for the chapters to follow, where other authors will make reference to the major intelligent technologies and their application and relevance to food retail operations. On that basis, the next section examines the food retail logistics function, after which there is a section on IT applications in that function, while the last section provides some concluding remarks.

3.2

FOOD RETAIL LOGISTICS

Logistics has been a major function for food retail operations (see, for example, Bourlakis and Weightman, 2004; Bourlakis and Bourlakis, 2005, 2006). For example, most British food retail multiples in the early stages of their development in the 1960s and 1970s implemented logistics practices and developed warehouses in order to centralise stockholding (Fernie, 1989). During the 1980s, logistics increased its importance in multiple retailing (both food and non-food) and several trends caused that increase according to McKinnon (1986, pp. 49–50): (i) Development and promotion of a new framework for the integrated management and costing of the main physical distribution functions of transport, storage, stockholding, handling and order processing. Intelligent Agrifood Chains and Networks, First Edition. Edited by Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis. © 2011 by Blackwell Publishing Ltd. Published 2011 by Blackwell Publishing Ltd.


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(ii) Expansion of multiple retailers’ operations in terms of the size and geographical spread of branch stores and the volume and range of goods handled. (iii) Increases in the real cost of physical distribution at a time when intense competition has reduced profit margins. (iv) Downward pressure on stock levels exerted by high interest rates and declining financial liquidity. (v) Deterioration in the trading relationships between manufacturers and multiples. (vi) Growth in the number and size of firms offering specialist distribution services to multiples. (vii) Advent of new materials handling and information processing technology. In a similar vein, Smith and Sparks (1993) noted that during the 1980s and 1990s, various consumer, societal and retail changes had an effect on retail distribution and logistics. Moreover, these authors argue below that retail responses to socio-economic trends require changes to the physical distribution strategy and operations of retailers (see Table 3.1). The same researchers have defined the elements, the management of which comprise the food retail logistics function (Smith and Sparks, 1993): ●

●

●

●

●

the number, type and location of the storage facilities (e.g. issues such as centralised control, specialised depots, composites, in-house or contractor management, site location and scale, picking methods, owned or leased premises); levels of stockholding/inventory management in terms of both quality and quantity (e.g. issues such as product range, bar coding, date coding, investment/promotional buys, quality control, stock turnover days, service levels, fresh foods); transport to be used in moving products (issues such as own fleet, bigger trailers/fewer deliveries, delivery window targets, backhauling, multi-temperature trailers); packaging and unit sizes and how they are handled (e.g. issues such as pallets, roll cages, plastic trays, potato cages, pack sizes for merchandising, pre-packs); communications about the distribution elements of a company (e.g. issues such as computerised systems, electronic mail, electronic data interchange, sales-based order, depot on-line real-time systems, forecasting, checkout plus, hand-held scanners and modems).

A key aspect of the food retail logistics function is warehousing or centralisation. Centralisation implies that the supplier is not delivering directly to the retail premises but to retailercontrolled regional distribution centres (RDC), and therefore the retailer is responsible for the distribution of goods to retail outlets. Centralisation has been developed to a high degree in the Western European retail environment. The introduction of centralisation (and other logistics trends) is depicted in Table 3.2, which describes the British food-multiple retail environment. Although these developments were the result of a 30-year process, until the early 1970s most retail stores received the bulk of their deliveries directly from the suppliers’ factories or warehouses. A similar process has taken place in the rest of Western Europe (Cooper et al., 1991) and is already taking place in other national environments (e.g. in Southern Europe and Asia). In addition, certain factors have encouraged the development of centralised distribution in food multiple retailing in recent decades: ●

The increase in the number, size and quality of contractors providing an integrated distribution service has made it easier for retailers to extend their control over intermediate


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Table 3.1 The distribution/logistics effects of consumer, societal and retail change in UK food retailing. Consumer and societal change

Retail change

Distribution effects

Consumption has increased towards more and better products and patterns have broadened, deepened and become more complex

Increase in average size of stores associated with the growth of the food superstore (hypermarkets and large supermarkets)

The previous increases (consumption, store size) led to increased vehicle requirements (scheduling) and the need to handle larger volumes of a wider range of products

Consumer behaviour has moved from price towards non-price dimensions such as quality or service

A move towards out-of-town locations, linked to the need for large sites

The movement away from high-street locations has improved and eased the distribution position in many cases

Shopping behaviour is influenced by increased consumer mobility and shopping associated with or as a leisure activity has increased

A steady increase in the percentage of own-brand food product consumption

Development of own brands that are in retailers’ control leads to closer control throughout the distribution channel

Individuals or households have seen income levels rising, have more leisure time and increased awareness of health and fitness

A product extension based on new consumer demands such as organic, fresh and non-food products

This product extension has increased the complexity of retail distribution and allowed the use of specialist distribution companies, especially for products that require special temperature environments

Group behavioural changes such as holidays abroad

There has been financial availability to enable food retailer expansion

Finance is a key part of retailing, and attention has turned to costs of distribution

More individualistic society, e.g. take-home alcohol replacing the public house

Food retailers have become increasingly reliant on service and value-added elements rather than pricing elements

The service and value-added elements applied into retail distribution must match the product retail offering and therefore there is a need for high-quality distribution

Food retailers have invested heavily in technology

Technology is applied into all distributional aspects and retailers control distribution by information rather than by doing

Source: Smith and Sparks (1993).

●


storage and shop delivery without becoming directly involved in the development and/or management of physical distribution systems. Many contractors have acquired the necessary capital resources and managerial skill to handle large-scale distribution operations on the behalf of retailers and have vigorously marketed their services (Fernie, 1989). Major advances in IT have greatly enhanced the relative advantages of centralised distribution. Multiple retailers’ distribution operations generate exceptionally large quantities of information because of their extensive product range, high turnover, broad supply base and numerous outlets. Information handling is further complicated by the need to monitor

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Table 3.2 The introduction of centralisation and other major logistics trends in British food multiple retailing between the 1960s and the mid-1980s. Period

Problem

Innovation

Consequences

1960s and 1970s

Disorderly delivery by suppliers to supermarkets and queues of vehicles led to both inefficiency and disruption

Introduction of RDCs to channel goods from suppliers to supermarkets operated by retailer

(i) Strict timing of supplier deliveries to RDC imposed by retailer (ii) Retailer builds and operates RDC (iii) Retailer operates own delivery fleet between RDC and supermarkets within its catchment area

Early 1980s

Retailers becoming too committed to operating logistics services in support of retail activity

Operation of retailer-owned RDCs and vehicle fleets to specialist freight companies

(i) Retailer can concentrate on core business of retailing (ii) Retailer achieves better financial return from capital invested in supermarkets than in RDCs and vehicles

Mid-1980s

Available floorspace at retail outlets being underused and too much floorspace used for storage

Conversion of storage floorspace at supermarkets to sales floorspace

(i) Better sales revenue potential at retail outlets (ii) RDCs absorb products formerly kept in store at supermarkets (iii) Just-in-time delivery from RDC to replenish supermarket shelves

RDC, regional distribution centre. Source: Cooper et al. (1991).

●

●

and control stock at two levels in the distribution channel (warehouse and store levels) and regulate the flow of supplies between them (Bourlakis and Bourlakis, 2006). Certain improvements in the transport system have proved especially beneficial to the warehousing operations of multiple retailers, such as the construction of the motorway network, increases in the maximum weight and dimensions of lorries and the development of new multi-temperature, compartmentalised vehicles (Quarmby, 1990). Finally, retailers came under increasing pressure to use retail floorspace more intensively, partly as a result of rising site costs, but also to accommodate expanding sales volumes within existing outlets by converting storage space into sales display area (McKinnon, 1988).

