Logistics

Before we dive into operations, let’s review the basic flow of a local food aggregation and distribution business. Food is brought together from multiple producers at one point, from where it can be efficiently distributed to multiple wholesale buyers.

There are many variations but most of our examples follow this basic flow:

1.  Product availability information is aggregated and communicated to potential buyers.

2.  Buyers order through the marketplace of the local food aggregator, and the orders get communicated to producers.

3. Producers get the order ready, whether that’s harvesting greens, baking muffins or setting aside tomato sauce jars.

4. Transportation is arranged to get the food to a central aggregation point or directly to a customer.

5. If food is transported to a central point, the local food aggregator may receive, store, pack and handle delivery to customers. If customers can choose to pick up, their orders can either be ready in aggregator-packed boxes, or they can pickup in a farmers market style arrangement staffed by producers themselves.

6. The local food aggregator usually arranges so that a customer can make one payment to the aggregator and that then gets re-allocated to producers based on their portion of the order.

Ordering

Here are some factors to consider when developing your ordering process:

Who decides where food is sourced from?

It is important to decide if you want to allow every producer to sell every product they have or to limit them to pre-approved products. Some food hubs prefer to have only one or two consistent go-to producers for a given crop. This can be risky in the case of crop failure, but on the other hand, it simplifies the focus of your business relationship with the  farmer, and the focus of their growing.

Who decides prices?

In the common brokerage model used by many local food distribution businesses, farmer set their own prices, to encourage transparency and to offer them a price that is worthwhile. The result can be a wide range of prices for similar items produced under different growing methods and differently sized operations. The alternative brokerage models involves the distribution business setting a single price with the goal of being competitive with other food distributors. Farmers can decide whether or not to sell to the distribution business at that price. But even in the first case, where farmers set their own prices, many farms will choose their pricing based mainstream wholesale prices. The brokerage models encourage a wide variety of products from a wide variety of farms to be sold, and often the pricing and markup structure is transparent to buyers and producers.

In the reseller model, the distribution business chooses which farmers to source from, often on an item-by-item basis, buys the food and then chooses the mark up when selling to customers. This type of business may buy just a few crops from each farmer they work with, but in greater volume. Though pricing is controlled by the distribution business and not the farmer, this model is more oriented to pre-season contracts to secure supply for the distribution business and that offers opportunity for farmers to negotiate. Distribution markups and the value of the food that goes to producers is usually not transparent to buyers or producers.

Who is responsible for communicating prices to producers?

We have found that successful hubs have one person who is accountable for making sure producers list prices by the ordering period. This person should be available in the hours leading up to the ordering period to keep on top of any producers who haven’t yet listed their prices.

What information is important to communicate to buyers?

Various pieces of information help inform buyers’ choices about which foods to order. Some is basic ordering information that you’d find in any catalog, like the product, specific variety, organic certification, quantity available, minimum quantity, unit size(s), price per unit. Using an online marketplace like Local Orbit makes it easy to include additional information like farm name, farm location, photos and further product descriptions to help sell the food better. Plus, this information will be important to buyers looking for local food. Product information like lot numbers and expiration dates can also help with traceability and food safety management.

Who reaches out to customers?

Designate one person to be in charge of sales, involving activities like getting the word out to customers about which items are fresh each order. We call this a Fresh Sheet at Local Orbit.

Read more about the types of activities can help you grow your sales in the Buyers & Sales section.

How are purchases tracked and communicated?

Purchases can be tracked and communicated through various outlets, such as email, spreadsheets, phone calls, texts, faxes, even Google forms. It’s helpful to have one central place to manage ordering, especially as you grow. (We’re obviously biased: That’s why we designed Local Orbit, which automates most of the sales, invoicing and recordkeeping involved with selling and distributing local food!)

What lead time do you need to fulfill orders?

You will need to learn what time is most convenient and feasible for your producers to receive orders, begin harvesting and get the food to you. For example, cutting off the ordering period at 5pm (instead of the following morning) may not matter to your farmers, since their harvesting could already be done for the day by the cut off time.

