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Strategic Management International Journal of Strategic Management and

Decision Support Systems in Strategic Management

www.ef.uns.ac.rs/sm Publisher University of Novi Sad, Faculty of Economics Subotica Segedinski put 9-11, 24000 Subotica, Serbia Tel: +381 24 628 000 Fax: +381 546 486 http://www.ef.uns.ac.rs For Publisher Nenad Vunjak, University of Novi Sad, Faculty of Economics Subotica, Serbia Editor-in-Chief Jelica Trninić, University of Novi Sad, Faculty of Economics Subotica, Serbia National Editorial Board Esad Ahmetagić, University of Novi Sad, Faculty of Economics Subotica, Serbia Jelena Birovljev, University of Novi Sad, Faculty of Economics Subotica, Serbia Jovica Đurković, University of Novi Sad, Faculty of Economics Subotica, Serbia Nebojša Janićijević, University of Belgrade, Faculty of Economics Belgrade, Serbia Tibor Kiš, University of Novi Sad, Faculty of Economics Subotica, Serbia Božidar Leković, University of Novi Sad, Faculty of Economics Subotica, Serbia Vesna Milićević, University of Belgrade, Faculty of Organizational Sciences, Serbia Aleksandar Živković, University of Belgrade, Faculty of Economics, Serbia International Editorial Board Ilona Bažantova, Charles University in Prague, Faculty of Law, Czech Republic André Boyer, University of Nice Sophia-Antipolis, France Ivan Brezina, University of Economics in Bratislava, Faculty of Economic Informatics, Bratislava, Slovakia Ferenc Farkas, University of Pécs, Faculty of Business and Economy, Hungary Agnes Hofmeister, Corvinus University of Budapest, Faculty of Business Administration, Hungary Pedro Isaias, Open University Lisbon, Portugal Novak Kondić, University of Banja Luka, Faculty of Economics, Banja Luka, Bosnia and Herzegovina Mensura Kudumović, University of Sarajevo, Faculty of Medicine, Bosnia and Herzegovina Vujica Lazović, University of Montenegro, Faculty of Economics, Podgorica, Montenegro Martin Lipičnik, University of Maribor, Faculty of Logistics Celje-Krško, Slovenia Pawel Lula, Cracow University of Economics, Poland Emilija Novak, West University of Timisoara, Timisoara, Romania Elias Pimenidis, University of East London, England Vladimir Polovinko, Omsk State University, Russia Ludovic Ragni, University of Nice Sophia-Antipolis, France Kosta Sotiroski, University „ST Kliment Ohridski“ Bitol, Faculty of Economics Prilep, Macedonia Ioan Talpos, West University of Timisoara, Faculty of Economics, Romania Assistant Editors Marton Sakal, University of Novi Sad, Faculty of Economics Subotica, Serbia Vuk Vuković, University of Novi Sad, Faculty of Economics Subotica, Serbia Lazar Raković, University of Novi Sad, Faculty of Economics Subotica, Serbia English translation Željko Buljovčić Prepress

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Decision Support Systems in Strategic Management ISSN 1821-3448, UDC 005.21 Strategic Management is a quarterly journal addressing issues concerned with all aspects of strategic man-agement. It is devoted to the improvement and further development of the theory and practice of strategic management and it is designed to appeal to both practicing managers and academics. Specially, Journal pub-lishes original refereed material in decision support systems in strategic management.

