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Greenwich School of 1 Management

Logistics and Operation Management

Supply Chain of Hormel Peperoni

Okikiola Lookman Imam Tutor: Neil Coade Student Number: 121396

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From: Mr Okikiola Imam To: Neil Coade

Stn: 121396

Contents

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Introduction
The recent public outrage of horsemeat being found in meat products in UK process food, when they are being labelled as beef or pork has highlighted a big problem in the supply chain of process food. Process food supply chain is undergoing continuous changes in terms of how they conduct their business, mainly caused by competition among suppliers, cost, regulation and socio-cultural changes. A process food is a product that have numerous ingredients. A task was now given to select a process product to track, trace and study the supply and distribution chain for some of the ingredients found on its packaging. The chosen product for this report is peperoni, assumptions might be that processes involve will be simple, but its more complex than thought. Objective The main objective of this report is to research on detailed finding of the supply chain of the chosen process product (peperoni), looking at nine of its ingredients as listed on its packaging, critical analysis will be done throughout this report against Hormel supply chain operation and supply chain theories itself. Factors affecting the demand and supply of process

food will be examined for example the business environment.

Source: Slack, 2013.
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Environmental Effect Affecting Food Processing Industry
The food processing industry is experiencing strategic change, because of changes in the environment they operate. The industry have to look at forces within their micro and macro factors that affect them, Looking at what make food processing demand higher/lower and what give some process food producer competitive advantage over others in the industry. The food processing industry are important in the supply chain that allow retailers and supermarket to provide a range of food choices.

Source: Boddy, 2011

Factors that Affect Demand of Process Food
UK residents consume the highest amount of process food in the world, because of its different cultural taste which have some positive effect on sale of process food. "The UK fast food market grew by 5.2% to reach a value of $2.2 billion in 2008" (Datamonitor , 2009) but there are other factors that affect the consumption of process product.

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Process product
Hormel Foods Corporation is an international company with branches all over the world, head office in Austin Minnesota and they specialise mainly in pork and harm process product such as spam, skippy, chi-chi. (CNN, 2006).

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Diagram showing where and what Hormel source and what they do themselves

(HORMEL PLC, 2011)

Ingredients List
Pork, Beef, Salt, Contains 2% or less of Water, Dextrose, Spices, Lactic Acid Starter Culture, Sodium Ascorbate, Oleoresin of

Paprika, Garlic Powder, Sodium Nitrite, BHA, BHT, and Citric Acid. In Collagen Casing. Source: Hormel 2013.

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Source: Slack, 2013. Supply chain management is an oversight of information, materials and finances as they interchange in a process from supplier to producer to wholesaler to retailer and the end user.

Pork is a major ingredient in peperoni, Hormel operate some

farms

themselves and also source pork using Multi-sourcing, which is buying the same pork product from a variety of suppliers “Hormel Foods sources hogs from more than 690 independent family farmers across the Midwest s” (HORMEL PLC, 2011) one of this hogs suppliers are Hawkeye Sow Centers (HSC) “hundreds of independently-run facilities that ultimately supply Hormel, like HSC, which comprise the majority of Hormel’s pork.” (COK, 2012) Suppliers like HSC rear the piglet from birth. Next stage of the pork process either from the suppliers or from Hormel own farm itself, is to be transported to one of its three food processing unit used by Hormel Foods: these third-party contractors are Farmer John (Vernon, CA), Plant and Quality Pork Inc. (Austin, MN) and the Hormel Foods Fremont (NE), between them they process approximately 9.4million hogs. These private contractors process the pork into different raw material to be used for Hormel peperoni. Final stage of the pork in Hormel peperoni is where raw material are then distributed by one of their logistic company such as ICS Logistics
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Corporation, McFarland Truck Lines Inc to various location across the united states and include: CA; Tucker, Stockton, Algona, Knoxville, Osceola, IA and Aurora.. Where these raw material from pork are turned

into food and meat product. The peperoni this report is based on is produce at aurora, Austin’s, Wichita. (HORMEL PLC, 2011)
Source: 123RF, 2012.

