Food deserts are not unique to Detroit. They can be found in many low-income (typically urban) areas of the United States. I recently caught up with Dan Carmody, President of Detroit’s Eastern Market, and Frank Dell, CEO of food supply chain consultancy Dell Mart Inc., to discuss potential solutions to food deserts.

Before diving into their suggested solutions, however, I should note that food deserts are a multidimensional problem that requires multidimensional solutions. It’s important to keep in mind that these are just a few pieces to an incredibly complex puzzle.

Food Deserts Degrade Community Health

Approximately 2.4 million households live more than a mile away from the nearest supermarket and have limited access to quality, affordable food. In these regions, small shops and convenience stores with limited produce and high prices are often the only options.

The problem, at its core, is about the availability of fresh, wholesome products at suburban prices – Frank Dell, Dellmart Inc.

The lack of access to healthy and affordable food (combined with a disproportionate number of fast food restaurants) in these regions negatively impacts community health and nutrition. Poor access to healthy food, along with poor food decisions, is contributing to the obesity epidemic in this country–which costs nearly $150 billion in healthcare-related expenses annually.

Improving the supply of healthy food in these communities can help address food deserts’ negative impacts. Carmody believes that local food systems are best-equipped to address the problem.

Local Communities Can Address the Problem Themselves

In the absence of a strong food distribution network in Detroit’s food deserts, grassroots networks are stepping up to serve the community. Carmody sees these local efforts as an alternative to the large food corporations that are absent in Detroit.

“[Local food] is trying to do to food systems what blogs have done to the news system or what craft beers have done to the beer system.” – Dan Carmody, President of Detroit Eastern Market

Three local food distribution models are popping up in Detroit (and across the nation) to serve food deserts:

1. Public market distribution – Farmer’s markets and other public markets are becoming a popular method of serving these areas. Carmody and neighborhood leaders are working to coordinate farmer’s markets in these neighborhoods.
2. Regional food hubs – A regional food hub is a farmer’s market and distributor rolled into one. The Detroit Eastern Market is a food hub with more than 250 independent vendors processing, wholesaling and retailing food. It functions as an independent food supply chain that serves up to 40,000 people weekly.
3. Community-supported agriculture (CSA) – According to Carmody, there are currently more than 1,600 community gardens–up from 80 in 2004–growing healthy produce in food deserts. These gardens take advantage of abandoned land and backyard space to get the neighborhoods involved in healthy food production.

These are all impressive grassroots efforts. However, they’re still in the early stages of scaling up. For instance, Detroit’s Eastern Market only happens on Saturdays and serves a small portion (perhaps six percent) of residents. For this reason, Frank Dell believes there needs to be a more permanent, storefront solution.

Online-Enabled Storefronts Provide Cheaper Distribution

These alternative distribution networks are good stop-gap measures that partially fill the healthy food supply void. But they are a long way off from creating the necessary supply. Dell believes that food deserts need small stores that are replenished with high frequency, low-volume deliveries. Dell envisions these stores as:

• Within six blocks of the neighborhood so residents can walk to them.
• Replenished according to Internet orders placed by the stores.
• Able to provide the ordered food within three to five hours of order.

According to Dell, small storefronts that carry little fresh produce inventory serve these communities better than a farmer’s market or CSA. Dell believes these stores can offer a more diverse food variety thanks to the rise of packaged fresh produce. He also sees daily hours as superior to farmer’s market availability.

Of course, many of these neighborhoods already have small food retailers near them. So what’s the difference between these and what Dell suggests?

The key difference is that Dell believes this approach creates efficiencies by syncing online orders directly with warehouse shipping to create a more frequent distribution model. While this raises transportation and logistics costs, it can reduce handling costs by delivering pre-sorted fresh food. Selling fresh food in this way also increases product turnover since stores don’t have to hold as much inventory.

So, according to Dell, it’s cheaper and more efficient to distribute food via small storefronts in these neighborhoods.

Demand for Healthy Food Must Increase Alongside Supply

Supporting these alternative approaches to food distribution helps fill the healthy food gap in food desert communities. But creating a better supply of healthy food does little if community demand for healthy fruits and vegetables doesn’t grow alongside supply.

The need for education was one area that Dell and Carmody wholeheartedly agreed upon. As Carmody put it, “Trying to change people’s habits is a tough business.” But changing habits through education is equally as important as changing the habitual lack of quality food access in these communities.

What do you think it will take to get healthy food into food desert communities? If you have some innovative ideas, please leave your thoughts below. My discussion with Carmody and Dell proved personally enlightening. Let’s continue the conversation below.

I'd also like to thank Mark Vallianatos, Urban and Environmental Policy Professor at Occidental College, for his additional insight into this article. Thumbnail created by Zol97.

Despite the explosion of consumer information, much remains hidden from the buyer.

For instance, we rarely have transparency about the exact plant that produced our food, or whether a particular food product was recalled. The recent release of Junction Solutions’ CLEARthru app changes that dynamic.

The app empowers consumers with information that until now was shielded from them, or was not easily accessible. However, to make this enterprise-level technology meaningful to the average consumer, access limitations need to be overcome.

CLEARthru Improves Food Information Access

CLEARthru is a prime example of the consumerization of IT–a term describing the convergence of enterprise and consumer technologies. The app gives consumers access to information previously confined to an enterprise software system, such as:

• Origin of product
• Product freshness
• Packaging information
• Nutrition and allergen facts
• Food recall information

To access all of this information, consumers need only scan a QR code with their smartphone.

