Supply Chain Frontiers issue #40
How does a major city in a developing country deliver food safely and efficiently to its population of more than 7 million people? The city of Bogotá, Colombia, is addressing this question with a unique supply chain research project that involves the Center for Latin-American Logistics Innovation (CLI). The initial findings offer some important lessons for the world’s growing mega cities.
In 2006 the Mayor of Bogotá adopted a Food Supply and Security Master Plan (FSSMP) that seeks to make food supplies more accessible to the city’s inhabitants and improve nutrition for these citizens. The FSSMP proposes the creation of a new general food supply system based on a modern logistics network that facilitates the flow of product and matches supply with demand. This approach promised to resolve the inefficiencies in the traditional food supply system on two main fronts: a lack of economies of scale in transportation and excessive product losses due to mishandling problems.
CLI joined the plan’s execution in mid 2009, with the purpose of analyzing the five most traded produce items: potatoes, oranges, bananas, plantains, and tomatoes. In addition, the project aimed to study the interaction between stakeholders and the way products, information, and money flow through the supply chain. The researchers were to make recommendations on which actions to prioritize to improve the supply chain and to support the producers, particularly small-scale farmers.
The research has shown that these goals may be harder to achieve than expected. Stakeholders along the supply chain seek to optimize their results rather than the performance of the supply chain as a whole. In fact, the findings suggest that without some level of integration across all stakeholders, initiatives to increase supply chain efficiency may bear no fruit or, in some cases, even be counterproductive.
Some of the relevant findings are listed below: The producer’s profit-maximizing criteria have more to do with minimizing sales risks than achieving the highest price.
- Intermediaries and wholesalers facilitate the transactions that supply the city with food, particularly for low-volume products.
- Intermediaries and wholesalers have accumulated financial resources and contacts, which they will use to defend themselves against any initiative that threatens their businesses.
- For corner-store owner/operators, selling produce is a way to attract customers in a highly competitive market. Convenience, product availability and variety, and the ability to personally select produce are service attributes that are highly valued.
- Each stakeholder group is very specialized so only a few businesses can offer the potential for integrating two or more stages of the food supply chain.
Arturo Molina, the FSSMP’s Transport and Logistics Services Coordinator, believes that these findings are consistent with the most difficult obstacle to the plan’s implementation: building a consensus among the stakeholders and getting them to share information. For example, even though the FSSMP governance structure includes public-private steering groups, bringing these sides together has proved difficult. More assertive discussions and hard incentives are required to bridge this divide.
Another important finding is that, before the produce supply chains can be analyzed, it is necessary to decide what level of granularity is appropriate for the research. Aggregating all produce under one group fails to consider the particular issues affecting individual items. On the other hand, product-level analyses do not always yield sufficient detail.
The research provides some pointers on how to create groups of products for investigation. The first criterion is the relationship between supply and demand; some products were supplied in high volumes, while others were in short supply. A second criterion is the distance between the places of production, trade, retail and/or consumption. Locally grown produce may be transported in low-capacity vehicles and still be sold at reasonable prices, whereas items grown farther away require larger vehicles for delivery to market. Average production per farmer is another consideration. It is relatively easy to fill trucks with high-yield produce items, even when grown by small-scale farmers, but lower-yield crops need to be consolidated. CLI has proposed further research to look into these factors in more detail.
CLI’s stakeholder and flow analysis, though incomplete, has shed new light on the challenges that FSSMP faces to align the production, trade, distribution, and retail of fruits, vegetables, and tubers. “CLI’s research has confirmed with data some issues that many had perceived, but had not duly considered due to a lack of both information and understanding of their impacts,” says Molina.
The complexity of Bogotá’s food supply system is compounded by the number of trading partners involved. An analysis carried out in 2003–2004 estimated that there are 26,000 producers, 1,800 intermediaries or transport service providers, 4,800 wholesalers and food processors, and 135,000 retailers engaged on a daily basis to procure the food that Bogotans consume. It is easy to get lost in this maze of stakeholders.
Many other large cities in developing countries have similar food supply systems, and they can learn much from Bogotá’s FSSMP. A number of studies have looked at specific logistics issues, but few have taken a holistic approach to the supply chain. The Bogotá experience suggests that if these cities want to build more effective food supply chains, focusing on collaboration – even with all of the inherent costs involved – is likely to provide a less risky and more sustainable supply chain than if the focus is on efficiency.
For more information on CLI’s FSSMP work, contact Andres Baquero, CLI Researcher, at email:
abaquero@cli-logica.org; and Arturo Molina, FSSMP Transport and Logistics Services Coordinator, at email:
arturomolina@desarrolloeconomico.gov.co.