Another innovation was the introduction of the concept of composite, multi-temperature storage and distribution centres (Smith and Sparks, 1993). These centres enable ambient, chilled, fresh and frozen products to be distributed through one system of multi-temperature warehouses and vehicles, leading to increased centralisation levels (Table 3.3). Whiteoak (1998) has also stressed the implementation of the ‘just in time’ principle where, at regional distribution centres, stock is reduced to the minimum to support pickby-line cross-docking, and composite networks are supported by accurately timed, daily


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Retail Technologies in the Agrifood Chain Table 3.3

31

The impact of composite distribution.

Distribution trends

Pre-composite distribution

Post-composite distribution

Regional depots Centralisation Stock holding Delivery frequency Identify costs Chill chain control Computerisation

Single and small About 70% High, in store Less than daily Some case rate Single temperature Half telesales

Large and complex Increased to 85% Low, in store and depot Daily All costs known Rigorous control for freshness Total integration

Source: Smith and Sparks (1993).

Table 3.4

The benefits of contract and own account distribution.

Contract distribution

Own-account distribution

Strategic reasons Flexibility Spread risks

Cost Cost-plus argument Monitoring costs

Financial reasons Off-balance sheet financing Opportunity cost of capital investment Better planned budgets

Control Total responsibility though the supply chain Better customer service Loyalty to one, not several companies Security for new-product development

Operational reasons Accommodate seasonal peaks Reduce backdoor congestion at warehouse/store Provision of specialist services Improve service levels Management expertise Minimise industrial relations problems

Economies of scale In-house technological innovation

Source: Fernie (1989).

deliveries on very short lead times. Another key element in food retail logistics is the use of third-party logistics companies/contract distributors. Lieb et al. (1993, p. 37) have given the following definition for contract distribution/third-party logistics: Third party logistics is the use of external companies to perform logistics functions which have traditionally been performed within an organisation. The functions performed by the third party firm can encompass the entire logistics process or selective activities within that process.

Third-party distributors were initially used by food retailers to meet seasonal demand (e.g. Christmas), certain product categories (e.g. frozen) and remote geographical areas (Fernie, 1989). Over the years, these firms were able to offer a range of ‘value-added’ logistics services to their clients, including strategic planning, site acquisition, warehouse design, stock control management and systems development, in addition to transport-related functions (Kearney, 1994). Fernie (1989) provides a complete list of the benefits of the use of contract/ third party distributors, classified into three categories: strategic, financial and operational. Fernie (1989) suggests the categories of cost, control and economies of scale as the benefits arising from own-account distribution (Table 3.4).


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Intelligent Agrifood Chains and Networks Table 3.5

Information technology in retail operations.

Strategy

Offering new products or services (e.g. internet shopping)

Planning

Modelling of store and consumer behaviour Making what-if decisions

Analysis

Processing of market research information forecasting Immediate feedback on sales through bar-coded information Supplier monitoring Direct product profitability

Service

Reducing checkout queues Reducing the incidence of out-of-stock

Operations

Faster checkout throughput Linking of sales, inventory and purchase orders Reduced stockholding

Source: Howe et al. (1992).

Like Fernie (1989), a critical reason cited by the larger retailing chains for contracting out logistical operations is the inherent flexibility that can be achieved through a mix of own-account and contract distribution. With the aid of sophisticated IT, the distribution network can be controlled from the company headquarters. The key factor, however, is the ability of the retailer to control and monitor costs by comparing performance levels between contractors and the own-account operation.

3.3

INFORMATION TECHNOLOGY IN FOOD RETAIL LOGISTICS

Earl (1990) has argued that IT has become central to the delivery of goods and services in the retail sector. IT in a retail (and a food retail) context provides the infrastructure for the management of information. Over the past 20 years, developments in IT have led to a dramatic increase in the availability of information on product movement in the distribution channel. Prior to the introduction of scanner systems, the only sources of information on product movement were manufacturers’ shipment notices or warehouse withdrawals (Clemons and Row, 1993). By the same rationale, Wilson (1998) argues that, without advances in IT, the evolution of modern retailing would have stalled in the 1970s. Running a chain of hundreds of stores, each carrying thousands of products, would be hopelessly inefficient in the absence of IT systems. The above findings were supported by Dolen (1986), who argued that retailers who identified opportunities to exploit IT would have much to gain. To be more specific, the IT function can be a productive factor for retail operations as it contributes to the creation of output (Reardon et al., 1996). IT can contribute to numerous areas of retail operations and some of these are listed in Table 3.5. Dawson (1994) describes two kind of technologies available to retail firms: core technologies and application technologies. Core technologies provide the necessary information infrastructure and result from widely agreed standards. Core technologies, in their own right, do not create added value from information, but they allow for the implementation of


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Benefits of EPoS systems.

Table 3.6

General benefit area

Type of benefit

Stock control

Fewer stock-outs Fewer over-stocks Less stock held in branches

Merchandising

Better range planning and better allocation to branches Better monitoring of sales patterns with suggested re-order requirements Better monitoring on new lines and promotions

Operational

Reduced paperwork as well as better labour scheduling Improved customer services/customer loyalty Accurate pricing and ease of price changes Improved cash management/banking Improved shrinkage control Faster throughput at checkouts Better information An improved bargaining tool with supplier

Credit

Improved authorisation systems reduce fraud Less paperwork Better deal on bank charges with electronic banking systems

Source: Hogarth-Scott and Parkinson (1994) and Ody (1990).

application technologies. There are three core technologies relevant to retailing (Burt and Dawson 1991): bar codes, electronic data interchange and data processing and information.

3.3.1

Bar codes

Items can be identified by bar codes (used on product cases and pallets to identify contents and, in more advanced instances, quantities) by optical-electronic methods. The most common use of this technology is the collection of sales data at the retailer’s point of sale (EPoS), which can be used to improve retail efficiency (Davis, 1995). By collecting information about consumers’ behaviour, retailers can also increase their power in the grocery distribution channel (Ogbonna and Wilkinson, 1996) by developing, for example, own brands that may meet better these customers’ needs. Some other benefits arising from EPoS technology are the better decisions that can be made from a broader informational base. Table 3.6 summarises the most important benefits arising from EPoS technology (Ody, 1990; HogarthScott and Parkinson, 1994). Such major benefits can be conventionally categorised as ‘hard’ (direct) and ‘soft’ (indirect) (Dawson et al., 1987). EPoS technology is used widely: to record product locations in warehouses and to record product movement onto and off vehicles. It has been argued (Lynch, 1990) that in conjunction with electronic data interchange (EDI) EPoS offers the potential for a fully automated sales and stock-handling system.

3.3.2

Electronic data interchange

The second core technology for retailing is the electronic transmission of information using standard protocols. An example of the application technology is the creation of EDI networks based on a specific standard that allows for the co-ordination of various parts of


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Table 3.7

Benefits from the implementation of EDI.