I recently caught up with Christian Hutter, Senior Vice President of Manufacturing at Junction Solutions, to learn more about CLEARthru. Here’s a video of our discussion:

The Importance of Traceability

In my view, the biggest benefit of CLEARthru is providing consumers with a picture of the path our food takes on its way to the grocery store, from the plant or farm of origin to every processing or packing facility along the way.

Consumer desire to know the full path their food follows is largely driven by high profile cases of food contamination.

While most food includes a federally-mandated Country of Origin Label (COOL), certain meat, poultry, fish, processed and mixed ingredient food products are exempt. Consumers want to know. In a recent Consumer Reports poll, 94 percent of consumers polled believed a Country of Origin Label (COOL) should be applied to every kind of food.

And the country of origin is just the beginning.

Today, consumers are up in arms about the beef filler known as “pink slime,” which ABC estimated is in 70 percent of ground beef. This is a good example of how CLEARthru could be incredibly useful. Since pink slime–distributed by Beef Products Inc.–is used by a set of food manufacturers, consumers can check whether their food came from a plant known to use the filler.

CLEARthru Faces Adoption Obstacles

As with all early-stage technologies, this technology needs some time to reach its full potential. Here are a few limitations to the current iteration.

1. Adoption can be costly. With CLEARthru, a proprietary QR code must be affixed to every food item. Without a financial incentive for parties in the food supply chain to include this label, it will be difficult to achieve a critical mass of adoption. That incentive may soon come from consumer demand.
2. Usage requires effort. Accessing the information CLEARthru provides requires users to scan every item they want to know about. This may be asking a bit much for people who are trying to get in and out of the grocery store.
3. Limited market size. Only about 46 percent of American adults have smartphones, and of course only a small portion of smartphone users will make use of the app. This limits the app’s potential market size, which may further impede the willingness of food producers to adopt this technology.

While these issues limit the usefulness of the apps in the near-term, the challenges aren't insurmountable. We’re on the precipice of a mobile information age. We just need to continue to foster these kinds of early technology solutions that give consumers more knowledge than ever before.

To make it happen, however, we’ll need an ecosystem of growers, processors, distributors and retailers to embrace this consumer movement.

What features would you like to see in a mobile food traceability app? Leave me your thoughts below.

Current trends suggest that the status quo of long-distance food distribution may be primed for disruption. Increased consumer demand for locally-grown organic foods, coupled with a renewed interest in living in urban cores and rising gas prices, collectively suggest that U.S. food distribution networks will soon need to evolve to support these and other shifting lifestyle and economic trends.

For a glimpse of what our future food distribution chain might look like, we need only look to where these trends have already advanced a few steps ahead of us: Europe.

American Consumers Are Demanding Fresher Foods

One of the chief drivers behind the potential reshaping of our food distribution networks is changing consumer preferences. The last several years has seen an uptick in demand for fresh, organic food. The growth of the U.S. organics industry is informative: since 1990, the U.S. organics market has exploded in revenue from $1 billion to $26.7 billion. This impressive growth is echoed by the earnings of Whole Foods Market, which grew its gross profit by 35 percent between 2007 and 2011, in a down economy.

Taken together, these stats signal that food distributors would be wise to move toward a system that better supports producers of organic, natural foods. European distributors have catered to this segment by supporting local farmers and farmers’ markets, and with legislative actions such as banning genetically-modified foods that are common in America. The growth in urban farms and farmers’ markets in the U.S. may be just the impetus that food distributors here need to move in the same direction.

Urban Centers Are Becoming More Important Food Hubs

The increased demand for local food is complemented by the growing importance of urban cores to food networks. As some Americans move back to city centers, there is greater need for European-style grocers that make lower-volume, higher-frequency sales. Considering that the typical U.S. supermarket is 35,000 square feet–twice the size of an average European supermarket–space limitations require a significant reduction in grocer size and carrying capacity. These stores also need a distribution network that is regionally located and can make frequent replenishment drop-offs like their European equivalents.

While this would be a major disruption to the centralized way the U.S. distributes food, the expansion of urban agriculture holds promise for supporting this change. The USDA recently found that roughly 15 percent of the world’s food is now grown in urban areas such as vacant lots and rooftop gardens. While it’s unclear just how many urban farms there are in America, it appears to be a growing movement, with urban farms spanning from Birmingham, Alabama to Detroit, Michigan. The expansion of urban farms could help us create a food network that relies less on large agri-business and more on smaller, owner-operated farms like the ones that thrive in Europe.

Another encouraging sign for shifting to a regional form of food distribution, albeit on a smaller scale, is the proliferation of farmers’ markets. Since the USDA started tracking these markets in 1994, they’ve expanded in number from 1,755 to 7,175–a 308 percent increase. The proliferation of these markets suggests that there is already a community that's ready and willing to endorse a regional approach to distribution.

High Gas Prices Require Regional Distribution

There’s one additional factor at play that would help spur a more European style of distribution: rising fuel prices. Comparatively high gas prices have been a reality in Europe for a long time. As a result, European food distributors have tended to locate their distribution centers closer to the delivery point to reduce transport costs. The opposite has happened here. Decades of relatively cheap oil has created a food distribution network that relies heavily on centralization, which makes it cost-effective to ship high-volume loads.