Beef: “Hormel Foods and Cargill Announce Joint Venture” (CargillMeat,
2002) since this merger high percentage of Hormel beef is supply by Cargill Meat which owns its own farm. Cargill process, distribute its meat product to large and small producers, Cargill have farms in Costa Rica, Honduras, Nicaragua etc. the next stage is to send the cows to one of their slaughter house to be killed and finally shipped to a port in the

united states and then moved peperoni 20z.
Source: www.alderspring.com, 2012.

to one of Hormel processing centre

mentioned above, where it is turned into raw material to be used for the

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Salt: salt is important in food processing, as it acts as food preservative
and flavouring agent. Salt is a natural mineral either in liquid or solid form. It can be found deep down in the earth buried under rocks, oceans, lake. Majority of salt found in food is from salt mines, through excavation by drilling and exploding of the earth. The two biggest suppliers of salt to process food companies are Cargill, Truvia and because of close relationship between Cargill and Hormel, Hormel source their salt from multiple supplier with Cargill being the main supplier, who deliver to Hormel processing centre where they use the salt in making of the peperoni. Cargill had vertical merge on its supply chain, controlling much of its supply chain. Cargill have salt mine in Cleveland, Lansing “The Cayuga Salt Mine in Lansing, New York, is the deepest and oldest of two room-and-pillar salt mines currently operating in the state of New York.” (Cargill, 2013) Where it is process, package and distributed to one of Hormel factories, in this case aurora. “When a storm hits, you need to be there. You can rely on Cargill to be there, too. We mine, process and transport bulk rock salt throughout the country. As a result, our supply, support and access to bulk deicing salt will keep your winter maintenance program operating at full capacity.” (Cargill, 2013) Source: www.wisegeek.org, 2012

Sodium Ascorbate: This is a water soluble salt, in form of vitamin C also
contain ascorbic acid mixed with sodium and the chemical compound is O6NAH7C6 and it is sometime use as an additive in food processes. (Churchwell, 2010) Hormel work with a multiple of supplier in getting its sodium nitrate which is very important as it acts as a preservative, some of the most popular suppliers of sodium ascorbate in the US are Premium Ingredients International, Qingdao Kaison Chemicals Co.,Ltd , AMT Labs Inc. this are transported to Hormel processing center in aurora from a distribution center where the lab keep its inventory.“Sodium ascorbate is produced by
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dissolving ascorbic acid in water and adding an equivalent amount of

sodium bicarbonate. After cessation of

effervescence, the sodium

ascorbate is precipitated by the addition of isopropanol.” (Higdon, 2001) Source: nutrimaxxsupplements., 2011

Oleoresin Paprika is a natural food coloring used in coloring foods while
they are still in liquid form or have liquid fat, the coloring at extraction is deep red. It is extracted by plant fats, lipids and red peppers pigment. . It contain capsaicin which is the main compound letting it have higher concentration. Manohar Botanical Extracts Pvt. Ltd is one of the biggest supplier of Paprika Oleoresin which is used as natural colouring agent in food industry. Supply chain of paprika started from farms after the chilli have been harvested by the farmers in either china, India or Peru, it will then be send to a processing centre where it is dried and grounded before being sent out to different part of the world.

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Adani Pharmachem limited is one of the biggest and eminent suppliers of Oleoresin Paprika to food industries in the USA and its paprika would have been imported from China, India and Peru, which is one of the multiple ingredient supplier to Hormel, another is Red Arrow who was given an award by Hormel for continuous good service, from this Importers Hormel would have source their paprika.

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Source: GTIS Inc Data associated with New Mexico Chile Task Force Reports. 2013

Source: fraken.en, 2009.