Direct benefits

Benefits from combining EDI with improved management

Reductions in the usage of telephone Less transcribing, data entry, document matching, etc. More efficient paper and paper-handling reduction systems Prompt receipt of trading transactions Reduction in the use of conventional mail

Reduced inventory management Better cash management

Reduction or elimination of data entry Lower postage costs, including stamps, stationery and clerical labour Reduction in administration costs Faster transfer of information Increased record accuracy Reduced clerical errors Reduced number of paper bottlenecks Elimination of manual re-keying of data into the recipient’s computer system Improved information about other members’ operations

Improved inventory management Improved customer service Development of closer relationships between trading partners Increased sale productivity More flexible buying strategies Improved manufacturing process (e.g. just in time) Streamlined operations Reduction in stockholding by all trading partners (supplier, distributor, retailer) Reduction in order-processing time Reduction in the payment cycle, cutting interest on outstanding payments Lower incidence of stock-outs and savings in the costs of correcting errors and reconciling disputed documents Reduced number of sales representatives’ calls

Sources: Benjamin et al. (1990); Takac (1993).

the supply chain (EDIFACT) (Fynes and Ennis, 1994). The Economist Intelligence Unit (1988) grouped the benefits accruing from EDI to business into three categories: strategic, operational and opportunity related. The strategic benefits include some which can be of crucial long-term significance to corporate activity, such as faster trading cycles, improved inventory management and gaining competitive advantage through ‘win–win’ partnerships between the supply chain members. Operational benefits are of major importance to the daily operation of the company but they usually have an impact only on individual departments within the organisation. These may include a reduction in working-capital requirements, improved cash flow, security and error reduction, and acknowledged receipt of order and delivery. EDI also shortens the order lead times between shop and distribution centre and between a retailer’s central buying point and the supplier of the product. For example, some of the large British grocery multiples supply their shops with fast-moving lines from a distribution centre within a few hours of the order being transmitted, allowing shops to cut stocks while maintaining, or even raising, the level of product availability (Patel et al., 2001). A more complete list of the benefits stemming from implementing EDI is given in Table 3.7. Many suppliers in the fast-moving goods sector (manufacturers, logistics firms) have implemented EDI in response to demands made by their customers (retailers). In an attempt to link the use of EDI to retail logistics outsourcing, McKinnon (1990, p. 39) stated that:


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EDI has promoted the use of logistics outsourcing, enabling retailers to exert almost as much control over contract distribution as over in-house operation. It has also created an opportunity for contractors to become much more heavily involved in the collection, transmission and processing of logistical information, thereby adding value to the basic physical functions of transport, storage and handling.

3.3.3

Data processing and information

The last core technology is the processing of data on microprocessors, allowing the reorganisation and representation of data in order to change it into information that is usable by management. In general, retailers adopt application technologies that use the data collected, transmitted and processed by the core technologies to create useful information. These application technologies are addressed through tools such as database-management systems, statistical-modelling systems and decision-support systems. Some applications include (Dawson 1994): ●

●

●

●

●

●

●

●

merchandising applications that are used to optimise the use of sales space, including store layouts and shelf space, such as Apollo, Spaceman, share allocation models and category and range selection tools (Mintel, 1996); stock models that are used to minimise stock holdings and to optimise replenishment processes, such as Safeway’s stock management III system (Davison and ScoulerDavison, 1997); labour scheduling models that are used to optimise job allocations and minimise labour costs, such as Staffplanner II used by Safeway (Mintel, 1996); accounting and control applications that are used not only to make the purchase ledger more accurate and minimise costs, but also to check supplier performance and creditworthiness of customers, such as ERP tools (Richmond et al., 1998); business planning applications, including budgeting and sales forecasting tools, such as the I3 software used by Asda (Fernie and Sparks, 1997); applications for the identification of optimum locations for stores and warehouses, such as the geographical information system, Smallworld, used by Tesco (Mintel, 1996); marketing applications, mainly buying-related, which are used to optimise purchasing conditions and to evaluate product performance, in order to support negotiations with suppliers and to manage customer evaluation through customer loyalty programmes (The Grocer, 1998); applications of network technologies that allow additional facilities to be carried at marginal cost alongside the main facility, such as electronic funds transfer at the point of sale (EFTPoS), which can provide a reduction of around 40% in the cost of processing transactions (Hogarth-Scott, 1989).

Apart from the technologies listed above, recent developments include radio frequency identification, using radio signals to communicate messages, in-cab communications and the satellite tracking of vehicles, which allows vehicles to be constantly monitored (Jones et al., 2004). Another development is warehouse control systems (e.g. Denver, DCAMS, DCOTA), which integrate the reception, storage, picking and shipping of goods into a single process. A further improvement in the performance of warehouse control systems can be secured by full automation (Bell and Davison, 1997). These systems are of rising importance, as the warehouse is becoming central to the logistics


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process for the whole supply chain; it is regarded as the main element in the efficient use of the firm’s stockholding. A more recent issue is the increased use of the internet in the grocery supply chain. The introduction of the internet improved the flow of information between channel members and its use is favoured by a number of food multiple retailers (Quarrie and Hobbs, 1997). For example, Sainsbury’s is already rolling out Xtra Trade, a system that allows suppliers to exchange supply-chain information over the internet, while Tesco is using a similar system called Tesco Information Exchange (Retail Solutions, 1999). The major benefit from the use of the internet is that both retailers and suppliers avoid extensive use of paperwork and moreover each stage of the entire system is far more transparent. All these applications have provided a good platform for the introduction and use of intelligent technologies. These are very popular nowadays (see for example, Prater et al., 2005) and will be discussed in detail later in this book: radio frequency identification in Chapter 7 and retail warehouse technologies, including, inter alia, voice picking and radio frequency picking, in Chapter 12.

3.4

CONCLUSIONS

This chapter discussed in detail the food retail logistics function and its major components. In order for this function to perform efficiently, the use of IT has become an absolute necessity. These technologies were also analysed in this chapter and this analysis has provided a solid grounding for the chapters to follow.

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Dawson, J.A. (1994) Applications of information management in European retailing. International Review of Retail, Distribution and Consumer Research, 4(2), 219–238. Dawson, J.A., Findlay, A.M. and Sparks, L. (1987) The impact of scanning on employment in UK food stores: a preliminary analysis. Journal of Marketing Management, 2(3), 285–300. Dolen, P.Z. (1986) How retailers can use information for competitive advantage. International Trends in Retailing, 3, 23–28. Earl, M. (1990) IT and strategic advantage: a framework of frameworks. In: Earl, M. (ed.), Information Management: the Strategic Dimension. Clarendon Press, Oxford. Economist Intelligence Unit (1988) EDI for Retailers. EIU Publications, London. Fernie, J. (1989) Contract distribution in multiple retailing. International Journal of Physical Distribution and Materials Management, 19(7), 1–35. Fernie, J. and Sparks, L. (1997) Retail logistics: the case of Tesco stores. In: Hart, C.A., Kirkup, M., Preston, D., Rafiq, M. and Walley, P. (eds), Cases in Retailing: Operational Perspectives. Blackwell Publishing Ltd., Oxford. Fitzgerald, G. and Willcocks, L. (1994) Outsourcing Information Technology: Contracts and the client/ vendor relationship. Research and Discussion Paper 94/10. Oxford Institute of Information Management, Templeton College, Oxford. Fynes, B. and Ennis, S. (1994) EDI in retailing: implementation and prospects in Ireland. International Review of Retail, Distribution and Consumer Research, 4(4), 411–426. Hogarth-Scott, S. (1989) The Strategic Implications of Information Technology for Retailing. Horton Publishing, Bradford. Hogarth-Scott, S. and Parkinson, S. (1994) Barriers and stimuli to the use of information technology in retailing. International Review of Retail, Distribution and Consumer Research, 4(3), 257–275. Jones, P., Clarke-Hill, C., Shears, P., Comfort, D. and Hillier, D. (2004) Radio frequency identification in the UK: opportunities and challenges. International Journal of Retail and Distribution Management, 32, 164–171. Kearney, A.K. (1994) Logistics Services in Europe. European Logistics Association, Brussels. Lieb, R.G., Millen, R.A. and Wasserhove, L.N.V. (1993) Third party logistics services. International Journal of Physical Distribution and Logistics Management, 6(23), 35–44. Lockett, A.G. and Holland, C.P. (1991) Competitive advantage using information technology on retailing: myth or reality? The International Review of Retail, Distribution and Consumer Research, 1(3), 261–283. Lynch, J.E. (1990) The impact of EPOS on marketing strategy and retailer-supplier relationships. Journal of Marketing Management, 6(2), 158–172. McKinnon, A.C. (1986) The physical distribution strategies of multiple retailers. International Journal of Retailing, 1(2), 49–63. McKinnon, A.C. (1988) Physical Distribution Systems. Routledge, London. McKinnon, A.C. (1990) Electronic data interchange in the retail supply chain. International Journal of Retail and Distribution Management, 18(2), 39–42. Mintel (1996) IT in UK Retailing. Mintel Intelligence, London. Ody, P. (1990) Information Technology for Retailers: A Review of Applications and Developments. Longman, Harlow. Ogbonna, E. and Wilkinson, B. (1996) Information technology and power in the UK grocery distribution chain. Journal of General Management, 22(2), 87–103. Patel, T., Sheldon, D., Woolven, J. and Davey, P. (2001) Supply Chain Management. Institute of Grocery Distribution, Watford. Prater, E., Frazier, G.V. and Reyes, P.M. (2005) Future impacts of RFID on e-supply chains in grocery retailing. Supply Chain Management: An International Journal, 10(2), 134–142. Quarmby, D. (1990) Changes in the physical distribution of food to retail outlets. In: Fernie, J. (ed.), Retail Distribution Management. Kogan Page, London. Quarrie, J. and Hobbs, S. (1997) Supply Chain Technology: Improving Retail Efficiency and Effectiveness. Financial Times Retail and Consumer Publishing, London. Reardon, J., Hasty, R. and Coe, B. (1996) The effect of information technology on productivity in retailing. Journal of Retailing, 72(4), 445–461. Retail Solutions (1999) Collaborating with Electronic Business. November, 20–21. Richmond, B., Burns, A., Mabe, J., Nuthall, L. and Toole, R. (1998) Supply chain management tools, minimising the risks: maximising the benefits. In: Gattorna J. (ed.), Strategic Supply Chain Alignment: Best Practice in Supply Chain Management. Gower, Aldershot.


