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When Growth Mandates Change: Blue Diamond Reevaluates Its Supply Chain

The growers' cooperative, a dominant processor and marketer of almonds and related products, seeks to reconfigure its forward distribution network, to reflect current and future demand from retailers.

Over the years, Blue Diamond Growers has come up with a seemingly endless number of creative ways in which to package and market the almond. The Sacramento, Calif.-based cooperative offers the popular nut in multiple flavors and versions, from oven-roasted to almond milk. Founded in 1910, it's owned by half of California's almond growers, who collectively account for 80 percent of the world’s supply.

Market dominance, however, doesn’t ensure continued success. That’s why Blue Diamond is constantly tweaking its product offering, and, by necessity, its distribution system.

Surprisingly, the venerable company didn’t have a formal supply-chain organization until 2013, when Ken Lehman was brought on board to set one up. Prior to that, relevant functions were spread across the organization, with no centralized team to manage them.

That’s the same year that Blue Diamond set out to double production capacity, starting with first-phase construction of a new plant in Turlock, in California’s Central Valley. With ambitious growth plans underway, an efficient, coherent supply-chain organization was essential.

Lehman, who today serves as senior vice president of Blue Diamond’s global supply chain, began troubleshooting the operation immediately upon arrival. He quickly realized that the nature of the company’s business, especially a sharp rise in its consumer sales, required an overhaul of its forward distribution system.

Blue Diamond had been supplying retailers out of distribution centers in Cincinnati, Ohio, and Plant City, Fla., as well as its Sacramento headquarters. It was evident, however, that those locations were less than ideally suited to current patterns of demand. So the company sought help from St. Onge Co., the supply-chain engineering and logistics consulting firm.

Lehman was no stranger to St. Onge. He had previously worked with the company on a network integration project while at Ralston Foods. “He called us up and said he had taken a job [at Blue Diamond], and had some supply-chain challenges with which he needed help,” recalls Craig Vorse, principal and director of supply-chain strategy with St. Onge.

Lehman says St. Onge gained his trust when the firm served as a “clean room,” or conduit for proprietary information, during construction of a new distribution system that followed a Ralston acquisition.

A ‘Deep Dive’

At Blue Diamond, St. Onge undertook a detailed look at the client’s business, collecting all relevant data and running it through optimization software. “We did a very deep dive to understand how they go to market today, who their customer base is, what products they store, and why,” says Vorse. “All the things that go into being in their shoes.”

Typically, St. Onge likes to work with at least a year’s worth of detailed data, and preferably two, says chairman and chief executive officer Bryan Jensen. Its network study will drill down to shipment types, product streams and all related operating costs. It also scrutinizes inventory at rest, looking for opportunities to consolidate facilities without compromising service levels or negatively impacting the cost of funds, he says.

The big challenge facing Blue Diamond, says Vorse, was that “the supply chain was the tail that wagged the dog.” In other words, the function had failed to keep pace with changes in the client’s food-manufacturing business. The main focus up to then had been on keeping manufacturing costs down, and turning out a quality product. Now Blue Diamond needed to simultaneously reduce supply-chain expense and improve customer service. A rejiggering of distribution sites was clearly in the cards.

St. Onge’s analysis involved the generation of multiple “what-if” scenarios, allowing Blue Diamond to play with a range of possibilities in a simulation environment. Options included “everything from clean-sheet scenarios to repurposing existing facilities,” says Vorse. The task was especially complex because the company was also trying to determine where to do business with some of its co-manufacturing partners.

The exercise took about 90 days, and “met all our targets,” says Lehman. The conclusion: shifting regional forward distribution centers to Bethlehem, Pa., Edgerton, Kan., and Charlotte, N.C. (Blue Diamond continues to serve markets in the western region out of its Sacramento headquarters.)

Phased Implementation

The new network was put into place over a six-month period, with staggered implementation. Blue Diamond had to be careful not to disrupt day-to-day operations, even as it brought up the new facilities.

“It took a lot of hand-holding,” says Lehman, who worked closely with his planning group to move non-essential items and safety stock into the new locations, while ensuring the continued flow of ordered product from its incumbent service partners during the transition.

The project met expectations, Lehman says. The new network moved Blue Diamond 11 percent closer to its customer base, and hit cost-efficiency targets as well. “This aspect was audited very stringently by our internal audit and finance organization,” he says. “We just completed the cost validation, and met all of our goals.”

Vorse says the calculations weren’t just based on the current stage of Blue Diamond’s distribution network. The ultimate model was designed to account for certain changes in the supply, over a span of three to five years. For example, a particular product category might grow more quickly than expected. St. Onge’s optimization service designs a number of “sensitivity scenarios” to account for key variables, unique to each client’s business that might alter the requirements of the network.

St. Onge works with many companies that had previously not focused strongly on their supply-chain organizations, says Vorse. In this case, he sees the firm’s accomplishment as having provided Blue Diamond with “a fresh look with outside eyes.”

Lehman says Blue Diamond might well call on St. Onge again to recalibrate its forward distribution network, in line with future growth. “We would be very comfortable going right back to them with something like that,” he says. “We have all the confidence in the world that we can enlist them again with a great outcome.”

Resource Links:
Blue Diamond Growers
St. Onge Company

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