Fruit Juice Logistics - Essay Example

Introduction The Beverage Market has seen great changes over last several decades. Until the early twentieth century it was the Fruit Juices that were known and used, however with the introduction of cola drinks their popularity waned. The main cause for this was the lower cost of the cola’s, availability all round the year, easy transportation due to being a packaged item and higher shelf life. These factors caught the fancy of the general public and this gave it unmatched market share. Advertising and promotions added to reach and they became known and available worldwide. The fruit juices remained a regional delicacy and were served at costlier establishments or meant for special occasions. During the second half of the twentieth century interest in fruit juices revived mainly due to factors that they too became available in better packaging, competitively priced, a far greater variety for all tastes and above all was considered healthier especially by people engaged in sports. Diet consciousness grew among the general population and the youth among them considered this as an essential supplement for nutrients they needed for energy needs of the fast pace of life and the rigours of exercise. The one factor that packaged fruit juices lagged behind in was its relatively smaller shelf life. Further this was what is known as the Ambient variety that could be stored, displayed and sold off the ordinary shelf. In such conditions the taste would normally change over a period of time as it was exposed to vagaries of weather and temperature. To overcome this factor the concept of Chilled Juices was introduced. This involved different production and packaging techniques that added to the shelf life as well as preserved the taste of the product for a much longer time. Although this did not yet match the longer shelf life of the cola’s, yet it was a vast improvement and an inducement for its sale. However the bigger challenge of making it available over a vast geographical area was yet to come. Logistics The worldwide popularity of the cola’s and similarly packaged carbonated drinks was not just the low price and the packaging; it was the easy availability of the product almost any where in the world. Since cola’s were mass produced and mass consumed it was possible to set up plants across the globe to make them available closer to their respective markets. The main ingredients were the cola concentrates that could be mass produced at the mother plant and shipped across to subsidiaries to be converted into the carbonated drinks. The logistics over smaller area around each plant was possible through local transportation. The trucks were specially designed to accept greater quantities. This has become a successful model for both production as well as distribution. The Fruit Juice market can emulate this to become a success story as well. For longer shelf life however juices need to be kept at low temperature and this gives them longer shelf life at room temperatures. Logistics and production methods therefore play a vital role in the supply chain to ensure availability and visibility of Chilled Juices. The Value Chain Apart from harvesting, cleaning and extracting juices the production methods require preparation of concentrates. Juice is commonly concentrated through the process known as TASTE that is nothing but Thermally Accelerated Short-Time Evaporator. Steam is used for heating the extracted juice and then passed through a vacuum flash cooler that reduces its temperature to about 10-13 degrees centigrade. The lower the temperature the better will be the longevity. This concentrate is then preserved at this temperature until it is ready to be packaged or reconstituted. This is where logistics comes in. To send this concentrate to the final production plant requires refrigerated trucks that too can maintain the above temperatures. Besides transportation, special warehousing in cool conditions like cold storages may also be needed before the product moves to the final conversion to drinkable juice with additions of water and other ingredients for flavor or taste preferences. This time gap is usually filled by the Logistics providers. This additional activity is what evolved the concept of Third Party Logistics or 3PL. The Concept of 3PL In the 1980’s globalization spread worldwide forcing some companies to re-think their position in asset building for logistics. As the cost and expertise required was too much and the spread very wide there was a need for outsourcing these activities to specialists who could deliver the result at fixed costs and in an agreed time frame. Since these would leave the company free to concentrate on its core manufacturing and marketing activities, the idea was well received in the market. This gave impetus to companies like DHL and NYK logistics to develop the kind of expertise required for this work. They also had to arrange the assets like warehouses and owned transport to manage these logistics. The range is worldwide and some companies work on segmentation principles, allocating niches for best performance and results. The idea of 3PL is derived from Lean Technologies that require a company to have Lean manufacturing operations to remain competitive in the market. The purpose is to keep the company focused on its core activities that are manufacturing and marketing. Managing deliveries and warehousing involves a lot of unproductive time and heavy investments in assets which take a heavy toll of finances. It also results in uncertain costs and final costing is constantly affected. Very often a logistics company is required for large and regular movements and it is found prudent to engage such a company on regular contract to handle all logistics. These companies are also able to provide packing and warehousing facilities at agreed costs. This makes for an attractive cost package that can eliminate the uncertainties of final costing and makes for better competitive pricing. 