A Dutch government-funded study of the Kenyan-Dutch cut flower supply chain exposed a host of minor and major bottlenecks and inefficiencies – and kick-started sector-wide involvement in setting new industry standards for quality, cost efficiency and sustainability.
Businesses operating in the Kenyan-Dutch cut flower supply chain will continue meeting with government agencies and trade promotion specialists from the two countries in the next few months to tackle a host of minor and major inefficiencies and bottlenecks hindering further growth. These so-called Platform Discussions, initiated by the Dutch Ministry of Economic Affairs, Agriculture and Innovation, are the result of a recent in-depth study of this supply chain. The aim of both the study and the meetings is to lift the Kenyan-Dutch cut flower supply chain to a higher level, setting new standards for the entire horticultural sector. The result, if the plan succeeds, will be reduced supply chain costs, a longer vase life for flowers and therefore increased value-for-money for consumers, and increased sustainability in terms of a lighter carbon footprint and reduced product and packaging wastage.
Kenya, a horticultural trailblazer
Already a trailblazer in global horticulture, Kenya has achieved tremendous export growth over the last two decades. Horticulture – with fresh-cut flowers holding first place in export volumes – has become one of the country’s biggest earners, providing many thousands of Kenyans with jobs and income. Kenya has become the leading producer of roses for the European market and a major supplier of other varieties. Exporting largely to the Netherlands, Europe’s principal point of entry for flowers (taking 67% of Kenya’s tonnage and over 55% of its export value), Kenyan players have joined forces with Dutch players in creating one of the industry’s most highly developed supply chains. With volumes steadily increasing and the horticultural product range widening, Kenya’s Jomo Kenyatta International Airport became the biggest cargo hub of Africa in 2011, overtaking even Johannesburg and Cairo.
Facing dramatic change
This rapid growth, however, has put increasing pressure on the supply chain. While production continues to flourish, Western Europe’s cut flower markets are showing signs of saturation, with annual growth settling at a moderate 2 to 4%. A major shift in purchasing power – from wholesalers and the Dutch auction system towards large and demanding mass-market retailers – is also contributing to the general sense that the industry is facing dramatic change.
A study commissioned by the Dutch Ministry of Economic Affairs, Agriculture and Innovation and performed by leading Dutch expertise centres Hortiwise and FlowerWatch, has shown that these combined factors are not only placing severe pressure on margins, but also changing the playing rules in the flower industry. The industry, the study shows, is evolving towards lean and transparent supply chains characterized by consolidation and vertical integration.
‘The overall conclusion of the study,’ says Jeroen van der Hulst, Director of FlowerWatch, ‘is that the Kenyan-Dutch supply chain has reached the point at which it is struggling with the weight of its own success. The many bottlenecks and inefficiencies exposed in our study have to be dealt with; it’s a do-or-die situation. Moving forward to new levels of quality, cost efficiency and sustainability will require a major overhaul involving every link in the entire supply chain.’
Minor problems and major ones
The study, conducted between January and May of 2012, exposed a surprising amount of room for improvement throughout the entire chain, says Milco Rikken, Managing Director of Hortiwise. ‘One thing that struck us is the number of workarounds that have evolved all down the chain, with recognized problems being bypassed through solutions that are far from optimal.’ One example is the re-cooling of flowers at the Kenyan airport through inefficient and relatively costly measures that would be superfluous if the flowers’ were delivered at the airport at the correct temperature in the first place.
‘Many minor issues came into view that in view of margin pressure clearly need resolving,’ says Milco Rikken. ‘The good news is that many can be resolved without much effort. Just tackling the easy issues will cause a noticeable improvement in flower quality, cost efficiency and sustainability.’
Other issues will be a lot tougher to deal with, he adds. Some will require players across the chain, both Kenyan and Dutch, to muster up far more trust and commitment than they have done so far. Comments Rikken: ‘One thing that stands out from this study is that in the flower supply chain, neglect by one player typically leads to costs for somebody else. Bringing all these parties together may well prove to be the greatest challenge of all in realizing the changes this chain so badly needs.’
Eight trouble spots, five improvement themes
The study identifies eight trouble spots in which minor and major problems are holding the sector back:
- Cold chain management
- Transport and logistics
- Information and communication
- The relatively weak position of SME growers
- Handler performance
- The integration of the flower sector with mass-market retailers
- Sector-wide teamwork
In order to maintain their competitive edge over competitors both near and far in the global flower industry, Kenya and the Netherlands can deal with these trouble spots by focusing on five improvement themes, the study suggests:
Theme 1 – Cold chain and packaging standards and procedures
The absence of adequate standards and procedures in the cold chain, most notably, directly affects the quality and vase life of flowers. Temperatures right down the supply chain vary substantially and are often far higher than necessary, both in Kenya and in the Netherlands. The absence of clear agreements regarding temperature, as well as timing and quality of handling services (service levels), also negatively impacts flower quality.
Another area in need of solid standards and procedures to improve quality and cost efficiency is packaging. Currently, the supply chain lacks standard procedures for ordering, storing and erecting boxes, while packaging requirements related to storage, cooling and transport, are often contradictory. Also, loading practices and shipments are often inefficient, with over- and under-packing resulting in volume inconsistencies, unnecessary expenses and damage to flowers.
Theme 2 – Education on cold chain management and packaging
Cold chain management and packaging are also begging attention when it comes to education. Farm staff, transporters, handlers, airlines and importers alike are not as aware as they should be of the basic requirements in these areas, nor how to meet them.
Retailers are another group in need of education on how to handle fresh-cut flowers, as their knowledge and experience with this product lag behind their increasingly dominant market position. Particularly at the retail level, product and packaging wastage figures are astonishingly high.
Theme 3 – Synchronisation of (electronic) information
A more effective exchange of (electronic) information throughout the supply chain will reduce time-to-market and handling expenses, increasing supply chain efficiency. Electronic systems, such as CLIENT (a Dutch system for phytosanitary checks), KePHIS’ electronic service for phytosanitary issuance and E-freight (electronic messaging in the air cargo supply chain), need to be developed and implemented on wider scale. Current flower shipments often lack uniform documentation and labelling, while some of the parties involved in clearing shipments are not available 24/7.
Theme 4 – Supply chain innovation
Strategic, technological and structural innovations, as well as supply chain performance improvements, are vital if the Kenyan-Dutch supply chain wishes to move forward successfully. Sea transportation options need further investigation and packaging innovations geared to direct sales are conspicuous by their absence.
Sector involvement in the carbon footprint debate is crucial for realizing acceptable sustainability standards. The CO2 impact of specific industry activities needs further research. There is also a need for programmes aimed at improved use of natural resources, waste reduction and a better environmental performance.
Theme 5 – Platform
The Platform Discussions for the Kenyan-Dutch Horticultural supply chain initiated in the framework of this study must become a fixed part of the chain’s agenda in order for the sector to move forward. Communication and knowledge sharing can also be improved by means of sector- and supply chain- specific websites, training programmes and other forms of direct collaboration between key stakeholders, including associations and government bodies in both countries.
Concrete and practical
‘The Kenyan-Dutch flower supply chain has a lot of room for improvement in big and small ways,’ says Rikken. ‘We believe this study offers plenty of concrete and practical points of connection for every player in the chain eager to raise the standard and take the lead in the industry. Interest in the Platform Discussions so far has been encouraging. All but a few of the players in the chain seem eager to participate. Discussing change and actually realizing it are obviously two different things, but we’re confident that by tying in with existing initiatives both in Kenya and the Netherlands, we can make a real difference. It’s up to the supply chain itself to make it happen.’