SUPPLY CHAIN RESOURCE COOPERATIVE

I visited a Canadian oil and gas company this week, and participated in their first annual Supplier Day.  The forum was an opportunity to share insights on the oil and gas business in North America, communicate issues and challenges that exist, and create an opportunity to exchange ideas on how to address them.

The meeting was opened up by the CEO of the company, who shared his thoughts with the suppliers on some of the issues facing everyone in the oil and gas supply chain in Canada and the US.  He emphasized the changing nature of the industry – and the fact that “Today, we know there’s enough natural gas on the continent to last more than 150 years … knowledge that has given rise to the use, or some may say overuse, of phrases like “energy renaissance” and “energy independence” … and also to some of the most affordable natural gas prices we’ve seen in the past decade.”

He then emphasized how the changes in the industry would be impacting everyone along the supply chain, including the people in the room.  ”This is happening because, simply put, over the past five or six years, we’ve seen what  is certainly the biggest change in my 25 years in the industry … a complete re-shifting of where gas is being produced.  What that means is that just as traditional sources of supply are in decline, sources that only a decade ago were uneconomical to recover are now in play, thanks to advancements in technologies such as horizontal drilling.  You’ve probably heard about the Marcellus and Utica shale plays in nearby Pennsylvania and Ohio. We’re also seeing growth from the U.S. midcontinent … Colorado, Wyoming, Kansas … as well the Gulf Coast and in B.C.At the same time, for us here in Ontario and points east, we’re seeing less gas making its way from Western Canada, which has traditionally been our largest source of supply.

The final part of his discussion revolved around the impact of these changes on the company’s strategic plans for the future:  ”So we’ve been focused on two things for the past few years. First, connecting into some of these new resource basins, so we continue to have good, diverse sources of supply coming in … and second, ensuring we have the right infrastructure in place here so we can move this gas to the communities that need it.”

Following his presentation, a group of VP’s from Engineering, Operations, Sales, and Procurement all spoke at the conference.  This was a remarkable presence, with all but two or three of the senior executives from the company present at the meeting.  The next day, there was a series of breakout sessions to discuss a number of opportunities for improvement, including topics such as:

-       Communication disconnects between engineering and procurement

-       Lack of access to decision-makers

-       Lack of feedback on performance

-       Lack of feedback in cases when suppliers are not awarded a bid

-       Involved too late on major projects, too many surprises

-       Supplier ideas  for cost savings and innovation

-       Dealing with push-back from engineering on procurement involvement

These are issues that anyone who has worked in the oil and gas industry is all too familiar with, and not at all uncommon in most companies I’ve worked with.  But the point is that they were openly discussing the issues, and talking about solutions to deal with them.

The suppliers who walked away from this meeting left with an important message in their heads:  Senior management at this company cares about us, and knows who we are.  And that means that we are going to take them much more seriously as a customer of choice.

 

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Since releasing my recent study (yes it was paid for by the MPAA and North Carolina film commissions!), a number of people have accused me of being effectively a “paid mouthpiece” for the film industry.  I’ve been called a liar, a manipulator, and someone who essentially is paid to say whatever the evil film industry tells me to say.

I’m a business school supply chain professor, who uses tools and analytical methods to study supply chains.  And the film industry is no different than any of the other industries that have supply chains, including oil and gas, pharmaceuticals, financial services, manufacturing, chemicals, transportation, or you name it.  And this study used two of the most commonly used set of tools in the field of supply chain – the value chain map and the cost model. I used the tools, with the understanding that I would report on the outcomes of my analysis, and I had no way of knowing which way it would land when I started the study.  The fact that it ended up with a positive outcome is just the way the numbers came out.

The methodology applied value chain models based on film office data, payroll data, and interviews to establish cost models for three types of productions in the state:  Feature Films, TV series, and independent films.  The approach used was consistent with prior methods and approaches for cost modeling of supply chains.  In fact, many of the students in our undergraduate and MBA supply chain concentration are very familiar with these tools, and use them in projects with many of our partner companies in the SCRC.  Interestingly, I did not find other studies that have utilized cost modeling in the film industry.  Although value chain analysis has been mentioned by several authors as an important vehicle for studying the film industry, this is to our knowledge the first true application of this method to measure economic impact to a state.