Keep in mind that some customers may only order during typical business hours while others may order based on when the producers’ food is the freshest. In order to define your ordering cut-off, you should also understand your target customers’ buying schedules.

How can you minimize the time it takes to get an order to a customer once placed?

Shortening the time between the placement of an order and delivery is a smart way to minimize the guesswork your customers have to do when restocking food supplies. Furthermore, it minimizes risk for your farmers by leaving less room for say, a weather mishap. One way to avoid this issue is to hold inventory so that you are not dependent on pick-to-order delays. But for operations that do not hold inventory, quick communication is key. And if producers know exactly when to expect their orders, they can plan their harvesting, packing and delivery to you around it.

Do your ordering and delivery periods align with your staff’s availability to answer customer questions?

It’s important to make sure there is a sales person available by phone and email to guide and remind customers to order before the order cut-off period. Some customers will always need to be reminded!

On a delivery day, problems invariably occur, whether they’re about product quality or when a delivery truck will arrive. It’s good to train your drivers as much as possible to answer questions. But there will likely be questions that are beyond their immediate knowledge and would cause too much delay to their routes to take the time to look into on the spot. Having a person waiting by the phone during delivery hours, and Directing your customers to call or email your office for customer services can help the drivers focus on deliveries and provide better, centralized recordkeeping of issues that arise.

As a sub-question, do you accept late orders? The answer will impact how to structure your operations.  If yes, you may find that many customers reach out with changes after the end of the ordering period. What is your process for alerting farmers and handling these changes? You’ll need to have a way to quickly communicate with producers and know what their turn around time constraints are. What is the cut-off for when an order is too late for producers to fulfill in a given delivery? As you learn this information, you can develop a policy about late orders.

How many ordering/delivery times does your hub offer per week?

Your customers may want daily delivery options, but your farmers (and your bottom line) will prefer fewer, fuller trucks on the road. We suggest starting small and only adding delivery days as demand dictates. Always aim to fill the truck to its capacity. Driving around half-filled trucks is an easy way to spend money! Consider where your consistent customers are clustered and how to increase the number of customers in those areas.

Will your hub operate year-round?

Operating with lower volume sales in the off-season is expensive, but it is also expensive to woo customers back from other distributors when you restart operations in the next growing season. We’ve heard of a situation where customers wanted to source from a local food hub for in-season salad greens but were thwarted from doing so. Their non-local distributor threatened to double the price unless customers committed to buying from them year-round.

Operating year-round not only creates a stable local supply for your customers, but it builds trust and deepens your relationships with them. It keeps customers coming back and gives them the ability to rely on local food for a core part of their food sourcing. In addition, year-round operations encourage farmers to take a chance and experiment with extending their growing seasons and storage infrastructure. Keep in mind that many farmers already produce year-round products, such as dairy, eggs, meat, seafood, honey and shelf-stable foods.

The increase in food hubs and farmers markets will continue to create opportunities for family farms. As this happens, there will be a stronger financial case for extending the market season for producers and sellers.

Your answers to the above questions should help shape the structure and goals of your business. Some further considerations are:

• Do you hold inventory that you need to keep moving?

• Is your goal to control sales so they are spread evenly among growers?

• Are you repacking large case sizes from farmers into smaller quantities?

To learn more about instituting a sales process, review our section on sales targets and reporting. Use our Customer Journey Map to document the various ways customers currently experience your business, and to brainstorm where to focus your energy in improving marketing and customer service.

Receiving

Your farmers will need a “pick list” that lists everything they need to harvest and deliver to your aggregation location on the specified day. The pick list can be simple, including farm name, food category, variety, quantity, unit size and storage temperature. If the farmer is responsible for packing and labeling by customer, they’ll need a second list to show individual customer orders as well. Remember that you’ll want to keep a copy of the pick list for yourself to review and keep on file.

Come up with an appropriate process for receiving deliveries.

Know what a smooth operation looks like and consider extreme scenarios: What happens to your process when things do not run smoothly? Here are some scenarios to consider:

• What happens when farmers don’t bring items?

• Is there a way to substitute items from other farms?

