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‘Survival depends on Supply Chain Integration’

Linkline recently put some questions to Mike Kelly, Head of Continuous Improvement (CI) at Keeling’s Fruit, which has recently undergone significant expansion and currently imports from 42 countries worldwide.

Tell us about the Keeling’s Brand and what defines it?

The Keeling’s brand has enjoyed unprecedented growth over the past two years, driven primarily by an organisation-wide focus on Delivery on Time (DOT), Delivery Service Level (DSL), Quality Service Level (QSL), compliance, H&S and Cost per Unit (CPU). The success of the brand is supported by our supply chain configuration: the leagile supply chain, with flexible, quick-response capabilities downstream closer to the customer, and lean fundamentals and principles upstream, beyond the decoupling point, in order to take out costs and add value.

The brand is driven by Keeling’s retail values:

• Passion for achievement: allows us to achieve goals, pursue continuous improvement and satisfy customers.
• People matter: provides stability, secures the future of the business as well as the retention of talent, and supports organisational development.
• Integrity: builds trusting relationships, helps to attract and retain talented staff, prevents divisive behaviour and protects the brand.
• Teamwork: enhances job satisfaction and helps to achieve optimum results.

The future development of the brand will depend on a number of variables, including our ability to:

• Meet changing customer needs;
• Understand the market;
• Understand the element of customer-choice;
• Innovate and develop products that are unique;
• Understand the leagile supply chain and the synergies between quick-response mechanisms and Continuous Improvement;
• Develop corporate strategies that are differentiated and unique to our competitors;
• Develop sustainable supply chain management strategies throughout the supply chain as a whole.

Could you give us your thoughts on the changing retail landscape that Keeling’s is currently operating in?

The landscape has changed irreversibly over the past five years. Kantar World panel suggest that for the 12 weeks ending 11 September 2016, Dunnes Stores increased sales by 6.3%, matching Tesco’s performance. Both retailers now account for 21.6% each of the Irish grocery market, with an increase in sales of 3.7% year on year. Customers are spending more during each trip; with the average spend increasing by €2.50 to €37.20 in Q3, relative to the same period last year. Dunnes marketing strategy seems to be yielding dividends, with customers opting for more expensive products, increasing on average by over 12% during this period.

SuperValu rules the roost in market share, with a 22.4% share of the Irish market; an increase of over 3.1% in the last quarter. Tesco’s sales value has dropped by almost 2.3%, and although sales volumes increased by almost 2%, the decrease in value might be attributed in part to a strategic alignment with the discounters and low-price offerings. Lidl held its 11.7% market share, similar to last year, with sales increasing by 4.5%. This again highlights the linkages between sales, value, marketing strategy and product offering. The number of trips to the store by Lidl’s customers increased by over 10% in Q3, which may also herald an increase in consumer spending power, as the economy recovers. Aldi has also seen an increase in market share from 11.2% to 11.4%, with direct synergies and linkages to Lidl’s business strategy.

With competitor rivalry reaching unprecedented levels, 2017 will see many smaller suppliers fall by the wayside. As the large multiples exert supply chain squeeze, fresh produce suppliers will feel the hurt through a reduction in net margin. The uplift in the economy will provide low-cost employees with ample opportunities to migrate to greener pastures, and as the market changes the retail sector will face challenges in terms of talent retention. Similarly, the fresh produce sector will incur higher labour costs in an attempt to retain staff within a pack house environment.

How important is a robust supply chain to ensure Keeling’s continues to grow and succeed?

The philosophies of supply chain management and lean systems create, enhance and sustain competitive advantage within organisations. There are many synergies that have the capability to take out costs and add value, along the supply chain as a whole. Research has shown that, regardless to the industry sector, organisations with intelligent and ‘leaned’ supply chains consistently grow profitably year on year. The Irish fresh produce industry is worth over €1.5bn and the past five years has seen the arrival of a number of new entrants into the sector. The market requires a quick-response supply chain design and this is perhaps the most difficult supply chain configuration, primarily because of the associated short customer lead-times, flexible supply and demand constraints, as well as the need to take out costs upstream through continuous improvement (CI), with lean as a primary driver.

Due to the fragile nature of the primary raw material (fresh produce) it is difficult to gauge quality upstream, making it almost impossible to plan capacity through the pack house. Soft fruits present a constant challenge and even modest handling at any point in the packing stage can dramatically reduce product quality and increase waste levels. In order to apply lean cost-cutting methodologies, a high level of standardisation is required throughout the value chain. In the fresh produce industry, standardising standard-operating-procedures, processes and procedures upstream is difficult to achieve because of the instability of the product. Developing highly-flexible, quick-response supply chain throughout the entire value chain requires a deep understanding of supply chain management. Customers now have choice, across most products and services, and discerning customers perceive value through availability, innovation, quality, price and customer service. In general, customers don’t care about complex supply configurations upstream; they don’t need to be patient – they have choice.