Each cost model develops an estimated ratio of hours worked on each production, jobs in each type of production, wages and time spent per production, per diems spent, and other films costs associated with each type of production.  Each model then derived a validated economic estimate of key value chain outputs represented in the North Carolina economy. Based on this value chain analysis, we believe the study provides a compelling picture of the economic impact of the film industry on the state.

This “bottom-up” modeling approach employs actual flows of funds paid to North Carolina residents and non-residents, as well as the flows of funds spent with third parties in the state.  I believe this is an accurate representation of the flow of money in the state, and the amount that goes back to the state in the form of state and local taxes.

My analysis of the data revealed three important components:

-       The types of jobs are relatively consistent across productions of the same type (e.g. feature film A vs. Feature Film B), although the actual total value spent by each production will vary.  This was further validated by reviewing the actual cast roles for productions in the state and comparing the jobs for the people employed.

-       Similarly, the ratio of the hours worked by each job relative to the total cost of the film was relatively consistent across productions in the same category, although the total number of hours changed.  This was also validated through interviews with employees, production directors, unit managers and studio film accountants.

-       Due to the union wages, the hourly payroll and fringe benefits are similar across all three types of productions by job role.

As such, a cost model for film production proved to work fairly well, and the results shown in the study are fairly robust.

The numbers don’t lie.  And neither do I.

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As “Obamacare” continues to plow forward, the effects on the healthcare environment are slowly but surely being felt.  One of the biggest recipients of this trend is the pharmaceutical environment.

Several trends have shaped the pharmaceutical ecosystem in the last few years, and Obamacare is only one among many.  The issues supply chain executives face in this environment are significant, but also represent opportunities for those who know and think about how to embrace this complexity.   A senior executive at a large pharmaceutical manufacturing company spoke on this issue recently, and mentioned several of these trends – and his words spell out a very different ecosystem than the one your mom and dad experienced….

First, the number of prescriptions has significantly increased. In the U.S. alone, the volume of prescriptions has almost doubled in less than 15 years. Looking at global figures, growth in the consumption of drugs has increased 32 percent from $735 billion in 2007 to $965 billion in 2012, and consumption is projected to reach about $1.2 trillion in 2017. We should not forget that over-the-counter medicine consumption has increased at an even higher rate. But it isn’t the volume that is the challenge, but the nature of the pharmaceutical industry that has created the greater challenges. Supply chains have gone from local to global. A single event in the world, such as the Fukashima earthquake, can interrupt the global supply chain for certain products.

In addition to the disruption potential of globalized supply chains, globalization requires products and brands to adapt to local regulations and customs at the last steps in the supply chain. At the very least, this causes changes in packaging to adapt to local language, but in actuality changes can be much more significant. This adds complexity. It also means that many demand signals must be aggregated for planning the early steps in a supply chain, while the local information details must be maintained to inform supply chain planning close to the consumer.

At the same time, the global picture for generics is evolving, positioning generics as the dominant category, especially in developing countries. In the U.S., generics now account for more than 80 percent of prescriptions filled (according to PhRMA). The rise of generic products means the vast majority of products are made by multiple companies. This introduces further challenges in terms of quality, as it is critical to ensure that patients can safely exchange one manufacturer’s product for another (this is a big challenge for regulators). It also means that the competitive marketplace can rapidly shift demand from one manufacturer to the next. Companies respond to demand volatility in two ways: reducing inventories and trying to instill more agility in their supply chains.

Additional pressure on supply chains also includes the need for tight cost controls, as the margins in many countries for generic products is razor thin. Another trend that we are seeing speaks again to globalization. IMS health data reports that in 2011 China cemented its place as the third largest pharmaceutical market in the world – almost 50 percent bigger than Germany in fourth place – while Brazil overtook the United Kingdom, Italy, Spain and Canada to rank sixth. Russia and India enjoyed similarly impressive uplifts. Double-digit growth is forecasted for emerging and developing markets, while the G6 are predicted to show negative growth in revenue and only modest growth in volume. We are also seeing more and more clinical trials occurring in countries where it is difficult to import products, as the supply of patients willing to go through clinical trials in Western countries is dwindling, bio pharma companies are looking more and more to overseas markets for clinical populations. – Another trend is the move towards pervasive monitoring. We are seeing new technologies that will be used to monitor patient’s health conditions, and tracking their compliance to regimented drug prescriptions. The application of analytics to patient compliance is an important development that will result in important medical breakthroughs.