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Decision Support Systems in Strategic Management www.ef.uns.ac.rs/sm ISSN 1821-3448 UDC 005.21 2013, Vol. 18, No. 2

Contents Lee Buddress Managing Supply Chain Sustainability and Risk: Keys to Success 3-16 Mirko Andrić, Bojana VukovićPerformance Analysis of Agricultural Companies in Vojvodina 17-24 Roman G. Smelik The Strategic Significance of Omsk for the Economic Development of Western Siberia (Historical Aspect) 25-29 Jelena Birovljev, Saša JanjićThe Bicameral Principle of Corporate Management in the System of vertical Diversification of Agri-Business 30-39 Tímea Juhász Alternatives for Women Wishing to Return to the Labour Market After Childcare Leave (Based on Empirical Hungarian Research) 40-46

STRATEGIC MANAGEMENT, Vol. 18 (2013), No. 2, pp. 003-016 UDC 005.52:005.334

Received: April 15, 2013

Accepted: Jun 7, 2013

Managing Supply Chain Sustainability and Risk: Keys to Success Lee Buddress Portland State University, USA

Abstract While supply chain risk has been the subject of literally hundreds of articles, the supply chain, as envisionedby almost all of these authors is incomplete. The fact that the buying firm itself is a part of any supply chain, and the activities of the buying firm, internally, have a great impact on external supply chain risk is substantial-ly ignored. Viewed in its entirety, there are two great concerns in supply chain management today: risk and sustainability. However, few authors have addressed these concerns collectively. That is the purpose of thispaper – to demonstrate that, in a great many cases, they are intertwined. Strategies and operational plansshould address this concurrence. Keywords Supply chain risk, sustainability.

Introduction

This paper represents an intersection of two significant bodies of research – supply chain risk and sus-tainability. While each has been studied extensively individually, activities in one area may precipitate results in the other. Even though notable efforts have been made (Jereb, Cvahte, & Bojan, 2012) to cata-log supply chain risks, it is impossible to identify every conceivable risk for every organization, much less to account for each of them. This paper will take a more pragmatic view, concentrating on those risks and sustainability issues over which an organization may have control. While it may be useful, at some point, to plan for a possible catastrophic earthquake, it may be more fruitful to address those is-sues that have a high probability of occurrence, such as supplier’s late deliveries (a supply chain risk) or quality rejects (the waste of which is a sustainability issue). This paper begins with a discussion of key issues in supply chain risk management. Facets of sustainability will be examined, followed by an eval-uation of the interaction between supply chain risk and sustainability. Finally, conclusions and recom-mendations for future research are discussed.

1. Supply chain risk

In its broad connotation, supply chains encompass the processes of sourcing, transportation and logis-tics, warehousing and inventory control, production planning and control and outbound distribution of finished products. Twenty-first century supply chains are extensive, lengthy, complex, and geographi-cally disbursed. As such, they are fraught with uncertainty, just at a time when organizations strive for stability, continuity, and simplicity. Consequences of these characteristics include increased inventory, increased risks and increased costs.

In today’s highly volatile business environment, turbulence, and uncertainty properly describe many marketplaces (Christopher & Lee, 2004), and significantly increase the necessity to focus attention on all of the exposures an organization may have, both internal and external. Supply chain risk has general-

4 Lee Buddress Managing Supply Chain Sustainability and Risk: Keys to Success

STRATEGIC MANAGEMENT, Vol. 18 (2013), No. 2, pp. 003-016

ly been defined as the potential occurrence of supply events that may have significant detrimental im-pact on the purchasing firm (Zsidisin, 2003; Ritchie & Brindley, 2007).

Coupled with increasingly sensitive supply chains, instability in the world has caught many organi-zations off guard. Thus exposed to risk, organizations have shown heightened interest in rethinking supply chain management practices (Wagner & Bode, 2008). Risk reduction can be accomplished by actions that either reduce the likelihood of potentially negative events, or reduce the extent of negative impact should such events occur (Zsidisin & Smith, 2005). External risks can be of two types – those that are unique to a particular supplier and those that affect an entire group of suppliers or an entire in-dustry.

However, much of the supply chain risk has focused on the supply chains leading to the buying firm. This perspective ignores the buying firm itself, as well as the path to the final consumer. Taking a dif-ferent view of supply chain risk, the firm itself is in the middle of the supply chain. Characteristics that attract and retain customers include product or service design, lead time, cost, quality and durability, and service. Does the product or service perform as needed by the customer? Is it available when and where it is needed? Is its cost competitive (not necessarily the cheapest)? Is the level of quality appro-priate and does the product serve the intended life for the customer? Is there a sufficient level of after sale service (including parts availability)? These features are order winning characteristics that also re-sult in repeat customers.

