Beef producers are using a revolutionary supply-chain system to reduce costs and raise revenues. Your industry could be next

The sky is low, the color of skim milk, and a breeze rattles the scraggly mesquite trees that ring the entrance to Capitol Land and Livestock, a cattle dealer in Schwertner, Tex. Behind the company's stately, porticoed main building, a brown-and-white Charbray lumbers through a labyrinthine arrangement of open-air pens, gates, and alleys, stopping at last inside the squeeze chute, a narrow metal stall that restrains her movements. Wielding a tool that looks like a giant hole punch, a worker clamps a yellow plastic tag on one ear. The calf flares a nostril but appears otherwise unflustered.

Inside that thumbnail-size tag lies a tiny radio-frequency transponder. When the worker waves a metal wand over it, a unique ID number is transmitted wirelessly to a Dell laptop computer perched on an overturned trash can a few feet away. Jim Schwertner, Capitol's 46-year-old president, leans over the computer and watches as the number appears in an Excel spreadsheet. He then types in the fact that the worker is squirting TSV2, a vaccine for respiratory disease, into the calf's nose and injecting worming medicine into her flank. The computer is also cabled to a switch box with multiple serial ports resting on a chute-side table. The ports feed the computer output from an electronic scale and a digital thermometer inserted into the calf's rectum: this animal weighs a healthy 592 pounds and has a normal temperature of 101 degrees. Her vitals punctiliously recorded, the calf is released and trots off to her pen.

Capitol Land and Livestock, a $150-million company founded 51 years ago by Schwertner's father, doesn't look like the epicenter of an industry revolution. But the business--along with a handful of others, many of them in Texas--is experimenting with a technology-driven model of supply-chain integration and management that could, among other things, raise the price cattle producers get for their wares by 5% or more, reduce costs by 20%, significantly improve the quality and consistency of the meat sold in supermarkets and restaurants, and help quell public fears about beef safety. "It is the single biggest thing ever to happen to this industry," says James Herring, CEO of Friona Industries L.P., an operator of feedlots and feed-manufacturing companies and one of Schwertner's partners in the supply-chain project.

At a time when companies in many industries are consolidating suppliers and demanding new informational intimacy with business partners, the beef system is a prime example of how even the smallest organization can use relatively inexpensive technology to build a better product and secure relationships with customers. And while beef producers are among the first to embrace such a sophisticated system, the model has implications for any industry in which raw material of variable quality is transformed into finished products of variable quality by a multiplayer manufacturing chain.

The umbrella term for what the beef companies are doing is "source verification and performance-data tracking," the creation of a kind of bovine audit trail that captures every event in an animal's life, from birth to butcher. Schwertner's company is using a primitive version of the system, but he expects to have a more sophisticated model in place in a few months. What won't change are the ear tags: each calf is outfitted with a tag containing a small antenna that's attached to an integrated circuit storing a unique ID. The tags work roughly like bar codes: when swept by an electronic reader, they transmit their ID numbers wirelessly to a computer.

At Capitol Land and Livestock, the ID number is stored locally in a spreadsheet, along with other information the company has about the animal. The spreadsheet is then sent on a disk to Schwertner's business partners--in this case, the companies he supplies. In the new model, all of Schwertner's data will be transmitted by modem to a database running at a third-party vendor or an industry association, where it will be joined over time by information collected by a series of owners using a variety of tools: radio-frequency identification (RFID) readers, handheld and laptop computers, electronic weigh scales, scanners that read drug-container labels--even a gadget that performs ultrasounds to determine how much fat an animal carries.

As the animal moves down the manufacturing chain, both new and past owners will be able to check that database, using the Internet, for relevant chunks of its biography. At the top, ranchers can find out how much weight an animal gained at each stage of production and how much red meat it rendered at the packing plant--information they'll use to make decisions about culling, grazing, and breeding. At the bottom, packing-plant workers can check for things like needles that may have broken off in a calf's flank or drugs that have not had time to pass through its system. Even retailers will eventually be able to contribute, noting, for example, whether a slab of meat received from the packing plant broke down into 9 steaks or 16.

