September 17, 2012 | Missy Smith

The Internet has opened the door to many business relationships and transactions that otherwise would not have occurred. To encourage such transactions among the various participants in the local food sector, Local Food Systems, Inc. (LFS) of Philadelphia recently unveiled The LFS Exchange, a trading platform with process automation that allows buyers and suppliers of different shapes and sizes, from small to industrial scale, to do business within one online platform.

The company’s Exchange product, the LFS Exchange, enables buyers and suppliers who might not have process automation, inventory control tools, or products to connect, for example, to a high-volume buyer’s backend system, to seamlessly engage in business transactions. “Some people like to call it Service as a Software, instead of Software as a Service, which I think is more accurate, because you are receiving a service through the software,” says Sam Earle, founder and CEO of LFS.

How it works for Buyers and Suppliers

Through the LFS Exchange, high-volume food buyers can connect with suppliers of any size. Buyers simply list a request for goods, or purchase order, and in return, suppliers can meet these demands by logging on to the system to view that demand. For example, Earle explains that a buyer can request 10 palates of tomatoes. When suppliers—such as farmers, or aggregators—view that request, they can click a button saying they wish to either fulfill the entire order or a part thereof as the LFS Exchange has the ability to aggregate many small suppliers into one to meet the buyer’s demand.

Earle explains that the LFS Exchange automates and simplifies the suppliers’ business processes, which helps them keep inventory moving to high-volume buyers and to plan ahead for the season so no food goes to waste. Other systems, he explains, allow farmers to list produce, but they must wait until a buyer wants to make an order, making it less than ideal with their perishable products. With LFS Exchange, a supplier can view demand, or a request for an order that a buyer may need in a month or two, commit to the order and later produce just the amount needed, so no food goes to waste, Earle explains. Or, the supplier can view a larger demand than they usually produce and can communicate with other neighboring farmers to pool their resources to meet that demand. LFS can also pool many suppliers who are unknown to each other, notes Earle.

Earle says that more small farmers have been able to integrate into larger supply chains as a result of their software. “That is our sole purpose and mission: to enable small scale to transact with large scale,” explains Earle. “Our technology enables that by connecting to high-volume buyers’ existing systems, letting them purchase the way they do with industrial suppliers, and enabling small suppliers to fill these orders.”

Business Model

Using a transactional revenue model, LFS takes a percent of every business deal that it facilitates through the LFS Exchange. “When you sell on eBay, after the transaction, the company takes a percentage. You don’t pay a subscription fee to buy or sell. Fees are part of the transaction you facilitate. We have the exact same model,” says Earle. “The suppliers pay the fee, and we become their IT solution and sales channels. At the end of the day, the fee they pay and the service we give them actually reduces their internal costs. We become the software solution for them – transactional exchange, process automation, inventory control, carrier logistics and sales channels.”

Customers

LFS has been targeting high-volume buyers that include food service, distributors, and grocery chains, such as Sysco. On the supply end of things, LFS works with food hubs and producers, such as Green Pasture Farms, and aggregators like Red Tomato. The company has also brought on a number of NGO and non-profit organizations working on the supply side such as Fair Food in Philadelphia. And, as LFS’ technology becomes more and more efficient, Earle expects to start working with smaller buyers and suppliers. “As large companies are becoming more efficient, smaller companies have more of an ability to transact with them,” he explains. “Technology is the great democratizer.”

LFS is currently expanding its reach beyond its primary Northeast market to its secondary markets. It recently acquired new customers in Chicago, Kansas City, St. Louis, Washington, D.C, and San Francisco. And, according to Earle, LFS is in discussions with international customers as well, and hopes shortly to reach people in India, Africa, China and South America.

The Future

Looking forward, LFS is working toward new and more productive initiatives, according to Earle. “We have much more demand than we do supply, and we are showing that demand to suppliers and trying to bring them into the Exchange. [These suppliers] are also getting others to start farming again,” he says.

In addition, LFS is working toward bringing carriers into the mix. “We are getting ready to launch our ‘carrier exchange’ (akin to the LFS exchange in that it automates processes to facilitate transactions), where carriers can register, log in and see pickups and deliveries that need to be made, and optimize their load and route, monetizing their unused truck space,” Earle explains. “Buyers get the added benefit of fewer deliveries, which they love.”

And, in the long term, LFS will be working on expanding the community functionality of the LFS Exchange. “Communities out there with forums can get together and talk about things, then they leave and go do their business elsewhere,” says Earle. “We’re building a community that is integrated with workflow, so peers can drive business.”

According to Earle, the company also plans to implement the LFS Exchange across mobile platforms in the very near future.

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Side note: Sam Earle of Local Food Systems, Inc. (LFS) will also be participating in Seedstock’s October 24th Sustainable Agriculture Innovation Conference at UCLA. LFS is also a ‘Whole Farm’ Sponsor of the conference. Register now!