• How will you make sure customers are notified and invoices are altered in time to give the customers correct information?

Additional questions that will help define your process are:

• What are your standard hours for receiving?

• Are there enough loading docks?

• How many people does it take to check the food in?

• Will you use staff or can you start with volunteers?

Make sure the person receiving takes responsibility for accurately checking in your producers by signing the paperwork.

Storing

Will you begin by receiving and packing on the same day?

If the total order size is small enough, it is possible to receive and deliver on the same day. This eliminates the need for a lot of storage infrastructure and allows you to cut down on costs by renting flexible spaces for a few hours each week. As farmers show up, check in their products and begin sorting and packing for customers. You can tape off one section of floor for producers to drop off food that hasn’t been checked in yet, a second section for food that is checked in but not yet sorted by customer, and a third section with boxes set up for each customer.

It’s simpler to start with this no frills situation so you can observe and tinker with your processes while operations are still small. Plus you’ll maximize the time of staff or volunteers. But as order sizes grow, receiving and packing back-to-back will likely become too time consuming to get deliveries out in a timely manner. At a certain point, adding more people power also gets in the way more than it helps. Plus, one delayed farmer can hold up an entire packing process and cascade into delivery route woes.

You may also find that various farmers have different schedules and may not all be able to deliver in the same window of time. If you want them to sell through your marketplace, you may need to receive at various points in a day and keep food in storage until packing happens.

Here are some questions to consider when planning your storage operation:

• How much storage space do you have?

• Can you begin without dedicated space, perhaps at the corner of an existing farmers market or a location where producers are already delivering?

• If you’re not starting with dedicated refrigeration, consider plugging in a reefer truck overnight on the day before delivery. It’s actually quite affordable.

• Estimate your space needs based on what your expected maximum capacity and based on the variety of your producers.

• Will you need shelving or will items be stored on pallets?

• How many pallets do you need to fit everything?

• Are the doorways between rooms wide enough to accommodate pallets?

• How is your storage organized? For example, if customers choose items by farm, then designating shelving areas for each farm will make it easier to receive and pack by farm.

• Will you keep inventory between orders?

What are the storage requirements for various foods?

UC Davis provides great storage guidelines with temperature, humidity, ethylene gassing considerations for most produce by temperature zone and also by crop.  Here are different storage zones to plan for:

• 33º F storage for dairy

• 34º to 38º F humidified storage for produce, like greens

• 50º to 60º F humidified storage for produce, like winter squash

• 75º Room temperature storage for dry goods and produce by farmer’s preference

• 0º F storage for frozen items

Sometimes producers will have particular preferences regarding storage of their products. It’s a good idea to review storage practices and set appropriate expectations when developing relationships with producers.

Certified organic products will need to be stored separately from non-certified products. Your storage facility will also need to be certified by an organic licensor in order to continue to brand products as organic.

Will produce be coming in fresh from the fields or will it have a chance to be cooled before reaching your coolers? Freshly harvested, or hot produce, can raise temperatures in your coolers significantly and can create challenges if not delivered in refrigerated trucks.

Food safety is serious business.

One bad encounter with a customer or the Health Department and word spreads. Take the time to plan and implement policies and procedures around food safety. Also consider food safety as you design your operation. For example, we like this list of tips for storing food safely but they are only starting points since every operation is different.

Learn about safe food handling. Attend a ServSafe class to figure out the procedures that will be necessary for your facility. Make sure at least some of your staff is ServSafe certified. There are many inexpensive classes and it will save you in the long term.

Develop temperature control procedures, such as regularly documenting cooler temperatures to make sure they are maintaining correct temperature.

Choose shelving that is intended for food storage and easy to clean.

In the long-term, it is a sound idea to develop a Hazard Analysis and Critical Control Points (HACCP) plan. The gist of a HACCP plan is identifying where hazards exist in your operation and then choosing corresponding “control points” to measure and ensure food safe handling. As a very simple example, the temperature of your freezer is a control point that can be regularly monitored and maintained, with a plan of action for a situation when the control temperature is not maintained. You will be required to have this sort of plan in order to sell to larger institutions. Wikipedia has a helpful, not too overwhelming overview of HACCP planning.