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Smith, D.L.G. and Sparks, L. (1993) The transformation of physical distribution in retailing: the example of Tesco plc. The International Review of Retail, Distribution and Consumer Research, 3(1), 35–64. Takac, P.F. (1993) Electronic data interchange: an avenue to better performance and the improvement of trading relationships? International Journal of Computer Applications in Technology, 5(1), 22–36. The Grocer (1998) Invasion of the Cyberbrands. 29 August 1998. Whiteoak, P. (1998) Rethinking efficient replenishment in the grocery sector. In: Fernie, J. and Sparks, L. (eds), Logistics and Retail Management. Kogan Page, London. Willcocks, L and Fitzgerald, G. (1993) Market as opportunity? Case studies in outsourcing information technology and services. Journal of Strategic Information Systems, 2(3), 134–156. Wilson, N. (1998) Growing competition. Logistics Europe, April 1998.


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4

Basic Principles for Effective Warehousing and Distribution of Perishable Goods in the Urban Environment: Current Status, Advanced Technologies and Future Trends

Nikolaos Stragas and Vasileios Zeimpekis

4.1

INTRODUCTION

As the market for perishable foods is increasing (e.g. refrigerated products), regulation of the supply chain must be prescribed by public authorities to protect final customers from health hazards. The maintenance of temperature and other types of preservation control at each stage of the supply chain is essential to maintain the prescribed quality of the product until it reaches the final consumer. This quality is influenced by the time delays in actions and by temperature disturbances. The European Union (EU), along with other developed countries, has established a set of regulations for temperature control and equipment performance at different steps of the cold chain (Bogataj et al., 2005). These regulations include: ● ●

●

product temperature regulation along the supply chain; obligatory recording of air and product temperature in refrigerated vehicles and loadingreloading places; standardised equipment.

Much of food safety is about keeping food at the right temperature. When chilled meat, seafood or salad is stored above 5°C, the environment becomes suitable for bacteria to multiply. Depending on the degree of temperature variation, the food’s shelf life is shortened, food is spoilt or, in a worst-case scenario, food-borne illness occurs. Currently, operators that store and/or deliver perishable foods face various problems. Once goods are stored in remote warehouses operators have little control over the conditions affecting their quality. Problems that may arise include equipment failure, temperature variations within refrigerated trailers and mistakes during delivery. On top of that, logistics companies are faced with the added burdens of low margins, high capital costs, aging assets, shortage of good drivers and high fuel costs. In addition, they are under pressure to meet retailer and consumer demands for quality. Intelligent Agrifood Chains and Networks, First Edition. Edited by Michael Bourlakis, Ilias Vlachos and Vasileios Zeimpekis. © 2011 by Blackwell Publishing Ltd. Published 2011 by Blackwell Publishing Ltd.


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New technologies and information systems allow for innovative approaches to realtime monitoring of important field data (such as temperature, track-and-trace services, proof-of-delivery, etc.) during the storage and delivery process. Indeed, technologies such as radio-frequency identification (RFID) tags, smart labels, electronic temperature loggers, fleet management systems and so on can be used effectively in order to minimise operational costs and quality and safety issues as well as to increase customer service. The main purpose of this chapter is to provide readers with some basic principles for the effective warehousing and distribution of perishable goods in urban environments. More specifically, it aims to describe the cold chain as it is now, a series of advanced technologies used in its operation, and to discuss some trends that will affect it in future. The structure of the chapter is as follows. Section 4.2 describes the nature of perishable foods and gives details about current legislation concerning cold-chain storage and delivery operations. Section 4.3 describes the main warehousing processes, the current situation in perishable food storage, and the quality and safety certifications that a warehouse must obtain. In Section 4.4 we describe the transportation process in urban environments and the dynamic events (such as adverse weather conditions, traffic congestion, vehicle breakdowns, etc.) that may affect the delivery schedule and accordingly the quality of products. Then, in Section 4.5 we look at a list of new technologies that can be used in order to deal with the current difficulties in warehousing and delivery operations. These technologies include RFID tags, temperature sensors, fleet management systems, smart trace labels and so on. The chapter concludes with a summary of the main issues discussed together with the outline of a future research agenda.

4.2 4.2.1

THE NATURE OF PERISHABLE FOODS Current needs and inefficiencies

One of the most critical factors affecting the quality of perishable foods is temperature. From the time of production until the moment the product reaches the end customer, the preservation of a precise temperature will impact on the freshness, desirability and marketability of perishable foods (Jedermann et al., 2009). Temperature is a factor that must be under control throughout the entire product lifecycle. Because of this, information systems have been developed and temperature control applications have been established by the firms that produce, transport or store perishable foods. Because of the nature of perishable food, temperature records must be available to all the involved parts of the perishable foods operation at any time, to decide whether products may be forwarded or discarded before reaching the end customer. The dispatching and transportation of perishable food also requires investment in specific infrastructure. Special vehicles with the necessary equipment on board, such as refrigerators, sensors or wireless networks for real-time data transfer, must be available for the carriage of perishable foods (Pannozzo and Cortella, 2008). Additionally, the workforce has to be qualified to use this equipment, to interpret the sensors’ measurements and to take further steps in order to deliver the products at the required quality. Perishable food must be loaded, shipped and unloaded while avoiding temperature variations and exposure to adverse conditions. Products should be transferred quickly and safely, following specific regulations that prevent perishable food being put at risk.


