Recent months have provided a telling reminder of just how fragile supply chain integrity can be. While some industries have been forward-thinking in streamlining processes and electronic sharing of information, protein commodities are a different matter altogether.
Food loss within the supply chain has been an issue for decades, and has reached epic proportions in recent years. There are plenty of reasons for this, not least of which is an unnecessarily complex system involving multiple touchpoints between primary producers and end purchasers, working with independent systems and manual processes for documentation and communication.
The UN Food and Agricultural Organization (FAO) estimates that food loss globally averages $400 billion a year, a number that translates into the equivalent of Austria’s GDP. To clarify, the UN FAO definition of food loss specifically refers to activities from the farm to the time commodities reach the retail store. Food loss also accounts for 8% of the world’s greenhouse gas emissions, when factoring in elements such as energy usage, fuel and water wastage.
One of the largest and most fragmented systems is the trade of proteins (such as meat, dairy, fish, and specialty grains), which represents a $4 trillion dollar industry globally. The food protein supply chain is an especially challenging and inefficient marketplace, dominated by thousands of middlemen with varying levels of experience and operational capacities. These can include brokers, traders, and other intermediaries operating between the primary producers and end users. In addition, the marketplace requires interaction with transportation providers, government agencies, bankers, insurance companies, and warehouses, to name a few, which creates a breeding ground for countless weak links and inefficiencies.
Simply put, in the time it takes to get goods from producers to the marketplace, a lot of things can go wrong.
Lack of transparency is one glaring issue, starting with price discovery for primary producers at the time of sale through to delivery. The less insight into supply chain activities such as routing, tracking, documentation and quality control, the greater the chances of mistakes, and the fewer the opportunities for early mitigation to avoid spoilage and waste.
Yet another challenge is document processing. In the commodities world, much of the documentation is generated manually or on systems that aren’t fully integrated. It’s not uncommon to see critical documentation passed on to individual parties by e-mail and even facsimile, opening up ample room for errors to occur — which they often do. More often than not, inaccurate or missing documentation is only discovered at the final destination, leading to the immediate rejection and destruction of goods.
What might seem a simple miscommunication on shipping instruction destinations or labeling can be equally disastrous. For example, if a shipment of beef from Argentina slated for a buyer in Japan mistakenly ends up in Thailand, the government will either order the goods to be redirected to the correct destination, or more commonly, rejected and destroyed. In either case, the costs are exorbitant.
Any errors, no matter how small, can also have a significant cascade effect on receivers and buyers of the goods. Information on arrival dates, for example, often requires one person or several to make multiple calls down the supply chain.
The uncertainty of knowing where goods are in real time can quickly erode margins. Goods could end up sitting on docks in foreign ports for weeks, leading to unnecessary financing, added shipping costs, and food loss. Without accurate and up-to-date shipment information, processors have to carry hundreds and thousands of dollars in excess inventory to ensure their plants won’t lie idle.
Another issue specific to protein commodities is potential breakdown in the cold chain while goods are in transit. The longer goods in transit are delayed or misplaced, the greater the risk of refrigeration breakdowns and spoilage. Often, temperature reporting is delayed, inaccurate, or simply not available. While GPS technologies enable constant temperature reporting inside containers, it is of little value if the capabilities aren’t in place to integrate and monitor that data in real time.
Much of these added costs and waste can be eliminated if supply chain constituents have a means to accurately pinpoint where goods are in transit from any device at any given time. A centrally integrated digital platform provides transparency and clarity, where constituents can discover price more transparently, confirm offers more quickly and easily, follow goods in transit, and reduce errors. It can immediately alert parties as to when and where an error or breakdown happens, including who is accountable at that moment in time. In many cases, early intervention can mitigate the potential for spoilage and waste.
A fully integrated marketplace platform also provides accurate, automated and instantaneous documentation, labeling, and instructions. Transactions can be completed faster, and goods reach the right destinations with the right documentation, without fear of rejection or destruction of goods.
More accurate and timely information also means processors and retailers can schedule warehouse resources and working capital more efficiently by reducing inventory costs. The key to this approach is that every participant, from primary producers to processors, is working more directly, transparently and efficiently.
The need for this level of efficiency is more pressing than ever. Food commodity production isn’t an industry that can gear up or down easily. Producers and their counterparts within the supply chain still need to harvest, package, ship and finance products at the same pace, despite additional supply chain hurdles that the pandemic has brought to the equation, such as fewer available containers, reduced transportation services, plant shutdowns, labor shortages and port congestion.
Digital marketplace platforms are by no means a new concept. The oil and gas and consumer electronics industries are among the most proficient in using centralized digital marketplaces to navigate their supply chain activities more efficiently and profitably.
However, the protein commodities marketplace has been notoriously slow to adapt to change. Not only is it full of thousands of middlemen and disparate networks; it also lacks standardized processes by which goods are moved throughout the supply chain.
As the world continues to grapple with the fallout of the pandemic, the need for a single, standardized digital marketplace platform within the commodities sector has become increasingly clear. Newly released data from UN FAO indicates that food prices have increased 40% year over year, with no signs of slowing down. Digitization within the commodities supply chain is one strategy that can play a significant role in resolving the world’s escalating food loss and cost issues.
Nicholas Walker is chief executive officer of TradeCafe, a B2B marketplace and technology platform.
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