nature and scope of agrifood supply chain dynamics

7/31/2019 Nature and Scope of AgriFood Supply Chain Dynamics

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Nature and Scope of AgriFoodNature and Scope of AgriFoodSupply Chain DynamicsSupply Chain Dynamics

Tom Sporleder

[email protected]

Presented at FAMPSConference May 4-5, 2005


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Agenda

Schematic approach to defining a supplychain

Highlight the importance of perishability

and differentiation in commodity supplychains

Present conceptual framework for supplychain analysis Supply chain system

Decision scope

Network environment

Classify major supply chain types

Comments about dynamics andheterogeneity


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Motivation for Means to BetterUnderstand Supply Chains andNetworks

Analysts must understandcomplexities relative to information& knowledge

Cascading events:Biotechnology

Food safety

Animal welfare

Decreased costs of information flow

SHIFT IN

BASIS

OF

RIVALRY


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Intellectual Capital vs.Intellectual Property

Capital is thebroader concept

Property is a

class mostly ofthe intangiblesof a firmBrand equity

PatentsLicenses


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F a r m P r o d u c t i o n

F a r m I n p u t s a n d

M a c h i n e r y

P r o c e s s i n g

W h o l e s a l i n g a n d

R e t a i l i n g

F o o d S e r v i c e

( H R I )

F o r e i g n

E x p o r t

D o m e s t i c

E x p o r t

A t H o m e

C o n s u m p t i o n

A w a y f r o m H

C o n s u m p t i o n

Supply Chain ComponentsFood and Agriculture-Related Cluste


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Self-distributing Stores:

National Chains

, stores11111

in ,1111

Median selling area

, sq. ft.11111

Wholesaler-supplied

Stores:

Independents

, stores in ,11111 1111

Median selling area

, sq. ft.11111

Food Wholesalers:

Super Valu,

C&S Wholesale

National Brand

Food Manufacturers:

Campbell Soup, Kraft

Heinz, Kellogg

Small Food Processor

without Significant

Brand Equity

Distribution WarehouseAffiliated with a

National Grocery Retailer

DSD

Grocery SupplyChain

Private Label


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Interdependencies in SupplyChain


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Growth in AgriculturalContracting

Source: ERS, USDA


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Products Mapped in theDependency/Differentiation Space

Sequential

Dependency

Differentiated

Reciprocal

Dependency

Generic

Dole Canned Peaches

Private Label Pickles

High Oil Corn

Pharmaceutical Corn

Dole Bagged Salad

Tyson Chicken Breast

Organic Sweet Corn

Soybean Oil

No, Yellow Corn1

Baby Greens

Fed Cattle

Raw Milk


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Typical Transaction GovernanceMapped in

Dependency/Differentiation Space

Sequential

Dependency

Differentiated

Reciprocal

Dependency

Generic

* Specification buying

Under Contract

* Just-in-time deliveries

*Joint ventures

Seasonal Contracts

* Long - term contracts

* Strategic partnering

*Ownership integration

* Buffer Stocks

* Cash Market

Transactions


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Supply Chain Bullwhip EffectDefined

The bullwhip effect refers to the

phenomenon where orders to thesupplier tend to have largervariance than sales to the buyer(demand distortion) and the

distortion propagates upstream inan amplified form (varianceamplification)


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The Bullwhip Effect in SupplyChains


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Supply Chain WithoutBullwhip Effect

Customer demand forecast = 10 units

Suppliers Producers Distributors Retailers

Products &

Services

Products &

Services

Products &

Services

Information

Cash

Key: = Inventory Levels

10 Units 10 Units 10 Units


Retailers are selling product at a constant rate and price. Firms along thesupply chain are able to set their inventory to meet demand.


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Supply Chain Bullwhip Effect

Customer Demand forecast = 20 units

SuppliersProducers

Distributors

Retailers

Products &

Services

Products &

Services

Products &

Services

Information Flow

Cash Flow

Key: = Inventory Levels



As demand increases, the distributor decides to accommodate the forecasted

demand and increase inventory to buffer against unforeseen problems in demand.

