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This article was originally published in the June 2015 issue of
L’actualité ALIMENTAIRE magazine.
Distribution and Logistics
For food & beverage processors, distributing their products on the markets unquestionably represents one of the weakest links in all of their activities. Distribution bridges the gap between manufacturers and customers. Broadly speaking, it includes the representation and transportation of products to customers. It also refers to distribution networks on either the retail market, in the HRI sector (Hotel, Restaurant, and Institutional), or on the industrial market.
This link is considered weak because while it normally acts as a connection between the various players, it often becomes the breaking point. It is not unusual for manufacturers to lose control of their market and in so doing, lose the direct connection they maintain with their customers. In many cases, middlemen do not provide the list of customers or the sales per customer, nor do they pass along their feedback, thereby depriving manufacturers of strategic information that would enable them to refine their marketing strategies and strengthen their market positioning. What does the future hold for a business that is prevented in this way from knowing the needs of its customers?
Representing or delivering products over a vast area such as Quebec’s, and regularly covering over 1,000 retail outlets, requires huge resources in order to bear the expenses of a team of representatives, transportation costs, and the cost of required IT tools. These expenses become even more burdensome if other areas are added. For these reasons, manufacturers resort to using brokers or distributors instead of having their own sales team and truck fleet. While manufacturers believe that they are properly structured to serve their customers, this is only partially true in reality. Sales growth is up to food processors: what can they do if they don’t know their customers well enough?
As a general rule, middlemen have very specific responsibilities that may include delivery and taking orders. In a nutshell, they make sure that the product is available wherever there is a demand for it. But with a potential range of 7,000 to 16,000 products, can they really stimulate this demand? Of course not! These middlemen will naturally also tend to work with manufacturers who require the least amount of effort and produce the fastest results.
On the other hand, retailers who are part of the distribution chain have the most detailed information available on consumer habits and market trends. This is how they are able to market their own product lines under private brands that compete directly with national brands. As for distribution on the retail market, the high concentration of leading retailers creates a major imbalance between the manufacturer and the distribution network. Accompanying this dynamic is the power of the major multinational manufacturers, who seem to have inexhaustible resources and use them to achieve their growth objectives, leaving the smallest manufacturers with little room to manoeuvre.
Logistics refers to all of the methods and resources relating to the organisation of a business. It includes handling, transportation, packaging, and supply. Logistics is a crucial link and may become a major factor in declining profitability. Any problem in processing, shipping, or other warehouse operation activity may disrupt supply to customers, resulting in dissatisfaction and possible loss of revenues.
Conversely, if it is properly managed, logistics can increase productivity, performance, and profitability. A number of efficient IT tools help to manage inventory, to enable information-sharing among the production manager and sales representatives, and to ensure the traceability of products that have become indispensable with safety and hygiene standards. Sobeys has invested $160 million in logistics with its new LEED warehouse in Terrebonne, Quebec, which indicates the extent to which this link is central to profitability. Improving logistics represents a major challenge and requires considerable human and financial effort, which is fully justified in the framework of a long-term vision.
Logistics is a pivotal function but it has yet to be fully controlled. Internal logistics activities are generally controllable, although doing so requires a committed effort, but those of external partners are harder to manage: delivery delays or errors, poorly-refrigerated or unsanitary trucks that fail to comply with standards – each of these errors results in losses across the board. So is each of these parties able to evaluate the true impact of these failures on themselves and on others? Have the losses suffered throughout the chain been measured? Probably not, since the various parties work in isolation from each other most of the time. How else can we explain a carrier providing a damaged container with a broken seal to a food manufacturer for a shipment to Asia?
For each of these errors or failures, regardless of whether they stem from distribution or logistics, it’s the industry as a whole that suffers.
What are the prospects for solving the issues raised by the distribution model and by the prevalent approach to logistics management in the industry?
For distribution and logistics issues alike, one simple element could greatly improve the industry’s performance. What if the stakeholders in the industry worked cooperatively more often, consulted with each other, talked to each other, and invested in quality and excellence to retain their customers, rather than withholding information to keep from losing their customers?
The opening-up of markets, which is sure to intensify, is shaking up habits and certainties. The arrival of international manufacturers represents an exceptional opportunity for encouraging local businesses to work together to achieve excellence.
With this line of thought in mind, several microbreweries in Quebec have started up a producers’ cooperative, Distribières, to ensure that their products are distributed according to their goals throughout the province. Clear rules have been established and the number of members is limited. This initiative enables members to enjoy economic advantages resulting from marketing, distribution, and supply, which at the same time encourages the growth of their market shares, sales, and customer lists.
Quebec’s food processing industry doesn’t have an infinite number of players, so it is to everyone’s benefit to participate in dialogue, to share acquired know-how, to promote best practices in business, and to work together. The industry would gain influence and would be in a much stronger position to fight competition from abroad.
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