You will likely have to pass a Health Department inspection. Be open and proactive with the inspectors and develop a communicative relationship with them. Keep in mind: If you are not storing product for retail or performing actual food prep, there are usually fewer costs associated with compliance.

Using the questions and ideas above, sketch your warehouse, coolers and packing line. Consider how food will flow into your facility during receiving and how it will flow out when packing for customers.

We also have compiled further resources on food safety specifically geared for farmers and producers in the Producers & Supply section.

Packing

Packing lists

Packing lists should contain customer information, including at least one phone number. You’ll need it if a customer forgets to pick up, is not at a delivery address or if you try to deliver to a restaurant that is closed.

Organize your packing lists ahead of time, in reverse order of the delivery route. Remember FILO: First in is the last out.

Check off packing lists as you pick up products. You’ll probably want an extra set of unmarked packing lists or invoices to hand to customers. Check in products with customers, too.

Having more than one person review an order helps avoid errors. Check off paperwork first when packing orders and again before it’s loaded onto the truck.

Unit sizes

Standard unit sizes minimize error. Using different unit sizes of the same product can create confusion. It will also slow down your packing process if staff has to differentiate between sizes per product.

You might also reduce cost to farmers if you request that they pack in standardized unit sizes. Packering per customer order can increase labor costs. As one farmer told us: “We had to have our smartest person doing the packing.” In some cases, this means the farmer is packing rather than running the farm.

Food quantities

Here are some questions to consider when managing food quantities:

• Is food sold in the same quantities as farmers deliver it?

• Do you repack? If so, what kind of prep area is required to handle the quantities you receive? Will you need bags or boxes or rubber bands? How will each farm’s identity be preserved on the packaging?

• If your customers request individual retail sizes, who is responsible for retail packaging?

• Does produce need to cleaned, bunched or standardized in any way? How does this impact your labor? Whose responsibility is it — yours or the farmers?

Containers

Here are some questions to consider when reviewing packaging options:

• What kind of container do you use to move product?

• How can you reduce strain on workers’ backs? What will minimize distances that heavy containers have to be carried?

• Are you packing with pallets and pallet jacks? Crates? Boxes?

• Do you have a conveyor belt between storage and your staging area? If not, skate wheels are easy to source and assemble. They will help reduce injuries. You can also use hand carts over long flat carts to move food from the storage area to the truck.

Customer use of product

Consider the way a customer uses a product to better plan the way you pack. If you are packing a product that has an expiration date, think strategically about how your customers will use the product. In general, grocery stores have a quandary with items close to expiration date since their end customers will take expiration dates into consideration before making a purchase.

Consider the journey of a gallon of milk.

• 14 days left until expiration date – Milk processed, expiration date stamped on package, in inventory on farm

• 10 days left – Delivered from producer to food hub

• 9 days left – Delivered to grocery store and put in queue behind older milk

• 6 days left – Placed at front of queue

Some consumers may purchase the milk, but others may deem that six days is too close to expiration. This may not be a deal breaker for every consumer but overall it could result in lower sales. Every day a product like milk, eggs and dairy gets closer to its expiration date, the fewer people who will buy it.

Contrast the journey of the milk to the grocery store with its journey to a restaurant kitchen. At the restaurant, the milk arrives with nine days left and will almost definitely be used by its expiration date. Keep this in mind when considering your customer’s habits and deciding whom to give the product with the longest expiration date.

In terms of produce, while there are no stamped expiration dates, appearance advertises age. Some restaurants may need produce to look perfect for a plate.

Ideally, you’re able to manage the supply chain so that you maximize the amount of time a customer has to consume a product upon receiving it. Such management practices might include changing the way a product is harvested, processed, packaged, handled, etc.

Highly perishable produce that is freshly picked (especially greens, herbs, sweet corn and berries) should be store immediately at appropriate temperature to reduce the effects of the field heat – this has a huge effect on the life of a product.

Additional packing-related questions to answer:

• What type of pasteurization is used in producing milk or cider?

• How soon after harvesting are the eggs washed?