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Basic Principles for Effective Warehousing and Distribution of Perishable Goods

4.2.2

Official authorities and legislation for perishable foods

4.2.2.1

Authorities

41

The principal food safety authorities describe themselves as follows: The European Food Safety Authority (EFSA) is the keystone of the EU’s risk assessment process regarding food and feed safety. In close collaboration with national authorities and in open consultation with its stakeholders, EFSA provides independent scientific advice and clear communication on existing and emerging risks. Since EFSA’s advice serves to inform the policies and decisions of risk managers, a large part of EFSA’s work is undertaken in response to specific requests for scientific advice. EFSA also undertakes scientific work on its own initiative, so-called self-tasking. Accordingly, EFSA’s advice frequently supports the risk-management and policy-making processes. These may involve the process of adopting or revising European legislation on food or feed safety, deciding whether to approve regulated substances, such as pesticides and food additives, or developing new regulatory frameworks and policies, for instance in the field of nutrition (see the EFSA website at http: //www.efsa.europa.eu). The US Food and Drug Administration (FDA) is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, USA food supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable; and helping the public get the accurate, science-based information they need to use medicines and foods to improve their health (see the FDA website at http: //www.fda.gov).

4.2.2.2

Regulations

Regulation (EC) No 178/2002 formulates the principles that ensure the protection of human health and maintain consumers’ interests in relation to food, considering the diversity in the supply of food, including traditional products. Through the framework that is established, the regulation provides organisational arrangements, processes and a scientific basis to support effective decision-making concerning food and feed safety. Defining the principles that characterise food safety at both a general and an individual level, this regulation establishes the EFSA and is applied to all stages of the food lifecycle (production, processing and distribution). Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety. (Source: Official Journal L 031, 01/02/2002 P. 0001–0024)

Regulation (EC) No 1642/20031 amends Regulation (EC) No 178/2002, laying down procedures in matters of food safety. Additionally, it determines the principles and prerequisites that characterise food law. Regulation (EC) No 852/20042 takes particular account of principles such as the responsibility for food safety that rests with the food business operator. The regulation also emphasises the fact that food safety should be ensured right back to production. Additionally, the 1 2


Official EC Journal L 245, 29/09/2003 P. 0004–0006. Official EC Journal L 139/1, 29/04/2004.

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regulation describes the importance of maintaining the cold chain for perishable food that cannot be stored safely at ambient temperatures. According to this regulation, the food business operator’s responsibility is reinforced by the implementation of procedures based on the hazard analysis critical control point (HACCP) principles and good hygiene practices. Finally, the regulation underlines the importance of microbiological criteria and temperature control requirements based on a scientific risk assessment, along with the necessity to ensure that imported foods are of a high hygiene standard.

4.3 4.3.1

WAREHOUSING OPERATIONS The role of warehousing

Traditionally, a warehouse represents the physical place where raw materials, final products or goods are stored, either in batches or in a stockpile, depending on the type of product. The role of warehousing inside the supply-chain framework is to accelerate and simplify the distribution of particular products between the producers and end customers. In the case of perishable foods, warehousing operations are crucial because of the nature of the products that are stored: there is a need to preserve the quality of the goods by continuously monitoring their storage conditions. In the last decade warehouse operations have been tackled with a more sophisticated approach than in previous years. It has been proved that factors such as the selection of the location, the type of warehouse, the operating procedures, as well as the warehouse space setup, play a pivotal role in efficient warehousing. In addition, the implementation of innovative warehouse management models (e.g. picking systems) coupled with procurement strategies like just-in-time require the development of advanced warehouse management systems that will also fulfill current needs, such as the reduction of operational costs and improvement in customer services. Particularly in the case of perishable foods, warehouse operations should aim to achieve the following: ● ● ● ● ● ● ● ●

preservation of high-quality standards; continuous storage conditions monitoring; reduction of response time between demand and delivery; seasonal demand coverage; storage of a variety of products instead of limited types; mixture of product for orders formation; reduction in operational costs; increase in customer service.

These factors play a pivotal role for companies in the food sector, as nowadays many buyers of perishable food demand availability in the right quantity and quality, and at the correct price (Bogataj et al., 2005). If these requirements cannot be met, customers will seek alternative suppliers. In order to fulfill these needs, several companies in the perishable food sector are orientated towards intelligent methods for storage, introducing advanced technologies and processes. Lately, special attention has also been given to quality monitoring and preservation. McMeekin et al. (2006) underlined the significance of information systems that are capable of the capture, storage, analysis and retrieval of data, and can therefore provide the opportunity


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Basic Principles for Effective Warehousing and Distribution of Perishable Goods Table 4.1

43

Warehouse types.

Cross-docking

3PL

Private or leased warehouses

No intermediate storage

Most commonly used warehouse type

Batches broken

Provision of warehouse services for a third party Low investment costs

Goods are mixed Order completion Goods loaded and shipped

Saving human resources Saving financial resources Includes indoor procedures

Usually established near the company’s property Serves specific needs Management conducted by the company Management know-how required

for the cumulative gathering of knowledge, leading to preservation of quality. In addition, food warehouses have moved one step further by requiring the adoption of certification, such as the HACCP, ISO 14001 or EMAS standards, in order to preserve the high standards of perishable stock.

4.3.2

Types of warehouse facility

There are several ways of classifying warehouses depending on the nature of the product, the level of safety stock or even the warehouse layout. The most commonly accepted classification of warehousing in terms of logistics is that of cross-docking, 3PL centres and private or leased warehouses. Table 4.1 presents the basic characteristics for each type of warehouse. 4.3.2.1

Cross-docking

The collection and distribution of goods usually takes place with a time-lag inside the warehouse. In some cases, however, these procedures occur at the same time and in these are referred to as ‘cross-docking’ warehouses. The goods are transferred from the receipt point to the delivery point without any intermediate storage, as the warehouse operates more like a distribution centre than a storage location. The orders are placed in quantities adequate to cover the next-day’s demand. Batches are broken into smaller ones and the goods are mixed in order to create the requested order. Afterwards, the orders are loaded into trucks and shipped to the customers. The shorter lead times, the less time-consuming goods management and the lower storage cost result in faster goods movement. In terms of perishable food, faster goods movement is considered to be a major factor in better freshness and reduced spoilage. 4.3.2.2

Third-party logistics

It is common for a company to decide not to focus on developing a system for storage and distribution of goods, either because the investment cost is very high, or because they do not have the necessary knowledge. Third-party logistics (3PL) companies are one of the most widely used storage options, as they allow firms to focus on other major lines of business, enabling savings in resources (human and financial). They also offer companies better product management due to the expertise they possess. 3PL warehouses are the link between the sender and the receiver, and include all indoor procedures, such as the transportation from the sender to warehouse, storage, order completion, distribution management and shipment.


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Warehouse operations Storage

Picking

Shipping

Analysis

Receiving/ Returns

- Physical receipt - Unloading - Verification of quantity - Quality check - System update

- Storage location selection - Physical goods movement - Mixing - Goods consolidation - Sorting - Cross-docking - WMS update - Quality control

- Picking organisation - Product location - Product collection - Order formation - Packaging - Palette formation

- Packing list - Quality control - Invoice and order control - WMS update - Loading

Figure 4.1 Warehouse operations.

4.3.2.3

Private or leased warehouses

Private or leased warehouses are probably the most common type of warehouse in the supply chain. Companies construct or lease storage locations according to their needs, their budgets and the know-how they have. Warehouse equipment is obtained either from the company or from a warehouse specialist firm, whereas the warehouse management, which includes the warehouse information system, the manpower and the central organisation, is usually provided by the company itself. Private or leased warehouses are generally established inside or nearby the company’s property, which is usually at the production location. Products are stored directly after production and this is the basic need that a private or leased warehouse serves. Private warehouses are owned and operated by the company itself, in order to serve their own business activities (e.g. food distribution, food production). On the other hand, leased warehouses may serve more than one company or only be in use for a specific time period.

