Announcing LFM’s Free Whitepaper: Avoiding Sales Around the Hub

White Paper-Selling Around the Hub

As the season winds down, are you reviewing how this year has gone for your hub and where improvements can be made? Did you experience trouble this season with a producer circumventing your hub and making sales around it? We hear on almost a daily basis the struggle that hubs face in maintaining a working relationship with their producers and avoiding the dreaded, “Sale around the hub”.

Our marketing team of Amy McCann and Ryan Crum have researched, analyzed, and written this report using input from the many hubs we work with across North America as well as their personal experience. We look at why producers may sell around the hub, what food hubs can do to avoid it, and key aspects of a producer agreement.

LFM's Guide to Avoiding Sales Around the Hub

For more information on how LFM can help your hub make the most of your sales, and grow them, contact us!

Announcing our newest release, Version 3.1

We are excited to announce the release of our newest update, Version 3.1.  This release includes dozens of new features and enhancements to help LFM customers enter their busiest season equipped to maximize their sales!  As we often do in our spring release, we focused our efforts on the “little things” that make a big difference.

We did include a couple of “big” items too.  Version 3.1 features the commercial release of our Quickbooks Online API module that seamlessly exports sales from LFM into Quickbooks Online, broken down by Chart of Accounts.  We also incorporated enhancements to the newly released Production Planning module based on customer feedback – including an improved interface for faster entry of plans and management of pre-orders.

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LFM customers – please contact us to receive a link to our training webinar or to receive a copy of the Release Notes!

Production Planning with an Expert: Getting Started with Production Planning

While specifying the requirements of our newly released Production Planning module, we talked to many food hubs that aren’t ready to plan all of their products, but want to implement best practices to position themselves for more rigorous planning in the future.  Our research led us to Mary Oldham, Regional Coordinator for Value Chain Cluster Initiative (VC2), a program of the Natural Capital Investment Fund that provides hands on business support to strengthen local farm and food businesses in West Virginia.

We interviewed Mary about common planning challenges and best practices for newly formed food hubs or those working with small or inexperienced producers.   Below is Part 1 summarizing what should be in place before planning and ways hubs can help less experienced producers transition to planning production.  Part 2 covering common problems and lessons learned will be published in the coming weeks.

Mary will also be joining us for our January 22 webinar, “Getting Started with Production Planning” where she will present on best practices and be available for questions.  Register here, space is limited!  If you are interested in a detailed demonstration of the module, sign up for one of our weekly webinars or contact us to arrange an individual web meeting!

mary production planning lewisburgAbout Mary Oldham

Mary has served as a Regional Coordinator for VC2 since 2013.  Through her role with VC2, Mary co-authored Production Planning for Aggregators with Savanna Lyons, and provides training and support to start-up and emerging food hubs and their producers.

Mary has a Masters Degree in Agricultural and Resource Economics from West Virginia University. She also runs a CSA farm with her husband.  Prior to her role at VC2, Mary worked with small agricultural cooperatives and agricultural development projects in Honduras as a Peace Corps volunteer, through USAID, and various non-profits. 

Getting Ready to Plan

For new and emerging hubs, here’s a quick list of what should be in place before production planning.

Distribution and pricing model

Before formulating a viable plan, a food hub must determine its distribution model and cost structure.  Most food hubs conduct a pilot season to test their assumptions and ensure the model can scale.  Hubs in the pilot season should limit their production planning to a couple key producers and customers that are aware the hub is in pilot stage.  After the pilot season, the hub can make adjustments to the model to achieve greater producer and customer buy-in.  This will also help the hub confidently expand their production planning efforts to a wider group of customers and producers.

Manager/coordinator that has the trust of customers and producers

This role is perhaps the most critical for a hub’s ultimate success, particularly for hubs that are working with larger buyers.  Inevitably, actual sales will not go as planned, but communication and transparency between the hub, producers, and customers will maintain relationships and provide opportunities for future improvement.  To successfully execute a production plan, the coordinator/manager must be in regular contact with customers and producers, updating them on anticipated changes to the plan, and also putting back-up plans in place when necessary.

Detailed buyer demand data

Many hubs are formed based on feasibility studies or analysis that combines macro data and buyer surveys.  This type of demand estimate should not be used to plan production, however.  Hubs should base their plan on the hub’s actual sales to customers or through detailed conversations with the customers about their needs.  A hub must be careful to not take a customer’s anticipated demand at face value particularly if the hub has had limited experience selling to the customer.  Customers often mistakenly overestimate demand because of their enthusiasm or lack of knowledge of their true volume needs.  Overestimating demand, particularly for specialty products that are difficult to find alternative buyers for, can create producer distrust.  Hubs can avoid overestimating demand by asking customers to provide volume and prices for actual purchases of the same product in the previous 12 months and assumptions behind their demand forecast.  The hub can then assess the relative risk in planning production for that customer.

