Against the grain

In search of excellence in the UK cereal industry

Foreword

The cereal industry in the UK is unlike any other I know. The variety of products for which grain is used is enormous, from breakfast cereals to bread and biscuits to biofuel.

But our supply chain is years behind the rest of the food industry and riddled with inefficiencies that cost us dearly.

Much of that is historical, but there is no reason why things cannot change.

In fact they must change.

This report is a wake-up call to the entire cereals industry. For the first time we can put a figure on the extraordinary waste that too many have been prepared either to tolerate or ignore for far too long. And it is not just the physical cost.The industry is held back by missed opportunities that could result in a better future for everyone involved in the chain.

We all have a role to play, we all have a responsibility.While there are some examples of good practice, there is still much that we could all be doing to capture that lost value – including Centaur.

It is quite clear that we as an industry need to grow up. Failure to do so means at best we continue to pour millions of pounds of profit down the drain, but at worst it means the end of the road for many currently involved in arable production and processing.

As the report concludes, the time to act is now – before it is too late.

Malcolm Parkinson, Managing Director, Centaur Grain

EXECUTIVE SUMMARY

SCOPE OF THE REPORT

A large amount of industry research and analysis undertaken in recent years has demonstrated that improvements to supply chain organisation and coordination could yield significant benefits to the British grain industry.

Much of this analysis has been undertaken through the Cereals Industry Forum (CIF) which was established in 2002 with the aim of identifying and promoting best practice within the cereals supply chain. It is now 2007 and

the time is right for the industry to move from analysis into action.

This report examines:

the benefits of a collaborative approach to supply chain management

how external changes in the market should bring about opportunities for farmers

what cost savings can be made through improved logistics

The report is intended to highlight key issues affecting the cereals supply chain, generate debate and stimulate

the actions required to unlock this additional value for the industry.

IN SEARCH OF SUPPLY CHAIN EXCELLENCE

Successful businesses are no longer stand-alone entities but networks of alliances and partnerships.

The food industry has been slow to emulate the success of other industries in supply chain development.

Leading food manufacturers have made improvements but the commodity sectors still lag behind and the cereals industry is one of the last sectors to embrace change.

The CIF has developed a series of tools for making improvements and identified a number of areas of weakness.

Though there are some examples of good practice, these are generally the exception.

In particular, the following areas of weakness need to be addressed:

Connection with the market place – it is no longer viable for farmers to remain disconnected from the end

consumer and ignorant of their demands

Poor communication and a 'silo' mentality lead to a distortion of demand information up the chain, with cost implications

Supply chain logistics. The industry is beset by empty and part-full loads, long waiting times,a fragmented distribution system and double handling, all adding to the cost, while the technology available to make

improvements is not used

There is inadequate use of central storage,a system which allows both for shared costs and the blending of grain to improve overall quality, and so price

Adversarial trading relationships, rather than a culture of collaboration and trust, mean that cost-savings

achievable through process integration are missed

Bridging the chasm between best practice and current practice requires a fundamental change in business culture, strategic vision and industry structure.

Senior managers must break down the silos within and between

businesses in order to make the necessary efficiency gains:

Input suppliers must improve their understanding of consumer requirements and the role they can play in providing differentiated products

Primary producers must reduce the variability and improve the quality of their grain, and also need to improve their understanding of the consumer – things that are only achievable through greater cooperation

Merchants need to raise their game or get out fast. Only by adding value through leveraging their knowledge with upstream stakeholders will they have a role in a best practice supply chain

Processors and manufacturers need to be more agile in their development of new products and more strategic in the development of a rationalised, consolidated supply base

End customers (supermarkets) have developed some collaborative relationships with branded cereal

processors but have the power to foster change further up the chain, beyond the manufacturer/retailer interface

Any chief executive in the cereal industry who fails to recognise the urgent need for a fundamental overhaul of the structure and operation of the UK grain chain is either blissfully ignorant or a beneficiary of the current

system. Failure to embrace the supply chain philosophy and pursue best practice will result in the failure of the UK cereals industry to compete effectively in the long term.The time to act is now – before it is too late.

RIGHT CROP, RIGHT MARKET

In the post-CAP era, cereal farmers must become more market focused and produce the right crop for the right market.This means improving their understanding of consumer trends, including emerging ones such as concern for environmental issues and the desire for 'value-added' products.

Two of the most significant examples of where farmers have engaged with manufacturers to influence the final product are Jordans Cereals' conservation grade production protocol and Warburtons, which is adding value to the bread category by focusing on high quality loaves.

For farmers, finding a partner or partners in the supply chain, as with these examples, is key to a more profitable future. For manufacturers to be persuaded to deal directly with farmers there needs to be a compelling reason

to do so, one that gives them a competitive advantage.

The responsibility for this rests with the farmers themselves and will require a move away from their competitive

and confrontational approach towards a more collaborative way of working.

Farmers can also improve their relationships with processors by collaborating to improve quality and availability, shown to be at least as important as price.

This might include helping to enhance the ethical and/or environmental credentials of brands (deemed important by consumers, according to IGD research).

Biofuel will become an increasingly important alternative market for grain.

COUNTING THE COST

At every stage in the cereal supply chain there are costs that can be reduced or eliminated and the report quantifies these for the first time.

A conservative estimate of the total savings that could be made by improving efficiency throughout the supply chain is around £40m a year:

Rejected loads average around three percent and cost the industry an estimated £3m a year

A 10 percent reduction in waiting times at collection and tipping times could save around £15m a year

Consolidating the fragmented grain haulage industry could save a further 10 percent of haulage costs, or £15m a year

If the strategic use of central stores or sophisticated on-farm storage could achieve a 10 percent saving, then £3m in savings could be attained

Reducing multiple testing through the introduction of vendor assurance would equate to savings of approximately £2m a year, providing the required quality is achieved

Reducing