Therefore, these definitions of supply chain risk are proposed.

events or actions that result in a transaction or project differing negatively from budget or plan; and

events or actions that prevent delivery to customers as promised In either case, the consequences are harmful to the organization and need both remedial and pre-

ventive actions.

There are two fundamental categories of risk creation– internal and external. Internal consequences may involve projects or transactions that are either late or over budget. Externally, whenever a firm is unable to meet customer commitments, a firm risks losing that customer. To address the reality of supply chain risk, all of these entities must be considered. In that context, both internal and external sources of risk should be identified and evaluated.

1.1. External supply chain risk.

One way of characterizing industry wide supply chain risk is to place the generation of problems with respect to a multi-level framework. In characterizing sources of risk, Peck (2005) envisioned supply chain management as interacting along four levels. Of particular importance for the purposes of this paper is that at the highest level, broad environmental factors existing in the macroeconomic and natural realms interact with all other supply chain activities.

Thus, broad economic, social, political, technological and natural phenomena interact with our at-tempts to manage the intra- and inter-firm flows necessary to create value in the business environment. Although forces at this highest level are beyond the control of any given firm, they potentially deter-mine the success of all of the efforts, no matter how well conceptualized or executed, at the lower levels that include the management of flows within the value stream, the positioning and utilization of assets, and the conduct of business.

Those risks that are unique to an individual supplier, such as financial instability, organizational problems, labor difficulties, inventory deficiencies and many others result in late or incorrect deliveries, quality problems, freight damage claims, and warranty claims.

Another consequence is a lack of supply chain confidence resulting from increased risk exposure. Having little confidence in such critical events as order cycle time, demand forecasts, supplier delivery capability, quality and transportation reliability all foster risk-averse responses. Safety is sought in in-creased safety stock, but also by building in safety lead time. Users order substantially sooner than is necessary so that they have confidence in delivery in spite of supply chain variability (Martin & Lee, 2004).

Even failures in transportation networks, often selected by suppliers, can lead to non-delivery, in-creased lead times, uncertain lead times, increased prices for delivered products, damage, and of course,

Lee Buddress Managing Supply Chain Sustainability and Risk: Keys to Success 5


increased inventories as managers invoke buffer strategies to deal with the other challenges. Organiza-tions typically attempt to protect themselves from all of these risks with voluminous contract terms and conditions, at times dozens of pages, to transfer consequences of such risks to the supplier.

Attempts to mitigate external, supplier-based failures often fall into safety or buffer actions and sourcing actions. Organizations may increase safety stock to offset poor supplier delivery reliability, or they may resort to safety lead time – ordering well in advance of real need dates. The buffer-oriented approach may indeed protect the firm by limiting the extent of damage. Note that when inventory is increased either with the supplier or the focal firm, the reduction in damage may be substantially offset by the costs associated with increased inventory investment and carrying costs.

Alternatively, organizations may choose to employ several sources for the same products, thus mi-nimizing risk from the failure of a single supplier. However, assuming that the firm starts with the most reliable supplier, buying from additional, less reliable suppliers increases the probability of a supplier failure. Conspicuously, both of these actions conflict with the lean objectives that so many firms sub-scribe to these days, as well as the financial objectives of organizational sustainability, to say nothing of loss of volume discounts or increased administrative costs.

Behavior-based management (Zsidisin & Ellram, 2003) may work very well in dealing with risk that is based in a supplier or in its management of its suppliers. However, we would not expect such efforts to be effective when the risk was not essentially independent (i.e., not shared with other organizations). Note that problems such as those present in transportation networks are shared, much as is the case for industry risk and other situations where the risk affects the entire supply base or major segments the-reof. Managing instances of such risk as if they were isolated circumstances will prove ineffective and wasteful of management resources.