The case for centralized distribution centers may soon change, however, due to the “new normal” of higher fuel prices. In April of 2011, Fatih Birol, Chief Economist at the International Energy Agency, predicted that oil prices are likely to rise more than 30 percent in the next three years. If that happens, distribution networks may be forced adopt the regional approach that dominates in European food distribution even if all other trends are ignored.

I believe that if you extrapolate the current trends I’ve noted we’ll ultimately have a food distribution network that is comparable to Europe. What are your thoughts on the direction of U.S. food distribution? Where do you think that our food distribution networks are heading? Please leave your thoughts in a comment below.

A special thanks to Frank Dell, President of Dellmart & Company, for providing his insights for this article.

For shippers and carriers, rising fuel costs are particularly problematic. According to a recent Inbound Logistics study, fuel is the second largest cost for carriers after employee compensation.

The good news? Careful planning and the use of predictive technologies can minimize the impact fuel costs have on the bottom line. Companies that manage a fleet can cope with rising fuel costs using three general strategies:

1. Streamline fuel procurement;
2. Improve operations and fleet management; and,
3. Better plan delivery routes and shipment loads.

Streamline Fuel Procurement

Managing fuel costs isn’t just about taking steps to control the costs. According to David Zahn, VP of Marketing at FuelQuest, significant savings can be realized simply by building predictability into fuel procurement budgets. Gas prices typically swing five cents per gallon, up or down, on any given day. When purchasing thousands of gallons of gas, buying at the wrong time can be devastating to a company’s bottom line.

Technology solutions like FuelQuest give companies that store gas a way to forecast demand, monitor on-hand fuel, and procure at the best market price. Automating the fuel procurement process, says Zahn, typically saves companies four to six cents per gallon.

Of course, long-haul carriers don’t have the luxury of being able to fill up on-site. Companies that transport long-haul freight should consider fuel optimization programs that indicate where to refuel and how many gallons to fill at each location to minimize total fuel costs.

Improve Operations and Fleet Management

Any cost savings from purchasing fuel at low prices can be nullified by transporting with an inefficient fleet. Most efficiency improvements–such as streamlined trailer aerodynamics or retrofitting the engine for renewable fuel use–require significant capital investments. However, there are several controllable factors that can boost fuel efficiency for a fraction of the cost.

One of the biggest boons to fuel efficiency is employing highly-skilled drivers, which can improve fuel efficiency by five to 20 percent. Roy Craigen, President of Transcom Fleet Services, suggests testing drivers beyond licensing standards to ensure they’re versed in industry-standard driving techniques, such as accelerating smoothly and minimizing idling. Beyond that, routinely monitoring things like tire air pressure and speed go a long way toward conserving fuel. Here are a few quick stats Craigen shared with me in a recent conversation that show the impact driver actions can have:

• A three percent variance in air pressure impacts fuel efficiency by one percent.
• For every 10 MPH over 55 MPH, you consume 10 percent more fuel.
• A 100 truck fleet operator can add over $700,000 to its bottom line by improving fuel efficiency just a half a mile per gallon.

Better Plan Delivery Routes and Shipment Loads

A final strategy for reducing fuel costs is to plan more intelligent routes and truckload shipments. Both of these goals can be accomplished with transportation management tools. TMS software helps fleets suppress fuel costs by planning routes in a way that minimizes miles travelled and the number of stops. The resulting efficiency gains can help fleets make more deliveries within comparable operating hours. When used in conjunction with a well-trained dispatcher, this can be a great way to minimize things like time spent in fuel-wasting commuter lanes.

Creating intelligent routes is complemented by load planning features that ensure trucks leave with a fully-stocked load to reduce return trips. This limits fuel surcharges incurred by making less frequent shipments. It also helps make difficult decisions, such as whether to drop off the heaviest load first–even if it’s farther away–to make the rest of the drops with a lighter, more efficient vehicle.

Companies that put these strategies to use will be prepared to deal with the high fuel prices of today and tomorrow. By reducing the impact of rising fuel prices, companies with fleet operations can maintain competitiveness without sacrificing their bottom line.

As we gear up for 2012, what strategies are you using to reduce fuel costs? Please share which strategies that you’re seeing pay off.

A special thanks to Marcello Medini of PNG Logistics and Tucker Robeson from CDL Helpers for sharing their thoughts on this article. 

Forrester Research predicts the U.S. ecommerce market will hit $279 billion in sales by 2015, up from about $200 billion today. To meet this explosive demand, more and more retailers are turning to distributors for help in fulfilling online orders. But this is creating headaches–as well as new opportunities–for distributors.

The challenge is increasing consumer expectations, coupled with a paradigm shift from fulfilling business-to-business (B2B) orders to fulfilling business-to-consumer (B2C) orders. Consumers increasingly want to get their merchandise faster. Instead of shipping by the case, the distributor has to ship by the item. And instead of fulfilling the order in five to 10 days (a common turnaround time in the B2B arena), the order is expected to be shipped out in two to three days. Oh, and the customer wants the order shipped at little to no cost.