Large ranchers have been collecting some of this data for years, scribbling it in notebooks as animals are weighed, checked for pregnancy, or given injections, and then keying it into herd-management programs back in their offices. But recording which heifer bred with which bull tells them nothing about the quality of the porterhouse that resulted from that union. Using data on a calf's development fed back into the system by subsequent owners, however, ranchers can decide whether to breed two specific animals again or whether to sell the bull and put the cow out to pasture. The information can also help ranchers, feedlots, and packers identify the best and worst among their suppliers--information they weigh when deciding who receives the favor of their business.

"This technology has shown us that preconceived ideas we've had about cattle are completely wrong," says Schwertner. "For example, the industry has for a long time thought that if you had a group of cattle that all came from the same rancher, that looked alike and had the same genetics, they should all perform similarly. Not true. And now that we know that, we don't have to go out and pay more for one-ranch cattle anymore. We know what we buy at the auctions is just as good."

Such performance data--whether it is used to improve product quality, locate the source of defects, or choose the best suppliers--is important to any number of industries. Food production is the most obvious: in a situation like last year's hepatitis scare, strawberry producers could have used such a system to quickly determine at what stage the fruit became contaminated. Forestry companies have an interest as well. The industry is trying to build a market for certified wood products, and in order to prove that finished goods have been grown and harvested in ecologically sound ways, they must be able to leave a trail of digital bread crumbs from landowner to retailer. Applications even extend as far afield as the high-tech industry, where PC manufacturers that buy from circuit-board assemblers and other small companies could keep glitches to a minimum by noting the conditions of each component's manufacture and determining at what stage of production problems crept in.

In fact, shared information is becoming such a crucial part of supplier-customer transactions that it is almost as important as the product being exchanged. "Buyers are forming links with sellers who are willing to invest in the technology and to agree on the management practices that will allow this [collection and dissemination of information] to happen," says Bill Helming, a member of the board of directors of the Supply Chain Council, a national trade association. That information helps players all along the chain reduce costs and improve quality. "As a result, the chain has the choice of charging a premium or competing on cost," says Helming. "There's enormous economic leverage."

Jim Schwertner, like most beef producers implementing supply-chain technology, is doing so within the context of an alliance formed for that purpose. These alliances include representatives from every stage of the manufacturing process: ranchers, stockers/growers, feedlots, packing plants or slaughterhouses, and, in some cases, retailers. (See "Where's the Beef?" below.) While all the companies in Schwertner's alliance--called Beef Advantage--have revenues of more than $100 million, most of the calves that travel through its pipeline originate on small ranches, those with fewer than 500 head of cattle and annual sales of under $250,000. It is these small businesses that may ultimately benefit most from the system.

Calves that are born on small ranches now enter the Beef Advantage chain through Capitol Land and Livestock, which buys them either directly or through auction barns; the scant data that accompanies the animals generally travels verbally or on paper. But Schwertner expects that those ranchers, even the smallest, will start tagging their own cattle and entering information into the system when the Internet-accessible database is up and running. Under such an arrangement, the electronic audit trail that now begins with Schwertner would start with the small ranchers, who would also be able to use end-of-the-line performance data to make better breeding and management decisions.

Schwertner's company functions like a typical brokerage business: it buys cattle in large volume, takes title to them, and immediately resells them. Every day, Capitol's 15 buyers spread out across south and central Texas, purchasing cattle and trucking them to headquarters, where they are sorted by size, sex, and quality. Then the telemarketers hit the phones, cutting verbal deals with feedlots until every last Charbray and Black Angus is gone. "My dad has this philosophy: We don't go home at night with any inventory left unsold," says Schwertner.