Another limitation to buffer-based risk management approaches can be found in recognizing that for the class of large, multifaceted risks, the risk is shared, and advantage may not accrue to using multiple sources except in the very limited condition where differential exposure can be found to the general risk. This limiting condition is addressed, for example, when a firm uses local suppliers to limit the extent of transportation-based risk.

Certainly, a great deal of attention has been paid to external supply chain risk. It has been re-searched, evaluated, assessed, and classified (Jerub, et.al. 2012). Methods to ameliorate supply chain risk have been likewise enumerated. But of what is there a risk, and to whom? Underlying all of this is the concern by the buying firm for a transaction or a project gone wrong. The foundation issues here are planning, budgeting and budget variances.

When transactions or projects are envisioned, budgets are prepared and funds allocated and timelines established. These activities are undertaken based on the assumption of completion of a correct transac-tion. At times, comparatively small allowances for contingencies are included in project budgets. Ex-pectations are that certain costs will be incurred. Administrative costs, such as purchase order costs, engineering, etc., as well as costs of materials, transportation and receiving are typically included. Then transactions are undertaken and projects proceed.

Unforeseen, and importantly, unbudgeted events occur. Among the many are the following exam-ples.

back orders late deliveries defective material costs costs of rejected goods production stop costs project delay costs air freight cost of warranty failures extra inventory cost services incorrectly performed invoice errors highly variable lead times freight damage



All of these and many more unplanned activities have two consequences: time delays and cost over-runs. The net result is that the buying firm incurs substantial costs above and beyond the budgeted amounts. If supply chain risk – i.e. risk of an unsatisfactory transaction or project – is evaluated in its entirety, the buying firm must be a significant part of the examination.

When considering even this short list of unplanned events and costs, it is obvious that internal activi-ties and policies have a great deal to do with the success and cost-effectiveness of a transaction or project. Of the events that can be ascribed to suppliers, even those may have a foundation in internal activity. Internal supply chain risk is identified by Thun and Hoenig (2009) but only to the extent of evaluating the degree to which firms in the German automotive industry assessed and attempted to manage external supply chain risk and what were their preventive or reactive measures. What of all of the other risk-inducing policies and actions from within the buying firm?

Supply Chain Managers may find it most fruitful to focus both remedial and preventive activities on those events that impact the organization’s ability to serve customers, which have a high probability of occurrence and over which the organization has some measure of control. From that perspective, organ-izations examine supplier performance measures, sourcing strategies, internal operations and internal policies – especially those that in hindsight might impact supply chain risk.

1.2. Internal supply chain risk

There are two broad categories of internal supply chain risk – actions taken within the firm and its poli-cy decisions. The latter include such determinations as outsourcing and adoption of strict lean practices. Without doubt, outsourcing, with its extended supply chains, increases exposure to supply chain risks (Christopher & Lee, 2004). A central theme of lean supply chains is a reduction of inventory to the bar-est minimum. While this may be an efficient and cost-effective way of operation, it presumes faultless supplier performance, a risky presumption at best. There is a fine line between lean and starving to death, with many firms in the latter category without realizing it. A policy that is overly focused on cost reduction results in the selection of suppliers who may not be of the highest quality or greatest reliabili-ty, but who are cheap. A determination to reduce the supply base has many advantages, not the least of which is a reduction in the probability of a supplier failure as the firm starts the reduction process by eliminating the least reliable supplier. At the same time though, it increases the cost of a supplier failure, should one occur. All of these are examples of internal policy decisions that have profound influences on the likelihood of a successful transaction.

Internal actions that affect supply chain risk start at the very conceptual stages of a transaction or project. Failure to identify specifications or to complete designs within the allotted timeframes com-presses the rest of the project, since the completion date didn’t change. This typically results in rush orders to suppliers, both costly and risky outcomes. Likewise, poorly drawn specifications or incom-plete designs are guaranteed to result in unsatisfactory transactions or projects. One contractor (an hon-est one) named his yacht “Change Order” while calling his small inflatable tender “Original Contract”.

