case study: coffee
COFFEE STATS
1. There are two main coffee species, Arabica and Robusta 2. The world consumes 1.6 billion cups of coffee every day 3. Coffee is the second most traded commodity, after petroleum
4. It takes between two and three years for a coffee tree to mature enough to begin producing fruit
5. Most of the world’ s coffee is grown in the“ Coffee Belt” between the Tropics of Capricorn and Cancer
6. Brazil produces almost one-third of the world’ s coffee 7. It takes 100 coffee beans to make one cup of coffee
Source: RGC Coffee
effect on RGC’ s coffee supply chain included delayed and closed ports, and shipping lines that ceased operations, creating a delay in receiving coffee of a week or more. A delay of this magnitude puts pressure on the rest of the supply chain to fulfill existing tenders and keep up with market demand.
Jeff Bernstein puts it this way:“ Bad weather is a force of nature. We can’ t control it, but it is a big issue. With coffee, you’ re dealing with an agricultural product that is not friendly to weather. You have to move it as quickly as possible in the most ideal situation possible. Coffee beans are like sponges; they will absorb anything and everything, from water to chemicals. Weather can have a big impact on roasters because they’ re waiting on coffee that we can’ t tender to them. It’ s not a good thing.”
PROPOSED SOLUTIONS
How do you prepare for something so unpredictable as the weather? You can’ t, says Bernstein.
“ You take your index finger and you cross it over your middle finger,” he said.“ That’ s basically what we do.”
The solution isn’ t as much about preparing for bad weather but more about having a solid, everyday supply chain in place so that when adverse weather does threaten the supply chain, the effect on its people, product and business is minimal.
“ Coffee flows every week, sometimes multiple times per week. And to start micro-managing that process will affect your business in ways you really don’ t want it to. We focus on positive things and taking a proactive approach. Let us know what ports are shut down. Let us know what cargo we have going into those ports. Let us know when the port opens and we’ ll let our supply chain and our customers know. We take a proactive instead of reactive approach,” said Bernstein.
It’ s also possible to source coffee from other origins, and is the main reason why companies like RGC don’ t source coffee from only one or two places.
“ If we can’ t bring in Colombian coffee, we can switch to another origin, such as Guatemalan, that will have similar characteristics,” said Bernstein.
Moderately weather-damaged crops can still be harvested with little impact on the supply chain and the world price of coffee.
“ Using a moderately damaged crop just puts a squeeze on the rest of the supply chain. It doesn’ t usually affect the world price of coffee but it will normally drive up the local differential or the premium that the country demands for its coffee, above or below the market,” said Bernstein. What has an effect on the world price of coffee is the quality of the coffee itself which, as discussed, is at the mercy of El Niña and El Niño.
“ El Niño had a big affect on Colombian coffee this year. It did impact the price differentials and the premium that they demand for their coffee because the product being shipped wasn’ t up to par compared to previous years. It also kept certain qualities of coffee in shorter supply,” said Bernstein.
RECOMMENDATIONS
Weather – especially adverse weather – is unpredictable at best and catastrophic at worst. For RGC to attempt to plan around weather would also be catastrophic. In conclusion, the clearest way forward to minimize adverse effects of bad weather is to continue with the existing plan: taking a proactive approach to handling adverse conditions by maintaining strong communications throughout the supply chain and keeping everyone involved up to date on the situation as it unfolds. In other words, keep that coffee coming.
18 • SUPPLYCHAINCANADA. CA • SCMA