The Importance of SCM in the Orange Industry - Case Study Example

Supply Chain Management – ORANGE Introduction Supply Chain Management (SCM) signifies the management of the entire series of procedures that involves information, materials and finances as they move from the producer to the wholesaler or trader to the retailer or trader and finally to the end-consumer (Technology Management Studies For the Enterprise CIO, 2009). This comprises the synchronization and management of this flow both within and between companies. Earlier most companies did not manage the whole process of delivering products to the final consumer. Marketing, Planning, Distribution, Manufacturing and Purchasing – all the components along the supply chain worked independently. Hence there was great inefficiency in the SCM, hindering business productivity. The Supply Chain complexity is likely to differ vastly from industry to industry and firm to firm. Supply Chain Management Supply Chain Management ensures customer value maximization and allows for a sustainable competitive edge by introducing efficacy and efficiency. The SCM process involves activities such as product development, sourcing of raw materials, production, logistics and all the Information Technology systems that are needed to manage these activities. This involves three kinds of flows – the Physical Flow, the Information Flow and the Financial Flow. When one refers to the Physical Flow, it comprises the visible components in terms of movement, transportation and storage of materials and goods. It also includes customer returns or service need. On the other hand, the Information Flow allows all the partners of the supply chain to coordinate amongst themselves by overseeing the day-to-day control of the goods and materials. It also includes the transmission and updating of the status of delivery. Credit terms, consignment and title ownership arrangements and payment schedules make up the Financial Flow (NS State University, Supply Chain Resource Cooperative, n.d.) There are several components of the supply chain and these include the Customer, Planning, Purchasing of raw materials, Inventory, Manufacturing or Production and Transportation. It is essential that the supply chain of any organization operates as efficiently as possible ensuring a high level of customer satisfaction at the lowest possible cost. Thus a company needs to plan the entire supply chain management process on three levels. First, a strategic level, where the company management focuses on decisions concerning the entire organization such as the size and location of production plants, market research, product research and partnership with the suppliers. Next is a tactical level that will result in cost benefits by employing industry best practices, chalking out purchasing strategies, transportation and warehousing strategies and reduction of the cost of inventory storage. Third, is the Operational level that involves the day-to-day running of the business that oversees the movement of the products along the supply chain. This involves activities such as schedule changes to production and purchasing agreements with suppliers (Introduction to Supply Chain Management, 1995). An effective SCM is one that employs sophisticated software systems that have web-based application service providers (ASP) in order to ultimately reduces inventory (allowing the manufacturing of products on a need basis only and thus ensuring commercial success). The SCM software can be of two kinds – Planning Applications and Execution Applications. The Planning Applications make use of complex and advanced algorithms to come to a decision on the best solution to fill an order and the Execution Application aides in the tracking of the physical status of the goods, material management and the financial involvement of all concerned parties. Sometimes the SCM application could be based on the extended enterprise, which supports the sharing of data both inside and outside the enterprise, including manufacturers, suppliers and the end consumer of specific companies). The ‘upstream’ (organization’s suppliers) and ‘downstream’ (organization’s clients) sharing of data can significantly improve the time-to-market of products, cut costs and enhance operational efficiency (Technology Management Strategies for the Enterprise CIO, 2009). Product: Orange Researchers believe that citrus fruits originated in South East Asia at least 4000 years B.C. (INFOCOMM, 2009). Citrus Fruits were then taken to North Africa, from where, after the fall of the Roman Empire they made an entry into Europe during the Middle Ages. The citrus fruit made its way into America through the Spaniards and the Portuguese during their trips to discover the New World, around 1500. Trading of fresh citrus fruits commenced nearly two centuries ago with Spain controlling the same across the Mediterranean and shipping the produce to Germany, France and the United Kingdom. The United States citrus production catered only to the domestic market initially. According to researchers, citrus fruit production in Brazil stared between 1530-1540 and grew significantly in the 1960s (INFOCOMM, 2009). By the 1980’s, Brazil became the largest citrus fruit producer across the globe and the premier and most exclusive exporter of orange juice. Citrus fruits form the Rutaceae family. These trees are evergreens that produce fruits of different forms and sizes (from round to oblong), which are full of fragrance, flavor and juice. A cross-section of these fruits would demonstrate different layers: 
the epicarp or flavedo - a rough, strong and bright colored skin or rind that forms a cover to the fruit and protects it from external forces and damage. Next is the mesocarp or albedo - white, thick and spongy. The Mesocarp and the epicarp form the pericarp or peel of the fruit. The internal part that makes the pulp is divided into individual segments or juice sacs. The pulp is nutritive and is rich in soluble sugars, ascorbic acid and folic acid or vitamin C, pectin, fibers, different organic acids and potassium salt. This gives the fruit its characteristic citrine flavor. Navel oranges, Valencia oranges and blood oranges are the most cultivated races of oranges. 