And lastly, we are seeing a move toward specialized products with more complex formulations and processes. Many of these products are for small patient subsets and require special handling and storage. In 1990, there were only 10 specialty drugs on the market, whereas in 2012 there were nearly 300 agents that met the definition of a specialty drug. Even more noteworthy is that approximately 40 percent of current agents in the pharmaceutical pipeline are likely to be considered specialty agents when they are released to the market. There is also a growing focus on so called Orphan Drugs” which have patient populations of 200,000 individuals or less. The Orphan Drug Act has promoted funding and reimbursement of these drugs, often resulting in very lucrative market for biopharma companies, but greater risks to insurance companies. With all this in mind, let’s now look forward. The trends of the last decades will continue. And furthermore, pressures will continue to mount on big pharma; pressures such as increasing research and development costs with stubbornly low success rates and decreasing margins amongst increased competition and more complex supply chains. Increased R&D costs are partly driven by the added regulatory requirements to demonstrate safety, prove superior efficacy (or safety) and achieve cost effectiveness. There is another reason though – one which we should feel proud about – products developed and introduced over the last 40 years have transformed many areas of healthcare and have raised the bar for efficacy and safety for new products.

In recognition of these trends, big pharma has been revalued. As capital becomes more dear, we see a downward trend in the investment by pharmaceutical companies in manufacturing facilities. And let’s not forget that buyers, which are directly or indirectly controlled by government payors, are pushing down price and installing utilization controls. In short, R&D based pharma business models are under pressure, forcing convergence with generics. At the same time, the growth of generic companies via traditional routes – developing generic product substitutes for branded products as patents expire – is losing steam. Both businesses are growing toward each other, and I believe they will increasingly look like consumer product companies from a margin, valuation and fight for brand recognition standpoint – albeit strongly regulated. This is already happening outside of North America and Europe. So what does this mean? Supply chains will be forced to be more flexible and more cost effective. Many companies will outsource all of their supply chain activities. Many of the major pharma companies have already outsourced much of their clinical research activity, manufacturing, and distribution, and it is likely that this trend will continue.

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Our SCRC team sent out invitations to our next SCRC meeting on April 23 and 24, which will focus on a theme that is often discussed in the press, but which many people have yet to really define effectively: “Managing Relationships to Drive Supplier-Led Innovation.”

The concept of measuring and structuring supplier relationships to drive performance has been around for many years.  Prior studies on Supplier Relationship Management (SFM)  found that supply chain leads needs to build a solid basis for managing supplier relationships through measurement, leading to reactive improvement of the supply base, proactive and collaborative improvement efforts, and at the highest level, a true partnership to drive innovation and joint product/process/service development. However, have you ever wondered about what it takes to put the right pieces in place to get to this highest level of product and process innovation, leading to the purest form of collaboration in the supply chain?  Who are the companies that have managed to do this, and what did it take to get there?

If you’ve ever asked these questions, you’re not alone.  Very few companies succeed at driving new ideas from suppliers into the business because they are simply unprepared to engage suppliers. Companies that have succeeded in integrating suppliers into product development have implemented a well-defined process and identified the right team of individuals to lead supplier integration efforts.  Terms such as collaboration, partnering, relationship management, and others are often over used, without really defining the actions and individuals that lie behind the outcome of such actions.

In the last year I’ve had the opportunity to work on several studies related to supplier-led innovation. Some of the questions we’ll have an opportunity to discuss with individuals who have “walked the walk” include:

  • What is the role of trust when it comes to intellectual property, project risk, revenue sharing, and other legal issues that come up on supplier-led innovation
  • What are the characteristics of suppliers that make successful partners, based on past experiences and lessons learned?
  • How do you build a foundation upon which to establish supplier-led innovation?  What is the roadmap that leads to this outcome?  Is there a hierarchy of strategies and change that organizations must begin this journey with that will lead to this end state?
  • What is the role of talent, skills, and capabilities in the supply chain workforce required to be able to effectively manage relationships that will lead to successful innovation?

We will hear from leaders that I’ve been privileged to work with in the past year, who have established a roadmap to build supplier relationships that produce innovative products and services. I also had the opportunity to speak at a Webinar for the Management Roundtable this past week, and received a number of excellent comments and ideas from that session as well.

