to a low resolution preview of this article

STORAGE
WOES
The Pros and Cons of
Third-Party Warehousing
By A n d i T r i n d le M ers c h
C
o f f e e r o a s t e r s have a multitude of
responsibilities beyond the obvious and mammoth
task of producing a perfectly profiled, consistent roast
with each and every variant green bean batch. Innumerable,
seemingly mundane but highly impactful matters require our
careful consideration—matters such as green coffee storage.
For example, how much green coffee can we store at our
roasting plant—and how much do we want to store there?
Even if we have enough room to store our raw goods, which
most of us don’t, is it the best use of our production space? Is
it the best use of cash to pay for all our coffee outright if our
importers are willing to offer delivery spreads, allowing us to
shorten the timeline from cash out for green goods to cash in
for roasted coffee sales?
continued on page 50
Pier pallets can support up to 25 bags. This creates a slightly larger footprint, but allows you to stack more bags than a standard
pallet, says Caribou Coffee’s Brian Aliffi, of the company’s in-house storage techniques. | photo by Brian Aliffi, Caribou Coffee
48 r o a s t
May | J u n e 2 0 15
49
STORAGE WOES | The Pros and Cons of Third-Party Warehousing
(continued)
For many roasters, deciding when
to use third-party warehousing is based
generally on two things: space and
cash. As Michael Rogers, executive
vice president at Apffels Fine Coffees
in Santa Fe Springs, California, says,
“If we have the space and cash, we will
keep our green coffee internally to save
on storage costs. If we don’t have the
need for the coffee yet and we don’t
have the extra cash and/or space, we
will store it in a warehouse under an
importer account.”
Brian Aliffi, senior manager
of green coffee sourcing at Caribou
Coffee, headquartered in Minneapolis,
for the coffee until it requests a delivery order from
the importer. In this common scenario, importers
finance the coffee for some set percentage of the
coffee’s value—generally 1.5 percent, including
storage fees—and a roaster isn’t invoiced until the
time a delivery order is placed.
For many small roasters, it’s not a matter of
freeing up capital but an overall lack of working
capital. After overhead costs for labor, rent, taxes and
other necessities are met, there often isn’t enough
cash left to purchase green coffee too far in advance
of roasting. However, many specialty roasters want
to secure their supply of specific lots of coffee for an
entire season or longer. In this case, warehousing
offers not only the needed storage space, but the
necessary assistance of third-party financing.
agrees. While Aliffi works in a large
production facility with minimal space
constraints, he says storing inventory
offsite frees up capital for investment
in other areas of the business. By
Warehouses provide a variety of services beyond simple storage, ranging from sampling, re-bagging, resorting, delivery and inventory tracking to blending, gravity tables, color sorting machines, fully equipped
quality labs and more. | photo courtesy of Annex Consolidation Center
50
roast
leaving a portion of its green coffee in
its importer’s “position” at a third-party
warehouse, Caribou avoids paying
Warehousing Pros
In addition to space and cash constraints that
mandate external storage, roasters and importers cite
numerous reasons to opt for outside warehousing.
continued on page 52
photo by Brian Aliffi, Caribou Coffee
May | J u n e 2 0 15
51
STORAGE WOES | The Pros and Cons of Third-Party Warehousing
(continued)
Beyond the arguments for focusing on
the warehouse, the transaction is completed
in-house,” he respects the demands of
demands, including a requirement to
side at Mountanos Family Coffee and Tea
and packaging coffee, and available space
the company’s inventory control team, so
fumigate all green coffee before receipt
core expertise areas, John Visbal, president
without physical movement or extra costs
of Petaluma, California, Dave Weber, now
should be dedicated for income-generating
when floor space gets squeezed for various
at its plant, and the need to receive all
of San Leandro, California-based East Bay
and is seamless for the roaster.”
senior vice president at Annex Consolidation
production activities,” Weber says. “Storage
seasonal non-coffee items, he moves more
coffee delivered direct to its door in sealed
Logistics—a friendly competitor warehouse
Center, a San Leandro, California-based green
of raw goods isn’t a best use of space.”
green coffee offsite.
containers post-fumigation. Giudice relies
to the Annex—points out an additional value
services beyond simple storage, including
on his warehouse partners to provide
add: “By keeping their coffee in a third-party
sampling, re-bagging, re-sorting, delivery,
During his many years on the roasting
coffee warehouse, often had what appeared
“A roaster’s income comes from roasting
Michael Giudice is coffee operations
Like Weber, George Vukasin, Jr.,
Warehouses can provide a variety of
to his mangers to be ample space for holding
manager at Costco Wholesale in Monroe
president of Peerless Coffee & Tea, based in
these services and has found them “very
warehouse, the roaster has the advantage
inventory tracking, general storage expertise
green coffee. Nonetheless, he insisted on
Township, New Jersey. While his operations-
Oakland, California, believes in dedicating
nimble and accommodating of many
of being able to sell the coffee to another
and more. Janet Colley Morse, business
using offsite storage.