• Is cheese packaging air-tight?

• Can the produce breath or is moisture collecting in the bag?

• Are all of the trucks refrigerated?

• Does produce sit out before being loaded into trucks or coolers?

• What happens if milk breaks or berries spill while you are packing or delivering?

• What if food is missing or is of poor quality when you receive it from a farm?

• Who is responsible if this happens or is discovered as you pack?

Review the important information you’ll need on your invoice and packing slip. Read more about expiration dates in the Producers & Supply section.

Delivering

Transportation

You don’t need fancy trucks to run your business, just adequate refrigeration and well-maintained food safety standards.

Start with simple and inexpensive station wagons and farm trucks if accessible. You may also be able to partner with other food distributors that already service restaurants or independent grocery stores. It’s worth exploring partnerships with farmers and other businesses around back hauling and other situations in which trucks are underutilized.

If you do need a truck, research affordable local truck rental companies that have regular availability of reefers. Start paying attention to trucks you see driving around your town! Renting is easier when you live close to major cities, usually because of more transportation infrastructure and increased demand. The more options you have, the more you can compare and negotiate on pricing.

Some companies won’t offer daily rentals unless you also hold an annual lease on another truck with them.

Renting means that the responsibility to fix a broken truck belongs to the owner. That can be a good thing since they break often.

Consider the cost of sending someone to pick up the truck, the rental cost per day versus per week versus a long-term lease. It’s usually cheaper to rent per day until you’re using the truck 3-4 days per week.

Costs can vary widely. Often smaller independent companies have more price-flexibility than the national rental agencies and are able to add trucks as needed.

Estimate the number of trucks, drivers, drivers’ assistants you’ll need for a smooth operation. Consider the number of days per week they are needed. Make sure to factor in the time it costs to pick up the rental when considering daily versus longer term rentals.

Drivers

Certain trucks can only be driven by drivers with Commercial Drivers Licenses (CDL). Drivers with CDLs often demand a higher rate of pay, but they likely have larger trucks that can carry more cargo.

Smaller trucks or sprinter vans are more agile for city driving and deliveries but are often more difficult to find or more expensive to rent.

Drivers will all need medical cards from a doctor stating they are fit to drive. Take this cost into account.  Check-ups may cost around $90 per driver.

Your drivers are the face of your business, so make sure that there is a person on the truck who has great customer service skills. Also make sure your drivers are informed about the cargo manifest in case any issues arise, such as missing items. If you can provide a customer service phone number, then your drivers can prepare for specific customer questions and complaints.

Gas and insurance

How much gas will it cost to run a refrigerated truck? Fuel efficiency often varies by the size and age of the truck. Get a fleet gas card for fuel discounts; this also will help you manage your business better if you have multiple drivers filling up the tank.

Compare the cost of insurance from a truck rental company versus your own policy from your insurance agent.

Routing

Collect detailed information about the time and place your customers can receive their deliveries. It is also important to know when they absolutely cannot receive deliveries.

It goes without saying that you won’t be able to satisfy everyone’s preferred time but you risk losing customers if you repeatedly deliver to them at unpreferable times, like during lunch or dinner service.

Consider designing your routes in customer clusters to avoid having to drive back and forth.

Obtain feedback from your drivers. After a few runs, they will have lots of advice about how to improve your routes. They’ll also better understand the roads, traffic patterns, detours and anything that a map doesn’t necessarily tell you.

Other questions to consider when designing your route:

• Where can you park near the drop off location?

• Do you have a hand cart for each route so that drivers can efficiently move product?

Customer Service

Use our Customer Journey Map to document the various ways customers currently experience your business, and note the “touch points” at which customer service is critical.

Institute a customer service process so you can proactively address any issues that come up. You’ll benefit from having a single point of contact that customers can use if they need help during regular business hours.

Make sure terms of service and parameters of your quality guarantees are clear to customers when they place and receive orders. Include the terms of service on your invoices.

Have customers sign all paperwork and keep a copy of it on file. It’s probably best to organize files by order date since order issues on a certain date may be related across invoices.