Four Ways Distributors Can Capitalize on eCommerce

In order to capitalize on the exploding ecommerce market, distribution networks need to evolve. Servicing the B2C market means absorbing some up-front costs. The key is to defray those costs by improving efficiencies in some innovative, often-overlooked ways. I’d like to share four areas that distributors should focus on to best serve the B2C ecommerce market:

1. Make products easier to pick

Organizing the warehouse for the most efficient picking route is, of course, critical. A simple strategy to achieve this is to organize the warehouse so that products with the highest sales volumes are kept at the front, which makes them easier and faster to access. However, predicting product demand is tricky. To determine which products will sell the best, distributors should invest in demand planning software. These systems determine product demand based on past sales trends and distributors can use this data to create a more efficient flow in their warehouse.

Distributors that are looking for more automated ways to pick orders should look at an automated material handling system such as Kiva Systems. Kiva Systems improves picking efficiency by bringing the order to the worker for packing.

2. Minimize package space

Once the warehouse is set up for efficient picking, distributors should focus on the packing process–specifically, the packaging itself. Why? Because, as Jerry Hempstead, founder of Hempstead Consulting, explains, “Shippers have introduced a shipping penalty based on the amount of space a package takes up rather than its weight.” This is a critical area to focus on because fulfilling consumer orders greatly increases the volume of packages leaving the warehouse.

Hempstead suggests distributors consider using Packsize to reduce package space. Packsize is an automated packaging system that can build a box to the size of the package you’re shipping. That frees up shipping space and reduces the amount of space boxes take up in the warehouse. To get distributors on board, Packsize is currently offering to absorb the cost of the machine. The catch: distributors have to buy their boxing material directly from the company.

3. Boost efficiencies in delivery routes

To further drive costs out of your shipping process, don’t neglect to analyze your transportation routes from a cost-efficiency standpoint. A transportation management program can help distributors figure out the most efficient route of delivery. In 2004, UPS started routing their trucks to reduce the number of left-hand turns, which leads to excessive truck idling that wastes gas. Sound trivial? Well, to date UPS has saved more than 10 million gallons of gas.

Beyond intelligent routing, distributors can also use services like EquaShip to help in the delivery process. EquaShip can help small- to medium-sized distributors take advantage of massive shipping discounts by picking up shipments and delivering them to the USPS facility closest to the customer’s ZIP code. With this service, distributors can take advantage of USPS’ last-leg delivery service which delivers straight to the customer’s door.

4. Critically analyze how orders are shipped

Efficiency improvements alone will get a distributor well on their way to coping with the added cost of supporting ecommerce. However, Hempstead notes that these efficiency improvements do little good if there isn’t some way to ensure the right choices are being made. For instance, it may be more efficient to automate the picking and packing of an order on an individual basis. But if three orders are going to the same destination, it doesn’t make financial sense to ship three separate boxes.

To guard against this problem, Hempstead recommends that distributors look at random samples of orders that are being shipped. If multiple boxes are going to the same location at the same time, it’s a good idea to take a step back and analyze the packing process.

Distributors that are able to perfect the process of serving the ecommerce sector will gain an edge over their competition. They’ll be perfectly positioned to take advantage of a market that will inevitably continue to boom.

I’d like to hear from you. How do you think distributors should cope with the new demands of ecommerce? Please leave a note in the comments section. Alternatively, send me your thoughts over Google+.

Thumbnail image was created by hospi-table.

The laundry list of services that customers ask of distributors ranges from providing consultations to enhancing the product knowledge of distributor employees. While your customers would like to see every item on their wish list checked off, the reality is that distributors have to pick and choose which one they can provide.

I recently caught up with Marc Wulfraat, President of the supply chain consultancy MWPVL International, to discuss what value-added services he sees on the rise in the distribution industry. In this article, I’ll share some of his insights and look at five value-added services that distributors can provide to improve their customer relationships and satisfy the services demand.

1. Vendor Managed Inventory

Since Walmart and Proctor & Gamble first introduced the concept of vendor managed inventory (VMI) in the 1980’s, it’s become a popular method of inventory control for industries, that prefer just-in-time deliveries. Under a vendor managed inventory system, the distributor agrees to monitor customer inventory and suggest proper purchase times. It’s a model best suited for high frequency, low volume transactions but one that is gaining popularity in lower product value industries (e.g. wireless phones and accessories).

Assuming responsibility for keeping a customer’s inventory levels at optimal levels is a complex undertaking. However, recent advances in web-based software and mobile technology are making it easier. For instance, distributors can use their smart phone to remotely check inventory levels at a customer’s location and initiate a purchase order for that customer while in the field. This allows for a more mobile and agile way of managing a customer’s inventory.

2. Delayed Product Assembly

Because of the cost break of ordering component parts in bulk, some distributors purchase inventory and then assemble it later. In delayed assembly, distributors can buy higher volumes of a few items and delay assembly until the the fully assembled product is needed. Doing this allows manufacturers to move inventory faster and distributors to fulfill orders more efficiently.

While the process can be as simple as packaging an item with language-specific packaging, it often gets more complex. Regardless of the complexity of assembly, accuracy is crucial. That’s where a bill of materials (BOM) comes in handy. Distributors that provide an assembly service should ensure that their distribution management software supports a bill of materials to track component parts, items numbers and proper packaging specifications.

3. Provide Green-related Services

Beyond performing kitting and assembly functions, there’s also demand for distributors to extend green services. These services range from shipping products in environmentally safe packaging (e.g. recycled cardboard) to actually performing recycling functions themselves. This is a smart business given that the 2011 ImagePower Green brands Survey, a recent international survey on green consumer attitudes, found consumers are willing to pay more for green products and packaging.

