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From linear supply chains to a supply network: How digital technology is changing the food system.

Digital technology has unlocked many innovations and in doing so increased efficiency and profitability across many industries. However, we often pay little attention to the subtle pressures technological advances can place on the incumbent system within which they operate.


For more established sectors, system weaknesses exposed by technology can be extremely damaging, costly and are unlikely to be overcome without innovating the system itself. The recent outages in South Australia are a prime example of how technological innovation, while hugely beneficial, can not be adopted in a vacuum. It is important that we actively work to ensure the surrounding system is evolving and prepared for inevitable shifts in production, consumption and stakeholder interaction.

We have witnessed first hand at the HiveXchange how a digital marketplace influences more than just the manner of trade – indeed it starts to change the nature of the relationship between the producer, the buyers and the marketplace itself. For example, we saw the “tyranny of distance” disappear only to uncover the challenge of a ‘tyranny of closeness’ i.e. literally in the pocket 24 hours a day, 7 days a week!

Technology uncovered this new challenge and we needed to respond quickly to maintain a healthy system for our members. It led to us integrate new communication tools into the platform that by design encouraged short communications, delivered in consumable chunks – meaning fewer interruptions and phone calls outside of the trade environment. It is now one of our most popular features. In this instance a new challenge inspired innovation of the system – system weaknesses only become crises when we are reluctant to challenge the past.

The changing fabric of the food system – breaking the chain

The changes we are seeing across the food system are ultimately the result of 3 great technological and social shifts in the last decade:

  1. Ubiquitous communication (internet & mobile)
  2. The ability to store and manage information at incredibly low cost and incredible speeds
  3. The shift in our society to making everything available as a service (the “uber” effect)

 

What does this mean for Australian producers and buyers?

+ Benefit: Market Reach and Biosecurity

Firstly, let’s look at how buyers and producers connect and establish a supply relationship. With digital technology advances it is now possible for a producer to reach out to a buyer in any location, provide them with real-time pricing information and a visual experience of their farm and their produce. Buyers no longer need to physically visit a farm, as a digital visit is not only cheaper it can be more information rich and meaningful. That digital shift offers the producer both a biosecurity benefit and a market reach benefit.

+ Benefit: Provenance

The story about the unique characteristics of the produce and how it was grown can travel with the product itself right through the supply chain. All stakeholders in the supply chain can use that information to manage product quality and add value to the offering itself. Greater product awareness can unlock greater margins.

+ Benefit: Agile, efficient, full-service supply chains

In a digital world where all the trades are described in an electronic format, the data can be used to create supply chains on the fly. At the HiveXchange we have already integrated some service providers into the workflow. This means as offers for produce are made and orders taken, the information inside those orders can be used to get quotes for transport services, for cool room or ripening services, or for export services. As more and more services are made available online, the opportunity to turn those services into building blocks that can be dropped into a workflow are significant. Greater supply chain agility means it becomes viable to reach more markets, more efficiently, with less waste.

One new service provider that we have come to know quite well is the Freight Exchange. There are now over 1000 drivers and transport companies that use the freight exchange mobile app to tell us what spare pallet spaces they have on their trucks. We can then use that data to find out how many trucks are travelling close to order locations, and access some lower cost space for those pallets.

+ Benefit: Uncovering new value in existing relationships

As the service economy grows there will be more and more providers that will monetise their investments in assets and relationships, and turn them into a range of services.

For example we are working with businesses (with space and relationships in the supply chain). that are establishing a “brokerage” service where they use their existing investments to create new and more direct supply chains between producers and buyers. All of it is managed digitally, using a combination of their own services and bringing in other service providers as required. A growing service economy means there are more opportunities to not only reach markets, but to monetise what you know – who you know – and what you have invested in.

+ Benefit: Automated Efficiency

If you can find and build a contract with a service provider at a known price, once inside a digital environment you can let the software and the workflow build the supply chain for you. This ‘affiliate model’ of selling online has been happening for some time now with non-perishable products and program partners.

This kind of connectivity, innovation and automation begins to turn a linear supply chain into a supply chain fabric that has many nodes and possible connection points. A professional affiliate marketer generates amazing margins through being excellent at navigating the fabric and bringing product to where it’s needed/wanted most.

Making the supply chain a supply network

These (and many more changes) are a reality now in our food supply chains and are delivering real business benefits in the form of generating better prices, more margin, and greater market reach. For fresh produce this journey has only just begun but if history is a guide, this model will pick up speed and the first movers in the model will get the greatest benefits.

Consider Alibaba, the Chinese e-commerce company whose mission is “to make it easy to do business anywhere”. No one had heard of Alibaba before the year 2000 and now it is one of the most valuable companies in the world. On one day alone last year over $20B USD of goods were sold on Alibaba – in one day. And the supply chain that supported that? It looks more like a piece of fabric than a piece of string.

Is this the digital future of the food supply system?


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