The SCRC meeting agenda will include:

  • An update on SCRC programs and services since the last meeting
  • Some of my thoughts on issues that are critical to managing suppliers to drive product and process innovation.  In particular, my comments will focus on the core attributes required to drive successful outcomes on supplier-led innovation.  My observations will be drawn from my interviews with executives at BMW, Clorox, John Deere, Intel, Union Gas, Suncor Energy,
  • Mr. Jason Schenker, Economist and President of Prestige Economics.  A regular presenter at the SCRC meeting, Mr. Schenker will share his thoughts and views on the current health of the economy and the impact of current geopolitical events on global business conditions.  Mr. Schenker has been recognized by Bloomberg News as one of the top economic forecasters in the world for eight consecutive quarters across multiple categories.
  • Mr. Dan Kettler, John Deere, will discuss some of his observations in working with suppliers through the Partner Integration program at Deere.
  • Mr. Gordon Heidecker, KPMG, will share his experiences on working in product design and prototyping with major automotive OEM’s for the past twenty years.
  • Mr. Mike Rosberg, Chief Procurement Officer at Hyster-Yale Inc., will discuss some of his recent experiences in managing supplier relaitonships to drive performance outcomes that are having a bottom-line impact.
  • Lowell Hoffman, a former CPO at Kraft Foods, National Can, and Colgate-Palmolive, will discuss his experiences in working wiht a global supply base, and structuring an organization to drive trust, innovation, and aligned behaviors.
  • A student ‘gallery walk’ showcasing graduate and undergraduate supply chain practicum projects completed with industry partners this semester
  • Formal student / company presentations, including: Caterpillar, Foodbuy, GlaxoSmithKline, John Deere, Lenovo and others
  • Supply chain professionals networking opportunities

This is shaping up to be a great meeting!  Anyone interested in attending please contact apdudley@ncsu.edu.

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In 2003, Nokia was in a lawsuit and could not use Qualcomm chips in their phones.  Nokia was addressing the future of America and Asia driven by China, but couldn’t buy chips from Qualcomm.  So the Chief Procurement Officer approached Texas Instruments and HP Micro, producers of the best analog chips at the time, and brokered a deal in which TI and HP would collaborate to create a chip set for Nokia. These suppliers were not typically collaborators, and there was little trust.  But together they created a chipset that went into Nokia products that rivaled those produced by Qualcomm. This was a one-time supplier collaboration example that enabled Nokia to remain a competitive force.

Do you need to know how to put the right pieces in place to get the best performance from critical supplier partnerships?

If so, you’re not alone.  Very few companies succeed at driving new ideas from suppliers into the business because they are simply unprepared to engage suppliers. Companies that have succeeded in integrating suppliers into product development have implemented a well-defined process and identified the right team of individuals to lead supplier integration efforts.

If your organization is struggling to establish an effective supplier-led innovation process, you’ll want to reserve your seat at Management Roundtable’s newest two-day intensive workshop, Supplier-Led Innovation: Re-engineering the Product Development Process for Successful Supplier Integrationto be held May 20 – 21, 2014 in Chicago.  Led by Rob Handfield, PhD, Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University and Director of the Supply Chain Resource Cooperative, this interactive and hands-on workshop will help you construct a roadmap for supplier integration in your company.

To see more, see:

http://www.roundtable.com/conferences-workshops/supplierinnovation

 

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I had a remarkable interview with a medium sized supplier today, that has truly found a business model which I believe holds a promise for a new industrial revolution in North America.  The approach is built on one of America’s most important capabilities that makes it stand out globally:  the ability to generate ideas and bring them to market.

The individual I met with works at a medium sized business with a full service industrial design team, that works with major OEM brands on accessory products for consumer-based products like motorbikes, snowmobiles, etc.  The supplier will identify the market niche in conjunction with the marketing team, begin work  on key features, price points, and continue to work with the OEM marketing and engineering and purchasing team all the way through production.  To achieve this capability, the company has invested a lot of upfront resources that not a lot of manufacturing companies in North America have today.

The individual I met with noted that “We don’t seek any bid to quote business.  We don’t stand by the fax machine waiting for Request for Quotes, and hope to bid on new business.  Instead, we have partnerships with OEM’s, and they come to us with ideas, and a market need.”