One can readily see that a supply chain manager can institute internal action or influence the actions of critical suppliers, but if risk is the result of factors beyond the control of the focal firm or its suppli-ers, supply chain risk management becomes a very challenging proposition. In other circumstances, those not involving industry-wide constraints, supply chain managers have the ability to drastically re-duce overall supply chain risk through the reevaluation of internal policies and actions. Again, the focus should be on those activities that have high probabilities of occurrence, over which the focal firm has some degree of local control, and especially, those risks that would affect customer service.

Since there are literally dozens of papers delineating specific supply chain risks, perhaps it would be most useful simply to define broad categories, into which each firm may insert firm-specific risks.

External supply chain risk categories include:

governmental actions such as • lack of intellectual property protection resulting in loss of revenue • regulatory variability such as changing environmental regulations or labor laws

infrastructure deficiencies • port congestion due to inadequate facilities, lack of draft • highway inadequacies delivery causing delays or product damage



supplier difficulties • production problems, delays or failure to meet specifications • inadequate finances limiting supplier growth capability • social responsibility failures

logistical problems • lack of proper equipment including rail cars, transocean container capacity, chassis, etc. • late deliveries or freight damage • shrinkage in transit

price • volatility of pricing in cost-driver materials, increasing trends, especially with fierce competi-

tion • exchange rate fluctuations resulting in unplanned cost increases

terrorism • cyber attacks • counter-terrorism requirements like early documentation submission and inspection require-

ments natural disasters

• super storms • earthquakes

accidents • errors in judgment causing supplier delays • mistakes – defects in production, inventory picking errors, etc.

Internal supply chain risk categories include: policies such as:

• low bid policies that require purchase from a low bidder regardless of capability • fob destination that is easy for the buying organization, since suppliers manage transportation,

but which disguise transportation costs • ethical policies that allow some gratuities only invite transgressions

resources • financial resources that are inadequate to serve customer requirements into the future • labor qualifications, sufficient numbers and labor relations • technology – communications, automation, enterprise resource planning

operational • quality defect rates that are unacceptable • productivity rates that are not competitive • forecasting

time compression • delayed engineering, while project due dates remain constant • delayed ordering resulting in “rush” orders – expensive and risky for both buyer and supplier

These examples are but a few of the many that might be included in each of the categories, but will

serve to indicate the general form of risks that might be contained within each.

2. Sustainability

Sustainability has been characterized by many (Pagel & Wu, 2009) as standing on three legs: Environ-mental Sustainability, Social Responsibility, and Organizational Sustainability – the triple bottom line (Brown, Marshall, & Dillard, 2006). Environmental concerns are intricately linked to various aspects of the supply chain (So, Parker, & Xu, 2012). Environmental sustainability includes such categories as minimizing an organization’s use of non-renewable resources, minimizing consumption of energy in all forms, minimizing or eliminating effluent discharge, eliminating or minimizing atmospheric and carbon emissions, minimizing landfill deposits and minimizing the use of hazardous materials. The concepts of reuse, recycle, rebuild, and resale are core to the effectiveness of minimization efforts.



Ikea is a prime example of the design of products and packaging collectively to minimize material requirements (and, of course, reduce shipping costs). Dell needed strong packaging to ensure that prod-ucts arrived at customers undamaged. At the same time, a lighter package would reduce shipping costs. They found a Chinese company that produced a type of cardboard using bamboo fiber. Now, because of the strength of bamboo and the fact that it is a fast-growing, renewable resource, 70% of Dell notebooks now ship in bamboo cardboard packages that not only protect the notebooks better, but are lighter as well. (Haanaes, et. al., 2012)

