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How to make the most of the Asian food retailing boom

Dean Eichorn is VP, retail with DHL Supply Chain, Asia Pacific.
Dean Eichorn is VP, retail with DHL Supply Chain, Asia Pacific.

Asia’s consumers are expected to spend US$5.9 trillion on food, beverages, and tobacco by 2018, making up 60 per cent of global expenditure in this category.

This means retailers need to expand aggressively, scaling up in new markets and keeping their supply chains adaptable to target more customers to make the most of the Asian food retailing boom. The middle class population in Southeast Asia is projected to grow to 400 million by 2020 and businesses that fail to scale will miss out on this tremendous market opportunity.

Food retailing is all about delivering the best customer experience through high on-shelf availability (OSA), wide stock variety, and immaculate product quality to drive sales. Whether you are a convenience store chain, supermarket, or hypermarket, the goal is to build and retain a loyal customer base while keeping operating costs low to ensure prices remain competitive. However, food retailers in Asia Pacific face a unique set of roadblocks.

Countries across the region are at different stages of development. With geographic diversity, companies face significant challenges when it comes to taking advantage of the growth possibilities. This will prove problematic, especially with Asia Pacific’s status as the world’s largest and fastest growing B2C eCommerce region. Consumers will expect faster, better services from food retailers as their threshold for waiting times lower in the “on-demand” age.  A recent announcement by Kantar Worldpanel forecast online grocery sales will be worth US$150 billion by 2025 – currently South Korea and Japan hold the first and second spots on the global e-commerce grocery market with Taiwan in the fifth position and China coming in sixth.

The Four Ingredients of Supply Chain Success

Asian food retailers , especially those selling fresh or frozen products, face issues due to the time-sensitive nature of the products which spoil quickly if not kept in the right conditions. Delivering chilled or frozen food across long distances is difficult due to infrastructure and asset availability, with options such as local sourcing or storage not always feasible. In light of these factors, it is critical to change the mindset to view the supply chain as a strategic business enabler driving competitive advantage, rather than a backend function focused on transport and storage. Here are four key ingredients to get you on your way.

  1. Take a fresh look at your supply chain

Make a commitment to review your supply chain from end to end. What you need to look out for are potential cost inefficiencies and gaps in service performance, and understand the underlying reasons why these occur to help identify appropriate new solutions. For example, can you automate packing processes to speed up your deliveries down the line? Are you facing over- and under-stocked inventories because you cannot accurately anticipate supply and demand? Getting these questions answered is vital to your success. One route is to engage a consultant to assist. However, a specialist supply chain partner with extensive expertise will not only help with the review and design, but also has the capability to deliver. But also think about the long-term strategy and predicted expansion so that the new design is fit not just for today, but for your future business.

  1. Streamline your operations end to end

Facilities, people, transportation, and technology are the ingredients within your supply chain that influence your overall business performance. Hence, it is important to make the right investments and realise the maximum benefits through continual review and optimisation.

You can begin by analysing your truck fleets and find ways to fully use their capacity and improve routing. New designs and technologies enable delivery trucks to have different temperature zones to transport ambient, chilled, and frozen products in the same vehicle – enabling food products to be consolidated and transported using a single vehicle rather than needing to run multiple vehicles to the same location. And to accelerate deliveries, transport management systems provide insight and data analysis to determine the quickest and most cost-effective routes – incorporating telematics and real-time tracking gives full visibility throughout the journey which can lead to far more efficient unloading processes at the receiving end. Often, retailers can leverage a specialist 3PL like DHL and its existing investments in resource, technology, facilities and assets, such as trucking, to reduce retailers’ cash outflow and deliver a competitive cost-per-unit. In addition, a good supply chain management (SCM) partner with inroads in emerging markets can offer effective consultation on building delivery networks in new territories.

  1. Add visibility and control

Gaining more control over your supply chain empowers you to navigate and anticipate any potential disruptions to food product deliveries. The first step is to improve visibility over inventory levels to maximise OSA whilst minimising spoilage – it’s a fine balance to manage and focus on the detailed insights of supply and demand patterns. Inventory optimisation manages stock cost effectively, balancing stock holding with customer service levels by taking into account availability, requirements, and lead time variability.

A high level of inventory is not only capital intensive but also expensive to service through increased indirect spend, such as warehousing, transport, and procurement. Hence, not only will inventory optimisation reduce logistics costs, but drive excellent service to create satisfied customers by having the right stock at the right location.

By looking at inventory holding, you can then make informed decisions about your storage requirements, and whether other options are more suitable. For instance, instead of using a conventional warehousing model, you can complement it with cross-docking for fast-moving goods. This speeds up distribution and reduces warehousing space as stock is not moved into storage. You can also consider hybrid inventory models to make the most of your existing warehouse facilities. Effective solutions can help you achieve an average inventory age of between 15 and 30 days which brings the additional benefit of improving cash flow. Achieving these metrics is not easy but specialist knowledge, experience, and sophisticated systems are the catalysts to creating a lean and responsive operation.

  1. Innovate to deliver

Innovation has become a critical differentiator for food retailers in recent years. Automated sorting and storage retrieval solutions can speed up picking processes and shrink warehousing footprints; packaging technologies can quickly create promotional packs with minimal labor requirements; and IT system development will enhance customer experience should shoppers switch from purchasing in-store to online, where they will have home delivery or “click and collect” options. These are just a few developments and there are many more taking place to help meet the ever-increasing customer expectations when making decisions.

Get Your Supply Chain Right

Supply chains are no longer just “part of the organisation” for today’s food retailers. An adaptive and flexible supply chain is the difference between winning and losing the market – given the escalating demands of customers. You must understand your customers, and then focus on those elements which are most important to them to drive sales. Whether you are competing on price, convenience, or quality or even a combination of all three, these best practices will give you a head-start in creating an integrated supply chain that will bring advantages now and into the future.

If you are part of the Asian food retailing industry, you need to start re-thinking your supply chains today to meet the challenges of tomorrow.

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