based view is “you can’t have too much coffee
as much space as possible to the core
different special needs of the company.”
importer or roaster if their needs change. In
business tasks of roasting and packing, but
Furthermore, these warehouse partners
Vukasin also cites another reason he prefers
have been “fantastic in reminding
to store the majority of his company’s
new brokers of how we need our coffee
green coffee offsite: disaster planning.
delivered, which ends up expediting
“The main reason (we store offsite) is
we always want to have duplicate inventory
continued on page 54
delivery,” he adds.
Importers don’t realize any financial
in case a disaster hits our roastery,” he
benefit from holding their green beans in
explains. While this strategy mainly
a third-party facility, but they do recognize
protects a company from disaster in close
other benefits. While many think of
proximity to its roasting facility (a regional
importers principally as physical movers
or wider-spread catastrophe likely would
and owners of green inventory, Dane
wipe out offsite inventory as well), it does
Loraas, a relationship coffee manager at
constitute a smart and relatively simple-to-
Sustainable Harvest Coffee Importers,
employ contingency plan. Furthermore, in
based in Portland, Oregon, notes that
companies fueling expansion efforts with
importers “provide many services and
outside investors—a phenomenon growing
trainings such as cupping, financial risk
as steadily as geisha tree plantings—
management, agronomy and marketing,
this type of exigency planning often is
so having a warehouse perform the heavy
mandated. At Philz Coffee, for example,
lifting allows us to focus on our strengths.”
offsite storage to protect some portion of
Specifically, he says, “most warehouses
our green coffee supply is required by our
have staff that are accustomed to dealing
venture capital partners.
with coffee and have become experts
in managing problems such as stains,
damaged coffees, reconditioning bags,
Warehouses can
provide a variety of
services beyond simple
storage, including
sampling, re-bagging,
re-sorting, delivery,
inventory tracking,
general storage
expertise and more.
etc.”
Along with expertise in noting and
handling problems, warehouse crews
literally “perform the heavy lifting” by
unloading containers, moving bags and
pallets around, and driving forklifts. From
Loraas’ perspective, there’s a definite
advantage to allowing warehouses to
provide this expertise and manpower.
As a roaster, I, too, would rather my
importers focus their energy and expertise
on sourcing, specifically securing and
managing consistent, high-quality,
traceable coffee sources. And just as
importers can focus on their areas of
For Giudice, it’s the additional
services East Coast warehouses such as
Continental Terminals and All Jays provide
that add real value. As a multi-product
food facility, Costco has many unique
52
roast
expertise, warehousing allows roasters to
focus on the core activities at a roasting
plant—cupping, roasting, blending,
packaging and shipping—without
worrying about all the nuances of storing
and moving green coffee.
May | J u n e 2 0 15
53
STORAGE WOES | The Pros and Cons of Third-Party Warehousing
(continued)
development director at Dupuy Storage & Forwarding in New Orleans, says her company
provides a variety of value-added services in each of its five locations across the southeast
United States, including blending, gravity tables, color sorting machines, and fully
equipped quality labs. Find out what your warehouse offers beyond the obvious floor
space to maximize the benefits of your partnership.
Warehousing Cons
Clearly, there are many benefits associated with using an external warehousing service.
Nonetheless, there are almost an equal number of reasons many roasters lament the
need to do so. For starters, warehousing is expensive.
Joel Edwards, head roaster at San Francisco-based Ritual Roasters, says the cost of
maintaining offsite storage was a primary motivator for his company to explore the
possibility of storing as much of its green coffee in-house as possible. According to
Edwards, after realizing the company was paying an enormous amount of money for
carrying costs in the form of finance fees to importers and warehouse storage fees, he
What will
Warehousing Cost you?
If you’re thinking about in-house storage, says Brian Aliffi of Caribou Coffee, consider silos to
open up floor space and provide an automated system to replace manual blending or forming
loads by hand. | photo by Brian Aliffi, Caribou Coffee
was tasked with finding a way to reduce these expenses. After a careful analysis of carry
costs, separating out the finance charges from warehouse fees and comparing finance
W
ith so many variables playing into the total cost a roaster will pay for
warehousing, it’s difficult to generalize about costs, but here we offer
some ballpark figures. These ranges refer to basic warehousing services using
traditional burlap bags; additional services also are available. The figures below
were provided by several warehouses across the United States; however,
it’s important to note that rates vary depending on overall volume, services
required and payment history. Some rates also vary based on bag/box weight,
and most warehouses charge extra for processing certified-organic lots and
coffees bagged in GrainPro.
fees charged by the bank versus those charged by the importer, Edwards achieved
significant savings—“in the thousands of dollars annually,” he says—by bringing more
of the company’s storage in-house.