Butylated Hydroxyanisole (BHA): this is a food addictive that are often
used in process food in preserving fats, BHA is also an antioxidant consisting of isomers 2-tert-butyl-4-hydroxyanisole and 3-tert-butyl-4hydroxyanisole. BHA is a waxy compact solid used as addictive in food and uses the E number E320 and the Molecular formula for BHA is C11H16O2. The biggest supplier of BHA in the US is Finoric LLC “Finoric,

etymologically derived from our business line of Fine Inorganics, Organics
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and Industrial Chemicals, is the internationally preferred source for Chemicals. With customers in 55 countries across 5 continents, we source and sell most chemicals. Backed by owned full-fledged chemical manufacturing facilities in India, and Toll Manufacturing facilities in Dubai and USA we are a truly multi-national chemical manufacturer and

distributor.” (Finoric, 2000) Hormel’s foods would have source their BHA from a company like Finoric who should offer special discount for scale buying.

Sodium Nitrite: this also called Peru saltpeter or Chile saltpeter, is a
chemical compound and uses the formula NaNO3. Largest reserve of natural sodium nitrate are found in Peru and Chile, for last 100years most of the world sodium nitrate had been mine in Atacama Desert in Chile.

Another source of sodium nitrate is from Germany which is not natural and its produce by converting ammonia into synthetic Chilean saltpeter and it could be used as food preservative, fertilizer etc. (Zumdahl, 2009) Source: Caloricious, 2011
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Garlic Powder: is derived from garlic also known as Allium sativum, Garlic
is a species of the onion genus, and very close related to chive, leek, rakkyo, shallot and onion. Garlic has been used by human for nearly 7,000 years for both medicinal and culinary purposes. The garlic bulb is the most popular and most used part of the plant. Garlic component: spherical cone, white/light brown scales membranous skin, stripped of scale leaves cloves, each clove outsourcing film, strip film, or see the white, six to ten garlic. Garlic first places of origins are ancient Egypt, ancient Greece and further introduction to southern Europe. Economic of scale and scope will give the top three producer advantage, the movement of the garlics is from harvesting, to a processing center where they are naturally dried and mechanically grounded and contained in a container for shipment. Shandong sanxing foods manage the supply chain of its garlic powder from seeds to finish before it is sold on to importer of garlic to the USA such as Garlic & Herb Dorot who then sell to company like Hormel, Garlic & Herb imported over ten million tons in 2013.

Source: Seriousranking, 2012.

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Butylated hydroxytoluene (BHT): this is also called butylhydroxytoluene, BHT is chemically derive from phenol and it is a lipophilic organic compound, BHT is useful because of its antioxidant properties. U.S. and some European countries allow it to be used as a food addictive in considerate moderation because of its link to cancer and child hyperactivity. BHT is made the reaction of isobutylene (2-methylpropene), p-cresol (4-methylphenol) and catalyzed by sulfuric acid and chemical formula for this is: CH3(C6H4)OH + 2 CH2=C(CH3)2 → ((CH3)3C)2CH3C6H2OH

Finish Product to End User.
Processing plant use all this raw material such as pork, beef, salt, BHA etc. and make it into a finish product which is peperoni, then it will be package and label ready to be sent out to the retailers such as shop foodex, ShopRite and Walmart “Hormel Foods Corporation (NYSE: HRL) today announced it was recognized for outstanding partnership in two categories by Walmart at the world’s largest retailer’s year-end award ceremony.” (Hormel, 2011). This stage is where the end consumer can go buy the finish product either in shops or online. in Europe Hormel partner with Tulip international, the product is shipped to Tulip who then sell all over Europe to major supermarket; such as Tesco, Morrison, ASDA etc., where it will be deliver to their central depot then onto their local store to be consume by the consumer, amount sent to local store will depend on demand for the pepperoni.