Producer buy-in

Specifically, the hub should have a couple larger, more experienced producers that are bought in and see the big picture.  These producers help bring other producers on board through their example.  They often lend their production experience to the group and shorten the learning curve for other producers.  In addition, they help mitigate risk in working with less experienced producers because the hub can often fill in supply from them when the less experienced producers can’t meet their expected supply.

Good individual farm planning and record keeping practices

The food hub’s production plan is highly dependent on each farm following through on its commitments.  Before working with a producer to plan production, the hub should evaluate the farm’s planning and record keeping practices.  How do they plan and schedule succession plantings?  How much of each product have they grown in each year?  What varieties?  How closely have their plans matched actual production?

Producer Training & Assistance

The mission of some food hubs, such as Alba Organics, is to help farms gain experience and training so that they will be successful when fully operating on their own.  Even if a hub isn’t acting as a farm incubator, the hub can assemble resources that will help producers provide a more predictable supply.

Farm planning and record keeping

Many small farms are transitioning market gardeners or perhaps run small CSAs where their supply is highly variable and unpredictable. Before these producers begin planning, they should assess their needs and time constraints.  If the farmers are also working outside jobs, they may need to plant crops that don’t require succession planting, such as winter squash.  Before creating a plan, producers will need information on yields and days to maturity for the crops they plan to grow. Popular resources include Johnny’s Seed Catalog and Johnny’s website.

When creating a plan for the first time, many producers benefit from working with a worksheet by hand before using technology to automate calculations.  Technologies for automating a producer’s production plan include a spreadsheet based system by Brookfield Farms, developed and supported by the farmers, and AgSquared, a cloud based planning and record keeping technology.

Post harvest handling & grading

Producers accustomed to growing on a small scale for consumers are often unaware of good post harvest handling practices, cleanliness, grading, and standard pack sizes.  Many food hubs offer Wholesale Success Training to their producers so they are better prepared to meet the hubs needs in quality, safety, and consistency.  Depending on the type of customers being served, food hubs may also consider requiring GAP training, which is offered by USDA.  A number of hubs are currently piloting Group GAP certification.

Resources for troubleshooting problems

Producers that begin to grow specific products on a larger scale than they ever have will often experience problems with disease, pests, quality, or growth.  Local extension agents and more experienced producers are a great resource for helping producers overcome challenges.

For more expert planning advice please check out our blog posts (Part 1 and Part 2) featuring expert Johnice Cross, former production coordinator for a producer co-op.  We hosted a webinar featuring Johnice on production planning on November 13.  If you missed it, you can find a link to the recording on our Resources page.  

Best Practices with an Expert: Production Planning for Food Hubs, Part 2

In anticipation of releasing a fully integrated Production Planning module this fall, LFM is featuring expert planning advice from food hub managers and others working in local food systems.

For this installment, we interviewed Johnice Cross about her experience forecasting production and sales for local food.  Below is Part 2 of a summary of our conversation on the mechanics of planning.  Part 1 on why planning is important and what needs to be in place to begin planning is here.

Johnice will also be joining us for our November 13 webinar, “Production Planning for Success” where she will present on best practices and be available for questions.  Register here, space is limited!

johniceAbout Johnice Cross

From 2007 – 2012, she served as the Coordinator of GROWN Locally, a producer cooperative in Northeast Iowa.   As Coordinator, Johnice managed all aspects of running the cooperative, including production planning.  During her tenure, GROWN Locally became the first cooperative to become a qualified vendor for Sodexo.  She is a food safety coach for the USDA GAP certification program.

Johnice has a degree in Finance from the University of Arkansas in Fayetteville.  Prior to her work with GROWN Locally, she owned an IBM Midrange Computer Consulting Company where she specialized in financial analysis and planning for manufacturing and distribution companies.  She is currently consulting in the local food world of NW Arkansas.

Getting Started

Plan everything or just specific products?

This a question most food hubs wonder about, and there isn’t a single right answer.  Certainly, the food hub must take into account the amount of time and capacity available for planning and determine the best approach for their hub for that season.

One advantage of planning all (or most) food hub products, although more time consuming upfront, is that it results in a sales plan and cash flow projection for the food hub and its producers.  Planning all sales also gives the food hub a head start when dealing with new customers.  If the food hub knows what volumes producers are growing and how much is already reserved, the hub knows what products they can sell more of and thus how to more efficiently use their sales and marketing efforts.  This approach will also make the degree of over or under supply of each product more visible, and thus, actionable.