“On 98% of the products we develop we own the IP or at least help develop and it.  This gives us a unique business model and helps us influence the parts to ensure that they are optimized for our manufacturing floor, and helps us to influence it so that we can bring to bear our deep market knowledge of the accessories we build for our OEM customers.”

This company recognizes that many of their OEM customers are “clunky” in the product development processes, and as a result, take a lot longer to make decisions, vet them through the different functional decision meetings, and render a final decision.  The length of this process also makes them more costly.  So the smart OEM’s are recognizing that suppliers are not only faster, but that their R&D $ can generate a much higher ROI than they can.

But to make this work requires a different business model.  To begin with, there needs to be a fundamental shift away from price-based procurement, to target costing.  Most OEM’s are pretty weak at target costing.  In fact, this supplier notes that “we usually tell them what their target cost should be, because we know it better than they do.  But once we share that with them, than they understand that they won’t ever try to slash our margins.  Because our R&D investment is expensed and built into our overhead cost, they don’t attack SG&A either.  We both go after costs that are directly tied to material or other components that we can influence.”

How does this work?  Because trust equates to speed of business.  The supplier notes that “They are communicative and we know where we are at.  We operate on a handshake and we aren’t looking for a contract in the development meeting.  If companies want to get hung up on the formulation of the deal, it won’t work.  Our thinking is that if the business case for the deal makes sense we don’t need a lot of language around the deal.  We know where their heart is at and they give us good feedback, and we’re okay with that.”

Maybe this model won’t work for everyone.  It only works for when the OEM values the design resource and is willing to “turn over the keys” to the other party, and when there is a true collaborative dialogue that takes place on a regular basis.  This company is able to charge more, but their speed to market allows the OEM to get products that their customers want and need faster than the competition, which in turns allows them to be first to market and charge more for the product.

I believe this is the new model for American manufacturing.  And it starts with re-thinking the way we write contracts, how we manage supply chain relationships, and how we think about design, development, and manufacturing roles and responsibilities across enterprises.  Small business is the growth engine behind this revolution in manufacturing.

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Arun Gupta recently went to a conference of the TPP in Washington, and was invited to share some insights on his visit and what he learned in a guest blog.

In its current form the Trans-Pacific Partnership (TPP) is a potential free trade agreement (FTA) between the US and 11 Asia-Pacific (APAC) countries (Canada, Mexico, Peru, Chile, Japan, Vietnam, Brunei, Singapore, Australia, Malaysia, and New Zealand).  The United States currently has FTA’s with six (6) of the 11 TPP countries.

The goal of the TPP is to have a “comprehensive and high-standard” agreement that eliminates tariff and non-tariff barriers for trading goods (including agricultural) and services (including financial), address trade issues not addressed in existing FTA’s, and establish rules for economic activities across the TPP partner countries.  It is envisioned that other countries will join the TPP to develop trade partnerships with TPP countries.  The TPP will also serve as a framework for bilateral, regional, or multilateral (e.g., WTO) negotiations.  Issues such as governance, dispute settlement, processes related to executing the TPP, and buy-in from various government and private organizations are an integral part of the negotiations.

The TPP has major ramifications for supply chain performance, especially in situations where supply chain components fall within the TPP participant countries.  Trade, trade barriers, and market access involving all types of goods (including agriculture), services (including financial and foreign investments), and small- and medium-sized enterprises also are under the umbrella of the TPP and can impact the performance of supply chains.  Further, policies related to government procurement, state-owned enterprises, intellectual property rights, rules of origin, transparency, competition, trade remedies, and regulatory coherence are all elements of the TPP that can be detrimental to supply chains.  With E-Commerce as a part of the TPP the negotiators are aiming to streamline processes of effectively doing business across national boundaries for the TPP participants.  However, local content and the desire of countries to internally host data and servers is a challenge for the E-Commerce aspect of the TPP.  In addition, negotiators are facing challenges in labor and environment aspects of business.  Further, there are challenges in negotiations around tariff-free market access to components instead of only finished products, remanufactured products, and government procurement.

The TPP is a significant FTA that will have ramifications to the global supply chain.  Be on the lookout for more information on TPP on this blog.

Arun P. Gupta, Ph.D.