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Advantages/Disadvantages of Hormel Supply Chain. Hormel having a multiple of supplier pose its own disadvantages because of intense administrative effort in communicating and dealing with numerous suppliers, basically having a single supplier would have lessen the workload of the organization, but Hormel base their argument on giving everyone in the community a chance “Our supplier diversity program gives diverse companies such as women-owned and minorityowned businesses the opportunity to supply quality product options that meet our company’s growing business needs” (HORMEL PLC, 2011). Multiple suppliers might mean lesser quality and in the case of Hormel, suppliers that don’t conform with animal rights law “People for the Ethical Treatment of Animals has documented hogs being tortured at a farm that supplies Hormel Corp., the animal rights group said late Tuesday” (Wyant, 2008) and a single source supplier dependency will lead to better commitment. Advantages of having a multiple of supplier is Hormel are sure, they keeping their company competitive rather than having a single source. Hormel having a multiple supply source assure potential suppliers of future contract, if single supplier other suppliers might lose interest trying to compete for contract if they see only sole sourcing. Hormel multisourcing will help tap into wide source of expertise and knowledge.

Evaluation of Hormel Supply Chain
“Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behaviour you could lose a lot. It would be like pouring cement down one of your oil wells.” (Friedman, 2013) Hormel foods need to get full control of their supply chain as not being able to control or monitor their supply chain, will see them losing market share to their competitors “Through our Supplier Quality Management SQM program, we measure suppliers based on

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quality, delivery, service, technology and price. Our ingredient suppliers are subjected to additional measurements” (Hormels, 2011) Having a multitude of suppliers put Hormel’s food in the ‘driving sit’ as their operating cost can be low due to available alternative prices, but the problem with having multiple supplier is lack of relationship, ability to offer quality product (product fit for purpose) which some suppliers didn’t adhere to, Hormel monitoring their supply is a good idea as it scrutinize the system “if suppliers are found to be out of compliance, appropriate action is taken, up to and including termination of partnership.” (Hormels, 2011)

Conclusion
This report has gone into extensive research looking at environmental impact on the processing food industry then briefly looking at the chosen product (Hormel peperoni). This report is a critical analysis of Hormel supply chain and looking at all the nine ingredient in peperoni, some ingredient tracing have gone into depth tracing even naming suppliers and processes, thanks to the availability of information, while some ingredient tracing are in brief. Even though there is increase investment by process food industry for sustainable food supply chain which is lawful and ethical and this can only be achieve if producer adopt a BP and Shell system of controlling the supply chain from start to end users. This report hereby conclude that Hormel supply chain is effective and efficient and the secret to the success of their supply chain is down to diversification of suppliers and continuous evaluation of its suppliers and supply chain, which help keep cost down and also being able to control their supply chain by owning some element of its supply chain such as farms.

Recommendation
Research done by me on this report discover some areas in which Hormel could improve their supply chain operation in relation to supply chain management. Firstly having a few suppliers with close relationship would help with improving innovative ideas, R&D development and might have stop some of the problems explained in previous pages for example some suppliers of hogs abusing piglets.

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Second recommendation is, a vertical or horizontal merger or acquisition with some of its supply chain such as ingredients or pork suppliers will definitely make them more competitive as they will be able to control the
Vertically integrated operation

g n i h t y r v e

o D

Traditional supply management

‘Partnership’ supply management Virtual spot trading Transactional – many suppliers Long-term virtual operation

g n i h t y r e v n a t r o p m i

o D

y v s p l n i f o e t c r a h C

actual resources they use in their products.
Source: Slack, 2013.