Honda has realized significant publicity as a result of achieving its ‘zero landfill’ target in North America (Bardelline, 2011). Honda’s goal was to have all fourteen plants send almost zero waste to landfills. In 2001, 62.8 pounds of industrial waste was going to landfills for each vehicle produced. By carefully analyzing what was in the trash and looking at the various waste streams, as of mid 2012, that amount was down to 1.8 pounds per vehicle. As an example, the sand used to make molds for castings used to be sent to landfills from its engine plants. Now the sand is used as mulch, landscaping materials and in concrete. In 2010, the plants recycled 9,400 tons of sand. Ten of Honda’s plants don’t send any waste to landfills, while the others send less than half of one percent of operating waste to disposal sites, some of which (paint byproducts) are not allowed by EPA to be recycled.

Social Responsibility pertains to categories such as ethical behavior, gender equity, living wage payment, use of appropriate labor, and excellent labor relations. Ethical behavior spans an array of ac-tivities from truthful financial reporting, to abstaining from price fixing activities, to prohibiting bribery in any form. Gender equity relates to treating men and women equally in the workplace, in terms of such things as equal pay for equal jobs and equal advancement opportunities. Regardless of where an organization operates, it is socially responsible to pay employees a living wage. Use of appropriate la-bor means abstaining from using suppliers who employ child or prison labor, or operate sweatshops, a continuing problem in the garment industry. Excellent labor relations would include allowing em-ployees freedom of assembly and freedom to unionize and minimizing adversarial relationships with unions.

Social responsibility, including ethics, is a foundational value for many organizations. Violations of ethical standards and social responsibility put firms at significant risk A few recent examples may serve to illustrate the effects of negative behavior. Wal-Mart is embroiled in a bribery scandal centered in their Mexican operations, but that transgression has precipitated complications far beyond Mexico. New York City is investigating a possible land deal in Brooklyn. California is requesting a formal audit of a proposed Wal-Mart store in San Diego (Clifford & Greenhouse, 2012). In Boston, residents are pressur-ing politicians to disclose whether they have received contributions from the company. The downfall of activity in one area is calling into question transactions in many other areas, seriously damaging the firm’s reputation and its expansion plans.

The French drug company Sanofi received a fine of twenty million euros and the general manager of its Algerian operation was given a one-year suspended prison sentence for overcharging for raw mate-rials for drugs. (IW 2012a). The EU fined 17 steel makers 518 million euros for price fixing (IW 2010). AU Optronics (computer and smart phone displays), and Denso (auto parts) were likewise convicted of price fixing (IW 2012b). LG, Sharp, Chunghwa were fined USD 585 million for the same offence (IW, 2008). Johnson and Johnson was fined USD 70 million for bribing doctors (IW, 2011). Panasonic is under investigation for paying bribes to secure orders for its Panasonic Avionics division. In each of these cases, obvious ethics violations (to say nothing of legal violations) damaged the reputations of these firms, impacting operations and organizational sustainability.

Organizational Sustainability requires that an organization maintain financial viability while acting with social responsibility and minimal environmental impact. This means that profitability will be main-tained, customers will be satisfied, and the organization will refrain from activities that will damage its perception by both current and potential customers and suppliers. All of this leads to long term viability.

In its broader context, supply chains begin with sourcing – finding the best, most capable suppliers, worldwide, and developing long term, collaborative relationships with them. Goods must be moved from their origins to the points of use, so transportation and logistical activities are next. When goods arrive, warehousing and inventory control must be managed with care. Production planning and control and quality control activities follow. Finally, inventorying and distribution of finished products to cus-



tomers end the supply chain. All of these steps include fertile ground for the application of sustainable concepts.