Israel cultivates the Jaffa variety of orange. Consumption of citrus fruits is known to reduce the risk of heart disease and even some forms of cancer. Market Overview Before 1920, the orange was mainly considered a dessert fruit. The last decades of the twentieth century have witnessed continuous growth in the world production of citrus fruits. In 2000-2004, the total annual citrus fruit production was estimated to be over 105 million tons. According to FAO data, in 2004, 140 countries produced citrus fruits. Oranges make up about 70% of citrus fruits that comprise small citrus fruits like tangerines, mandarins, clementines and satsumas and also lemons, limes and grapefruits. Citrus fruit production is popular in several parts of the world. The leading producers for the international fresh fruit market are the Mediterranean countries, with Spain being the largest grower in the region. Orange juice drinking gained popularity and this, coupled with a growing understanding of its dietary benefits, greatly increased the per capita consumption of oranges. Today, the world production of various kinds of oranges is approximately 70,000,000 metric tons annually. In 2005-2006, the world citrus production was 72.8 metric tons and oranges account for a whopping 47.1 million metric tons in this (Citrus-Special Feature Article, 2006). In terms of value in the international fruit trade, citrus fruits rank first and there is great impetus to the industry due to liberalization in trade and the use of technological advances in processing, packing, fruit transport and storage. The citrus fruit market is constantly evolving as a highly competitive global market where there has been a noticeable shift from being a grower and producer driven market to a more consumer oriented one. This is also greatly influenced by the growing presence of global retail chains in fruit distribution. The future of this industry seems very encouraging with large Asian consumer markets also expanding. Oranges today are grown in Northern and Eastern Mediterranean countries, Australia, South Africa and subtropical and tropical America. The dominant processed form amongst all the citrus fruits is orange juice and production of orange juice is concentrated in Sao Paulo in Brazil, the largest orange juice exporter and Florida in the USA (INFOCOMM, n.d.). Frozen orange juice is the most important product made from oranges in the United States. By-products are candied peel, pectin, and orange marmalade, amongst others. The waste material after processing is used as stock feed. Sweet and mandarin oranges are the foremost varieties that are cultivated commercially in the following countries, listed in order of importance: Brazil, the United States, China, Spain, Mexico, Italy, India, and Egypt. The chief orange-growing states in the United States are Florida, California, Texas, and Arizona, in that order (Infocomm, n.d.). An Evolving Market The global consumption of citrus fruits is constantly changing. For instance, for the ten years 1983-2003, the highest levels of per capita consumption of oranges, was in industrialized, high-income countries. However, since the mid-1990s, this has shifted to developing countries with growing incomes like China, India and Brazil. The consumption of fresh oranges in high-income nations has either stagnated or has declined in the recent years due to a shift in the choices of the consumers. This has led to a growing demand for conveniently packaged forms of orange juice. During 1983-2003, the highest consumption rates were in the United States, EU, Latin America and Canada and the lowest in Africa and Asia. In 2005, world production of citrus totaled 113 million mt and has expanded steadily during the last two decades, at an average annual rate of 3 percent per year. Developing countries accounted for most of the growth in world citrus production during 1985-2005 as their output and planted area nearly doubled. Ranked by output, major competitor countries for all types of citrus are China (mandarins and oranges), Mexico (oranges and limes), Spain (oranges, clementines, and lemons), South Africa (oranges and lemons), Argentina (lemons and oranges), Australia (oranges and lemons), and Chile (oranges and lemons). Global orange production totaled about 60 million