Preserve Your Shelf Life

Companies in the food and beverage industries face several new challenges. Besides just trying to stay competitive on thin profit margins, regulatory changes will force them to revise current operating procedures. For example, the Food Safety Modernization Act, signed by President Obama earlier this year, will increase Food and Drug Administration scrutiny of product and information flows and give it access to company records as well as the authority to force recalls.

Another example is the Federal Motor Carrier Safety Administration’s Hours-of-Service Regulations for truck drivers (49 CFR Part 395), which would put limits in place for when and how long commercial motor vehicle drivers may drive. This is a major concern for producers of perishable products.

MH&L spoke to several food logistics experts about the ramifications of such regulatory changes and how food chains can stay competitive while being compliant. Readers in other industries will find common ground with these colleagues.

Keeping Logistics Local

When Mark Whittaker first started as a transportation supervisor at Frito Lay 27 years ago, he was filled with great ideas. But when he shared them with a company executive one day, he remembers being told, “Great ideas, kid, but just move our stuff on time because I have to sell it.”

Today Whittaker is vice president of transportation strategy for Pepsi Logistics Company, Inc. (PLCI), which tells you how far logistics has come since those tactical days. He is responsible for spending PepsiCo’s transportation budget wisely—which means finding ways to spend less every year. One way to do that is to get the rest of the company’s supply chain to join him in lowering transportation costs.

But he knew that alone wouldn’t get PepsiCo where it wanted to be competitively. He would also have to find ways to add value and generate revenue. He did that by working with his team to establish PLCI as the internal logistics services division for the various PepsiCo business units. Today PLCI is moving 40,000 shipments annually.

“Transportation is one of the first things the company goes to when we talk collaboration with customers or other shippers,” Whittaker says. “We’re looking at ways to worldwide leverage our transportation expertise and have more of a harmonized functional excellence.”

When you’re in food and beverage, excellence means overcoming the challenges of getting short-shelf-life products to market as quickly and cost effectively as possible. For PepsiCo that means making and handling products as close to their markets as possible. The company has hundreds of warehouses and over a hundred manufacturing locations in the U.S. alone to support its businesses. It also locates near its raw material sources and where it has the least-landed-cost transportation sourcing and manufacturing networks. The same goes for its international markets.

“Our ocean spend is a fraction of our transportation spend worldwide,” Whittaker explains. “It makes more sense to invest in production and raw materials locally than trying to move that stuff around. We have R&D people who have developed the right raw materials to support our businesses locally. It always works well from a marketing standpoint to talk about ‘made locally,’ and we’ve capitalized on that.”

Alternatives to Trucks

Whittaker is concerned about how the developing safety and regulatory changes like the Federal Motor Carrier Safety Administration’s Hours of Service rules will affect delivery efficiencies in U.S. markets.

“We’re hearing that 5-8% of truckload capacity could vanish over time,” he says. “We have large private fleets to support our business and we want to make sure we’re in compliance. But we’re also getting visibility to all of our transportation providers on where they stack up with safety compliance, and we’re having conversations with them on what they’re doing to improve if they have issues in certain areas.”

Whittaker went through a peer benchmarking process with eight other consumer products companies to further develop his strategy. He came away with one overarching theme: a significant transition to intermodal. PepsiCo already ships 15% of its finished goods via intermodal today, and 80% of its chilled juices go by rail. He expects his intermodal business will double.

“We’ll try to create the planning and deployment processes to support the lead time necessary to do that,” he says. “We have to diversify the portfolio a little more so we’re not as exposed to truckload market conditions. It’s not just pricing, but capacity in general.”

It’s also a matter of environmental sustainability. Whittaker’s goal is to move another 15-20% payload with the same carbon emissions and fuel burn, which he acknowledges is a tall order considering the heavy loads its beverages and raw materials make. He doesn’t think professionals like him should take this task on by themselves. Success depends on collaboration among shippers and the smart use of technology.