When an organization begins to embrace sustainability, it changes virtually everything throughout a supply chain, beginning with sourcing. It should be noted that the primary focus of this discussion is on industrial, governmental and institutional activity, not purchasing for resale or retail. The reason for this is motivation. When an industrial buyer sets out to procure material, it is for an already existing need. Someone in the organization needs something, fills out a requisition, forwards it to the purchasing de-partment that finds a qualified supplier and orders the product. In contrast, retail buyers typically buy in anticipation of need. They buy what they hope their customers will want, based in an intimate know-ledge of their local customer base. Sometimes they are successful, and sometimes the goods end up on the markdown table. This important distinction is sufficient to segregate these activities.

A sustainable focus within an organization will prompt it to seek out a supply base that has a similar dedication. One measure of an organization’s sustainability focus is ISO 14000 registration. Most or-ganizations are familiar with ISO 9000, the quality process certification. The following process is un-dertaken to demonstrate that the firm is intent on producing quality products:

An organization begins by identifying its manufacturing and quality processes. It then simplifies those processes as appropriate. Documentation of the improved processes is produced, employees are trained in the proper, improved processes and then third party auditors inspect and certify that all of these steps have been properly accomplished. This, of course, does not guarantee defect free quality products. It does, however, indicate that the supplier has sufficient concern and attention to its quality processes to have undergone the third party evaluation process.

The same process applies to ISO 14000, the environmental companion piece to ISO 9000. This certi-fication often becomes the first cut in a sustainable supplier selection process. Firms who have not un-dergone the rigors of third party inspection may still have a focus on sustainability, but there is no ex-ternal verification. Since it is impractical for any organization to inspect every potential supplier, the ISO 14000 registration serves as assurance that the supplier has, in fact subscribed to the tenets of sus-tainability. Clearly, this is not the only assessment of a supplier’s sustainability attention, but it is a commonly used one.

In ocean transportation, most of the major carriers have subscribed to the concept of “slow steam-ing.” Ships that formerly cruised at 24 knots now have slowed to 18 knots. The result has been a dra-matic reduction in fuel consumption (and expenditures), followed by recognition of improved sustaina-ble performance and lower environmental impact. Maersk, the world’s largest steamship line, has intro-duced this practice to all of its fleet of more than 500 vessels (Jorgensen, 2013). Many countries now require vessels within 200 miles of their coastlines to switch to low sulfur diesel fuel from the more harmful bunker fuel (International Maritime Organization, 2013).

Another interesting development is the rise of liquefied natural gas (LNG) as a fuel of choice for ma-rine and truck applications. LNG is both cheaper and cleaner burning than alternatives. The drawback is the lack, at present, of fueling stations. However, there is a growing number of states in the U.S. as well as the Euro zone that are advancing proposals to increase the use of LNG for transportation. The Euro-pean Commission is proposing that all 139 maritime and inland ports have LNG fueling stations by2020, and Singapore plans to have LNG bunkering in place by 2014 (Wold, 2013).

Warehouse owners are having solar panels installed on roofs. Forklifts are being powered electrical-ly or with fuel cells. Lighting is being changed to low energy systems. Technology supplies routing sys-tems that minimize the distance an order picker must travel to fill an order. Routing systems also route trucks to minimize the number of miles traveled to make necessary deliveries and sequence the loading of trucks so that the last stop materials go in first, and the first stop materials go in last. Warehouse management systems calculate the level of inventory necessary to meet management goals for fill rates, reorder points and order quantities, while minimizing inventory investment (and the resources con-sumed with excess inventories).

Production planning systems such as JIT and Lean strive toward the goal of single piece flow in manufacturing processes such that excess work-in-process inventory is minimized. In addition to reduc-ing inventory investment, this minimizes space requirements, as large inventory storage space is no longer required. The result is better cash flow and increased organizational sustainability.

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After reviewing well over 100 papers written about supply chain risk and supply chain sustainability, one thing is clear – these concepts are always discussed in isolation. However, careful consideration shows that activity in one area almost always resonates in the other. Actions to reduce costs (always a goal) reflect onto low cost labor and social responsibility. Further, environmental practices of low cost suppliers may result in risk to the reputation of the buying firm.

