Demand & Supply Risk Management
With A Six Day Perishable Supply Chain
Scott Komar
Executive Vice President, Operations
Fresh Express
Our company started in 1926 as Bruce Church, Inc.

Salinas, CA and Yuma, AZ growing
regions

Iceberg (Crisp Head), Cantelope,
Romaine, Watermelon

Grow, Pack, and Ship
“commodity” company
1
Fresh Express Value Added Salads
– Launched in 1989
– “The child that became the parent”
– Acquired by Chiquita in 2005
2
Fresh Express Growth
$1.1 billion sales in 2006
3
Seed to Stomach Supply Chain
 Food Safety
 Quality / Freshness
 Service
 Efficiencies
4
Seed to Stomach Supply Chain
Highly Integrated Cold Chain – Superior Food Safety
4 hrs
Growers
Harvest
Cooling
Raw Transit
Processing
30,000 loads to
the Plants
Plants in Salinas,
Chicago, Dallas
and Atlanta
Store/Shelf
Consumer
z
34o ~ 38o
1.2 billion
pounds of raw
product sourced
Distribution
Transport
Customer DC
34o ~ 38o
120 million cases
produced
70,000 loads
delivered
48% of national
market share
5
Supply Chain Speed (Measured by Hours)
Fast Field to Finished Goods
70 Hrs
Chicago
Campus
Salinas
Greencastle
FDC
12 Hrs
Yuma
Atlanta
90 Hrs
Grand
Prairie
Mexico
50 Hrs
6
Innovations Requires Specialty Manufacturing
YoCream
Chicago
Campus
Salinas
NE Regional
Network
Chipotle
YUM
Frozen Smoothies
Atlanta,
Carrollton
Grand Prairie
HEB
Guacamole
Avoterla,
Mexico
7
CLOSE LOOP FRESH FULLFILLMENT NETWORK
Demand Management
Consumer
6
One
Forecast
Innovations
Fruit
Retail Salad
Foodservice
1
Vendor Managed
Inventory
2
One Manufacturing Network
One Logistic Network
3
4
One Order
Fulfillment
Sun Rich
(Vancouver)
Canada
YoCream
Petersen
Apples
Sioux City
Deli Stars
Sun Rich
(Toronto)
Frosty
Fresh
Chicago
Campus
River Ranch
Chicago
Campus
Salinas
NE Regional
Network
Salinas
Canteen
Sun Rich
(LA - Corona)
Grand
Prairie
Atlanta
Atlanta
Grand
Prairie
Avoterla,
Mexico
Mexico
8
Demand and Supply Uncertainty
 Tools for Matching and Mitigating Exposure
 Value Added Risk Management Hedging
9
Demand and Supply Uncertainty
Forecasts Generated
Timing
Forecasting
Business Driver
0 – 14 days
Operating
Order Fill, Plants, Harvest,
Transportation
2 – 12 weeks
Tactical
Supplies purchasing
(corrugate, condiments)
12 months rolling
Business
Growing contracts, capacity
10
Demand and Supply Uncertainty
Major Events That Impact The Forecast
Demand Events
Duration
1. Promotions (ours, competitors)
1 – 3 weeks
+/- 5-15% per Plant
2. Weather (buying behavior)
1 – 4 weeks
+/- 5-20% per Plant
3. Peak Weeks (January, May)
3 – 7 weeks
+/- 25-30% system wide
Supply Events
Duration
Network Impact
Network Impact
1. Pest (grasshoppers, aphids)
1 – 2 weeks
- 5-20% of supply
2. Disease (mold, mildew)
2 – 4 weeks
- 5-30% of supply
3. Weather (heat, freeze, hurricane)
2 – 10 weeks
+/- 10-50% of supply
11
Demand and Supply Uncertainty
Forecasting Results
Step 1. Create An Agile Network
 Advance Planning (S&OP) – over communicate
 Supply Chain synchronization every Mon, Wed
 Network Balancing throughout the week
12
Demand and Supply Uncertainty
Step 2. Create Flexibility on Both Ends of the Supply Chain
Diversions
While the truck is in
transit, change the
destination
70 Hrs
Chicago
Campus
Salinas
Greencastle
FDC
12 Hrs
Yuma
Atlanta 90 Hrs
Crop Management
Push / pull in the field
(up to six days flex)
Mexico
Grand
Prairie
50 Hrs
Outside Sales
Sell Raw Product
(better food safety
and quality)
Result = 0.7% of sales dumped / donated
13
Risk Management
Step 3. Build Capabilities for TEMPORARY Supply & Demand Matching
Raw Product Risk

