[MCC5412] FOOD SUPPLY CHAIN MANAGEMENT

LECTURE 2:STRUCTURE O F FO O D SUPPLY CHAIN

LECTURE LEARNING OUTCOMES

◾ Upon completing this lecture, you should be able to:

◾ elaborate the farm to fork concept

◾ discuss the food supply chain management in Hong Kong context

◾ delineate the principal objectives of purchasing

◾ identify & explain the purchasing management process

◾ recognize the surge of e-procurement & its benefits

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THE FARM TO FORK CONCEPT

◾ The Farm to Fork concept or strategy is a political & economic plan initiated by the European Commission to
combat an aspect of the negative effects of greenhouse gas emissions by restructuring & reforming the
production, distribution, & legislation of the food system of Europe
◾ The main objectives of the policy include:
◾ Reducing food fraud in the supply chain

◾ Cutting down on good loss & waste

◾ Promoting the shift to healthy,local & more sustainable foods & reducing reliance on cheap staples that damage population
health
◾ Improving food security & preventing product tampering

◾ Reducing the environmental impact of food production to meet long-term climate goals
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THE FARM TO FORK CONCEPT

The Farm to Fork Concept (European Commission, 2020)

THE FARM TO FORK CONCEPT

◾ Production: Production encompasses agricultural production of fresh fruit and vegetables,livestock & other food
products
◾ Processing: It involves transforming fresh agricultural products into ingredients
◾ Distribution: Logistics services provide specialist food transport options, such as refrigerated trucks, planes &
boats,to deliver fresh food items to their target markets
◾ Retail: Sellers showcase products to consumers & provide them with easy access to food & payment methods
◾ Consumers: Consumers dictate the structure of the supply chain & the foods that retailers offer according to
their tastes

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THE FARM TO FORK CONCEPT

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Actors in a Food Supply C hain
THE FARM TO FORK CONCEPT

◾ Who benefits from the Farm to Fork concept?

◾ The EU’s Farm to Fork plan potentially benefits everyone by improving food quality, environmental sustainability & land use

◾ Reductions in pesticide usage, for instance, may protect local farmers

◾ Companies in the supply chain also stand to benefit

◾ Moreover, the shift to healthy,organic meals may help to improve human health

◾ Lastly, the Farm to Fork strategy will support local farmers & fishers in the EU food chain who are undergoing the
transition to sustainable practices

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THE FARM TO FORK CONCEPT

◾ Some flagship targets are:

◾ A reduction by 50% of the use & risk of chemical pesticides, & the use of more hazardous pesticides by 50% by 2030

◾ A reduction of nutrient losses by at least 50% while ensuring that there is no deterioration in soil fertility.This will reduce
the use of fertilizers by at least 20% by 2030
◾ A reduction of overall EU sales of antimicrobials for farmed animals & aquaculture of 50% by 2030

◾ Reaching 25% of agricultural land under organic farming by 2030

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ There are a variety of supply chain management practices adopted by the food industry in Hong Kong
◾ Electronic Point-of-Sale (EPO S)
◾ EPOS is an integrated set of electronic devices & software used primarily to process sales transactions electronically

◾ Reduced operational costs

◾ More responsive to changing market needs

◾ Improved communications

◾ Facilitated more effective decision making

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 ELECTRONIC POINT-OF-SALE (EPOS)
The key components of an EPOS system include:

◾ Hardware: This includes a central processing unit (CPU) or terminal, a touchscreen monitor or display, a barcode
scanner, a receipt printer, a cash drawer, and other peripheral devices such as customer displays or card readers.

◾ Software: EPOS software provides the user interface and functionality for conducting sales transactions. It allows for
the scanning of product barcodes, calculation of prices, application of discounts or promotions, and generation of
receipts.

◾ Data Management: EPOS systems store and manage transaction data, including sales records, inventory levels, and
customer information. This data can be used for reporting, analytics, and inventory management purposes.

◾ Integration: EPOS systems can be integrated with other business systems such as inventory management, accounting,
or customer relationship management (CRM) software. This integration enables seamless data flow and synchronization 10

between different aspects of the business.

FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Source Marking
◾ This refers to the numbering & bar coding of a product, using international standards, in the upstream/manufacturing stage

◾ Improved communication between trading partners

◾ Be able to track items more easily throughout the production & delivery processes

◾ Increased accuracy in ordering & stock taking processes

◾ Shortened lead times, which helped to improve ordering & receiving processes

◾ Facilitated ‘just-in-time’ manufacturing

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Sharing of D ata
◾ Tremendous amount of data such as product data,sales data,inventory data & promotion data is kept in the individual
product database of trading partners
◾ The sharing of the data among trading partners is essential to operate a successful supply chain process

◾ Increased efficiency & improved time management

◾ Better planning,a result of being able to forecast the demand/supply

◾ Key enabler of Computer Assisted Ordering & the effective use of sales data

◾ Reduced costs

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Electronic Communications
◾ Modern communication technologies have greatly increased the efficiency of the procurement & distribution processes,
however,they all require manual interpretation
◾ Reduced total inventory & operation costs

◾ Reduced communication costs

◾ Reduced administration overheads

◾ Improved communication flows internally & with trading partners

◾ Facilitated ‘just-in-time’ replenishment

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ ComputerAssisted Ordering (CAO)

◾ This is a decision support tool used for calculating material reorder quantities based on a pre-determined inventory control
policy
◾ Increased the speed of the product replenishment cycle

◾ Decreased the likelihood of an out-of-stock occurrence

◾ Ability to deliver accurate information to trading partners

◾ Decreased the possibility of excess stock

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Vendor Managed Inventory (VMI) /Continuous Replenishment Program (CRP)

◾ CRP is a practice between trading partners whereby the replenishment of goods is based on actual & forecasted product
demand
◾ Reduced inventory & operating costs

◾ Improved forecast accuracy

◾ Better manage demand volatility

◾ Developed mutually beneficial partnerships along the supply chain

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Collaborative Planning Forecasting & Replenishment (CPFR)

◾ In 1995, the Open Source initiative was originally called CFAR (pronounced See-Far, for Collaborative
Forecasting and Replenishment), & posted specifications on the Web & briefed more than 250
companies.
◾ In 1998, the standard was renamed CPFR to emphasize the role of planning in collaboration.

◾ CPFR is a concept that allows for combined processes across the supply chain through the use of a set of process &
technology models
◾ Improved communication

◾ Enabled the collaboration of partners across the supply chain

◾ Improved planning,forecasting & replenishment of customer needs

◾ International standard

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COLLABORATIVE PLANNING FORECASTING & REPLENISHMENT (CPFR)
◾ Collaborative Planning Forecasting & Replenishment (CPFR)

1. Develop Front End Agreement

2. Create the Joint Business Plan

3. Create the Sales Forecast

4. Identify Exceptions for Sales Forecast

5. Resolve/Collaborate on Exception Items

6. Create Order Forecast

Collaborative Planning, Forecasting and Replenishment
7. Identify Exceptions for Order Forecast
Explained | Management & Business Concepts
8. Resolve/Collaborate on Exception Items

9. Order Generation 17
FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Flow Through /Cross D ocking

◾ This is a distribution system that eliminates all non valued-added activities such as storage in the manufacturer, wholesaler
or retailer distribution centers
◾ Reduced distribution costs, storage space & stock levels

◾ Increased turnover, shelf-life & availability of products

◾ Streamlined distribution process & flow of goods

◾ Enabled distributors to receive consolidated orders from retail outlets

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FOOD SUPPLY CHAIN MANAGEMENT IN H O N G KONG CONTEXT

◾ Challenges may impede food supply chain management in Hong Kong

◾ Limited developable land

◾ Susceptible to external economic changes

◾ Relatively weak in innovation & technology

◾ Keen competition from other cities

◾ Ageing population & shrinking labor force

◾ Ageing building stock

◾ Environmental issues

◾ Resource availability

◾ Hong Kong’s foodservice market is relatively small

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◾ Trade war between China & USA
PURCHASING MANAGEMENT PROCESS

◾ A world-class purchasing staff must provide cost-reductions, improve supply chain quality,gain access to new
sources of technology, improve cycle time, involve suppliers in product and process development, & streamline
processes
◾ Purchasing objectives
◾ Support operational requirements

