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Food and beverage companies are increasing their use of cross-docking, are continuing to rely on paper-based order-pick methods, and most are outsourcing some or all of their transportation, according to a survey of logistics practices in the industry.

Saddle Creek,, a third party logistics (3PL) provider, said its survey shows that leading food manufacturers and retailers are devoting considerable resources to integrating their information systems with their trading partners using both Electronic Data Interchange (EDI) and, more recently, web-based internet systems or exchanges.

They are attempting to make their logistics operations more efficient in a bid to reduce the $7bn to $12bn per year estimated cost attributed to out-of-stock products.

Food companies are addressing the challenges, while they attempt develop a more optimized, more streamlined supply chain in order to hold minimal inventory so they're not burdened with that large investment, Saddle Creek stated in the survey, released this month.

"Inefficient transportation and excessive inventory represent an estimated $30 billion savings opportunity to this industry," the company stated. "These issues become exacerbated due to mergers and acquisitions. Disparate technology systems overlap and become cost-prohibitive. Physical distribution networks become costly to manage, integrate and re-architect."

About 64 per cent of those surveyed said they outsource some or all of their transportation. Order pick methods continue to be largely paper-based, but both radio frequency identification and voice-directed technology are growing, according to the report.

Meanwhile logistics executives at food and drink companies say their main challenges are finding capacity and drivers to transport their products. About 43 per cent of respondents pinpointed capacity as the biggest logistics challenge they face while another 24 percent cited driver shortage.

"When evaluating the responses of this survey, it's clear that the food industry is disjointed, reliant upon outsourcing practices, has seasonal patterns of production, and deals with highly perishable products," Saddle Creek said in an analysis. "The industry is dependent upon a highly fragmented truck transportation system for 80 per cent of its shipments -- more than 600,000 interstate motor carriers in 2002 per Federal MCSA."

Other trends affecting food and drink logistics include the changing business model driven by the Internet and a more "customer-centric" marketplace, the company stated. Since their logistics operations are made up of an extensive network of trading partners that includes 3PLs, suppliers, contract manufacturers, distributors, and retailers, their quest for perfect orders must ultimately become a collaborative goal.

"Efficient, timely order fulfillment is the new fundamental business requirement for food companies," the report stated. "Smaller, more frequent orders are required and fulfillment focused on value-added handling rather than warehouse storage."

To meet these demands food and drink companies are increasing their use of forward distribution centers. This is being done, in large part, as a result of increasing changes in the truckload industry and the additional demand placed upon them by their customers.

Meanwhile globalization is leading to more consolidation among retailers, manufacturers and 3PLs. In order to compete with the largest competitors, food companies are looking to grow globally through mergers while reducing investment in hard assets and focusing their resources on those areas in which they have core competencies.

They are using more dynamic tools and technologies to address supply chain management issues such as unplanned events, shipment delays, parts shortages, production delays, and demand swings.

"When addressed with traditional optimization applications, such initiatives give rise to rigid, linear value environments," the report stated. "These food supply chains must give way to dynamic supply networks and collaborative technology that drives them. This technology allows for the processing of high volumes of distributed transactions between various members of a supply chain in a fast and low-cost manner."

While focused on inventory and orders, such systems allow managers to track an order or inventory stock-keeping unit (SKU) using the unique numbering system of the individual trading partner. They also provide a single consolidated view of all trading partner inventory in a supply chain, the report stated.

As supply chain management systems (SCM) become more efficient in providing the real-time data, they also also being developed to become better at predicting future needs and orders.

"Eventually, real-time execution systems are anticipated to have the capabilities that incorporate long range forecasts, plans and schedules into real-time execution systems, and will reduce the need for the advanced planning/forecasting systems used today," the report stated. "Leaders in the food logistics industry are aligning themselves with these new SCM solutions that simultaneously revolutionize the supply chain and optimize customer intimacy."

Saddle Creek's surveyed 100 executives involved in the warehousing or transportation management of food and beverage products. The majority of respondents were grocery companies, food and beverage processors or 3PLs located throughout the US.

About one-third were with smaller or medium-sized companies earning less than US$50m in gross annual revenue.

"Food shippers are interested in developing collaborative relationships with third-party logistics providers to create leaner, more efficient logistics practices within their supply chain," Saddle Creek stated in releasing the results of its survey this month.