A calf passing through Schwertner's outfit is tagged, weighed, measured, and dosed with medicines; Schwertner then supplements data collected at the squeeze chute by typing in any printed information passed along by the animal's previous owner, such as birth date and weight at time of sale. All that information will be available to James Herring on a spreadsheet when the calf makes its next stop: Friona Industries, with headquarters in Amarillo, Tex. Herring is also a member of Beef Advantage and has agreed to buy a certain number of Schwertner's beasts as part of the alliance agreement, which also includes terms for sharing information and for adopting the technology to do so.

In the time the Charbray enjoys Friona's hospitality, she may double in weight, and all the while Herring will be adding information to his own spreadsheet, which he shares with Schwertner. Combining Schwertner's data with information he gets back from Cargill Foods' Excel Corp., a packing plant that is the next link in the chain, Herring is able to calculate what conditions--how much an animal is fed or when it segues from grass to grain--produce the highest-quality carcass for the lowest cost. And like Schwertner, Herring will use that information when he's figuring out whom to buy from, possibly cutting exclusive deals with suppliers whose product brings the most return. "Using an integrated production process like this, we can create a superior product," he says.

So far, Schwertner's and Herring's biggest investment has been the tags, which go for between $3 and $11 each, depending on the manufacturer. Prices are dropping, however, and should settle in at around $4. In addition, Schwertner has spent $25,000 on readers, computers, and the serial devices that allow him to take chute-side measurements. But the expected returns dwarf that outlay.

First, there are the savings born of efficiency, which Herring estimates at 20% or more. For example, new owners, lacking information on an animal, will usually subject it to a regimen of drugs that may duplicate doses administered earlier in the chain and increase the amount of time the animal takes to clear the medications out of its system. Knowing an animal's age and rate of weight gain makes it easier to determine when to switch it from grass to grain--the less time it spends on grain, the less cost to its owner. And since restaurants, supermarkets, and other customers buy beef according to specific grades and weights, producers can use feedback on which calves throw those numbers out of whack to winnow the offending bulls and cows from the breeding pool.

And then, of course, there are the premiums. Buyers--particularly at the later stages--desperately want consistent size and quality. Packers, for example, don't want to waste time cutting excessively fatty meat down to a quarter-inch trim. And supermarkets want beef that they can easily divide into steaks and cuts of approximately the same size. As a result, these buyers have traditionally docked their suppliers for calves that are too large, too small, or exhibit other peculiarities. Schwertner says he's spoken with several buyers who are willing to pay extra to suppliers who can deliver a predetermined number of calves of predetermined size and quality. "Our customers aren't paying more yet for source-verified animals, but I know they will," he says. "Our goal is to try to get a 5% premium."

A third advantage is improved food safety: the system aims to mitigate the effects of--if not eliminate entirely--the kinds of mad-cow and E. coli incidents that make Frank Perdue a richer man. "If there is a scare, the system provides a mechanism to trace products that have been contaminated, which avoids the destruction of uncontaminated products and minimizes losses," says Lee Curkendall, vice-president of product development at AgInfoLink, the new systems integrator that is acting as sherpa through this high-tech terrain for several alliances. "Participants in the chain can also adjust their environmental and management practices to reduce possible contaminants." If, for example, a packing plant discovers a chemical residue in certain calves, it can notify the supplier, who can comb through those animals' histories looking for common strands or anomalies. Perhaps they all hail from a particular pasture where pesticides have been incorrectly applied.

At the back of everyone's mind, of course, is the hope that source verification and performance-data tracking in the beef industry will bring carnivores who have defected to paler products back to their rib eyes--meaning more money for all. "We're not just losing market share to pork and chicken; we're also losing it to people not buying meat," says Bob Nunley, the owner of Coyote Ranch, in Sabinal, Tex., and a member of Rancher's Renaissance, another alliance that is experimenting with the technology. "Someone goes to a store and spends a lot of money on a steak and it's too tough to eat--we've lost a customer."