Organisations within the fresh produce industry develop leagile supply chains through:

• Staff retention and development;
• Knowledge management – constant transfer of tacit to explicit knowledge;
• The application of primary lean tools;
• Customer and supplier engagement;
• The application of supply chain management fundamentals – managing the flows of information, resources, finance, materials and relationships;
• Intelligent logistics management – from womb to tomb;
• The provision of sustainable supply chains throughout the value chain;
• A deep understanding of internal and external market forces;
• Fostering a learning and CI organisational culture.

Could you tell us about Keeling’s fleet?

We currently operate 13 articulated trucks and 26 trailers. These artics are new and the primary benefits include reliability and cost reduction. Significant cost savings have been delivered to date, due to lower running costs associated with new fuel-efficient engines and lower maintenance costs. The new trailers carry the exciting new brand logo. This significant investment was made to further enhance customer service and to optimise transport costs by reducing overall CPC delivered. Close customer relationships and intelligent route management further enhance competitive advantage and add value through the logistics element of the supply chain.

What are your thoughts on current trends in the logistics market?

The Irish logistics market is in a state of redevelopment, both domestically and offshore. The phenomena of supply chain ‘squeeze’ have focused attention on efficiency, effectiveness and value-adding mechanisms, driven by competitor rivalry and customer demand. In progressive organisations logistics is regarded as one of many corporate strategy enablers, and similar to every other departmental strategy there is an alignment with corporate strategy and a “North Star” vision. The corporate strategy key performance indicators (KPIs) cascade down through every function to deliver demanding metrics, relative to the competition. The acceptance of CI and Change is the life blood of the industry and survival depends on supply chain integration throughout the value chain. Progressive logistics organisations are embracing lean principles by:

• Specifying what does and does not create value through the eye of the customer;
• Identifying all the steps necessary to deliver the service;
• Removing non-value-adding waste in the logistics VS;
• Create non-interrupted flow of processes and activities, without backflow;
• Deliver only what is required by the customer;
• Strive to be the best in class, through CI and innovation.

Traditionally, producers “pushed” products through facilities to the customer, generating cost-adding inventories. The existing paradigm shift allows the customer to “pull” products as required – and not before. The result is that logistics providers adapt strategies designed to sustain, profitably, the most efficient route to market, including the provision of third party logistics (3PL). Global value chains increase complexity and competitive rivalry within the industry. Logistics providers must develop an awareness of customer choice, rate of technological change, ease of transfer of knowledge and the speed at which products are commoditised. In addition to the five modes of transport; air, water, road, pipeline and rail, logistics providers must optimise the information superhighway in terms of managing data and relationships. The focus is now on full container loads (FCL) and factory gate pricing (FGP). Supply chain security (SCS) is an area of increasing concern by logistics providers and the new security standard is the ISO28000. The IMO International Ship and Port Facility Security Code (ISPS) is a mandatory security regulation in existence since 2004. However, with over 30 wars raging around the world in 2016, supply chain security is of constant concern within the global logistics industry. At Keeling’s, we import produce from 42 countries and supply chain risk is definitely on the agenda.

Logistics providers are adapting innovative information technology applications, including warehouse management systems (WMS) and radio frequency identification (RFID), with enhanced capabilities in tracking, security, stock management and data processing. TMS systems are used to optimise route to market, provide information on cost per case (CPC) and cost per pallet (CPP), when and where loaded. The system can generate invoices, monitor fuel consumption and provide information in terms of legal compliance, including the number of driver hours worked (The Working Time Directive). There is a growing trend to set KPIs within the industry and commonly used metrics include:

• Warehouse utilisation,
• Weeks of stock,
• Profitability and net margin,
• Labour utilisation,
• Food miles,
• Total Landed Costs (TLC),
• Vendor/packaging costs,
• Transport costs,
• Insurance, taxes and reverse logistics costs.

What does the future hold?

Of significant concern within the logistics industry is the level of uncertainty in domestic and global markets. Brexit and the change of power in the USA could add to the level of uncertainty, along with the changing landscape in Europe, within a political and geopolitical context. The landscape within the EU has changed as result of the Middle Eastern crisis and commentators would suggest that supply chains are at a higher risk since WW2. There are opportunities, however, in growing global trade through emerging markets and a general uplift in established economies. The challenge for logistics service providers (LSP) is to grow profitably through differentiation, cost effectiveness, communications technology and enhanced customer service. In the Irish fresh produce sector, we are definitely, up for the challenge.

Mike Kelly has worked in Supply Chain, Lean and Operations management roles for over 25 years at home and abroad. He holds a BA in Management (IMI), a Masters in Supply Chain Management (DIT) Postgraduate Diploma in Management in Lean Practice (WIT) and is currently a PhD Candidate (part-time) researching Sustainable Supply Chain Management within the Irish food manufacturing industry. An experienced Management Consultant, Mike is currently Head of CI & Change and Interim Operations Director at Keeling’s.



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