Case Study:Scot Trout Farming Ltd

This case study covers the following points:

 

Scot Trout Farming Ltd

Introduction to Scot Trout Farming Ltd

The success of the processing and marketing operation of Scot Trout had created a real dilemma for its farmer members and suppliers.  The trout producer members operated in different ways, which resulted in variances in product supply and compliance to the desired specifications, such as fish being too small too large, and seasonality issues.  This in turn created extra problems for the processing operation and made it challenging to cope with its own increasing demand for products from major customers and consumers. The scale of the business was such that it was becoming more difficult for Scot Trout to centrally manage all aspects of the chain. 

The Commercial Drivers for Collaboration in the Chain

Historically, the establishment of Scot Trout in November 1983 was Britain’s first co-operative of farmed trout producers and was a direct response to a lack of co-ordination in the market and recognition of the growing dominance of the supermarkets in the food chain.

Today, Scot Trout is the UK’s leading trout processor. It processes more than 80% of Scottish production, around 4000 tonnes of trout, 3000 tonnes of farmed salmon, has a fish smoking and marinating operations, and also handles and distributes other food products as part of its Loadshare Project.  The business employs 350 people in processing and sales with a turnover in the current financial year in the region of £45 million. Customers include major retailers such as Marks & Spencer, Morrisons, Sainsbury and Tesco.

The answer to Scot Trout’s supply dilemma was to set up an independent farming and procurement company that would service the needs of Scot Trout as a processor.  The Board decided to form a new co-op in 2006, Scot Trout Farming Ltd (STFL), to take on this task and bring the whole supply and procurement operation together into the one business.  They realised they had to create a clear distinction between fish production and fish processing, yet maintain a professional partnership approach that would benefit everyone in the chain. 

What are the Key Working Relationships and how are they Maintained?

The new Board of STFL appreciated the necessity of bringing the same level of focus, specialist expertise and efficiencies into the fish production and procurement operation as they had witnessed in the highly effective processing activities.  Similarly they believed there would be great benefit in replicating the collaborative and communicative approach in the supply base as had been achieved between Scot Trout and their major multiple customers.

Graham Young, Managing Director of STFL, knew that it would be no easy task.  ‘Initially we had different sizes of farms in different locations with differing aspirations and capabilities to expand.  We had limited ability to co-ordinate and focus on supply and getting the right product at the right time in the right specification.  In the past this was left to the processing factory to sort out, but this had to change.  We had to develop our own internal collaboration as well as continuing the successful joint partnership we had with Scot Trout as a food processing company.  In addition we had to extend that collaboration further upstream to our suppliers and specialist advisers’.

 

What are the Collaborative Business Propositions and Targets Agreed by the Chain?

Top of the development list was planning optimisation, which made the best use of available resources including farm specialisation, farm management expertise, pooling of purchasing power, and adopting a collaborative ethos.  In realising this, Graham believed that it was important to secure an easy win in the early months, ‘What better way of achieving progress and buy-in to what we were attempting to do, than to effectively utilise the huge amount of skills, knowledge and natural resources that we already had amongst the producer group and suppliers.  We combined this with expert knowledge from feed specialists and experiences gained from learning journeys for our Board and management team to other trout producers in the UK, Europe and Chile. This provided us with very useful information on alternative ways of managing fish farms’.

The result of the planning optimisation approach was to create benefit from a focus on:

 

 

Farm specialisation was introduced taking advantage of the natural attributes of a particular farm’s site.  No longer did each farm produce a selection of everything, but what it was best suited to produce.  Now specific sites concentrate on fingerlings,  and others on finishing larger fish to specification.  Overnight, it removed the internal markets between the farms, with all the participants receiving a share of the overall success of the company rather than their particular farm.  The common ownership also considerably reduced the risk to an individual farmer as  the risks and benefits were now split eight ways.

Examples of the results of Collaboration

The various sites operated by STFL means that production can be maximised and efficiencies gained by selective use of sites in different seasons.  There are certain times of the year when it is more productive to grow trout in a river or a loch.  Members had planned and organised their farms with an eye on their own 12-month cash flows.  Under the new system, income is split from all farms allowing STFL to focus production to certain farms in optimum months.  In addition, extra tonnage can be generated from the existing sites that was not achievable from the previous individual operating procedures.  STFL are expecting an increased output of 200 tonnes per year simply from utilising seasonal advantage of their sites thus creating more value from existing resources.

