A new CSIRO study has found logistics costs in food chains are much higher than previously thought, and a much
A new CSIRO study has found logistics costs in food chains are much higher than previously thought, and a much bigger contributor to the value of retail products.
The groundbreaking report maps the contribution of logistics in five key case studies areas — beef, mangos, wine, grain and sugar.
While smaller previous studies found the cost of logistics as something like 2-3 percent of production costs in the food chain, the CSIRO report puts the figure as high as 25 percent.
More importantly, according to project leader Dr Andrew Higgins, the study found that logistics is a major contributor to the overall value of the end retail product.
“So logistics is not just a service provider or a service to the food industry, it really is a value-adding process to the ultimate value of the export or the end consumer,” he tells SupplyChain Review.
Being the first widespread study of its kind, the research team found each sector didn’t have a handle on its logistics costs. What the benchmarking study has been able to highlight is where both the investment and the value is located.
Higgins provides an example in the sugar chain, which he examined.
“In the past all of the logistics expenditure has been at the upstream end of the chain like the harvesting and cane transport to the mill,” he explains.
“What we found out in the study is the cost of logistics from the mill through to the market was just as high as it was upstream in the value chain, despite the fact most of the effort has been directed at trying to improve the efficiencies upstream in the chain.
“It really shows the industry, hey we’ve been pumping too much money here trying to get efficiencies at this end of the chain when it’s the downstream end of the chain where there’s a lot more potential.
“So it gave the industry more insight into where it should put its investment effort.”
Another researcher, Dr Silvia Estrada-Flores, says the project is unique in Australia but has been completed successfully in countries such as South Africa.
“Everybody talks about logistics and about the cost of logistics but nobody has actually quantified the impact,” she says.
More on the CSIRO report in the January/February edition of SupplyChain Review, out now.