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