Next time you enjoy a delicious slice of fresh-baked bread, think about the complex supply chain that brought it to you!
Modern bakeries are increasingly focused on reviewing and optimizing their distribution operations for the AI-driven supply chain era. These reviews typically identify many millions of dollars’ worth of cost-saving opportunities and service improvements through the implementation of IoT sensors, predictive analytics, and automated routing systems.
Today’s strategies affect everything in the supply line from the carbon footprint of individual products, through AI-optimized bread room operations, even to examining the transition to electric delivery vehicles.
Distribution is now both a major driver of manufacturing efficiency and sustainability. In the era of same-day delivery expectations and environmental consciousness, getting fresh food distribution right is more critical than ever.
Key Observations on the Modern Bread Supply Chain
As a global supply chain firm, we’ve dealt with some of the biggest bread companies around. The first thing to know is that bread remains one of the world’s toughest distribution challenges, now complicated by the rise of e-commerce and sustainability requirements.
The bakery supply chain involves intricate processes and critical phases necessary for ensuring that bread products are delivered fresh and efficiently from production to consumers.
Major bakeries dispatch hundreds of thousands of loaves daily to several thousand sales outlets, including both traditional retail and e-commerce fulfillment centers. Each outlet has two sales peaks – one to take advantage of the 8 – 10 morning peak sale time, the other to serve the 4 – 7 afternoon-evening demand.
So while other supply chains think in terms of weeks and months, a big baker has to think in terms of hours and minutes. This task is compounded by the large reverse logistics effort required due to the fact that bread is generally sold to major supermarkets on a sale or return basis. Plus it is sold in recyclable crates that stack on to dollies that also require a return to the bakery!
Research shows that empty shelves mean lower sales; so grocery category managers always aim to have their shelves fully stocked at and during peak demand periods – an interesting problem for merchandisers when you remember that bread demand is compressed into these two daily time slots!
So supplying enough bread to fill shelves is a critical tactic in the overall strategy.
Bread distribution is, in fact, a supply rather than a demand function given the requirement to ship fresh products daily to a one-day marketing life span and the closeness of production function to distribution activity.
The key to getting the baking strategy right is being able to match volume and variety to demand. Distribution plays an integral role in the success of this objective; however, there are still many other variables affecting demand, such as weather, promotional activity in the market, and so on.
Inventory management and accurate demand forecasting techniques are crucial for predicting demand patterns and adjusting production and distribution strategies accordingly. If it all seems obvious now that is because of the amount of careful research that went into assessing the situation in the first place.
People have been baking bread for thousands of years. So finding something new needs research that embraces the entire supply chain including the financial impact to shareholders of problem areas.
Distribution Models & Cost Analysis
There are several distribution models used in the bread supply chain. This includes direct store delivery (DSD), which involves delivering bread products directly to individual stores, and centralized distribution, which involves sending products to retailer-owned distribution centers before they are delivered to stores. This model can be more efficient for managing large volumes of products.
Additionally, just-in-time delivery ensures that bread is delivered exactly when needed, reducing storage time and extending shelf life. Cross-docking involves transferring products directly from inbound to outbound transportation, minimizing handling and storage time.
In assessing the impact of distribution costs on profitability in the light of these themes, key focus areas include:
- Cost to serve various customers and channels
- Stock item profitability
- Profitability of different customer types
- Distribution channels such as retail, route, industrial, food services
- Fleet maintenance approach
- Costs of transferring product between plants to consolidate orders
Analysis of the different customer types and the relative distribution issues associated with each helps articulate the cost-to-serve improvement opportunities.
Service Models and Delivery Methods
The type of distribution method used partly determines the cost to serve. Customers serviced by vendors (similar to van salesmen) incur a different cost than those serviced by company drivers. Vendor and company vehicles service route and bulk customers. As a rule of thumb the higher volume a customer receives the lower the unit cost of distribution.
The mix of bulk and route combined with the density of customers in a given region is what determines the speed and number of deliveries by the vehicles. So an inner-city driver with few stops but many deliveries per stop should show higher productivity than delivery to, say, the outer west where there are more kilometers between stops and fewer deliveries per stop.
Customer size is also important. Consider a corner store order for, say, 10 units worth $20 to the baker. If the delivery truck stops for 10 minutes for 10 units the cost to deliver = stopping time + kilometers between drops + fixed asset costs + bread room handling costs, etc, e.g. if the truck is worth $80/hour the stop costs $13 for only $20 in sales or a stop cost of $1.30 per unit of bread. Build-in all the other cost aspects and it is possible to get a negative return.
Contrast all that with a grocery customer who may take 1000 units a drop during a 20-minute stop. Then the delivery stop costs $27 but brings in $2000 and costs only around 2.7 cents per unit per stop.
Optimizing delivery aspects will inevitably flow on to other areas such as merchandisers as they are generally scheduled to service the big stores after the delivery is made.
It also impacts on manufacturing because if the time window is changed for a given group of customers then the distribution changes, the merchandising changes, as does the timing of production for those affected customers.
Measurable Improvements
In the long run, this detailed issues-based approach successfully helps to re-align large and complex supply chains. Typical improvements include:
- Optimized routes
- More profitable range management
- Fleet optimization
- Reduced internal transfer cost
- Reduced returns and sales waste
Results speak for themselves when supply chains are properly optimized using these principles.
If you are interested in improving your bread or perishables supply chain performance, many consulting firms specialize in this area and can help implement these proven strategies.
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- Source: https://www.logisticsbureau.com/bread-supply-chain/