Wulfraat noted that most of the demand he sees for value-added green services is around green packaging. Distributors can purchase an unpacked item and package it with ecofriendly materials just before shipping. This a great area to focus on since the ImagePower survey notes that consumers in the United States use product packaging as their primary source for green buying decisions. In addition to using recycled materials, distributors also have an opportunity to act as the recycling channel through distributor take-back programs.

4. Improve Support of e-Commerce

Another trend that distributors won’t be able to avoid is the transition toward e-commerce. As more and more retail operations develop an online presence, distributors are being asked to fulfill customer orders with a short turnaround time. While this is a departure from the normal bulk shipments distributors provide, Wulfraat explained, distributors are providing this service to avoid losing market share.

In order to pull off the rapid (1-3 day) order turnarounds that consumers typically expect, distributors need to have their software system integrated with their customer’s software to ensure smooth flow of information. In an integrated system, for instance, the online order can be immediately sent to the distributor via an electronic data interchange (EDI) form for the order to be quickly picked, packed and shipped. While e-commerce orders of this nature can be pulled off through manual methods, there is a large efficiency gap relative to automated systems.

5. Offer Repair and Support Services

A final service that distributors can provide to their customers is the ability to manage repairs, returns and support services. This requires developing a deeper knowledge of the products that are distributed, but it can provide a lot of value if distributors can prevent items from being sent back through the supply chain.

Many manufacturers outsource their repairs and returns features to third-party companies that specialize in aftermarket services. If distributors are able to provide these services, they can win business away from these third-party companies. As an added bonus, managing these issues in the distribution channel mitigates the issue for both the manufacturer and retailer more quickly.

In my view, distributors that provide these services put themselves in a position to create a longer-lasting relationship with their customers. But that just my take. What do you think? What other value-added services do you see in demand at the moment? Please feel free to share your thoughts in our comments section below.

Thumbnail image created by Nick Saltmarsh.

So what makes organic food more expensive? A major factor is scale. Because most organic farms don’t operate at economies of scale, the amount of man hours required for harvesting and post-harvesting activities is much greater than conventional methods. For the same reason, the cost of marketing and distributing organic food is higher as well.

The national options really boil down to two distributors: Tree of Life and United Natural Foods. With them being the only major distributors, products often get discontinued and then we have difficulty stocking the item.” – Dan Gilotte, Wheatsville Co-op

In addition to scale, organic food also suffers from an inefficient distribution network that's still largely based on word-of-mouth business. To manage the organic distribution network, distributors will need to adopt technology that automatically informs grocers of available inventory and pricing. At the same time, grocers will need to invest in technology that allows them to find the right organic distributor at the best price.

Further pushing the price up is the fact that the demand for organic food far outweighs the available supply. All things combined – scale, distribution, supply, and cost – the consequences are creating unequal access to quality food for many Americans.

The Health-Wealth Divide: Consumption of Healthy Food

The high price of organic food is a strange irony. Today, we’re paying a premium to get food the way it used to be grown and harvested in our grandparents’ generation, before agribusiness and genetic modification came to utterly dominate our food supply. The problem of unequal food access has resulted in a phenomenon known as food deserts, or regions where there’s little to no access to healthy food markets. So if it’s still difficult for Americans to access conventionally produced food, then it’s no wonder that the challenge to distribute healthy organic food is great.

The federal government’s 2010 update to the food pyramid may make it even more difficult to get the proper nutritional value – calling for Americans to eat more potassium, dietary fiber, vitamin D and calcium. According to reporter Donna Gordon Blankinship’s recent article, these changes are expected to add several hundred dollars to the average American’s grocery bill. In her article, researchers estimate that roughly 15 percent of Americans, or 49 million people, make food decisions based on cost alone. Thus a healthy, well-balanced diet is pushed further out of reach for many. As the income gap between rich and poor continues to widen, this problem is likely to be exacerbated.

There are, however, some encouraging trends in the organics food market. A survey by the Organic Trade Association found that sales revenue from organic food in the U.S. had exploded to $25 billion by 2009 – 25 times that of 1990. This kind of growth is impressive, and it’s certainly progress toward reaching scale in the industry, but it’s all relative. For perspective, Americans spend roughly $1 trillion on food, indicating that industrial and processed food still own the lion’s share of the market.

So what can be done in the interim while organic food scales up production? In taking a look at how a few successful health food grocers handle their distribution, we can see how distribution chains can be made more efficient to help reduce food prices.

The Organics Distribution Market: The Austin Example

Austin is known for being home to many things – a hip culture, blues guitar, South by Southwest music festival and a hotbed of technology. It’s also home to a health-conscious group of shoppers who love eating organic foodstuffs and “going local.” It’s no surprise then that Austin is the birthplace of Whole Foods Market, one of the nation’s largest and most successful organic health food grocers.

The abundance of health-savvy shoppers has fueled a mini boom of organic markets in Austin as well. I caught up with Dan Gillotte, the general manager of Wheatsville Co-op, a successful local health food store, to discuss how they manage distribution operations.

According to Gillotte, managing packaged items isn’t that tricky. These organic products tend to have a lengthy shelf life and are fairly easy to buy in bulk and keep in stock. It’s the produce that’s the real thorn in a store owner’s side. Organic produce is what the industry refers to as “loss leaders,” or products that draw shoppers into a store but net small profits.