4.3.3

Warehouse operations

To assess the functionality of a warehouse, it is a matter of describing the flow of goods from the moment they are received until the time that they are sent to the customer (Figure 4.1). Goods are initially unloaded on the receiving bay of the company before the receiving procedures take place. This includes verifying the proper quantity has been received per the invoice and a quality check of a sample of the goods. Afterwards, the goods will receive a code (usually a barcode label is attached to them) in accordance with the relevant system of identification used by the company. They are then moved into the storage space (storage procedures). When an order is placed, goods are recalled from storage (picking procedures) and prepared for dispatch. Goods are either packaged or mixed with other products or sent directly to the dispatch bay, from where they are delivered to the customer (shipping procedures).


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4.3.3.1

45

Receiving and returns

Receiving includes procedures such as the physical receipt of goods, unloading, quantity checks and so forth. It is followed by quality control, along with the update of the warehouse information management system (e.g. barcode readers), recording the receipt and storage of goods within the warehouse. This function may include unpacking or batch formation, but also the temporary storage of goods while quality inspection takes place. Additionally, there is the returns procedure, including steps such as the return of damaged and/or defective goods for replacement, return of packaging for recycling, disposal or reuse (e.g. pallets), and finally recall of products due to safety defects (Emmett, 2005). 4.3.3.2

Storage

Storage includes the predetermined movement of goods from the receiving point to the final point of storage, while the choice of the specific location inside the warehouse is performed using warehouse management systems (WMS) and can be long- or short-term. In long-term storage there is full coverage of demand because of the high stock kept, whereas in shortterm storage, goods are temporarily stored while further procedures, such as mixing, goods consolidation, shorting or cross-docking, take place. Short-term storage is used for perishable goods that will be directly dispatched to the customer. 4.3.3.3

Picking

In picking, goods are recalled from storage, in appropriate quantities and at a scheduled time, according to an order placed, so as to be transferred to the shipping bays and sent to the customer. Picking usually involves pallet fragmentation into smaller lots, packaging, final pallet formation and labelling of goods with details such as the sender, the recipient, the transport company, etc. Recalling goods from storage involves considerations such as warehouse optimal withdrawal routing, goods location, lead times reduction and minimisation of faulty orders. 4.3.3.4

Shipping

Shipping of goods is the last operation that takes place inside the warehouse and involves dispatching of products from the warehouse to the customers. The first step is the formation of the packing list. Then, the packed products are transported in containers or pallets in order to be loaded onto whatever transport is to be used. At the same time, invoices are checked and verified against the orders, while the whole process is accompanied by quality control of the cargo so as to minimise the possibility of damage during transfer.

4.3.4

Storage of perishable goods

4.3.4.1

Basic principles

Storage of perishable food is considered to be a function of vital importance in the cold chain. Products are usually stored more than once in their lifecycle, often by different intermediaries (producers, retailers etc.), until they finally reach the end customer. This is why special attention is required. As a result, in order to preserve quality and safety, the storage procedure is a first priority and a great challenge for the cold chain, which adopts certain


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characteristics such as visibility, maturation, durability, labelling and regulations. The characteristics of the storage procedure are analysed in the following sections. According to Arbib et al. (1999), visibility is crucial in a cold chain, where control of the temperature in storage by adding preservatives is needed to maintain the quality and quantity of product through to the end of the supply chain. Maturation is also considered to be an essential characteristic, as perishable food can be stored up to precise time limits, after which the maturation process must necessarily begin. By the time the maturation period ends, the product is packed and expiry dates are printed onto the package. Perishable food is also described using the characteristic of product durability. Perishable foods, and especially those with short durability, should always be labelled with the relevant piece of information that will tell the seller to replace the product at the appropriate time and protect the customer from expired products. Along with the date of durability comes the need for labelling. According to Likar and Jevsnik (2006), labelling should include all special storage conditions of the goods and additionally the instructions for use, where appropriate. As the market for refrigerated products and prepared meals is increasing, regulation of the supply chain must be prescribed by public authorities to protect final customers from health hazards. The temperature and other types of preservation control at each stage of the supply chain are essential to maintain the prescribed quality of the product until it reaches final consumer. This quality is influenced by time delays in actions and by temperature disturbances. Europe and other developed countries have established a set of regulations for temperature control and equipment performance at different stages (especially at the storage stage) of the cold chain. Risk assessment is necessary and requires permanent control of the products in the cold chain. Temperature variations may result in the growth of pathogens, such as microbacteria, or other deteriorations in quality. Temperature control is therefore essential to keep the final consumer safe. Many countries have established food safety regulations such as: ● ●

●

product temperature regulation along the supply chain; obligatory recording of air and product temperatures in refrigerated vehicles, production cells and loading–reloading places; standardised equipment.

Recently, the concept of ‘cold traceability’ was introduced, which requires the use of tools and equipment such as thermometers, temperature recorders, temperature indicators and time–temperature integrators, for quality control of perishable goods. This approach helps in tracing perishable goods, such as poultry and other meat, fish, fruit and vegetables, confectionery, ice cream and other dairy products, which are stored under different refrigeration conditions. 4.3.4.2

Warehouse certification

Qualitative features of goods storage that can determine the life cycle of the product, such as temperature, humidity or other preservation control characteristics, are specified in specific certification that a warehouse must obtain. This certification is critical for storage operations, in order to maintain the prescribed quality of the product until it reaches the final consumer (Bogataj et al., 2005). Among the certification legislated to assure the quality of goods during warehouse operations are:


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Basic Principles for Effective Warehousing and Distribution of Perishable Goods ●

●

●

●

47

ISO 9001: 2000. ISO 9001: 2000 defines traceability as the ability to track history and place all the relevant information for the traced product through recorded data (Zeimpekis et al., 2007). This can be achieved with advanced traceability systems such as EAN 128 and EAN.UCC. The former is a barcode system that carries information regarding dates and lot numbers of the product and the latter provides information related to shipment movements. ISO 22000. ISO 22000 is about food management systems and is implemented by all participants of the food supply chain, from primary production to supermarket shelves. ISO 22000 sets requirements about hazard identification and acceptable levels of hazards, traceability systems, handling of low-quality products, and continuous improvement of food quality, records maintenance and evaluation. The system can be applied to businesses of all sizes and types of food. Hazard analysis and critical control point (HACCP) certification is a preventative approach to controlling food safety, as it focuses more on preventing potential hazards regarding food safety than providing the appropriate tools to test the condition of final products. The HACCP system provides the company with a specific hazard analysis on food safety and determines the critical control points and critical limits for particular quantitative aspects (e.g. temperature). Additionally, HACCP establishes corrective actions to be taken in order after extreme variation at control points or violation of limits. ISO 14001/EMAS. The ISO 14001 standard provides a series of requirements for top management, which companies should adopt in their environmental management systems (EMS), in order to establish a system that is focused on controlling and improving a company’s impacts on the environment. As guidance for the development of best practices of environmentally conscious policies and practices (Gavronski et al., 2008), ISO 14001 promises cost savings, reduced waste generation and disposal costs, reduced energy consumption, resource productivity, and improvements in public relations and liability.

