Creating “Healthy” Food Supply Chains

On behalf of co-authors Bryan Hochstein, Clay Voorhees, Ross Johnson and Neal McCoy, I am pleased to report that our paper entitled “Toward Healthier B2B Relationships” was recently published in Harvard Business Review. The focus of the paper is how SaaS vendors can utilize data from a variety of sources to create health scores to improve customer retention and account growth. 

I was drawn to this work because it presents a fascinating example of a classic management science/business analytics challenge:

1. Targeted future outcomes: An individual/manager/organization is focused on achieving a particular set of outcomes at some time in the future and seek insight on what set of actions to take between now and then.
2. Data-driven predictions: Based on whatever data is available and possibly relevant, develop predictions about those future outcomes of interest.
3. Prediction-driven actions: Based on these predictions, determine the best course of action to improve the predicted future outcomes.
4. Repeat #2 and #3: As new data becomes available, update predictions and responses.

Within our increasingly complex business ecosystems, this is almost always harder than it sounds – something I was recently reminded of when I spoke with Charles Julius, founder and CEO of Loamy (https://getloamy.com/), a seed-stage SaaS company that seeks to help food producers and brands optimize their supply chains while also reducing food waste within these farm-to-retail networks. 

Even after a couple of long conversations with Julius (and a lot of poking around on the internet), my understanding of food supply chains remains embarrassingly shallow. But, three things have really jumped out at me.

First, the complexity of these supply chains is staggering: import requirements, tariffs and restrictions. Food brands produce some of their own product while also financing independent growers’ investments in seeds, fertilizer and labor. Contracts for growers and manufacturers to provide certain fixed volumes of one or more products at some future date, with penalties for failing to deliver on time. Products made up of multiple inputs from different types of suppliers. Contracts for shippers to deliver specific volumes to retailers on a fixed schedule. Fluctuating levels of consumer demand that reverberates upstream through the system. Spot markets for key inputs with daily price changes based on a wide variety of factors ranging from weather to geopolitics. The same product being classified across a variety of dimensions, with radically different requirements for different buyers. And a bewildering array of inspections and required documents that often lead directly to waste (more on this later).

Second, the scale of food loss and food waste is simply staggering. The Food and Agriculture Organization of the United Nations (FAO) has estimated the annual food loss and waste to between 30% and 40% of the entire U.S. food supply. The estimated financial loss is a staggering 1 trillion dollars ($1,000,000,000,000) globally. A recent study by McKinsey estimated that 70% of the net financial loss takes place in the harvesting, processing and distribution stages. 

Third, despite all of this complexity, food supply chains primarily comprise physical operations rather than digital ones. This basically means people in this industry are far less chained to their computers than people who work primarily at desks in offices. As such, a huge number of important managerial decisions are being made based on fragmented information that arrives sporadically via ad hoc text messages and emails.

This is where Loamy comes in. The company’s initial product is designed to provide as much visibility as possible to help a food manufacturing and distribution brand (think Del Monte) make better business decisions about how best to acquire, combine and deliver products to meet the demand from a variety of customers (ranging from Whole Foods to McDonald’s) for different products with different requirements (tomato paste vs. organic tomatoes). Loamy’s product is intended to provide better coordination between these brands, their suppliers and their customers, and to reduce waste while optimizing the efforts of sales professionals to manage costs and drive profitability.

Some of this improved visibility comes from understanding what is happening in the field, literally. In recent years, satellite data has made it possible to make food production forecasts that are far more accurate and dynamic than simply making estimates based on manually sampling crop growth levels or merely tracking the weather. This data also enables early detection of produce quality issues.

“An unplanned shortage of a key input can have a huge negative impact on a small or mid-sized food brand,” noted John Haugen, founder and managing partner at SEMCAP Food + Nutrition, a venture capital fund that invests in innovative growth-stage food companies. “Getting blindsided like this can significantly impact costs, delay delivery to retailers, and even possibly negatively impact key customer relationships.”

Challenges

I quickly realized that it was a mistake to focus solely on the predictive modeling part of the story. Coordinating actions and decisions within food supply chains also requires a staggering barrage of measurements, certifications, test results and other documents. Failure to follow required protocols and/or provide the required documents often prevents products from being accepted for the next step in the supply chain, leading to a loss for the supplier along with significant challenges for the brand to figure out how to meet the contracted demand of its customers. Everybody loses, including the downstream consumers who are forced to pay more for their food.

This will soon be even more challenging here in the U.S. The Food and Drug Administration Food Safety Modernization Act (FSMA) is intended to address preventable foodborne diseases, which are a major public health concern and threaten the economic stability of the food industry (and all of us who depend on it). In particular, Section 204(d) of the FSMA (“Requirements for Additional Traceability Records for Certain Foods”) establishes additional recordkeeping requirements for those who manufacture, process, pack or hold food. Section 204(d) officially went into effect January 2023; however, the final deadline for compliance (Jan. 20, 2026) is rapidly approaching.

The problems that Loamy seeks to address are very important. To meet the global food demand of 9 billion people by 2050, FAO estimates that 60% more food will be needed. Given that approximately one-third of all food produced for humans is never actually consumed, reducing food loss and waste is clearly an efficient and economical way to help close this growing hunger gap.

Finally, it is important to note that Loamy’s product design and feature choices (as well as its marketing messages and product positioning) are sharply focused on the specific business problems that its software seeks to solve rather than the underlying technologies. A primary reason for this is the first-hand experience of CEO Charles Julius (in previous roles, he has managed and developed products for construction management and trucking firms). He knows that Loamy’s customers and prospects are far more interested in how Loamy’s product can help them rather than in tech industry buzzwords.

Loamy intends to be a system of intelligence that will provide its customers with a clear and quantifiable competitive advantage. In particular, although both the company and its product are still very young, Loamy already includes a variety of metrics to help salespeople use their time more effectively and make better decisions, including data-driven estimates for the likelihood of being able to fulfill each of its customer contracts.

Loamy calls these estimates health scores.