What I’m Learning Right Now

The past two lectures have been fascinating.

Risk in supply chains.

Professor Olaf Van Kooten introduced risk by describing the difference between real and perceived risk. He did this using DALY (Disability Adjusted Life Years) statistics for various ailments that are currently plaguing the dutch society. Because I don’t feel like explaining how DALY’s are calculated, just Google it, or for now just remember that a high DALY means a severe impact on society. In the Netherlands the general population is very concerned about pesticide and hormone residuals on food products, followed closely with microbiological contamination of food (e.g. Salmonella, E. coli, etc). In colloquial terms, these are “huge” problem and risks in society. Let’s look at the DALY’s:

Obesity (positive average calory balance): 100,000 – 300,000

Saturated Fatty Acids: 10,000-30,000

Gastro-intestinal ailments: 3,000-10,000

Campylobacter in food: 300-1000

(All figures from the presentation presented by Prof. Van Kooten).

So, in reality microbiological contamination is a much smaller problem in reality then the lifestyle and types of food consumed by the dutch population. Statistically speaking, every year between 100,000 to 300,000 life years are reduced from the dutch population because of obesity. This has of course important ramifications for society.

This however was only introduction stuff.

Today Van Kooten was talking about the need to strategically engage the entire value chain to capitalize on the value-added features desired by the final consumer. This value-chain-wide engagement focuses primarily on strategic cooperation because often if one agent in the chain “cheats” the entire chain is destroyed. What Van Kooten and his research group are working on is to determine very precisely the expected shelf-life of agricultural goods (like roses, or apples etc). They can do so using several statistical techniques surrounding data obtained through experimental product decay curves as the product passes through the supply chain. One critical piece of information is the dispersion of product quality attributes such as ripeness. This is a huge problem for super-markets.

Grocery stores don’t want waste. So, what they do is increase the ordering frequency, and display the produce on the store shelf often before it’s really ripe. Produce ripening follows a binomial distribution. Therefore, the grocer typically introduces the product into the store a few days prior to when “most” of the product is actually ripe. The problem with this is that many customers will buy and consume these often unripe (especially in things like Mango’s, melons etc where ripeness is more difficult to discern by the customer) and consume them. This results in a dissatisfied customer experience. Consequently long-term sales are relatively lower then would be possible if the product was sold at optimum ripeness.

Using technology, it is very easy to quickly and efficiently ascertain the ripeness of various products and incorporating that data into the the models developed by WUR to determine expected shelf-life remaining for the various batches of goods. An efficient supply chain would therefore sort these products and market the different ‘grades’ to different retailers depending on their idiosyncratic situation, for example distance or time to market (thus, distant markets would get less ripe tomatoes and near markets more ripe tomatoes). This will in the long run improve the consumer’s enjoyment of the food and overall consumption will increase, resulting in increased sales for the entire chain.

Two examples Prof. Van Kooten mentioned are Albert Hein (a large food retailer in the Netherlands) who did something similar to this with Mango’s and over a three year period dramatically improved mango sales (in addition to some marketing using a “daily fresh” marketing campaign; and the second example were grocery retailers in the UK. Visit this link for a good comparison between the UK and US markets. Essentially the UK market grew dramatically over the past 10 years, while the US market fell dramatically over the same time period. Why? < http://library.wur.nl/file/wurpubs/LUWPUBRD_00358034_A502_001.pdf > Answer: Quality. Over the past 10 years UK consumers have had very good experiences with fresh floral arrangements with the arrangements lasting more then a week, while in the US, fresh flowers are often over-priced and of very poor quality. (By way of illustration, Van Kooten said that in the US you bought ten roses for $10.00 which often died after three or four days, and alot of people were shocked at the exorbitant price…I smiled.) Check out the link. It’s very interesting.

Thus, quality according to Olaf Van Kooten will win over price in the long-run. I am puzzling through the differences in consumer demographics in North America and Western Europe. It may be interesting.

So, that’s what I learned about today! It is fascinating.

Wageningen is great!

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