4.3.5

Storage inefficiencies of perishable foods

Storage operations are confronted by several types of problem when handling with goods of high risk. Perishable food cannot therefore be handled like other materials. The information that accompanies the products cannot any longer be only the delivery and the dispatch date. Additional information such as expiry dates, temperature, incoming quantities, storage location and product tracking are all critical in order for the products to reach the end customer on time and with high quality (Figure 4.2). All this information, which is demanded by legislation and which is consolidated through warehouse certification (e.g. ISO 9001, HACCP), can have a positive impact on products only if it is centrally organised by an advanced information system. 4.3.5.1

Expiry date control

One of the most critical tasks that warehousing has to face is the expiry-date control of perishable foods. The first aspect of this issue concerns the tracking of the expiry dates of perishable foods at the time that they reach the warehouse. At that point, perishable food with a short expiry date should be handled with a higher priority than those products with longer expiry dates. The second aspect is related to the storage operation itself. Perishable food should be stored in a way that serves the acceleration of picking and dispatching operations. Warehousing operations should follow a specific inventory method (i.e. Last in, first


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48


Product tracking - Product labelling - Real-time verification

Temperature monitoring

Product’s storage location

- Temperature preservation inside ranges - Real-time monitoring - Product labelling

- Product labelling - Real-time verification Storage operations present status and needs

Expiry dates control - Real-time monitoring - Inventory strategies application - Product labelling

Incoming quantities forecasting - Product quantities received - Quantity verification

Figure 4.2 Warehouse inefficiencies.

out (LIFO), First in first out (FIFO) ) that will ensure that products reach the final customer sufficiently in advance of the expiry date. These kinds of inventory strategy can be more efficient when they are supported by advanced information systems that provide real-time monitoring and uninterrupted access to expiry-date master data. 4.3.5.2

Temperature monitoring

The food preservation temperature is another vital aspect of perishable food management that must be taken into account. There are certain temperature ranges that have been specified for particular types of foods, in order to avoid food contamination or quality deterioration. According to European regulations, the legal range for food preservation – below 5°C for the cold chain and over 63°C for the hot chain – should not be applied only in storage operations. The preservation of the right temperature during storage is one issue, but the monitoring of this temperature is another and perhaps more important one. Real-time temperature monitoring is required from the receiving point until the time that food is


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dispatched. Along with ensuring temperature monitoring, warehousing processes should also ensure that products are labelled with information about how goods should be stored. 4.3.5.3

Product’s storage location

The allocation of products to locations inside the warehouse is considered to be another aspect of warehousing. Products are labelled with their storage location when received, and afterwards are moved to this specific location. The exact location is selected based on factors such as expiry date, dispatch date, type of product (returns) or batch formation. There are still cases where products may not be allocated directly to their position or may be stored in an inappropriate location, and these may be caused by the lack of an information system that can provide real-time verification of the correct storage location. 4.3.5.4

Product tracking

Product movement inside the warehouse is a daily routine that makes it difficult to monitoring the product’s location. Real-time information is required at this point, in order for warehouse management to be aware of the product’s location and the available free space. Efficient product tracking is also important for the faster execution of picking operation and for reduction of the working hours required for order formation.

4.4 4.4.1

DISTRIBUTION PROCESS Goods distribution in urban environments

Distribution is a key logistics activity and contributes, on average, the highest proportion of the total logistics-related costs (Ballou, 1999). Distributors face various problems, such as determining the optimal number, capacity and location of facilities serving more than one customer, and finding the optimal set of vehicle schedules and routes (Min et al., 1998). These problems become more complex in urban areas due to the traffic issues that occur mainly in city centres. Urban freight transport and logistics operations are concerned with the activities of delivering and collecting goods in town and city centres. These activities are often referred to as ‘city logistics’, as they entail the processes of transportation, handling and storage of goods, the management of inventory, waste and returns as well as homedelivery services. City logistics is a relatively new field of research, brought about by the challenge of moving growing quantities of freight within metropolitan areas. While cities, particularly since the industrial revolution, have always been important producers and consumers of freight, many of these activities were taking place in proximity to major transport terminals, such as ports and rail yards, with limited quantities of freight entering the city itself (Figure 4.3). The functional specialisation of cities, the global division of production, as well as increasing standards of living, are all correlated with larger quantities of freight coming from, bound to or transiting through urban areas. According to the Institute of City Logistics, city logistics is ‘the process for totally optimising the logistics and transport activities by private companies in urban areas while considering the traffic environment, the traffic congestion and energy consumption within the framework of a market economy’. Simplistically, city logistics concerns improving the efficiency of urban freight transportation, reducing traffic congestion and mitigating environmental impacts.


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50


DC

Central city

n

a rb

te

al

in

rm

U

Figure 4.3 City logistics environment (Rodrigue et al., 2006).

The urban environment is characterised by high settlement and population densities and high consumption of goods and services. In such environments traffic infrastructure and the possibilities for its extension are both limited and unsustainable. This dichotomy between the demand and limitations of the urban environment has resulted in the significant problems that are associated with urban freight transport. The most commonly mentioned ones are congestion, pollution, safety risks, noise and carbon creation.

4.4.2

Types of urban freight distribution

One may distinguish at least two ways of distributing goods in an urban environment: standard deliveries and ex-van sales. While both cases use a typical delivery network with N warehouses that deliver to M customers through a fleet of K vehicles, they differ in the way they handle demand. Standard deliveries are based on a known demand (usually driven by pre-placed customer orders), while ex-van sales operate in an unknown demand environment, where orders are placed during the truck’s visit to the customer site. Table 4.2 summarises the main attributes of the two modes of urban delivery. The performance of either urban distribution model may deteriorate significantly due to a number of factors (Min et al., 1998). No matter how well the initial delivery plan has been designed, unforeseen events inevitably occur during the distribution execution stage, thereby resulting in a need to make real-time adjustments, such as truck re-routing and delivery rescheduling (Brown et al., 1987; Rego and Roucairol, 1995; Savelsbergh and Sol, 1998), in order to adapt to the new conditions and achieve the objectives of the initial plan as closely as possible. In the case of standard deliveries, such events may include traffic congestion, ramp overload at points of delivery, truck breakdowns, unforeseen reverse logistics requests (for example, goods returns) and others (Ghiani et al., 2003). This situation may become even more complex in the case of ex-van sales, where inefficiencies usually stem from the inherent demand/route uncertainty of the model, raising complex requirements for real-time


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Characteristics of standard delivery and ex-van sales in urban distribution.

Standard deliveries

Ex-van sales Fixed geographical layout Fixed distribution centre capacity Fixed truck capacity and fleet

Known demand per sales point Fleet delivers based on orders Fixed schedules and delivery time windows Truck routes determined a priori based on demand, network traffic and other parameters in a near-optimal way

Unknown demand per sales point Orders are not known in advance (only sales area is) More relaxed schedules and delivery time windows Distribution of work per truck is based on past area sales and business agreements with the drivers

Customers

Depot

Vehicle route

Figure 4.4 Schematic representation of the typical vehicle-routing problem.

decision-making. For instance, if a vehicle has disposed of its entire inventory in the first few points of sales due to unexpectedly high demand, it may be beneficial for another vehicle (carrying excess inventory) to be re-routed in order to accommodate the increased sales needs in the first vehicle’s area. Other issues in ex-van sales involve requirements that arise for real-time connectivity with back-end company systems, in order to support processes such customer credit control, invoicing and so on.

4.4.3

Routing factors that affect urban freight distributions

Many problems in the area of urban goods transportation by vehicle fleets can be modelled, to a certain extent, within the vehicle-routing problem (VRP) framework (Figure 4.4). The focus of the typical VRP is the design of routes for delivery vehicles that operate from a single depot, and which supply a set of customers at known locations, with known demand. Routes for the vehicles are usually designed to minimise the total distance travelled (or a related cost function). Bowers et al. (1996) present the formulation of the typical VRP.