Gillotte explained that his store often has to turn to local producers in order to secure the right produce. In Texas, this is especially difficult given the fact that summer days usually hover around 100 degrees and nothing can grow. Other regions suffer similar problems of seasonality. Beyond the national distributors, Gillotte explained, it turns into a relationship-based business. Even in 2011, most organic food producers are found by word-of-mouth.

A better and more efficient use of technology is the single most important thing organic food distributors need today. They are stuck using comparatively archaic methods of communicating their available supply with most transactions conducted over the phone or by email.” – Stephen Jennings, NaturalPro Ltd. Consulting

However, these issues aren’t isolated to smaller storefronts. Stephen Jennings, Director of NaturalPro Ltd. Consulting, explained that even large grocers like Whole Foods primarily source through word-of-mouth transactions. And it’s astounding that a company like Whole Foods – with sales exploding from from $1.9 billion to $8.5 billion between 2001 to 2010 – still relies on such a basic means of sourcing their organic food supply.

Much like mom-and-pop operations, Whole Foods tends to streamline their sourcing operations with regional buying managers that are tapped into the community. The problem isn’t that Whole Foods lacks the technology to better manage operations, it’s that their organic suppliers are caught in a technology gap.

Currently, most organic distributors (except the national ones) don’t have methods for automatically indicating their supply levels, pricing or coordinating pick-ups and drop-offs. Without some level of automation in their processes, organic food distributors are caught in an inefficient game of cat and mouse where each has to guess the appropriate time to broker a deal.

This – along with the general lack of suppliers – can lead to fluctuations in the organic food market and result in higher prices for the consumer. However, these supply fluctuations and high prices can be tempered by taking a more strategic and technological approach to organic distribution.

Creating A More Efficient Distribution Network

The success and expansion of healthy food chains like Whole Foods and Wheatsville Co-op is critical to deflating the price and increasing the accessibility of healthy, organic foods at the consumer and wholesale level. Smart use of technology will play a pivotal role in making this happen. Here are a few more ways that the organics market can improve distribution methods.

1. Close the Communication Gap – Most distributors that specialize in organic distribution don’t have the technology infrastructure to create smart, efficient distribution routes. Distribution software can help select optimal delivery routes, manage the status and location of produce in real-time and ensure on-time delivery.
2. Better Manage Supplier Relationships – Finding the right supplier at the right price is critical regardless of the kind of business you run. Using procurement software can make the task of finding an organic distributor simpler. Meanwhile, it makes it easier for organic distributors to indicate supply levels and desired pricing schemes. Grocers can also use the software to compare prices and delivery times for distributors in order to choose the cheapest, most efficient carrier.
3. Aggregate Purchasing Activities – Collectives often buy in bulk because it makes purchasing otherwise expensive items affordable. Organic grocers should band together to purchase in bulk for multi-location drops similar to the way collectives manage purchasing. One of the reasons that organics remain expensive is because each storefront purchases only for themselves. If organic stores banded together, they could realize much greater wholesale cost savings.

These are just a few of my ideas on how organic distribution chains can grow effectively while becoming more pervasive, affordable and accessible. If you have an idea on how to extend this value chain, leave me a note in the comments section below.

The Food Safety Modernization Act (FSMA) – the first major change to the legislation regulating the food industry in nearly a century – takes a step in this direction. It targets roughly a quarter of the costs of food-borne illnesses – the $39 billion caused by illnesses contracted from fresh, canned, and processed produce. But the $39 billion does not include the toll of a recall, which can cost farmers and producers anywhere from a few thousand all the way up to $1 billion.

FSMA attempts to tackle this separately by giving a range of new powers to the Food and Drug Administration (FDA). It grants permission to the FDA to force food recalls, increase inspection frequencies, and require food companies to improve product traceability standards. The latter of which is going to force companies to invest a lot of money in infrastructure–such as wholesale distribution software–to meet FDA tracking and tracing standards.

Installing a traceability system is downright expensive – in the neighborhood of $200,000. Companies have to purchase an expensive software system, scanners, and register unique ID numbers to trace food throughout the supply chain. Then there is maintenance and support that comes along with it. To give you a sense of what goes into this purchase, here’s a cost breakdown published from a report by the Institute of Food Technologists.

Average Cost of Food Tracking System – Most Businesses Can't Bear Such a Burden Without Subsidy

The FDA expects businesses to just absorb these costs on their own, and put in traceability systems to help smooth the process of recalls. Fat chance. What’s needed is a bit of financial motive to get the ball rolling. Of course with the national debt soaring and Congress focused intensely on making budget reductions, the case for more spending is not easy to make. However, the cost of food-related illnesses is too high to do nothing. Providing funding to companies that adopt traceability systems would carry three main benefits:

1. It would encourage widespread adoption of traceability by rewarding businesses that installed better tracking and tracing systems.
2. It would reduce the time between purchasing a traceability system and realizing a return on investment.
3. And it would reduce the costs of food-borne illnesses and recalls by getting contaminated produce off the market faster.

Encouraging Wider Adoption of Traceability Systems

There is already a model for the effective adoption of such a software incentive program. The Federal government’s incentive to encourage the adoption of electronic medical records – the HITECH Act – shows how effective the program would be. Two years before the HITECH Act, only 17% of physicians had adopted electronic records technology. One year after HITECH, a full 50% had.