◾ Manage the purchasing process efficiently & effectively

◾ Supply base management

◾ Develop strong relationships with other functional groups

◾ Support organizational goals & objectives

◾ Develop integrated purchasing strategies that support organizational strategies

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PURCHASING MANAGEMENT PROCESS

◾ The Purchasing Process as a cycle consists of six major stages

◾ Identify user need

◾ Evaluate potential suppliers

◾ Bid, negotiate & select supplier

◾ Purchase approval

◾ Release & receive purchase requirements

◾ Measure supplier performance

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PURCHASING MANAGEMENT PROCESS

◾ Stage 1 – Identify user need

◾ Identifying or anticipating a material or service needed by a user (internal customer)

◾ Material requirements might be related to:

◾ Equipment

◾ Components

◾ Raw materials

◾ Subassemblies

◾ Completely finished products

◾ The process is often passive

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PURCHASING MANAGEMENT PROCESS

◾ Stage 1 – Identify user need (cont’d)

◾ Users may inform purchasing the needs through Purchasing Requisitions/Statement of Work

◾ The requisition should contain:

◾ Description of required material or service

◾ Quantity and data required

◾ Estimated unit cost

◾ Operating account to be charged

◾ Date of requisition (this starts the tracking cycle)

◾ Authorized signature

◾ For complicated or nonstandard items, more details (e.g.,grade of material,manufacturing method, detailed measurement
and tolerance, etc.) should be provided
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PURCHASING MANAGEMENT PROCESS

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Purchase Requisition Flow

PURCHASING MANAGEMENT PROCESS

◾ Stage 1 – Identify user need (cont’d)

◾ New Product Development (NPD)
◾ The process can be more proactive in N PD

◾ When purchasing is part of a NPD team,it can see the design of the product at early stages of the process.

◾ Rather than waiting the information from engineering, purchasing can anticipate the needs & identify the potential suppliers

◾ Speed up the N PD time

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PURCHASING MANAGEMENT PROCESS

◾ Stage 1 – Identify user need (cont’d)

◾ O ther sources to understand the needs
◾ Customer orders & forecasts

◾ Reorder point system

◾ A computerized system that has predetermined order point and order quantity

◾ Stock checks
◾ The physical checking of inventory

◾ Physical inventory may be less than the quantity that is indicated by the system

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PURCHASING MANAGEMENT PROCESS

◾ Stage 2 – Evaluate potential suppliers

◾ In repetitive purchase
◾ The contract may have be negotiated

◾ Terms for delivery,pricing, quality,etc.,have been established

◾ The supplier may have been entered into the accounting system

◾ In purchases involving a very small dollar amount, users may buy the items directly

◾ Expensive purchases & no existing supplier

◾ A Request for Quotation (RFQ) is used to invite potential suppliers to bid

◾ Detailed information (e.g.,design drawing) concerning the requirements is shown in the RFQ

◾ The normal practice is to request at least three quotations

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PURCHASING MANAGEMENT PROCESS

◾ Stage 2 – Evaluate potential suppliers (cont’d)

◾ Evaluate suppliers
◾ A detailed evaluation is required in sizable purchases

◾ May have a list of “preferred suppliers” – the first opportunity for new businesses

◾ Performance criteria:
◾ Past performance in product design

◾ Commitment to quality

◾ Management capability and commitment

◾ Technical ability

◾ Cost performance

◾ Delivery performance

◾ The ability to develop process & product design 26

PURCHASING MANAGEMENT PROCESS

◾ Stage 3 – Bid,negotiate and select supplier

◾ Decision – Bidding or negotiation?

◾ Bidding is effective when:

◾ Volume is high

◾ The specifications or requirements are clear

◾ The marketplace is competitive

◾ Adequate time is available

◾ The buyer does not have a preferred supplier

◾ When competitive bidding is not appropriate, face-to-face negotiation could be the best approach
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PURCHASING MANAGEMENT PROCESS

◾ Stage 3 – Bid,negotiate and select supplier (cont’d)

◾ Negotiation is effective when:
◾ Some requirements of bidding are missing – a complex item that only has a vague specification

◾ The purchase requires agreement on different performance dimensions – quality,delivery, risk sharing, innovation, and product support,
etc.
◾ Early supplier involvement is required