Ultimately, the cost savings came through a combination of borrowing money
from the bank at lower rates than the importers were charging and eliminating outside
storage fees where possible. And while the savings are substantial, it’s important to
note that space limitations still come into play and a significant percentage of the
company’s green coffee remains offsite—whether financed by banks or importers.
In addition to the expense of offsite storage, Mark Stell, president and owner of
Oregon-based Portland Roasting Coffee, notes some frustration with billing. Because
invoices are processed by the warehouse months after shipping, Stell says, he and his
Inbound Unloading
$0.65-$1 per bag
Outbound Floor Load-out
$0.68-$0.82 per bag
Forklift Load-out
$0.30-$0.31 per bag; minimum $25
Palletizing (includes shrink-wrapping and strapping)
$16-$21.50 per pallet
Monthly Storage
$0.53-$0.60 per bag
Minimum Monthly (per lot)
$15 average
staff spend extensive time reviewing each bill to verify the amounts are correct. Giudice
also expresses vexation over invoicing, reporting a “mind-boggling” array of charges
associated with every delivery. Line items for load-out, palletizing, stretch-wrapping,
banding, drayage, use of hooks or not, and the differentiation by bag weight per line
item make it a dizzying task to reconcile invoices, he says.
Fortunately, invoicing nightmares weren’t a standard complaint among the roasters
interviewed for this article. However, another grievance of Stell’s—that the warehouse
is “slow to get the product out when in a jam”—does seem to be a common one.
Regardless of planning acumen—and as a former importer, I can attest that many
roasters lack forecasting expertise, or at least the time to focus on it—a roaster inevitably
will experience the occasional last-minute need. An unexpected burst in demand, a
problem with a green or roast batch, or generally poor planning between sales and
production can cause a roaster to request a rush release. The best case in this scenario
is that the warehouse helps you (though often they simply cannot), but even so, it may
come with additional “rush” processing fees and could lead to mistakes.
Even notwithstanding these hopefully rare last-minute needs, lead time between
requesting a release and receiving coffee is an ongoing struggle for many roasters.
From receipt of a delivery order request from the account holder (usually your importer,
continued on page 56
54
roast
May | J u n e 2 0 15
55
STORAGE WOES
(continued)
Relying on warehouse partners to handle storage, inventory control,
physical moving of green coffee and other tasks allows importers and
roasters to focus on their own areas of expertise. | photos by Bryan
Moran, East Bay Logistics
which means additional processing time), most warehouses
require a minimum of 24 hours (some up to 48) to prepare
an outbound release—and this is just the time to get your
green coffee from the warehouse floor to the warehouse
door. From here, additional time typically is required for
inland transportation. For St. Louis-based Kaldi’s Coffee
Roasting Co., that’s three to five days for inland transit after
release from either an East Coast or West Coast warehouse.
Furthermore, as Kaldi’s co-owner and green coffee buyer
Tyler Zimmer laments, “If a big snowstorm comes through
the Midwest or Northeast, we can be without some coffees
for two to three additional days.”
For many roasters, reducing the time between a request
for green beans and loading the roast hopper is almost as
continued on page 58
56
roast
May | J u n e 2 0 15
57
STORAGE WOES | The Pros and Cons of Third-Party Warehousing
KNOW
(continued)
Your WAREHOUSE
desirable as eliminating the considerable expense of
outside warehousing. Realistically, however, a company’s
options are limited to expanding its physical space, which
requires a considerable expansion of working capital,
or incorporating the appropriate lead time, including a
H
ere are some key questions to ask when choosing a thirdparty warehouse or evaluating a current warehouse.
cushion for the unexpected, into the planning process.
Clearly, the latter is far more viable, and fortunately it’s
fairly easily mastered with fundamentals of supply chain
planning. Courses offered through the Specialty Coffee
Association of America can help.
Other grievances related to third-party warehousing
include mistakes and a lack of care in physical handling
of the green beans. Most roasters interviewed reported
few mistakes, especially when working within ample lead
times, but because even infrequent mistakes can be costly,
it’s a significant problem. Mistakes such as torn bags from
moving them around too quickly or too roughly, or the
misreading of bag marks, can cause a substantial burden.
Pulling the wrong lot of coffee is particularly troublesome
What are your rates for storage, including minimums?
What are your rates for inbound and outbound loading?
because, even if caught immediately upon delivery and
returned to the warehouse before a mistaken roast (which
does happen!), the order-to-delivery timeline starts over
upon return and even the best supply chain planner can’t
What additional services do you provide (sampling, re-
always allow enough of a window to cover it.
bagging, local delivery, etc.)?
