DOLEFIL SUPPLY CHAIN

Introduction

The global financial crisis has many at Dole Philippines (Dolefil)

wondering what the implications would be on its operations. A local
subsidiary of the Dole Food Company (Dole) of the United States, it is
concerned about the adverse effect of the crisis on the demand of its
products. Its main markets have been hit hard by the crisis – in the United
States alone, 5.7 million jobs have been lost since the crisis pushed it to
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recession in December 2007 . Japan has a similar fate - unemployment has
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increased 12.4% from a year ago . Moreover, the end of the crisis is not yet
in sight and the possible extent has been compared to the Great Depression
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of the 1930’s . It did not help that during that time, Dole pineapples pile up
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in their Hawaiian factories, the stench polluting the air.
Dolefil

Dolefil is the Philippine subsidiary of the Dole Food Company which is

the largest producer of fresh and packaged fruits and vegetables in the
world. Using pineapple planting materials brought from Hawaii, Dolefil
started its operations in Polomolok, South Cotabato in 1963. Two years later,
it shipped its first cases of canned pineapple products from its wharf in
General Santos to New Jersey, U.S.A.

By 2008, it has agricultural operations in the municipalities of Tupi and

T'Boli in South Cotabato, and Maasim in Sarangani Province. This is on top of
the fully integrated agricultural and industrial facilities in Polomolok, Surallah
and General Santos in South Cotabato. These facilities include a base
plantation, two cannery complexes with a can and fresh pineapple packing
plant; and a shipping and wharf operation with a box and labels plant (see
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Exhibit 1). Almost 6,000 employees find work in these facilities .

Dolefil operates under the Dole Packaged Foods Asia division which
provides the overall direction for the markets and production divisions in the
Asia region (Exhibit 2). This supports Dole’s biggest markets in North
America and Europe aside from covering the demands of Japan, China, Hong
Kong, New Zealand, Philippines, Singapore, South Korea and Thailand.

Pineapple Demand

Demand for pineapples has been growing over the years and
improvements in sea transport techniques have extended the reach of fresh
pineapples. The demand is driven by trends towards healthy snacking and
popularity of derivative products that are easy to prepare and consume. The
largest market for packaged pineapples for Dolefil is North America (United
States and Canada) with major presence in Europe (United Kingdom,
Germany, Spain) and Asia (Japan, Philippines, South Korea). On the other
hand, Japan along with South Korea, Singapore and New Zealand are the
main destinations for the fresh pineapples. The aggregate imports of fresh
and packaged pineapples in the United States and Japan are shown in Exhibit
3.

Dedicated Dole sales organizations service demands of major retail

and wholesale customers in the regions. They make the sales calls every
year, get orders from the customers and forward them to Central Logistics,
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who then decide whether to send the order to Dolefil or Dolethai (Dole
Thailand) for production. Central Logistics communicate with the production
facility and decide the shipping schedules and volume.

Production planning is set three years in advance, as it takes that

much time to complete a growing cycle consisting of two pineapple harvests.
Prior to the global financial crisis, the forecasted demand for 2008 of Dolefil’s
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processed pineapples was more than 21 million standard cases . These total
cases are comprised of canned pineapples, juice and concentrates and fruit
bowls as given in Exhibit 4.

The demand for canned pineapples, fruit bowls, juice and concentrates
follow predictable seasonal activities and observances. For canned
pineapples, consumption rises during Easter, Thanksgiving and Christmas
where they are a common ingredient to the food in the festivities. For fruit
bowls, consumption is driven by healthy and convenient snacking for
students going to school. It provides parents a ready option to their kids’
“grab and go” eating preferences. Demand for juice and concentrates on the
other hand goes with the weather temperature and the need to quench one’s
thirst - low on winter and high during summer.

Pineapple Supply

Approximately 70 percent of all the pineapple used in Dole’s worldwide

processed products comes from Dolefil, with the remaining 30% coming from
Dolethai. When Dolefil started operations, it leased a sprawling plantation to
cultivate pineapples. Later it contracted growers to produce additional
pineapples in their behalf. To facilitate this, they shared their technologies
and expertise to contract growers, and provided them training and access to
low-cost financing to support their production of pineapples. In return, Dolefil
has exclusive rights to purchase their produce at the agreed contract price
and quality. Currently 9,700 hectares are maintained by Dole while 7,300
hectares are planted by contract growers in three provinces of southern
Philippines. In 2007, Dolefil harvested more than 600,000 tonnes of
pineapples from these lands.

Large scale cultivation of pineapples is a lengthy and complex process

(see Exhibit 5). Intensive preparation on the land and soil is needed prior to
planting. Machinery is used to clean and till the field, design drainage
systems and lay out pathways for maintenance. Specific variety of pineapple
crowns is sown at certain arrangement and density to maximize yield. Dolefil
plants the Mayan Gold 3 variety of pineapples for their fresh produce and the
F-200 for their processed products.
 A year after planting, the pineapple crowns can be forced to “flower”
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by spraying with ethylene - based chemicals . Pineapple flowering may be
delayed or uneven, and “forcing” facilitates uniform maturity and enables one
to control the time and volume of harvest. Six months after forcing, the fruit
is fully mature and ready for harvest.

The planting to forcing interval, however, is not fixed and can be

delayed depending upon commercial requirements and the grower’s
circumstances. Forcing at later months where the crowns are bigger results
in bigger fruits at harvest but may eventually lessen the yield. Typically,
cultivated pineapples yield two harvests, the second one coming from one of
its shoots (called suckers) growing from the mother - plant stem. One can
force the sucker eight months after the first harvest to produce a second or
ratoon fruit six months later.