Each step along the supply chain increases their inventory (double in this example) to

accommodate demand fluctuations. The top of the supply chain receives the harshest

impact of the whip effect.


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Amplified Bullwhip Effectfrom Reciprocal Dependency

Sequential

Dependency

Differentiated

Reciprocal

Dependency

Generic

Amplifie

d

Amplified


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Network

Environm

ent

Dec

isionScope

Supply Chain System

Chain

Production:-Firms

-Facilities

-People

-Physical

Processes

-Trade

Customs

-Information

Technologies

-Trade

Regulations

-Uncertainty

-Globalization

Chain

Governance

Structures

-Spot Markets-Contracts

-Alliances

Operations and

Control:

-Inventory-Dependencies

-Quality & Process

Control

-Structural and

Relational

Embeddedness

Supply ChainConcepts


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Network Embeddedness

Interdependency that developsfrom interfirm relationships

Two types:

Relational - strong or weak ties Structural - sparse or dense networks Interaction?

Better connected firms have a

competitive advantage


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Components ofNetwork Embeddedness

Network

Embeddedness

Relational

Embeddedness

Structural

Embeddedness

Ties Connections

Weak Strong Sparse Dense


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Supply Chain Classification

Chain master: supply chain managedby a domain firm

Chain web: individual firms move in

and out of multiple chains on anas needed basisChain organism: the chain competes

as one entity without a dominant

member


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Chain MasterDominant agrifood supply chain modelStrong in generating chain efficiency

Weak on incentives for learningChain WebComputer industry and smaller food

firms (without brand equity)

Strong when firms must compete inmultiple chains

Weak on incentives for learning


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Chain OrganismStrong in creating chain efficiency

Strong in creating incentives

Toyota supply system as key example(Dyer and Nobeoka) Network-level KM systems exist Intellectual property rights reside at the

network level and not at the firm level The creator of knowledge appropriates

100% of benefits in the short run

Trust is a key element


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Learning Supply Chain

An integrated supply chain that hasan added dynamic, agile ability tolearn from and respond to changingmarkets.

Added capacity: knowledge andintellectual capital held and appliedcollectively by the supply chain

Benefits:Greater responsiveness and flexibilityGreater efficiency


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Prerequisites for a Learning SC

The ability to manage knowledgeexists at the supply chain level.Capacity:

IT for explicit knowledge Human processes for tacit knowledge

Incentives through fair distribution ofreturns:

To motivate knowledge sharing To overcome classic coalition problems


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Application to Agrifood System

Agrifood examples LoSatSoy oil supply chain (King)

Lesson: Dominant actors control either thecritical production knowledge or the critical

end-consumer knowledge (chain master).

ECR initiative Lesson: Path dependency blocks knowledge

management and learning

Frito-Lay and Wyandot Foods ??More cases need to be explored.When is dynamic responsiveness

needed?


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Concluding Remarks

Dynamics are not uniform across supplychains

The role of spot markets tends to remain

robust in commodity or undifferentiatedportions of supply chains that rely onbuffer stocks for coordination

The bullwhip effect may lead to verticalinformation transfer within supply chains

Supply chains are complex at least 3dimensions: system, decision scope,network environment

Factors of embeddedness and brandequity are not well-understood but enrich


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Concluding Remarks

Two types of agriculture have emerged:cost-based and value added Supply chains coagulate to serve the unique

economic and logistical requirements of each Rapid movement to identity preservation and

traceback, motivated primarily by costminimization & inventory control incentives

Recognition of the chain master modelcould benefit analyses of supply chains(i.e. similar to principal-agent but moredimensionally-complex)

Much research remains: Testing of stylized facts Implications for supply chain and food firm

performance


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nature and scope of agrifood supply chain dynamics

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