3PL then becomes a transactional based strategic move and managements are going for more of these arrangements as it is a two way gain for both the company and the contracted logistics services provider. This is effect becomes part of the overall supply chain of the company as it links the suppliers, the company and the final customers. 3PL is therefore a combination of services provided by a logistics company to its customer to package and moves its goods from point to point and also warehouse it in between if so required. Such destinations are often pre-determined and the frequencies worked out to manage a movement within set time frames at agreed costs. Typical services that are outsourced are Inbound or Outbound Freight, Custom & Freight consolidations, Ware Housing, Delivery to customers, Distribution Management and Order Fulfillment. Sometimes value added services offered or demanded like repackaging or return logistic management. 3PL becomes an important part of the value chain and the supply chain today. There are great distances involved between the suppliers, production plants and the wholesale /retail outlets. Movement of both raw materials as well as finished goods becomes a crucial factor for both time management as well as cost management. It is no longer possible for a single company to undertake all activities under one umbrella. It has been realized by all companies, large or small, that specialisation. The Importance of Supply Chains A definition by Cooper et al (1997) is that three or more organisationally distinct handlers of products, where products include physical goods, services and information, make a supply chain. Due to this multi-organisational nature the supply chain management has emerged as the core strategy of the firm for competitive advantage with a focus on building and maintaining inter-firm relationships. It has also been noted by Achrol and Kotler (1999) that it is now widely understood that since this has become core strategy, the competitive advantage is now sought not at the level of the individual firms but at the level of the entire supply chains that they work with. A large number of companies realise the route to becoming world class competitors lies in their ability to establish high levels of trust and cooperation with their suppliers (Buono 1997). Globalisation has lent credence to this need more acutely and creating a cooperative relationship has now become a core strategy in supply chain management (Andraski 1998; Stank, Keller, and Daugherty 2001). Working in far flung markets, with varied requirements for different manufacturing units; with increased focus on cost, quality and flexibility, procurement has become the primary factor as the first step towards competitive advantage. This is easier said than done. Uncertainties beset the practices of managing a supply chain. There are growing expectations of the end-user, changing market dynamics and technological advancements that need to be dealt with in an inter-firm cooperative relationship (Ghosh and John 1999). Greater uncertainty increases the chances of seeking controls through vertical integration in place of supply chain relationship as this appears more feasible (Balakrishnan and Wernerfelt 1986; John and Weitz 1988; Rindfleisch and Heide 1997). This will in fact negate the benefits of supply chain instead of cementing it. Uncertainties lead to firms getting into closer relations to reduce the effects and to lessen their impact and make way for serving the ultimate customer efficiently and profitably. The dissimilarity among the different types of inter-firm relationships is mostly based on governance modes and the levels of resource contributions by each of them (Golicic, Foggin, and Mentzer 2003). Lambert, Emmelhainz, and Gardner (1996, 1999) further categorised the cooperative relationships into three types and called them drivers and facilitators or bridges of the relationship. The drivers are those with motivations to collaborate for the reasons like cost efficiencies, marketing advantage, or profit growth. The facilitators are those looking for desirable conditions like cultural compatibility, complementation of resources, and reciprocity. The bridge relationship looks for eliminating the gaps within the arrangement. (Lambert, Emmelhainz, and Gardner 1996; Fawcett and Magnan 2002,2004). As a result uncertainties cause disruptions and are sought to be removed or eliminated by strengthening the supply chain as described further on. The foundation of Supply Chains is relationships. Supply Chains are seen as relationships where buyers and suppliers work together closely with a long term perspective and in an oriented manner (Gentry 1996). Lambert, Emmelhainz, and Gardner (1999, p. 166) have referred to such close cooperative relationships as "a tailored business relationship based on mutual trust, openness, shared risk, and shared rewards that yields a competitive advantage, resulting in business performance greater than would be achieved by the firms individually." It is within this tailored requirement that a logistic service provider