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In an effort to model and address important practical issues, the fundamental VRP has been extended in a number of aspects. Indeed, one can distinguish no less than nine topics of critical practical importance that raise considerable challenges in VRP-related research and are all closely related to the real-time vehicle management problem. 4.4.3.1

Number of stages

While the single-stage VRP (delivery only) is primarily concerned with the establishment of outbound delivery routes, the double-stage VRP considers both delivery and pickup, i.e. outbound and inbound distribution. The latter is a salient feature of real-time distribution, since reverse logistics may necessitate adjustments to the original schedule depending on the truck load and its capacity. For a treatment of the two-stage VRP see Savelsbergh (1995) and Yang et al. (2000). 4.4.3.2

Deterministic versus stochastic supply/demand

The deterministic VRP assumes that demand and supply are known a priori, while the stochastic VRP encompasses uncertainty in demand and/or supply levels (Min et al., 1998). As discussed above, demand uncertainty is a key characteristic of ex-van sales. 4.4.3.3

Fleet size

We can differentiate between the cases of single vehicle and multiple vehicles. As the number of vehicles in the delivery fleet is increased, the problem size, as well as the computational complexity, increases accordingly. It is clear that the multiple vehicle case is appropriate in the real-time vehicle management problem, since many contingency measures involve the cooperation between vehicles through appropriate inter-vehicle communication infrastructure. 4.4.3.4

Vehicle capacity

There exist formulations for both the capacitated VRP and the uncapacitated VRP, depending on whether vehicle capacities are considered. The capacitated VRP (CVRP), as presented for example in Toth and Vigo (2002), is perhaps among the most widely researched variations of the problem. Capacity considerations are important in the case examined here, especially in view of reverse logistics, in which the capability of the vehicle to respond to the customer need depends on its available capacity. 4.4.3.5

Planning horizon

The static VRP takes into consideration a single planning period (for example, solving the distribution problem for next day’s deliveries), while the dynamic VRP considers optimal solutions in multiple periods. In this case the initial schedule can be adjusted according to the current needs for distribution (Laporte, 1988). 4.4.3.6

Time windows

A classical variation of the VRP refers to the consideration of time windows, outside which deliveries cannot be accepted. Time windows can either be ‘hard’, in which case they cannot be violated, or ‘soft’, in which case violations are accepted but penalised. A recent analysis of


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Dynamic incidents in urban freight distributions.

Cause of incidents

Incident

Effect on delivery

Road infrastructure and environment

Traffic congestion, adverse weather conditions, road constructions, flea markets, protests

Increased vehicle travel time

Clients

No available unloading area, problems with the delivered products (e.g. wrong order) New customer request (delivery or pickup), amount of request

Increased customer service time Vehicle re-routing/no service

Delivery vehicle

Car accident, mechanical failure

No service/delayed service

the VRP with soft time windows has been provided by Ioannou et al. (2003). Time windows present one of the most common causes for the need for real-time incident management. Further to the factors just listed, there are a series of dynamic incidents that may influence urban distribution, which are analysed in the following section.

4.4.4

Dynamic incidents in urban freight distributions

In general, an incident is any event that occurs during delivery execution and cannot be anticipated with certainty (Aronson and Van der Krogt, 2002). In case of urban freight deliveries, one can distinguish three sources of incidents: (i) Incidents originating from the clients served, for example cancellation, time window changes, new customer request, amount of request, no available unloading area and changes of source and/or destination. (ii) Incidents from the road infrastructure and environment, for example road blocks, traffic congestion, road constructions, flea markets, protests, rain. (iii) Incidents that arise from delivery vehicles, for example car accidents and/or mechanical failure. Table 4.3 shows the classification of dynamic incidents in urban freight distribution. Each category of dynamic incident has a direct effect on delivery execution. Incidents that arise from road infrastructure and environmental sources usually result in increased vehicle travel times, whereas client incidents result in increased service times, vehicle re-routing or no service at all. Finally, for the case where the source of the incident arises from the vehicle itself, the effect is usually felt in delayed service or in no service at all. The current methods used by freight carriers to tackle these incidents are presented in the following section.

4.4.5

Current status in urban distribution of perishable goods

By definition, perishable goods deteriorate over time or if exposed to extreme temperatures (heat or cold), humidity or other environmental conditions. Therefore, it is of great importance to handle, store and cool them properly along their entire journey through the logistics and value chain, from harvesting to the retailer’s shelf.


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Wholesaler

Transporter/Distributor

Receival point

- Unloading/Loading*

- Vehicle maintenance

- Unloading*

- Repackaging of products

- Unloading/Loading*

- Temporary storage

- Consolidating/Palletising

- Temporary storage

- Presented for sale

- Temporary storage

- Consolidating/Palletising#

- Consumers

Key Products transported to next point in the cold chain, susceptible to breaks in the cold chain

Text * #

Areas in the cold chain that are susceptible to breaks Minimise the time perishable products spend in this area May not be required

Figure 4.5 The cold chain for perishable foods (GSA, 2003).

To minimise spoilage and cost, perishable foods need to reach the consumer as quickly as possible and in the best possible condition. Today, up to 40% of perishable products are wasted or spoiled during their distribution from the wholesaler to the receiving point (Bogataj et al., 2005). As shown in Figure 4.5, there are various operations that must take place before the products arrive with consumers, such as unloading/loading of goods, in-vehicle temporary storage and so forth, which may affect their quality and freshness. Because of this, urban freight distribution of perishable goods is considerably more complex than typical freight movement in the city environment. Fruit and vegetables, in particular, are foodstuffs with a high value added, which are sensitive to a great extent to storage conditions, and for which the impact of poor transport conditions in terms of cost is not negligible. Furthermore, this kind of perishable foodstuff can suffer as much from low temperature (below its minimum recommended storage temperature) as from high temperature. A typical list of the maximum temperature that certain foodstuffs can reach during transport is shown in Table 4.4. The maintenance of temperature is a common practical problem for the transport of temperature-sensitive goods, especially in cases where mixed deliveries occur (Radulescu et al., 2005). Indeed, on nearly all occasions, mixed deliveries are required for each retail store and decisions must be usually made on how products will be separated into a single load or across multiple loads. Firstly, separation choices are made on the temperature requirement of the product, i.e. frozen, chilled, chilling sensitive, and secondly decisions are made on sensitivity to odour contamination and ethylene production. Table 4.5 provides recommendations on how products should be separated in relation to the volume of product to be moved in different load options. Finally, packaging of perishable goods during distribution is also an important issue. Packaging is used to protect products and allow them to be received by end users in good condition. For most operations involved in the supply of products to remote communities, packaging will not be an issue and packaging provided by packers and manufacturers will be accepted as adequate. However, because transport conditions are often harsh and because of the need to consolidate small quantities of a wide range of products (especially when local deliveries occur), some additional packaging is usually required to prevent damage and losses. Care needs to be exercised in any repackaging to ensure that product conditions are


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Maximum temperature during transport based on ATP agreement.

Foodstuff

Maximum temperature °C

Ice cream Frozen or quick (deep)-frozen fish, fish products, molluscs and crustaceans and all other quick (deep)-frozen foodstuffs All frozen foodstuffs (except butter) Butter Red offal Butter Game Milk (raw or pasteurised) in tanks, for immediate consumption Industrial milk Dairy products (yoghurt, kefir, cream, and fresh cheese) Fish, molluscs and crustaceans Meat products Meat (other than red offal) Poultry and rabbits

−20* −18*

−12* −10* +3 +6 +4 +4 +6 +4 Melting ice +6 +7 +4

(*) During certain operations, a brief rise of the temperature of the surface of the foodstuffs of not more than 3°C in a part of the load above the appropriate temperature may be permitted. Source: ATP, 1970.

Table 4.5

Truck selection based on required transport temperature of products and journey time.

Truck type

Maximum travel time for product at +10 to +12°C

0 to +2°C

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