APICS Certified Supply Chain Professional

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We have just posted a new set of videos of interviews with executives on establishing and building an integrated supply chain.  For example, one of the videos focused on an interview with John Camp at Lenovo:

http://scm.ncsu.edu/scm-articles/article/global-logistics-qa-with-john-camp-lenovo

John talks about getting closer to our customers, and enhancing the customer experience and then extending that all the way back through our own manufacturing and production resources, all the way through to our suppliers. The major challenge is about connecting all of the nodes on the supply chain, not only physically but through information. John talks about the new initiatives that are focused on customer service and operational aspects of that to run our ever-increasing, ever-complex network.

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Professor Gary Bullen and SCRC Research Scholar Jessica Newsome spoke in my Local Seafood class this afternoon.  Both pointed out some critical points that are indeed challenges for the seafood supply chain in North Carolina, as well as some avenues to explore that may drive solutions.

First, Gary pointed out that 91% of the seafood in North Carolina is imported!  So when you sit down at a restaurant, it is highly unlikely that you are eating North Carolina product.  Gary notes, “In Morehead City, I only found two restaurants that was selling NC seafood.”

Most of the fishermen in NC are “dayboat people”.  That means that they have small 40’ boats, and go out for the day (or the night), and let the nets drag.  They were losing money when fuel went up, and many of them were spending $100,000 on fuel, and losing money.  That is a major driver when $4 fuel and $1.5/pound shrimp does not compute!

But there are other products coming into the market that can make a difference.  Between 2000 and 2011 the number of commercial licenses has dropped to 3700. There has been a 36% decrease in seafood packaging capacity since 2000.  There is not much there.  But the low supply of seafood is the major driver, not the packaging capacity.  There is generally excess capacity for packing.

Fishermen are also being crowded out by people who are moving to the coast.  Waterfront development is an issue.  One family has 3 acres on the Savannah waterfront, but wanted to stay in the business.  Gary also learned that fishermen do not retire – many just say they “might want to get a smaller boat!”  But fisherman need a place to dock for their boats with access to water.

Fish houses are absolutely necessary – but they are also part of the problem.  The fish house has a dock where the fisherman can dock his boat.  In return for docking there, they agree to sell their product at the “price of the day”.  If they couldn’t dock there – they would be out of business.  The fish house supplies them with ice, and they will sell the product for them.  Many fishermen don’t want to talk to people – and the fish houses will sell the product.  How do you develop the fish houses and develop new markets?  Every bit of the product comes in – they can sell it.  They will sell it – but it can be sold at a low price.

A fish house will unload the fish and put it in 100 pound boxes with ice.  They will pay the fisherman at that moment the market price.  There is no contractual market.  It worked on volume in the past – it was a commodity thinking – and it worked well.  But the structure over the last 20 years has been that it is NOT a good commodity, due to supply limitations.  They also help organize political will to keep commercial fishing possible.  Recreational fishermen are after the same fish –a nd they have legislation pressure to support commercial fishermen, not just recreation.  In Oregon Inlet the only way for commercial fishermen to get out – and so the state will dredge it to allow them.  During the budget crisis, there was no dredging – and they couldn’t get out.  This disrupted seafood supply.  But most of the seafood goes north – and only a small amount goes West in North Carolina.  This is an established supply chain, and they know each other and talk to one another – and do not give up that information.

Fish Houses have gone down 36% in the past 10 years.  In 2011, there were 83 fish houses in NC.  Many will not be in business and there will be some consolidation, due to the shrinkage in supply.  Some of the shortage is overfishing, but regulations are a definite factor.  Many people got new nets and then they changed the season so they can’t go after flounder.  Fish has gone down a lot more than shellfish, largely due to regulation.

Jessica Newsome, the SCRC Research Fellow, offered some insights into possible solutions to these challenges.

One of the possible solutions is the idea of a Community Supported Fishery (CSF), which is the concept of people doing things differently. Wholesale Distributors and Retailers need to let the supply chain do what it needs to do, but act to intercede in the downstream segment of the supply chain.  This could be a good model for small scale fishermen because it is scalable.  A CSF could go to the fisherman and will buy at that point.  But if they need higher volume, they could go to fish house, and buy larger volume.  If they need something processed they could go to a processor and buy what they have available.  But there needs to be value demonstrated in selling right in North Carolina.