◾ The suppliers cannot determine the risks & costs

◾ The supplier requires a long time to develop & product the items purchased

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PURCHASING MANAGEMENT PROCESS

◾ Stage 4 – Purchase approval

◾ After the supplier is selected, purchasing grants an approval to purchase the product

◾ The is done through different approaches:

◾ Purchasing Order (PO) or PurchasingAgreement
◾ A legally binding document

◾ Presents buyer’s detailed requirements – they are critical information

◾ After receiving the PO, the supplier has to sign it & send it back to the buyer

◾ The transmittal of the PO by the buyer: a contractual offer

◾ Acknowledge of the PO by the supplier:contractual acceptance

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PURCHASING MANAGEMENT PROCESS

◾ Stage 4 – Purchase approval (cont’d)

◾ The is done through different approaches:
◾ Blanket Purchasing Order
◾ An open order,effective for a fixed period of time, covering repeated purchases of an item or family of items

◾ The release of material becomes a routine matter between the buyer and the seller

◾ Information such delivery date or the receiving department remains open because it differs from order to order

◾ Purchasing uses Material Purchase Release to inform the supplier about the requirements of each order

◾ Purchasing also forwards this form to accounting,receiving,& traffic departments

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PURCHASING MANAGEMENT PROCESS

◾ Stage 5 – Release & receive purchase requirements

◾ The physical transmittal of purchase requirements

◾ Electronic Data Interchange (EDI) can facilitate the process

◾ Documents in Shipping and Receiving of Purchased Items:

◾ Material Packing List

◾ Details the content of a shipment

◾ Receiving personnel will use it to compare the physical receipt quantity

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PURCHASING MANAGEMENT PROCESS

◾ Stage 5 – Release & receive purchase requirements (cont’d)

◾ Documents in Shipping and Receiving of Purchased Items:
◾ Bill of Lading

◾ Records the quantity of goods delivered to a facility

◾ For example, it statesABC carrier delivered three boxes to a buyer to a certain data – as evidence to show the delivery time and quantity

◾ Protect the carrier again wrongful allegation that the carrier damaged or lost a shipment

◾ Receiving Discrepancy Report

◾ Reports any shipping or discrepancies noted by the receiving department

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PURCHASING MANAGEMENT PROCESS

◾ Stage 6 – Measure supplier performance

◾ Track supplier performance after awarding a contract

◾ Continuous measurement is necessary to identify improvement opportunities

◾ A major issue is the frequency of evaluation and feedback

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E-PROCUREMENT

◾ Preparing and managing purchasing documents has been a time-consuming process

◾ e-Procurement:
◾ Automating the document generation process

◾ Electronically transmitting purchase documents to suppliers

◾ Benefits of e-Procurement:
◾ A virtual elimination of paperwork and paperwork handling

◾ A reduction in time in the release and receipt of orders

◾ Improved communication both within/between companies

◾ A reduction in errors

◾ Lower overhead costs in purchasing

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◾ Purchasing personnel can spend more time on strategic value-added purchasing activities
REFERENCE

◾ Bourlakis, M.A. &Weightman, P.W.H. (2004). Food Supply Chain Management. Blackwell Publishing: UK
◾ Chopra, S.(2019). Supply Chain Management: Strategy,Planning,& Operation (7th ed.).Pearson: UK
◾ Eastham, J.F.,Sharples,L.,& Ball, S.D. (2001). Food Supply Chain Management: Issues for the Hospitality & Retail
Sectors.Butterworth Heinemann: UK
◾ Feinstein, A. H. & Stefanelli, J.M. (2012). Purchasing: Selection & Procurement for Hospitality Industry (8th ed.).Wiley:
New Jersey.
◾ Johnson,F.P.(2020). Purchasing & Supply Management (6th ed.).McGraw-Hill: New York
◾ Jonsson,P.(2008). Logistics & Supply Chain Management. McGraw-Hill: UK
◾ Spears, M. C. (1999). Foodservice Procurement: Purchasing for Profit.Prentice Hall: New Jersey
◾ VanWeele,A. J.(2018). Purchasing & Supply Chain Managemetn (7th ed.).Cengage: UK

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END OF LECTURE 2

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