Here are other questions to consider when planning customer service:

• What happens if a customer calls a day after to complain about a product? A week later? A month later?

• How will you document issues at your point of aggregation? At the point of deliveries?

• If a delivery is going to be late, who will notify the customer?

• If an item is missing, how quickly can you notify the customers?

• If a customer is dissatisfied with an item, who is responsible?

Payments

If you plan to collect payments from customers, you will be dealing with payments to and from people on both the customer and producer end. It is important to make sure the cash flows smoothly. Consider whether you’ll take ownership of the food or if you’ll broker a sale between farmers and customers.

Accounts receivable

You will need to finalize details regarding a customer’s order before you know how much to pay farmers. It’s smart to define a timeline so that all orders placed on a certain date are finalized within a certain amount of time, say one week later. This means within a week you can confirm that everything you are billing the customer for is what it says on their invoice or that you’ve given given them an updated invoice.

If customers are paying by check, you will need someone on your staff who can focus on accounts receivable and stay on top of customers to pay in a timely manner. This is critical to making sure you have money to pay producers. ACH and credit card transactions processed at the time of ordering reduces the need to focus on collections.

Look into the creditworthiness of new customers. The more customers you have, the more collections you will have to manage. It’s a good idea to be prudent when extending credit. You can do this by asking for references from other vendors from whom they have purchased within the past year. If the customer is a new business they may not have a track record. but their owner might have one from a previous business.

Consider setting a procedure in place that requires new customers to pay upon delivery (COD) for the first few weeks.

Keep risky customers on tight leashes. Make sure there is someone on staff monitoring how current each customer is with payments. If a customer begins to fall behind, quickly switch them to COD or cut off their ordering.

Note: Restaurants and small grocers tend to be the riskiest.

Remember, local food is about community. The farther a customer is located from your region, the riskier they can be to your hub.

Determine how much credit you will allow customers. A customer ordering $1,000 per week can quickly accumulate a $6,000 debt if they take 6 weeks to mail a check.

Here is a scenario to consider when developing payment policies:

• How will you handle a valued customer that pays without hassle but says they cannot process checks faster due to bureaucracy? What will you do if they start sending payments of only $500?

Payment methods

Credit card, ACH and check payments all usually clear into accounts within one business day. Checks sent by mail (as opposed to picked up by a driver) add extra time and even uncertainty as to whether they were mailed. On the other hand, checks cost staff time to process but not fees, while credit cards cost around 3% and ACH has other varying fees.

Accounts Payable

How quickly do you pay your producers and how much work will it be on your end? It will take a given amount of time to process order paperwork to address things that went wrong (i.e. product that didn’t make it to the customer or was rejected for quality reasons). Even if it takes an extra few days, it’s probably easier to resolve these issues before payments go out to farmers than to have to deal with processing partial payments or refunds later.

Some food hubs pay producers within a guaranteed interval, say within 2 weeks. This requires a strong cash reserve and careful watch on customers’ credit, as noted above. But knowing they will be paid in a timely manner may help you attract farmers who are currently skeptical of selling to wholesale customers.

Other food hubs only pay producers once a customers pays. That eliminates the need for a cash reserve and puts more risk on the producer. One way that online tools like Local Orbit save food hubs’ time is by making it simple for electronic payments to happen via ACH or credit card, and to handle the movement of money from buyers to producers. It is otherwise a very manual process.

Cash Flow Management

If you want to pay your farmers within a guaranteed time frame, you’ll need to have cash on hand. If farmers are paid only when customers pay, it may be less of an issue, but it may also make your hub less attractive than other markets where farmers are paid more quickly.

For example, if you sell $4,000 of food per week, that’s about $16,000 per month. If some customers pay immediately and others take 45 days, then perhaps your average payment will come in 20 days later. You and your farmers will need to extend about $12,000 in credit.

One way to reduce the amount of outstanding money is to reach out to customers to remind them to pay more promptly.

As your business grows and you sell $40,000 per week instead of $4,000 per week, you may consider a low interest line of credit from a bank or perhaps from your farmers themselves. It may seem intimidating but sales growth is a good problem to have!