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Homeland Security

Pandemic - Food Shortages

The difference between
civilization and anarchy is
three days without food.

The just-in-time inventory control model by which modern food distribution networks operate mean that warehouses don't have months worth of inventory. Most grocery store chains have only a few days days of the most popular items on hand, and a few days more at warehouses, along with possibly 30 days worth of less popular items. The sort of short-term shortages that happen when winter storms threats induce panic buying might drag on for between 18 months and three years as successive waves of pandemic flu cross the world.

Private sector end-users have no need to hold on to large stocks of food because they can depend on the distributors to deliver the food they need within a few days (often 1 day) of ordering it, due to efficient supply chain management. Full-line distributors have on-hand inventories averaging 30 days or less and no items in their warehouses would be more than 6 months old. Some inventories are needed to respond to unexpected orders and to guard against disruptions in supply. The turnover rates of distributors range from 12 to 62 times a year for semiperishable items and 37 to 104 times a year for perishable items.

Until the 196Os, private sector food distributors were almost exclusively local operations specializing in certain product lines, such as canned or frozen products. Around 1960, they began to expand to carry broader lines of items. For instance, some dry grocery and frozen-food distributors merged. The industry continued to expand, and by the late 198Os, many distributors carried a full line of items, including perishable and semiperishable food, as well as equipment and supplies. In addition, some distributors have become more regional or national by expanding their service areas.

This expansion was driven primarily by customer demands for broader product lines and more efficient ordering and distribution practices. Computerization and other improvements in industry practices also contributed to the industry's greater efficiency.

Food service companies have also evolved. While some companies were in the distribution business in the late 196Os, most left the industry after recognizing that independent distributors were more efficient at distribution. Now food service companies contract with distributors to handle distribution, and their role is focused on negotiating and administering contracts with suppliers and distributors.

Inventories tie up money, and success or failure in inventory management impacts a company's financial status. Having too much inventory can be as problematic as having too little inventory. Too much inventory requires unnecessary costs related to issues of storage, markdowns and spoilage.

Inventory turnover and fill rate are examples of popular indicators for measuring an organization's performance in inventory management. Inventory turnover is the velocity of inventory passing through an organization calculated by dividing the annual sales by the average on hand inventory. Fill rate is the percentage of units available when requested by the customer.

In the late 1970s and early 1980s, just-in-time (JIT) manufacturing practice was introduced, which also revolutionized inventory management. A core concept of JIT pursues waste elimination and zero-inventory by practicing small lot orders on a daily basis and increasing communication between suppliers and customers.

The food service industry has become more efficient as a result of the increased reliance on food service distributors. End-users and food service companies do not incur the direct costs for storing, handling, or transporting items. While distributors do incur these costs, they have financial incentives to make their operations efficient and achieve savings. Competition creates these incentives. Thousands of distributors vie for business across the United States. National full-line distributors compete with large regional distributors, which often dominate their region, and with local distributors. The top 10 regional and national distributors, for example, account for less than 25 percent of the total food distribution business, according to a food service consultant.

In response to this competition, distributors must be extremely cost conscious and responsive to their customers in order to stay in business. Achieving these goals depends in large part on lowering inventory levels and developing a cooperative relationship with end-users.

Private sector end-users, including independent restaurants, hospitals, and hotels, as well as those affiliated with food service companies, obtain their food from distributors. Distributors deal with these end-users on a day-today basis, including taking orders and making direct deliveries. Many of these distributors offer a full line of food items.

Because of heavy competition within the industry, distributors have a financial incentive to cut their costs, keep their prices low, and provide excellent customer service. Large food service companies with many end-users rely on distributors to deliver food to their end-users. The private sector avoids many problems by reducing or eliminating "middlemen." By relying on full-line food service distributors to move both perishable and semiperishable food from suppliers to end-users, food service companies and end-users do not incur the direct costs of holding, handling, and transporting food.

Because of the high costs of holding large inventories, distributors have a financial incentive to keep their inventories low and their turnover high. They are able to do so because of efficient operations and close coordination with end-users.

Large stocks of food were routinely stored throughout the military supply system. As of the end of fscal year 1992, for example, depots had enough semiperishable food items on hand to supply base warehouses for about 82 days. DLA'S total inventories of troop issue foodstuffs at that time were valued at $169 million-$82 million in semiperishable items and $77 million in perishable items. Base warehouse activities also held large inventories - worth about $209 million as of September 30,199l.l According to service officials, they are authorized to have a semiperishable inventory equal to 45 days of supplies. base warehouse activities generally held the maximum authorized amount.

Some end-users also maintained substantial inventories. For example, Navy on-shore end-users maintained an average inventory level of 32 days. According to DOD officials, ships were authorized to maintain a 7& to go-day inventory level because they may be ordered to sea on short notice. Army dining halls, in contrast, were authorized only a 3 day inventory level.

The Defense Commissary Agency (DeCA) continued to reduce inventory investment. By 2000 this resulted in reducing the number of days of supply by 42 percent and decreasing the on-hand inventory level by over 33 percent from the levels maintained by the Military Departments prior to FY 1992. This resulted in more in-stock items to patrons, less out-of-date product in inventory, less inventory to managed - thereby reducing inventory losses, and less taxpayer dollars to maintain the inventory. DeCA has reduced the investment in inventory operating and safety levels. The inventory levels are normally expressed in days of supply based on average daily sales. Average daily sales are projected to be $13.8 million during this budget cycle, with 21 days of supply. Projected average daily sales are $14.4 million for FY 2006 and $14.5 million for FY 2007, with 22 days of supply. In comparison, average daily sales for FY 1991 were $16.7 million with 36 days of supply.

The main rice harvest in Asia is between November and January. Harvesting is a communal activity. If a pandemic struck at that time, it's possible the harvest wouldn't take place. The distribution to the country might not happen. Exports of the harvest would stop because of quarantine. You could imagine millions of people suffering from acute food shortage.

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Page last modified: 13-07-2011 12:49:39 ZULU