In Nunley's vision, alliances that could track their beef and thus guarantee its quality would trumpet the fact through labeling: consumers would grow to associate a divinely marbled rump roast with Rancher's Renaissance, for instance, and gladly pay more for it. "Right now, nobody knows whose meat they're buying," says the rancher. "We need to be able to differentiate the product--to show we're a group of people producing quality stuff."

Coyote Ranch looks anything but high tech: a handful of ramshackle buildings surrounded by 9,000 acres of mesquite, agorita berries, and guajillo. But if Schwertner's outfit is the Spirit of St. Louis--the earliest of adopters using the most basic of technologies--then Nunley's is the Concorde. The ranch is serving as a test site for a sophisticated implementation of the technology that may ultimately become the prototype for a national cattle-tracking system. (See "Equal-Opportunity Beef," below.)

Rancher's Renaissance--a 20-company alliance with members in Hawaii, California, and Texas--chose Coyote Ranch as its beta site because of Nunley's familiarity with computers: the lean, laconic rancher does programming as a hobby and developed most of the business's inventory software. Charged with testing the data-collection aspects of the system prior to the establishment of an alliancewide database, Nunley began putting ear tags on his cattle last October. But the use of tags is where Nunley's and Schwertner's systems part company.

In the Rancher's Renaissance system, which should be fully deployed in March, there will be little keying of information into a laptop. Rather, sophisticated software will handle nearly everything. To start, Nunley will log on to the computer and select which bovine characteristics he wants the software to recognize--whether or not a cow is pregnant, for example. He will then take a "work card"--a 10-by-30-inch piece of plastic embedded with several transponders--that is dedicated to that particular characteristic and place a label indicating a possible outcome ("yes," for pregnant; "no," for not pregnant, recheck) next to each transponder. The person working the chute can then simply scan an animal's ear tag and point his wand at the appropriate transponder on the card: the joyful tidings that #431B is with calf will travel via radio frequency to the computer, which may be 800 feet away in the cab of a pickup truck. Nunley also plans to set default results ahead of time, so that if all the calves passing through his chute come from one place or are undergoing the same treatment, that information will be automatically registered for each one. "The point is to save these guys from having to do a whole lot of data entry out in the field," says Curkendall. "They're cow punchers, not key punchers."

Once the proprietary software running on the computer has stored the data, the ranch will transfer a copy of it over the Internet to a Structured Query Language database running at a nonprofit technology provider to the industry. Using a password, members of the alliance will be able to access that database--also over the Internet--and run queries against individual ID numbers to see how their animals performed at different stages. They will also be able to pull reports comparing that performance with various averages (for example, how did the tenderness of my animals compare with all others processed by this packer?).

Members of Rancher's Renaissance are deploying the system with the guidance not only of AgInfoLink but also AgriInitiatives, a two-year-old consultancy to the agriculture and natural-resources industries, in Austin. (The companies are also working with Beef Advantage.) Anne Anderson is the CEO of both: she, Curkendall, and another partner devised the model for the source-verification and performance-data-tracking system and founded AgInfoLink when they couldn't find an existing technology company that could handle all the pieces.

What both companies aim to do, Anderson says, is to get all the players in the supply chain to focus on creating the best product for the end consumer, rather than simply passing off material to the next link. "We in the cattle industry have unfortunately had a somewhat cannibalistic relationship, with buyers and sellers making money at the expense of each other," she says. "We have to realize that we're all in the food business; we're all part of the same manufacturing process."

Anderson herself is a medium-size producer--her family's ranch, Coyote Creek, in Rock Island, Tex., currently hosts about 800 head of cattle. Although she does not yet belong to an alliance and has no one to share data with, she has already begun outfitting her animals with ear tags in anticipation of the day when she will. "I want to get more for my calves, and I know I won't even have the opportunity if I don't do this," says Anderson, who collects information in an Excel spreadsheet on her Dell laptop. She also evangelizes among her smaller neighbors. Her most recent convert is a ranch with only 38 head; the rancher, excited by the technology but not ready to relinquish the old way of doing things, had the names, not the numbers, of his cows embossed on the outside of the tags.