Successful pineapple cultivation is dependent on a healthy root system

and it is important to prepare the soil for adequate supply of nutrients. After
the ratoon harvest, the pineapple plants are “knocked-down” to recycle
nutrients and increase the organic-matter content of the soil. The time
between the knock-down and new planting (called "intercycle") is about four
months to allow the plant materials to break down.

Aside from preparing the land and planting the pineapples, Dolefil’s
Agriculture Division monitors the growth of the plants. Maintenance of the
growing pineapples is done with fertilizers and pesticides at regular intervals.
These fertilizers and pesticides are mostly imported from other countries.

In the Philippines, most of pineapple productions are maintained by

multinational corporations such as Dole, Del Monte and Chiquita. The
Agriculture Division prides itself with among the highest yield at harvest
(tonnes/hectares) resulting in the Philippines having better aggregate yields
compared to other nations. For instance, Thailand, which has more than
100,000 hectares for pineapple production cultivated mostly by small
independent farmers, has an average of 24 tonnes/ha to the Philippines 37.5
tonnes/ha (Exhibit 6).
Pineapple Packing and Processing

Twenty percent (20%) of the harvested pineapples are carefully

packed and shipped fresh inside boxes where it has about a week of shelf
life. The other 80% are delivered to the cannery for processing and packing
just hours after harvest. These pineapples are unloaded from trucks to
conveyor bands where the crowns are taken off for future planting. The
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pineapples are then mechanically sorted by size and a Ginaca machine
automatically peels the skin, cuts the ends and removes the core of the
pineapple. The resulting solid pineapple cylinders are then conveyed to tables
for trimming and packing as slices, chunks, tidbits or crushed inside cans
(see Exhibit 7). Other packing styles using plastic cups, plastic jars, pouches
and packages for individually quick frozen fruits have also been developed
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(see Exhibit 8). Depending on the packing style , the product shelf life can
last up to two years.

Juice is likewise being produced inside the cannery. Juice production is

derived from both the solid and liquid pineapple components. Solid
components consist of the flesh that are not packable into slices, segments
or crush, such as the pineapple core, the layer of flesh scraped off the shell
and the cylinder ends removed by the Ginaca machines. Juices from liquid
components pertain to all surplus juice obtained during any processing
activity.

The amount of solid and liquid pineapple components recovered in the

cannery depends on several factors. Recovery yield is highest when fruit size
fit standard size cans. This allows the Ginaca machine to effectively cut the
pineapples corresponding to specific can sizes. Damage during loading,
transportation, unloading and conveying in the cannery system reduces solid
recovery. Dolefil’s Cannery Division monitors all these and works on
maximizing recoveries depending on the packing plan.

Aside from the pineapple fruits, crucial ingredients such as sugar and
packing materials are needed in the canning operation. Sugar used by
Doleful is imported from Australia and Thailand and refined in South Korea.
Packing materials are manufactured by Dolefil although most of the raw
materials are imported. Within the cannery, there is a can manufacturing
plant and at the wharf, a box forming and labels plant. Materials for the cans
(e.g. tin plates) come from Japan while papers used for manufacturing boxes
are imported mainly from the United States. Other packing styles using
plastic cups, plastic jars and pouches have also been developed. Although
materials for labels are imported, these are printed locally at a printing press
in Dolefil.
Shipment and Distribution

Once the products are labeled and packaged in boxes, they are ready
for shipping at Dolefil’s wharf in General Santos or in Panabo. More than 14
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million boxes of fresh pineapples and 21 million standard cases of packaged
pineapple products are shipped from this port facility. A warehouse sits near
to store them prior to transportation. Dolefil follows first-in first-out (FIFO) in
product shipment based on packing dates.

Most of the packaged pineapple products are shipped to North America

where Dole has port facilities in California, Delaware, Florida, Mississippi and
Texas. It takes about four weeks for the ships to arrive in the west coast of
the United States and an additional two weeks to the east coast. These
include travel time to get into their mainland distribution centers or
warehouses. In Europe, the products get shipped to Antwerp, Rotterdam,
Oslo, Spain, and Hamburg. The voyages take between five to seven weeks.

For fresh pineapples, it takes about a week to reach their main

destination in Japan. Utmost care is given to the pineapples during the
voyage to control the conditions such that it arrives at the desired stage of
ripeness. These require particular temperature, humidity/moisture and other
ventilation conditions. Otherwise, spoilage may occur as a result of
inadequate (rotting) or excessive (drying-out, weight loss) ventilation
condition. To go about this, Dole invested in a dedicated refrigerated
containerized fleet which is the largest in the world. The ships were designed
exclusively to carry temperature controlled, refrigerated containers filled with
tropical fruits like pineapples and bananas. To maximize capacity utilization,
Dole set-up a subsidiary to offer shipping services to third parties,
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transporting fruits and other types of raw materials and dry cargo .

Dolefil products are sold and distributed through a network of Dole

regional operations in North America, Europe and Asia. These operations
involve the distribution and marketing of fresh and packaged pineapples. The
distribution centers are operated either wholly by Dole or through joint
ventures with local distributors. Dole sales organizations service major retail
customers such as large chain stores Walmart of the United States and Tesco
in the United Kingdom or institutional customers such as Pizza Hut. Usually
Dole enters into product and service contracts typically for a one- or two-
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year term with its large retail customers . Dole sales organizations also cater
to wholesale customers including large distributors in North America, Europe
and Asia. From these customers, the fresh or processed pineapples are
eventually placed on the supermarket shelves or become an ingredient of
their food services.

Discussion

A meeting among its managers and directors was called to assess the
situation and identify actions Dolefil need to do in response to the situation.