mt in 2005 (United States International Trade Comission Report, 2006) A major feature in the global orange juice market is the geographical concentration of cultivation and production. The two main players are Florida State in the United States and Sao Paulo State in Brazil and these two countries account for 85% of the world market. What sets the two countries apart is that Brazil exports 99% of its production, when Florida exports only 10%. In order to reduce the volume used and also to reduce storage and transportation costs, international trade in orange juice takes place in the form of FCOJ- frozen Concentrated Orange Juice. The EU is the largest importer of orange juice, importing over 80% of the global produce (Infocomm, n.d.). The importance of SCM in the Orange Industry Typically the quality of fresh fruit will deteriorate, if not monitored through the supply chain and the responsibility of ensuring that quality produce reaches the end-customer rests with the manufacturers of a given product. It is essential that there are no interruptions to the cold chain and that there is no negligent handling of the product. In order to meet the consumer demand for fresh quality produce, companies employ increased delivery frequencies, with smaller orders and faster cycle times to keep costs low. The most recent trends in the fresh fruit supply chain is the increased focus on freshness where it is essential that shelf life is maximized, an enhanced attention to the efficiency of the cold chain and an increased demand for variety in terms of demand for organic, high quality, imported products (Latest Trends in the Fresh Fruit Supply Chain, 2006). In the orange supply chain, after harvesting, the produce may either be sent to the fresh fruit market or it could be sent to the processing industry for the preparation of FCOJ and other by-products. The fruit first needs to be thoroughly graded and packed, then shipped to terminal points for distribution amongst retailers. Fruit that does not meet the grade for the fresh market is sold to processors. The oranges that are sent to the processing industry first need to go through the process of juice extraction. Bulk juice is then moved to concentrate plants for evaporation and freezing into frozen concentrate or to canning plants for retail packaging. Bulk FCOJ is sold to plants for reconstituting and packaging. Retail packaged citrus juice products are then exported to distributors and then to retailers for sale to consumers under a nationally advertised brand or private grocery chain label. (UNCTAD Secretariat, n.d.). It has been established that the use of an effective SCM is essential in order to maintain business success. It is important that all the activities along the supply chain work in sync and with harmony in order to have a productive business. In the orange industry an effective SCM will strengthen supplier and buyer relationships, assist in warehouse and transportation management and maximize efficiency through reduced logistics cost and streamlined payments. REFERENCES 1. May 2, 2009; http://www.fas.usda.gov/htp/Hort_Circular/2006/02-06/02-20-06%20Citrus%20Feature.pdf (WWW Page) 2. May 2, 2009 http://logistics.about.com/od/supplychainsoftware/a/SAP.htm (WWW Page) 3. May 2, 2009; http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=2610113 (WWW Page) 4. May 2, 2009; http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=2610113 (WWW Page) 5. 1995; Ram Ganeshan and Terry P. Harrison, An Introduction to Supply Chain Management (Research Report) 6. May 2, 2009; http://scm.ncsu.edu/public/basics/ (WWW Page) 7. May 2, 2009, http://searchcio.techtarget.com/sDefinition/0,,sid182_gci214546,00.html (WWW Page) 8. March 6, 2006; http://www.supplychainer.com/50226711/latest_trends_in_the_fresh_fruit_supply_chain.php (WWW Page) 9. May 2, 2009; http://www.thefruitpages.com/oranges.shtml (WWW Page) 10. May 2, 2009; http://www.unctad.org/infocomm/anglais/orange/characteristics.htm (WWW Page) 11.May 2, 2009; http://www.unctad.org/infocomm/anglais/orange/market.htm 12.July 2006, United States International Trade Commission Report Note: Before submitting the paper, please contact me (writer # 1705) for some final tips. Mail to netlineglobal@gmail.com . Remove this note before submitting. Read More