Such small and medium-size players are the original source of 90% of the nation's beef. Anderson believes that once they begin sharing information among themselves and with their customers, they can--in addition to becoming part of the alliances--forge their own competitive entities with marketing power comparable to those large partnerships. "If we get bigger pools of high-quality cattle, we may get a premium because there will be more good cattle per day that are available," says Anderson. "If we're all getting information back and using that information to improve decisions, it can have economic ramifications for the entire area."

That kind of thinking is fairly new for small businesses, but it makes enormous sense for many industries, says the Supply Chain Council's Bill Helming. "In the early days we took a Darwinian approach: it's me or you. Now companies are learning to compete as a chain"--even if it's a horizontal chain encompassing players that might normally be considered rivals, he explains. Cooperation among small companies also makes them more attractive suppliers to large customers. "In the past, people have said, 'All these mom-and-pops are too hard to do business with. I have to negotiate separate terms with every one," he adds. "If everyone will agree to act in a standard way and use this technology for leverage, that can make for a very effective collaboration. It could totally change the playing field."

Leigh Buchanan is the editor of Inc. Technology.

Where's the Beef?
What follow are the four most common links in the beef-manufacturing chain. Retailers and distributors are also involved, but since information is tracked using ear tags that are removed at the packing plant and sent back to the rancher, their ability to enter information into the system is currently limited.

What they do
Data they review or collect
Ranchers: They breed cows and bulls to produce calves, both for meat and as replacements for the herd. They generally sell the calves once they are weaned, at six to eight months, and weigh 500 to 600 pounds.
Genetic history; birth date and weight; weaning date and weight; medical treatments, vaccinations, and other significant incidents
Stockers/Growers: Their objective is to add weight as fast as possible while keeping the animal healthy. They sell animals at about 750 pounds, when they are 10 to 12 months old.
Periodic weight measurements; medical treatments, vaccinations, and other significant incidents
Feed-yard operators: They feed animals a high-energy diet for 90 to 200 days, until they reach approximately 1,100 to 1,200 pounds.
Feed-ration ingredients; weight measurements; medical treatments, vaccinations, and other significant incidents; animal origin and history
Packers: They slaughter the animal; chill, age, and cut up the carcass; and pack those pieces in boxes for shipment to distributors and retailers.
Live-animal weight; carcass weight, warm and chilled; yield, grade, and quality of meat; carcass defects

Equal-opportunity Beef
Americans love red meat and democracy. So what could be better than a nationwide system that ensures all flank steaks are created equal?

A national source-verification and performance-data-tracking system similar to those being implemented by several beef alliances was proposed in December by a task force of the National Cattlemen's Beef Association and was scheduled to be voted on at press time. Like the alliance databases, which would feed into it, the national database would be maintained by an unbiased third party. Any cattle company that put information on its animals into the system could track how they fared up and down the road--even if it didn't know who had bought them. (Performance data, searchable by ID number, would be blind, so a rancher might know how much fat a packer found on one of his calves, for instance, but not who that packer was.) The system would be supported by fees from companies using the information to improve their products. "The goal is that ranchers would never have to pay to put data in--just to get it out," says Anne Anderson, a 25-year veteran of the Texas cattle industry and a member of the task force.

If the national system gets a thumbs-up from the association, Anderson expects it will be operational by 1999. But it could be several years before a critical mass of companies participates. "There will be a pretty big gap between the time the alliances and some of the progressive thinkers come in and the time coffee-shop talk gets others to use it," she says. In addition to a pervasive fear of technology among many players ("They're just so intimidated by the Internet," Anderson says), some ranchers are worried that the system might provide the smoking gun in the case of a health scare. If a disease or infection is traced back to their beef, says Anderson, "they don't want to be put out of business, and that's a very real option." --L.B.