Excellence in Execution

The produce industry operates in a world where supply and demand are not perfectly synchronized. Growing locations and seasons do not match up with customer locations and consumption patterns. The industry needs capabilities to bridge these geographic and availability gaps; fortunately, there is a solution—logistics.

Logistics facilitates the movement and storage of inventory in a supply chain. Quickly and efficiently transferring produce from fields to customer-facing locations maximizes product freshness, selling price, and revenues. In this second back-to-basics article of our Supply Chain Solutions series, you will discover the critical role that logistics plays in timely product availability and demand fulfillment. It is a cornerstone of supply chain success.

Logistics 101
Given the current fascination with supply chain management, logistics is often overlooked by C-suite executives. Part of the problem is their incorrect assumption that logistics is just another term for transportation. Also, the multitude of logistics definitions creates ambiguity about the value of logistics. In reality, logistics is an essential supply chain process that ensures demand fulfillment.

To level the conversation, we will adopt the following definition of logistics: “A process involving the movement and storage of materials, products, and information from point of origin to the final customer in a way that satisfies demand at the lowest cost, producing the highest value for the customer.”

This definition puts to rest the “logistics equals transportation” notion. While inbound and outbound delivery are critical logistics functions, the logistics umbrella also covers demand forecasting, inventory control, warehousing, order fulfillment, customer service, and other important elements. When these activities are properly integrated and executed, products arrive at the right place, at the right time, in the proper condition, and at reasonable cost.

“The nature of the fresh produce industry magnifies the importance of sound logistics capabilities and practices,” notes Dr. John Langley, professor of supply chain management (SCM) at Penn State University. “Product value is negatively affected if the temperature is not controlled properly, the shipment arrives late, or there is damage. Such problems put entire orders at risk of being rejected by the customer.”

Logistics is also the last line of defense in the supply chain: by linking sellers and buyers, logistics facilitates the rapid completion of profitable sales transactions. The effort and expense involved in developing brands, growing quality produce, and harvesting at the optimal time would be wasted if not for strong logistics processes to fulfill end user demand.

A well-designed logistics process also supports a variety of internal and external goals including perfect order fulfillment, low fulfillment cost, and a high return on assets. For perfect order fulfillment, customers must be the driving force of the logistics process. If a produce company can consistently meet and exceed a customer’s fulfillment requirements, it will establish loyalty and repeat business. Next, logistics activities are among the biggest controllable expenses in a business. By carefully managing fulfillment processes, produce companies can become a low-cost provider to customers, which further enhances competitive standing. Third, warehouses, delivery vehicles, handling equipment, computers, and offices facilitate logistics operations. Given the significant investment in these assets, companies cannot afford to have them sit idle. It is essential that asset capacity is fully utilized to achieve service targets and cost efficiency goals.