To be fair, this level of adoption can’t entirely be attributed to the incentive program. There are other factors at work, like increased awareness and acceptance of the technology. But the incentives are clearly encouraging much wider adoption. And the same can happen in the food industry – although the FDA would have to create guidelines for how companies would qualify for the incentive program.

Speeding Up the Financial Benefits of Food Traceability

As well as encouraging adoption, an incentive program would reduce the initial blow to companies’ wallets. Luckily, provisions in the Food Safety Modernization bill exempt most small and local farmers from having to install costly food tracking systems. But companies that make more than $500,000 will have to cough up a pretty penny. With the high initial investment of installing a traceability system, it will likely be several years before food companies realize benefits from installing the system.

It is difficult to put an exact number on these benefits since there’s a dearth of research that directly links food traceability systems to financial benefits. The tighter inventory control and visibility into the supply chain is likely to result in some cost savings. But these will be marginal compared to the investment. An incentive program would enhance the benefits and help make the business case.

Reducing the Cost of Food Contamination and Recalls

While the benefit of food traceability to an individual firm has not been studied extensively, the value of having an efficient food recall system has. In the case of the spinach recall of 2006, it was estimated that an efficient food traceability system could have saved up to $94 million. These savings would have been primarily the result of reduced illnesses and reduced from losses from missed sales.

The social and financial value of such savings would be an order of magnitude higher if the entire industry had the capabilities to prevent such costs. Having an improved system of traceability – installed across the entire food supply chain – would help reduce the costs of food illness and recalls. Food traceability helps accomplish this by making it easy to take contaminated food off the shelf in the most efficient way possible.

A Precedent For Action

Providing government incentives for traceability systems is not without precedent. Our Canadian neighbors recently implemented the Food Safety and Traceability Initiative. The government set aside $1.3 billion dollars over the next five years and hundreds of companies have applied for the incentive. This initiative can be used as a template for the success that can be realized when an incentive program is put into place.

To meet this burgeoning demand, local food distributors must scale up their operations from direct sales of small quantities to wholesale transactions. The problem, according to Michelle Miller of UW Madison's Center for Integrated Agricultural Systems, is that “a lot of the mid-scale distributors, the logistics people who used to consolidate produce, have gone out of business.”

Local distribution networks, termed “food hubs,” are trying to fill that void. Food hubs are like farmers’ markets and distributors rolled into one. They surfaced to provide local farmers with the infrastructure to store, process, distribute, and market local food to consumers and institutions. The current demand for local food positions food hubs to expand their role in food distribution. However, they lack the necessary technology to manage operations on a larger scale.

Managing Through Low-Tech Means
Most food hubs are decidedly behind the curve technologically. Transactions are usually coordinated through a combination of phone, email, and fax. Everything from scheduling pickups and drop-offs to planning routes is handled in this manner. Managing transactions like this may be feasible for the moment, but it won’t work as food hubs expand. To effectively manage relationships with more customers and farmers, they’ll need more advanced technology. This will range from Internet databases for managing customers relationships to distribution software to manage logistics.

Luckily, technology solutions for food hubs are surfacing. Three promising ones are match-making services, Internet-based buying clubs, and distribution management systems. None of these technologies are exactly new – but their adaptation to food hubs is. Each product provides food hubs with a way to get their local produce out to the general market more efficiently.

Matchmaking Programs
Food hubs have helped farmers overcome the marketing obstacle by using online match-making programs that link producers to buyers. These match-making programs are interactive communities that function a lot like Match.com for local food. Local food lovers can log on and find their perfect peach in just a few clicks. There are two general types of match-making services: those that link buyers to local food, and those that add a distributor to the mix.

An example of the first type is a pilot program called Food Hub, released by the non-profit Ecotrust. This program provides a forum for buyers and sellers to interact. Buyers seeking local food can find nearby sellers, but its up to them to complete the transaction and pick up the food. This leaves an empty middle in the supply chain, forcing buyers and sellers to coordinate the logistics.

Making the match is critical but bringing the food to the buyer is also very important. The platform FarmsReach helps address some of the logistical issues related to local food distribution. Their matchmaking tool links buyers, sellers, and distributors. The link to a distributor helps small and mid-size farmers address the challenge of delivering their produce.

Internet-based buying clubs
For food hubs that want to distribute the produce themselves, an Internet-based buying club is a good option. This has been a popular method of aggregating buyers and sellers since the early 2000’s. Buying clubs work by farmers pooling together their crops and delivering a single order of goods to multiple customers. Buying clubs are a logical method of delivery for food hubs as it allows them fulfill many orders with a single drop. These Internet-based buying clubs simultaneously help food hubs connect with customers and simplify distribution operations.

One of the most impressive examples of a food hub using this distribution method is the Oklahoma Food Co-Op. It has over 3,000 members, and processes more than 700 orders a month. Every month, the co-op's 200 producers meet to fill orders from the buying club and criscross the state to deliver to the more than 50 drop-off locations. The buying club helps the Oklahoma Food Co-Op aggregate produce and cut down on the number of drops that need to be made – but it does nothing to help manage inventory and plan distribution routes.

Distribution Management Systems
To manage inventory and plan distribution routes, food hubs need something that is more powerful than a matchmaking program or an Internet buying club. According to the USDA, developing a solution for efficiently planning routes is one of the most critical pieces to scaling up food hubs. This is a missing piece in the effort to enable local food to reach more buyers in the community.