If planning all products a food hub sells is overwhelming or seems unnecessary, planning just those that drive sales or are in short supply still adds significant value to the food hub.  Through planning, the food hub can be more strategic in the sales of products that are in limited supply and recruit producers to fill in gaps.

Putting the plan together

Depending on the type of entity and level of producer engagement, putting the plan together will vary slightly.  Regardless of the entity type, the production coordinator will meet with customers and producers, typically individually, to simultaneously review the previous year and determine volumes for the next year.  Based on these meetings, the production coordinator determines how to best utilize available supply.  In deciding what producers to plan for which products, the production coordinator takes into account many different factors, including:

Producer experience growing the product
-Has the producer grown the product before in similar quantities for similar types of customers?
-Have their results been predictable in volume and quality?

Customer requirements
-How flexible is the customer on product consistency and quality?
-Will the product be used for value added products or sold as harvested?
-How flexible is the customer with pricing?

Food hub requirements
-What are the “costs” of working with each producer and customer? For example, are they easy to work with?  Are they responsive?
-How does each producer and customer fit into the long term strategic goals for the food hub?  Will working with the customer provide experience that can be leveraged to work with other similar customers?

Mainly, the production coordinator is maximizing the available supply while managing risk to ensure the food hub has a reasonable chance of meeting commitments to customers and producers.

In producer co-ops, producers often meet as a group to review results from the previous year, discuss varieties and available acreage for each crop.  The co-op’s bylaws typically dictate how a co-op establishes producer priority and assignment of products.  Based on the producer meetings, the coordinator establishes a primary producer for each product and sets pricing.  Producers then use this plan to purchase seed and finalize their rotational plan.

How long does all of this take? 

Typically, individual buyer or producer meetings take about 1.5 to 2 hours each, plus preparation and follow-up.  For some buyers (small or those not interested in forecasting), the coordinator can assume demand, typically based on sales from the year before.  Often in producer co-ops, individual producer meetings can be eliminated in favor of several producer group meetings.

Between producer and customer meetings, Johnice estimates that she spent about 3-4 person weeks creating and finalizing a production plan.  Obviously, this can vary tremendously by the size of the food hub, number of producers and customers, number of products planned, and the food hub’s experience in planning.

Managing the plan

Producers provide weekly updates on availability throughout the year, relying on their plan to guide volume and pricingProducers should be responsible for notifying the coordinator of crop failures or other circumstances that prevent them from meeting their commitments.  The coordinator should also regularly check on how well producers and customers are meeting their commitments, and keep detailed notes on failures and successes.  These notes are vital in doing a proper review at the end of the year.

In some producer co-ops, primary growers are responsible for mentoring secondary growers to increase their quality and yields.  Secondary growers can call on primary growers to help troubleshoot problems.  This system greatly accelerates the learning process of newer growers and allows the co-op to grow more quickly and serve more customers.

An important aspect of taking on less experienced growers is finding a market for seconds.  Inevitably, the first or second time a producer grows a new crop or grows it at scale, product quality issues crop up.  Food hubs can help producers take risks on growing new products if they can help find customers for “seconds”.

What would make planning easier or more effective?

Besides having more product (almost all products were short on supply), a planning database that is integrated with orders to communicate and track plans greatly enhances a food hub’s ability to learn from and improve future sales plans.  Here are specific areas Johnice cited:

– An easy way to communicate the plan to producers & customers.

– A quick comparison of plan vs actual sales so issues can be spotted earlier.

– A way to easily track missed opportunities to inform production in future years.

How LFM addresses planning

When we began specifying the planning module, we noticed that many food hub production plans were stand alone spreadsheets and went nearly untouched during the sales season.   Of course, the planning process itself provides great value to the food hub, but a food hub can realize much more value by using and updating the plan on a regular basis.

While LFM’s database driven planning module helps production coordinators develop a production plan and spot excess supply and demand in the planning stage, it also helps them manage and execute the plan throughout the season.

The planning module integrates with the producer interface, informing the producer of expected weekly volumes and sales of each product, and customer orders, allowing the food hub to create “reserve” orders based on the plan. LFM also provides reports on plan versus actual for customers and producers.  These reports will not only reduce the prep time for the annual review meetings, but also help the coordinator spot problems earlier.

Want to learn more? 

For more expert planning advice please check out Part 1 of our conversation with Johnice.  We hosted a webinar featuring Johnice on production planning on November 13, 2014.  If you missed it, you can find a link to the recording on our Resources page.    We also interviewed Mary Oldham, Regional Coordinator for Value Chain Cluster Initiative.  Read a summary of our conversation here or register for a webinar on January 22, 2015 where Mary will share her advice on working with new and emerging food hubs.  Also, be sure to check out the publication Production Planning for Aggregators written by Mary Oldham and Savanna Lyons, Leopold Center.