Maximizing the Warehouse
Experience
What is your cutoff time for delivery order processing? If
we have an emergency need, can you help?
Can you consolidate with multiple shippers?
What storage conditions do you maintain (temperature,
humidity, etc.)?
Do you store products other than green coffee? If so,
what products, and how are they isolated from your
green coffee storage area?
What are your pest-control practices?
To gain the most benefit from third-party storage, it’s
important to maintain an active relationship with your
warehouse partners.
“Don’t be a stranger,” advises Vukasin. “Visit your
warehouses and make sure they are professional, clean
and organized.”
In addition to welcoming occasional site visits,
warehouses invite and even recommend you maintain
close communication with them. Weber and his
colleague, Hugo De La Roca, general manager at the Annex
Consolidation Center, insist they appreciate direct, early
Are you organic certified?
communication from roasters, whether they have their
Are you food safety certified?
held under importer accounts.
What inventory management tracking can you provide?
importers alike is essential to ensuring the best quality
When do you recommend a roaster open his or her own
own accounts with the warehouse or their inventory is
“Having an ongoing, open dialogue with roasters and
and service available,” agrees Colley Morse.
As a bonus, if you get to know your warehouse team
account with you versus keeping their coffee under an
through regular communication, you’re more likely to get
importer’s account?
a better response to those rare last-minute requests—as
When can we visit (how frequently and during what
hours)?
long as they remain rare.
Of course, communication is a two-way street. If port
shutdowns have created a backlog and 50 containers are
continued on page 60
58
roast
May | J u n e 2 0 15
59
STORAGE WOES | The Pros and Cons of Third-Party Warehousing
(continued)
The Food SAFETY Modernization act
C o n s i d e r Y o u r s e l f Wa r n e d
T
he Food Safety Modernization Act (FSMA), signed into
and manufacturers, and even the laws themselves are still being
law by President Obama on Jan. 4, 2011, will almost
interpreted and fine-tuned. It’s critical for roasters to stay abreast
assuredly change your production plant processes on some
of the law, and it’s recommended you work with knowledgeable
level and most likely will change your relationship with your
warehouses and importers who can ensure your compliance if/as
warehouses, too. The first major change to domestic food
the requirements develop to include third-party raw goods storage
safety laws in more than 70 years, FSMA requires food facilities,
facilities. The National Coffee Association also is a good source for
under authority of the Food and Drug Administration (FDA),
information as it has been heavily involved in advocating with the
to implement and document control plans for food safety.
FDA on behalf of the coffee industry.
Additionally, importers of food products have “an explicit
At the very least, says Bob Forcillo, managing director at
responsibility to verify that their foreign suppliers have
Continental Terminals in Jersey City, New Jersey, costs for facility
adequate preventive controls in place to ensure that the food
upgrades and compliance with these expanding food safety laws
they produce is safe.”
inevitably will drive warehousing costs up over time. Smart roasters
Parts of the law already have taken effect while others are
will start budgeting for these increases.
slated to go into effect over the next year or so. There are still
many unknowns within the coffee industry in terms of how
For more information, visit:
these rules will impact both green and roasted coffee handlers
www.fda.gov/Food/GuidanceRegulation/FSMA/
likely to be released at once for inbound drayage and unloading, for
example, a good warehouse will keep you apprised of the situation,
enabling you to incorporate delays into your planning. Ensuring this
type of communication happens is another important reason to reach
out to your warehousing partners directly, as they can be more likely
to communicate with larger importing customers about these matters
than with the smaller roasters on their client lists.
“Complaints and confusion are almost always directly linked to
poor communication,” Visbal notes. “That can be either through the
warehouse not listening and paying attention or the roaster/importer
not providing enough pertinent information.”
Either way, a lack of communication inevitably leads to frustration,
while regular dialogue provides the opportunity for a rewarding
partnership. Best yet, you’re likely to be pleasantly surprised (as I have
been) by the expertise and depth of knowledge your warehouse partners
can share on a variety of subjects when you think to ask them.
ANDI TRINDLE MERSCH has had a varied career in the specialty coffee
industry, which began behind the espresso bar in 1989 and, since then, has included
cupping, training, consulting, green coffee trading, roast quality control, sales, writing
and marketing. Trindle Mersch currently serves as director of coffee at Philz Coffee in San
Francisco. She was elected to the Roasters Guild Executive Council for a two-year term in
Some companies rely on third-party warehousing as a safeguard
against potential inventory loss caused by disaster at the roastery.
photo courtesy of Annex Consolidation Center
60
roast
March 2015 and continues to volunteer with the Specialty Coffee Association of America
(SCAA). She is also a past board member of the SCAA and the International Women’s
Coffee Alliance.
May | J u n e 2 0 15
61