Iceberg and Romaine represents 56% of total commodity
pounds consumed (675 of 1,200 million total pounds)

From the start of the salad program in 1989, up to 2001,
the open market for iceberg and romaine was typically at,
or below, contracted growing rates. As such, Fresh
Express utilized an “under supply” growing/planting plan
to leverage this situation
14
Risk Management

At times during the year, when Mother Nature would disrupt
the crop supply, we would have to adjust our operations

Over the years, Fresh Express has developed an array of
tools to manage volatility of supply and demand
TEMPORARY Risk Management Tools and Process
Demand Management
Supply Management

Modify promotion volumes
by switching to other
products or canceling ads

Change recipes, through
MRP bill of material mix, to
shift commodity usage

Hold customer orders to
10-week averages

Push / pull timing of
harvest in the fields

Implement a price increase
(surcharge) with Food
Service & Retail customers


Prorate orders
Reduce/eliminate, for a
short period of time,
procurement of the
commodity
15
Risk Management
Spot Market Purchases
Raw Product Risk

Open Market Iceberg Prices ($/Lb.)
Two significant events
occurred in the 1998 – 2002
time frame that changed the
game:
1.
Fresh Express doubled
in sales
2.
A significant percentage
of growers, seeking
greater price stability,
aligned with contracted
growing agreements,
thereby dramatically
shrinking the available
open market pounds
24¢
19¢
70%
increase
20¢
14¢
Supply
1999
2000
2001
2002
2,746
2,532
2,253
1,787
35%
decrease
Source: USDA Market News
16
Risk Management
USDA Pricing History
Prices over $20: 0 times in 48 months 1998 through 2001,
3 times in the 24 months of 2003-2003 or greater than 10% of the time.
Iceberg Monthly Average USDA Price
1999 through 2003
including 5 year average
45.00
40.00
1998
35.00
1999
30.00
2000
25.00
2001
20.00
2002
15.00
2003
10.00
AVERAGE
5.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- Highest risk around September at the end of Salinas season – 3 of the last 6 years over $10.
17
Value Added Hedging
Sell the value of
uninterrupted supply,
at much more
predictable costs,
and higher food
safety assuredly
Charge an “over
supply fee” based on
a cost/pound rate
Variable planting to cover high risk months
Incremental plantings range from 105% to 120%
Raw Material Plantings as percent of Requirements
Fee is a savings
compared to
incremental costs of
spot purchases
Form a commodity
desk to sell excess
supply in the field
125%
120%
115%
110%
105%
100%
95%
Ap
r
M
ay
Ju
n
Ju
n
Ju
ly
Au
g
Au
g
Se
pt
Oc
t
Oc
t
No
v
De
c
De
c
Pricing is adjustable,
to a large degree,
during market
conditions (but the
Franchises go crazy)
Supply
Ja
n
Ja
n
Fe
M b
ar
c
M h
ar
ch
Food Service
requires
uninterrupted supply
for their menu items
(McDonalds, Subway,
Taco Bell, etc.)
Hedge
Percent of Requirements
Demand
Weeks
18
Risk Management
Results Thus Far

Spot market pounds purchased significantly reduced from 2002

Open market pricing dropped dramatically

Currently there is too much supply … we now have to adjust downward
11¢
10¢
8¢
2001
Spot Market Lbs Purchased in 000's
$ of Spot Purchases in $000's
$/Lb of Spot Purchases
28,838
$ 2,343
$0.08
2002
56,861
$ 19,570
$0.34
2003
40,929
$ 13,505
$0.33
9¢
8¢
2004
2005
9,627
$ 3,031
$0.31
$
$0.00
19