The ability to adopt a farm specialisation strategy is helping STFL to diversify into new areas of opportunity.  The smaller sites can now be turned into organic sites or for the production of trout for the angling sports market.

Better farm management and knowledge transfer opportunities has enabled STFL to benchmark each farm against the others, establishing key performance indicators such as feed conversion ratios, cost of production and growth rates.  Best practice, fish health care and effective environmental management lessons were also identified and shared amongst the group.  These have been valuable lessons in making the business more competitive.

Long Term Thinking and Mutual Support

The new structure has provided a great opportunity for knowledge transfer and skills training between employees on all sites and to generate cost savings.  For example, the recruitment of several carefully chosen farm staff from Denmark has brought new skills and knowledge and first hand experience of the application of new technologies developed on the Continent.

Efficient use of resources has also been driven through the collaborative scale of the new group.   Previously, an individual farmer was not prepared to take the risk or burden of planning and running a feed trial.  Within the co-op structure, cost, risk and benefit area now all shared.  Not surprisingly, ingredient suppliers and veterinary service providers have been keen to work with the enlarged group and savings have already been made on purchases and supply contracts.  It is an area that STFL wish to develop further as they are very much aware of the knowledge, skills and expertise that both suppliers and experts have to offer in helping to increase the efficiency of the group, not just in products and service, but in delivering new technology and techniques.

The impact of the planning optimisation has helped strengthen the security of the supply base of product throughout the chain.  Graham Young pointed out, ‘It takes around 18 months to grow a fish to market size and therefore we have to work closely with everyone in the chain if we are to satisfy market demand in an efficient and effective way.  It can be quite costly if we have to source fish on the open market when demand is high, therefore the more we plan in partnership, the more successful we will be’.  This approach has taken STFL from 30% self-sufficiency in fingerlings to 70% through a merger with Cloan Hatcheries in Perthshire in 2006.  Recently, through a combination of capital investment and improved management systems, self-sufficiency has been increased to an optimal 85%.

Innovation, Value Add and New Product Development

STFL has deliberately focussed on extending the collaborative ethos right back to the beginning of the supply chain with ‘Seven Springs’, a Northern Ireland broodstock company, joining the co-op in July 2006.  The group now procures 30% of its requirements from its own chain and this is set to increase with investment to over 80% in coming years.   The scale of the group will allow it to explore the development of a stock selection scheme which could ultimately lead to trout, which grow faster, with better feed conversion and improved filleting yields.  Opportunities may exist in the future to create a joint venture high tech spin-out company.

The chain is achieving a fully collaborative approach now stretching from the breeding of the brood stock through to the market product offering and sophisticated understanding of the consumer.  The whole chain now starts it’s planning based on a three year projection and analysis of market trends, and reassesses at prescribed intervals right down to a weekly and daily forecast plans.  As Graham notes, ‘It’s always a challenge to match supply and demand particularly when you are dealing with a live and growing product in the natural environment which is influenced by the ever changing seasons.  But our planning system and close collaboration with all our partners up and down the supply chain, minimises the risk to help us respond efficiently to customer demand’.

STFL also buys in trout from external sources, which helps address minor fluctuations in demand and supply.  It is important for the group to maintain a stake in the market place as a buyer in case it has to respond to shortages caused by weather or any other unforeseen circumstances.

The members of STFL expect a fair reward for their product, but are realistic in how they achieve this. ‘Benefits will come through driving profitability via innovation, efficient production methods, reducing costs and improving quality and consistency of product to increase return prices. The quickest and most effective way to achieve this is through our farmers and supply chain working together’, reiterates Graham.

Conclusion

The future will see the added benefit from the consolidation of the integrated three year planning process within the whole chain.  Scanning of European markets will continue to be an important monitoring tool and an opportunity to capitalise on trading opportunities.  However an emerging threat is already apparent from new members of the EU in Eastern Europe who are developing their fish farming industries.  STFL know they cannot rest on their laurels, and are continuously aiming to drive down costs whilst improving on the high standards and quality they have consistently delivered.

STFL have achieved much in a short space in time, but it could not have reached this far without a co-ordinated and integrated approach based on trust, market focus, communication and joint planning throughout the chain, and a desire to improve competitiveness for the benefit of all.  Such is the desire for this to happen that the processing company of Scot Trout is providing investment funding in partnership with the farmers.  It recognises that in order to continue its own success, it has to invest upstream to secure its efficient supply.  It is quite visionary for a company and a chain to work together in this way, but is reflective of the most successful collaborative supply chains operating in many other industries.

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