fits in very nicely to smooth the rough edges and provide the seamlessness needed for a smooth flow of transaction. These relationships are built with the ultimate view of customer satisfaction and the first decisions have to be related to the type of business activity that will actualise this objective. There are three key strategic issues; the make or buy decision, the supply base structure and the customer-supplier relationship that have been pointed out by Gade and Hakansson (1994). Along with Cox (1996) they call attention to the importance of closer buyer-supplier relationship through cooperation and collaboration. Environmental pressures and the complexity of products also demand a closer working relationship for better results. The Buyer Supplier relationship in turn also is of three kinds, cooperative, partnership and collaborative. These are important as they attempt to remove or eliminate uncertainties by way of improvement in relationships. The binding factor in all these relationships is again the logistic service provider. It is a fact that to mitigate intense competition in the market, logistics firms are required to provide comprehensive service offerings and broaden their geographic coverage. Conclusion On shelf availability (OSA) of Chilled Juice is therefore very dependant on the Logistic arrangements of a company. There is limited space for this product at the retail end due to investment and space constraints. Besides retail outlets like M&S needs to stock a bigger range of product to suit tastes of varied customers. This calls for difficult choices and optimum between Ambient and Chilled Juice is difficult to decide. In studies conducted by M&S in 2001, where they overstocked Chilled Juices in comparison to the Ambient Juices in selected outlets, resulted in increased sales of the product due to greater OSA. However the downside was also the increase in wastages as the overstocking resulted in increase of the expired that was a total loss. The net result was that higher profits due to higher OSA were offset by higher losses due to higher product expiry. It will therefore be better to have a more improved logistic solution to supply optimum quantity rather than over or under stocking of the product. This needs to be worked out by calculating requirements of individual branches or branches with similar demography of customers. It seems that a little supply shortage that is deliberately created will help both in optimum sales and elimination of wastages. This should bring in better results. But one point that requires consideration is that as Chilled Juices carry an extra price on their labels, they attract only a particular set of buyers who are more conscious of quality rather than price. Again such buyers do not easily switch over to a substitute unless supply shortage compels them. It is quite possible, as was observed in an industry wide survey carried out in 2007, that consistent short supply eventually drove the customer to a substitution at another outlet. A fine balance between the demand and supply requires good management of logistics and a specialised firm can certainly handle this better than an internal department. The reason is that in any company, especially if it is as big as M&S, the logistic department is an additional burden to its normal buy and sell activity. The efficient shop floor management of a store is different from the management of a warehouse. Since priorities are different one department tends to dominate the other and the result is chaos. This is best mitigated by specialization and will be served best if both areas are under separate controls. It is therefore concluded that in view of varying requirements but for the sake of optimum results down the whole supply chain, it will be prudent to separate the marketing function from both procurement and logistics. When each works as an independent profit centre, but is dependant on each other for generation of profits, they are more likely to work in coordination and collaboration for mutual benefit. The markets are growing larger and a system of standardisation is essential across the industry. This is becoming more important as customers are more mobile today and while on the move look for same familiar products anywhere they go. When uniform standard products are available everywhere this increases their brand image and value. This can be easily seen in the case of cola products that have a great customer loyalty globally. The same model needs to be emulated by the Chilled Juice marketers. The success of the cola product is directly related to the logistic support as shown in the above report and this is what must be accepted and followed in this case as well. Bibliography Achrol, Ravi S. and Phillip Kotler (1999), "Marketing in thé Network Economy," Journal of Marketing, Vol. 63, No. 4, pp. 146-163. Andraski, Joseph C. (1998), "Leadership and The Realization of Supply Chain Collaboration," Journal of Business Logistics, Vol. 19, No. 2, pp. 9-11. Balakrishnan, Srinivasan and Birger Wernerfeit (1986), "Technical Change, Competition and Vertical Integration," Strategic Management Journal, Vol.7, No. 4, pp. 347-359. Buono, A., 1997, Enhancing Strategic Partnerships: Intervening in Network Organisations. Journal of Organizational Change Management, (10:3)pp 75-86 (Business Line) Cooper, Martha C., Lisa M. Ellram, John T. Gardner, and A.M. Hanks (1997), "Meshing Multiple Alliances," Journal of Business Logistics, Vol. 18, No. 1, pp. 67-89. 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