References
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g i h t o n

Type of inter-firm contact

Close – few suppliers

o D

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22 Churchwell, M., 2010. www.livestrong.com. [Online] Available at: http://www.livestrong.com/article/168202-what-is-sodium-ascorbate/ [Accessed 12 March 2013]. CNN, 2006. money.cnn.com. [Online] Available at: http://money.cnn.com/magazines/fortune/fortune500/snapshots/635.html [Accessed 7 March 2012]. COK, 2012. www.cok.net. [Online] Available at: http://www.cok.net/about/news/press-releases/whistleblowingexpose-reveals-cruelty-at-iowa-pig-breeding-factory-farm-and-hormel-supplier/ [Accessed 28 February 2013]. Datamonitor , 2009. August. s.l.:s.n. Division of Nutritional Sciences, 2012. oregonstate.edu. [Online] Available at: http://oregonstate.edu/instruct/nutr216/ref/symposium_sobal.html [Accessed 20 March 2013]. Finoric, 2000. finoric.com. [Online] Available at: http://finoric.com/BHAbutylatedhydroxyanisole.htm [Accessed 27 March 2013]. fraken.en, 2009. fraken.en.made-in-china.com. [Online] Available at: http://fraken.en.made-in-china.com/productimage/xiJnIDEvuQXS2f0j00gMtEwUKnAvuN/China-Gardenia-Yellow-Phytol-amp-Paprika-Oleoresin.html [Accessed 20 March 2013]. Friedman, T., 2013. /www.searchquotes.com. [Online] Available at: http://www.searchquotes.com/search/Supply_Chain_Management/ [Accessed 20 February 2013]. Guardian, 2013. www.guardian.co.uk. [Online] Available at: http://www.guardian.co.uk/uk/2013/feb/23/horsemeat-scandalfrancois-hollande [Accessed 23e March 2013]. Higdon, J., 2001. lpi.oregonstate.edu. [Online] Available at: http://lpi.oregonstate.edu/ss01/bioavailability.html [Accessed 17 March 2013]. HORMEL PLC, 2011. 2011csr.hormelfoods.com. [Online] Available at: http://2011csr.hormelfoods.com/process/animal-care/hogs/ [Accessed 28 February 2013]. Hormel, 2011. www.hormelfoods.com. [Online] Available at: http://www.hormelfoods.com/Newsroom/Press-Releases/PressReleases?topic=Community [Accessed 27 March 2013]. Hormels, 2011. hormelfoods.com. [Online] Available at: http://2011csr.hormelfoods.com/process/supply-chain/ [Accessed 21 March 2013]. Kotler, P., 2008. Essentials of marketing. Essex: Pearsons. 22 Okikiola Imam 121396

23 Mbextract, 2011. www.mbextracts.co. [Online] Available at: http://www.mbextracts.com/paprika-oleoresin.htm [Accessed 23 March 2013]. Meat Poultry, 2012. www.meatpoultry.com. [Online] Available at: http://www.meatpoultry.com/News/News %20Home/Business/2012/4/Hormel%20Foods%20honors%20suppliers.aspx? cck=1 [Accessed 8 March 2013]. nutrimaxxsupplements., 2011. nutrimaxxsupplements.blogspot.co.uk. [Online] Available at: http://nutrimaxxsupplements.blogspot.co.uk/p/collagen-sodiumascorbate.html [Accessed 23 March 2013]. Peta, 2013. secure.peta.org. [Online] Available at: https://secure.peta.org/site/Advocacy? cmd=display&page=UserAction&id=1486 [Accessed 20 March 2013]. Seriousranking, 2012. www.seriousrankings.com. [Online] Available at: http://www.seriousrankings.com/top-10-garlic-producing-countries/ [Accessed 23 March 2013]. www.alderspring.com, 2012. [Online] Available at: http://www.alderspring.com/organic-beef-matters/ [Accessed 03 April 2013]. www.walmart.com, 2013. www.walmart.com. [Online] Available at: http://www.walmart.com/ip/Hormel-Pepperoni-Stix-6ct/15610497 [Accessed 12 April 2013]. www.wisegeek.org, 2012. www.wisegeek.org. [Online] Available at: http://www.wisegeek.org/what-is-salt-peter.htm [Accessed 6 April 2013]. Wyant, C., 2008. www.bizjournals.com. [Online] Available at: http://www.bizjournals.com/twincities/stories/2008/09/15/daily18.html [Accessed 20 March 2013]. Zumdahl, S. S., 2009. In: .. Ed.., ed. Chemical Principles. s.l.:Houghton Mifflin Company. , p. A23.

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Appendix

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