 

Best practices with an expert: Production Planning for Food Hubs, Part 1

In anticipation of releasing a fully integrated Production Planning module this fall, LFM is featuring expert planning advice from food hub managers and others working in local food systems.

For our first installment, we interviewed Johnice Cross about her experience forecasting production and sales for local food.  Below is Part 1 of a summary of our conversation on why planning is important and what needs to be in place to begin planning. Part 2 on getting started and the mechanics of planning is published here.

johniceAbout Johnice Cross

From 2007 – 2012, she served as the Coordinator of GROWN Locally, a producer cooperative in Northeast Iowa.   As Coordinator, Johnice managed all aspects of running the cooperative, including production planning.  During her tenure, GROWN Locally became the first cooperative to become a qualified vendor for Sodexo.  She is a food safety coach for the USDA GAP certification program.

Johnice has a degree in Finance from the University of Arkansas in Fayetteville.  Prior to her work with GROWN Locally, she owned an IBM Midrange Computer Consulting Company where she specialized in financial analysis and planning for manufacturing and distribution companies.  She is currently consulting in the local food world of NW Arkansas.

Why is planning important? 

Planning benefits food hubs, its producers and customers – it increases sales and profits of food hubs and producers while better serving customers.  Here is what planning can do for food hubs:

Consistency

Planning helps create consistent availability for buyers, which allows them to buy more.  Consistency is important in volume as well as variety and quality.  Customers like to buy the same variety of product week to week because their customers demand it.  Having intermittent supply creates challenges in stocking their shelves and building their menus that increases their costs and therefore decreases the amount of product they purchase through the food hub.  Customers also value price consistency; if food hubs can offer a price that doesn’t fluctuate like other vendors, they will purchase more from the food hub.

Pricing

Planning allows hubs to work with customers on a wider range of products over a longer period of time to more easily overcome price sensitivities.  Larger volume buyers are almost always going to be price sensitive.  If hubs work with those buyers to meet their budget for an entire season for a range of products, they won’t be competing on individual product prices week to week.

Producer engagement

In order for a food hub to succeed, it needs producer buy-in.   As with any business, producers assess the importance of the food hub’s business based on a combination of sales volume, profitability, and other benefits they might receive by selling to the food hub.   Producers are more likely to work with a food hub if they know with some certainty the sales they will make to the food hub.   Planning also helps them reduce risk because they are doing less guessing on what to grow.

Increase food hub value

For long term sustainability, food hubs need to provide services beyond sales and distribution.  When food hubs use the planning process to help shape supply to meet demand, they are adding more value to the supply chain and making the food hub more difficult to replace.

Cash flow & infrastructure planning

Forecasting will help food hubs improve cash flow and infrastructure investments.  Planning ahead will cut down on unnecessary last minute line of credit applications and purchases, which are undoubtedly more expensive than if planned and negotiated ahead of time.

What are key components to have in place? 

Production coordinator

Food hubs have different titles for this role, but ultimately this person (or group of people) is the lynchpin to making and executing a good plan.  Coordinators should have strong producer and customer relationships to be effective.

Producer experience

Although it probably goes without saying, producers that you are relying heavily on in the plan should have multiple years of experience growing the products you are planning for them.  They should also have experience growing for similar customers and at similar volumes.  If you are working with many inexperienced producers, consider offering a formal producer training program such as Wholesale Success by Familyfarmed.org.  Food hubs should also consider a peer mentoring program, which are often used by producer cooperatives, where more experienced producers offer support and assistance to less experienced producers.  These producers will expect some preference in return for their services, but in the long run, it will help the food hub continue to grow.

The food hub can minimize its risk by only planning with producers they have experience with and using other producers to fill in gaps.  As the food hub gains experience with other producers, they can add them to the planning process in upcoming years.

Written agreements

While most food hubs and producers aren’t ready to engage in binding agreements, it makes sense to formalize the roles and expectations of the food hub, producers, and customers.  Having these in place will help assess what adjustments need to be made in the future plus will ensure that all parties are committed to the same goals.

Want to learn more?

For more expert planning advice please check out Part 2 of our conversation with Johnice.  We hosted a webinar featuring Johnice on production planning on November 13, 2014.  If you missed it, you can find a link to the recording on our Resources page.    We also interviewed Mary Oldham, Regional Coordinator for Value Chain Cluster Initiative.  Read a summary of our conversation here or register for a webinar on January 22, 2015 where Mary will share her advice on working with new and emerging food hubs.  Also, be sure to check out the publication Production Planning for Aggregators written by Mary Oldham and Savanna Lyons, Leopold Center.