Distribution software can help food hubs pull together the advantages afforded to them by matchmaking programs and Internet-based buying clubs. The main benefit is the ability to track delivery trucks and plan delivery routes. Tracking delivery trucks and planning routes will help food hubs deliver produce along the most efficient routes and keep feel usage down. These benefits will be critical to avoiding waste in distribution operations.

Putting It All Together
There is one major obstacle holding food hubs back from adopting distribution software: cost. Traditional food distribution software can cost tens of thousands of dollars, which is more than food hubs can pay. Even the most profitable food hubs don’t have such large budgets.

However, Software as a Service (SaaS) options are beginning to offer affordable options to food distributors. These solutions provide software via the Internet and offer friendly subscription-based pricing that food hubs can afford. The lower up-front costs of the SaaS model holds promise for food hubs that need to get a better handle on their logistics.

If food hubs can combine the customer-facing applications of Internet based buying clubs and matchmaking services with distribution software, they will be equipped to expand their operations.

A special thanks to Sam Earle of Local Food Systems for providing his insights on this article.

It’s a fair question: why can’t our bars always have our favorite beers? Is it so hard for them to keep a beer in stock? After all, it seems like they never run out of Bud Light.

It’s no secret that most bars stay well-stocked with the popular macrobrews. As Anheuser-Busch InBev and MillerCoors acquire and merge their way to an oligopoly, their low-cost, mass-produced beer will continue to dominate the average bar’s inventory list. Meanwhile, microbrews fight for shelf space because they draw less attention and often cost more money. There’s a reason you pay more for microbrews than Miller Lites: retailers and distributors pay more for them, too.

Because of these high costs, retailers can’t afford to keep large stocks of microbrews coming in at all times. Instead, they usually wait for regularly scheduled deliveries. In the same way that retailers like Best Buy get new DVD shipments every Tuesday, your local bar may receive new arrivals every Friday.

But beers are not Blu-rays. Is this the best way for a bar to do business? In this article, we take a look at the traditional model for beer distribution, which can leave you with the unfortunate choice between going with a macrobrew or just going without. What do you usually do in this situation? Take our survey to let us know, and explain your answers or share past experiences in our comments section.

Remnants of Prohibition: The Three-Tiered System of Beer Distribution

After Prohibition was repealed, the alcoholic beverage industry still faced a number of challenges. Vertical monopolies, through which producers owned the retailers that sold their products, had to be broken up in order to eliminate anti-competitive practices. Also, temperance leagues and the breweries that feared them continued to look for ways to discourage consumers from consuming too much.

Ultimately, a three-tier system was established for alcohol distribution, which requires (with some exceptions) that producers (breweries, importers, etc.) sell their products to distributors, distributors to retailers, and retailers to consumers. With the distributor added in as a middle man, the cost of beer rose and, as a result, the level of drunkenness fell.

Now, there are nearly 3,000 beer distributors licensed by the government to ensure the safety and freshness of beer during the storage and delivery process, and they’re expected to provide more than temperance. While some of these distributors offer third party logistics (3PL) services (i.e., warehousing and transportation) for a number of different brands, others are part of a vast network that mostly serves one brewing company like Anheuser-Busch or Coors.

Regardless of which brands they serve, the responsibilities of each beer distributor are generally the same. Once the distributors receive shipments of beer from the brewers, it is their responsibility to sell and deliver the products to retailers. Initially, the distributors contact local retailers to find out what their operating margins are and establish a replenishment schedule based on how often that retailer runs out of stock. When the scheduled delivery date arrives, distributors pull from their available inventory and deliver the order. Throughout this process, these operations must keep their temperature-controlled warehouses and delivery fleets properly maintained and within regulations.

We Have the Technology…

This system seems to have everything under control, and yet, for all its efficiency, bars still find themselves occasionally out of beer. Why? First of all, as with any business dealing with inventory, a bar’s ultimate goal is to have just enough inventory to meet demand. It’s costly to hold more inventory than you need, but it’s also costly to lose customers because you’re frequently out of stock.

So, what can bars do to make sure that they always have your favorite microbrew available without taking on huge costs? The most obvious suggestion would be to find a better solution than the traditional methods of scheduled delivery. Considering the inventory monitoring and reporting capabilities provided by 3PL software these days, it seems unnecessary for a bar to ever go without. For example, vendor managed inventory systems could help distributors monitor their retailers’ inventory, determine how soon each retailer’s stock will run out, and prepare new shipments in advance.

If every keg and bottle were labeled with barcodes, bars could be scanning each of them as they are sold or dried up. This information would be sent directly to the distributor. Recognizing that one of their customers only has a few kegs left from the last delivery, a distributor could send out a new shipment to reach the bar just in time to replenish stock. This would allow bars to spend money only on inventory they need and would make sure that customers get the beer they want.

It seems like everyone wins in this scenario, but there are a few other things to consider. Most bars simply aren’t interested in obtaining the necessary technology to scan their products, and with good reason. This technology is usually pretty expensive, and most bars (at least, the good ones) are often too crowded and chaotic to deal with the added step of scanning every bottle they sell. Would it be smarter for bars to use costly technologies to keep microbrews in stock, or are they better off dealing off with a few disappointed customers? Don’t leave before taking our survey above and letting us know how you react when a bar gives you the bad news.

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