To make this work, the supply chain will need inland processors.  Because so much of the supply chain today in seafood is “social contracting” (e.g. good old boy networks and word of mouth with spot pricing and no contracts), there is a lack of structured relationships and contracts in the channel.   If we are going to sell through new channels, there is a lack of information on how retailers need to operate with fishermen.  There is a need to build relationships and forge partnerships.  Supply access will continue to be an issue and there need to be incentives to ensure that people are coming in to fill these roles is a major issue, and who will do these roles to support this supply chain.  Contracts and investments will be needed to drive standard pricing, and to ensure access to freight and other equipment.  Today no one is ready to make these investments, and as we have stretched out the supply chain, transportation and going to mainstream markets will be an issue.

How can we move the needle on this?  We need to first organize fishermen into cooperative structures, and take primary processors (fish houses) and bring it into a cooperative structure.  Next, we need to demonstrate the inland market value to high volume seafood dealers and fishermen, and convince them these markets will pay a competitive price (vs. DC or NE markets). Fishermen need to feel they are not being cheated.  We need to connect fishermen and retailers to inland aggregators with processing capabilities.  The final piece is the education piece – especially grocery retailers and consumer education on local species, NC seafood industry, fishery management and environmental impacts.

A highly likely set of potential CSF’s are the cooperatives and brands like Brunswick Catch, Carteret Catch, Outbanks Catch, and Ocracoke Fresh.  These are cooperatives that could be brought together to pool risk, investments, and leverage their brands.  If they could see the value to sell into Raleigh, Charlotte, and Asheville, they could perhaps move to a place where fishermen can earn enough money to stay on the water, fish houses can be profitable, retailers will provide what their customers want, and we can once again eat healthy, tasty local seafood.

Future research needs to conduct interviews to better understand market channels, including the high volume seafood dealers, including dealers in Carteret, Dare, New Hanover counties, and others to define available for sale amounts.  We need to survey inland customers at grocery partners stores to establish the size of the addressable market.  And we need to explore feasibility of establishing catch groups as cooperative business structures for small and midscale fishing operators.

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Ben Filippo is Food System Coordinator for the Carolina Farm Stewardship Association, a farmer driven membership based 501c3 non profit organization to help people in the Carolinas grow and eat locally.  He also spoke in my class this week.  Ben notes that “a big chunk of what we do are work with artisans and our technical services and our internal focus group teams are advocacy, food systems, policy, and education (public facing sustainable agriculture issues).  We help people think about the implications of state and local policy and how they impact the Southeast.”

Ben emphasized in his presentation that local food systems are not just for the “affluent” anymore.  In his earlier work in New York, he found that many of the local “foodies” were affluent people who thought it was fashionable to support local farmers.  “Local farmers” in this case often meant wealthy financial executives who retired to farms they bought, and sold $8 Kale in farmers markets!

No, local food systems is really about feeding people who may have much more limited options.  Ben notes that “We have 85 rural counties in this state – 73 of them are poverty stricken.  Most have no idea on how to get local food into people’s hands.  So how can we leverage existing progress in parts of the state, not trying to duplicate efforts, but to harness energy that already exists.

He cited the example of Stokes County in North Carolina, which has only three small towns: King, Danbury, and Walnut Cove. The overall county has 35% of its population under the poverty line.  The total development budget for the entire county is $180,000.  For most people living in these places, this is where food is produced, and where people live who would like to eat their food.

There are only four farmers markets in Stokes County and people are disbursed throughout the county.  Tax leakage is elsewhere, since people buy things in Winston-Salem.  There are few people there with consistent income streams who can be consumers. Restaurants are not independently operated and those rely on a consumer base that is not doing well, and margins are slim and don’t believe local procurement can be passed on the consumer.  There is really only one consistent center of revenue:  the people who work for the municipality are the only ones who have the revenue to buy local products.  There is no university or community college.

But there is one person who can change this picture:   the county nutrition director for Stokes County Schools.  The schools feed tens of thousands of children.  If that person cares enough to think about how to integrate local foods into people’s diet, there is an opportunity.  And this is starting to happen because of the human relationships in other areas.  For example, three diversified vegetable producers will be selling their product from Beaufort County into the Beaufort County school system because of human relationships.  Long reports are necessary and important – but in the end, individuals harness a great deal of power in attempts to change an existing system.

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