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Future trends in food logistics

"Digitalisation is changing the whole industry"

How will food logistics continue to develop? This question is examined in the study "Future trends in food logistics - challenges and solutions to address them." The study will be officially presented on 18 October 2016. Benjamin Nitsche, research associate at the Technische Universität Berlin (Technical University in Berlin), who carried out the study together with Anna Figiel, talks about the findings of the study in an interview.

Mr Nitsche, which key consumer trends are discernible currently?

The findings from the survey reveal that manufacturers, retailers, and logistics service providers who participated in the survey not only consider two out of seven trends surveyed in the questionnaire to be very important at present, but also in the next five years. On the one hand, seasonal and regional produce gain in importance. On the other hand, the need for transparency across the supply chain is increasing in significance. This implies that consumers want to receive information on ingredients, country of origin or delivery routes.

Another interesting point is that two other trends which are comparatively insignificant today are gaining in importance for companies in this segment. The first is that customers are placing great importance on lean food supply chains. Secondly, e-commerce will also play an important role in the future.

When we look at these four trends, which trend do you think has the biggest influence on logistics?

The customer's desire for more transparency across the supply chain has the strongest influence on logistics as all value-added stages are affected. In order to fulfil this wish, standardised forms for exchange of information and data have to be integrated in the supply chain. These conditions are not satisfactorily fulfilled in food logistics at present.

Dipl.-Ing. Benjamin Nitsche

You have just mentioned exchange of information and data. This brings us to the topic of digitalisation. How do you think digitalisation will affect the industry?

On-site retail has always held a large share of the market, there being few other options. However, new business models have emerged due to current market developments and technological development. The development of e-commerce is influencing and changing the entire food industry, thereby also changing on-site food retailing sector. Once the logistical challenges are overcome, more and more people will order food items from the comforts of their home. It will be no longer necessary for consumers to go to the supermarket to buy food and then carry groceries weighing 15 kilos back home. Many retailers have already taken notice of this and are offering their customers various delivery options. Consumers will continue to go to the supermarket in the coming years, but I think that different sales channels will coexist, for instance, the "click and collect" service, which is hardly offered in Germany at present. This service has been successfully accepted by customers in other countries. The customer orders goods on the internet and either pays for them in advance or the goods are paid for when they are collected. The customer saves time and the service provider saves a part of the logistics costs.

Can you predict which trend is likely to stay in the long run?

I think in the long term there will be logistics service providers who will offer a combination of delivery services to supermarket chains. Currently, there is a lack of wide range of services on offer, so-called "all-inclusive delivery service provider," who can offer combined delivery services for food in all temperature ranges.

Does cooperation among logistics providers, manufacturers, and retailers need strengthening?

Yes, however achieving cooperation is difficult. We have spoken to manufacturers who operated a shared warehouse for distribution of similar goods. However, this cooperation was successful only in the short term because the desired potentials for synergy diverged further given the dynamic nature of the market and various seasonalities. Integrated planning and control could help achieve stronger cooperation in food logistics. Our investigation has shown that trade provides both manufacturers and logistics service providers with a specific delivery window. Frequently, this planning process is not developed together, it is one-sided. All parties in the network would profit through planning and controlling delivery to retail, which would need to span all locations and companies.

In your study, you differentiate between store-based order picking and central warehouse-based order picking. What does this mean?

There are two options when a customer uses an online platform to order a product. The product can either be delivered through a central warehouse or through an individual store, the latter depends on the customer's location. When large retail chains entered the home delivery market, order picking was generally store-based order picking. The customer orders the goods, the employee at the store processes the purchase. This leads to an increase in workload. The employee at the store has to initially put the item on the shelf only to take it off the shelf for the online customer. If the product ordered by the customer is not available, the employee has to pick an alternative product and risk the dissatisfaction of the customer. This is because an on-site customer and an online customer access the same stock in the store-based order picking approach. In case of central warehouse-based order picking, all products are order picked and delivered through dedicated e-commerce fulfilment centres, which are located either close to the city or in the city. Customers can easily check the availability of products online. Moreover, logistics costs can be drastically reduced compared with store-based order picking once a certain critical mass has been achieved. Therefore, we expect an increase in the number of e-commerce fulfilment centres.

In addition to storage, what other core challenges will the food logistics industry have to address in the future?

The food logistics industry will have to consider how they are going to organise delivery of food in cities in the future. Furthermore, these delivery concepts should cause least burden on traffic. Various logistic approaches are presented in the study to help achieve this. However, we cannot foresee yet which of these approaches will be well established in the future.

If you had to narrow down your study to one recommended course of action, what would that be?

I think the most important recommended course of action to all parties would be not to resist change. It is important to engage with market developments as quickly as possible. What does the customer want; how has the customer changed; and what does this mean for our logistics in the long run? Start-ups are often successful because they can implement novel concepts within a short period of time, whereas, these would be rolled out very slowly in big corporations. However, even large corporations should be able to identify business areas and react at an early stage through continuous market analysis.

About the authors

Dipl.-Ing. Benjamin Nitsche has been working as research associate at the Chair of Logistics, Institute of Technology and Management at Technische Universität Berlin headed by Prof. Dr.-Ing. Frank Straube since February 2014. He is involved in the research project "Navigator for German-Chinese Logistics Networks" funded by the Kühne Foundation. After successfully completing his studies in industrial engineering and management at the TU Berlin (special focus on logistics), he worked as strategic purchaser in consumer electronics. His main areas of research are supply chain volatility, risk management, and food logistics.

Dr.-Ing. Anna Figiel has been working as research associate at the Chair of Logistics, Institute of Technology and Management at Technische Universität Berlin headed by Prof. Dr.-Ing. Frank Straube since August 2011. Prior to that she completed her studies in industrial engineering and management (Dipl.-Ing.) at the TU Berlin with special focus on logistics, air traffic engineering, and finance. She has also completed "Master in Management" (M.Sc.) at the ESC Toulouse with a strong emphasis on aerospace management. Her current research interests are transport management in consumer goods industry as part of her doctoral research, and logistics concepts for densely populated urban areas.

About the studies

Authors Benjamin Nitsche and Anna Figiel have collated the results of the online survey in their study titled "Future trends in food logistics - challenges and solutions to address them." The participation of 100 companies in the survey has made it possible to determine the importance of consumer trends for respective parties in the food supply chain and its impact on logistics. The authors have mapped out future challenges and strategies for solutions after conducting 15 interviews with experts who represent manufactures, retailers, logistics service providers, associations, and start-ups. The Nagel-Group also took part in one of the interviews for experts.

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