As a demonstration of the risks to an organization from the activities of its suppliers, recall the diffi-culties Nike experienced when some of its contractors were found to be using inappropriate labor and resisting paying minimum wages (Bustillo, 2012). In an effort to counteract the negative publicity, Nike has, unlike its competitors, opened its books to disclose the locations and names of all of its nearly 1,000 suppliers (Nike). However, even this has not stopped the continuing questions surrounding the social responsibility of these suppliers that has negatively reflected on Nike.

SUPPLY CHAIN RISK SUSTAINABILITY

External Environmental Governmental Non-renewable Resource Use Infrastructure Energy Consumption Supplier Effluent Discharge Logistical Atmospheric Emissions Terrorism Hazardous Material Use Natural Disaster Accidents Social Responsibility Ethics Ethics Price Gender Equity Living Wage Internal Appropriate Labor Policies Labor Relations Administrative Resources Operational Organizational Ethics Profitability Organizational Resources Customer Perception Organizational Resources Long Term Viability

Figure 2 Categories of supply chain risk and sustainability Source: Author

The above figure represents broad categories of risk, both internal and external, and sustainability.

To draw all of the connections between risk and sustainability would be to obscure the figure in its enti-rety. By way of example, however, logistical risks may relate to energy consumption, atmospheric emissions, labor relations and profitability, among others. Use of hazardous materials relates to ethics, accidents, governmental regulations, and of course to suppliers. The point is that these categories, both risk and sustainable, are very often interrelated and intertwined and should be considered collectively in both strategic planning and organizational activity. There are several reasons for this, including, profita-bility, customer pressures, and governmental requirements.

3.1. Profitability

Sustainability is profitable (Tompkins, 2013; Sanders, 2013). Reducing waste promotes improved fi-nancial performance while minimizing disposal costs, increasing production yields and reducing pro-curements costs. Reuse, repurpose, recycling and rebuilding activities take advantage of the investments already made. Many companies tout their accomplishments and the financial benefits from them. Any activity that significantly affects profitability deserves inclusion in the strategic planning process.

3.2. Customer Pressures

Improving environmental performance distinguishes an organization and provides a marketing catalyst and improves customer loyalty. It is even possible to command premium pricing, thereby enhancing revenue. Customers are increasingly well-informed about the environmental practices of their suppliers.



Where adverse activities take place, customers are demanding changes, and if not forthcoming, seek governmental regulation (Sanders, 2013).

Firms using environmental improvements to their advantage include Sara Lee, which has imple-mented a life cycle analysis scorecard to evaluate the environmental impacts of all stages of a product’s life, which also enables financial analysis of environmental impacts throughout a product’s life. P & G has developed a supplier environmental scorecard, which is used to track supplier environmental progress and to share savings with suppliers. Puma has developed an environmental profit and loss statement for its global supply chain (Tompkins, 2013). All of these have enhanced marketing opportun-ities and improved customer retention.

3.3. Governmental requirements

Several examples of governmental requirements are worth noting. The EU Directive 2002/95/EC bans the use of six hazardous materials, while EU Regulation EC 1907/2006 requires that safety data for chemicals “of very high concern” for their environmental risks be submitted for evaluation. These chemicals may be banned or restricted if the European Chemicals Agency considers that necessary. These bans and restrictions are better known by the acronyms, RoHS and REACH (Kirschner, 2013; Pelco, 2013).

The State of California passed a law entitledi “California Transparency in Supply Chains Act of 2010”, which went into effect on January 1st of 2012. It requires all large firms (those with annual worldwide gross receipts of $100 million or more) to post conspicuously on their websites the actions they have taken to eliminate from their supply chains, any activities that may have been accomplished by slavery or human trafficking (California, 2010). The intent of this Act is to, as far as possible, elimi-nate the market for goods produced under those conditions, thereby removing the impetus for these ac-tivities. It also intends to improve the market position of compliant firms who try to compete against those using, for example, prison labor. The obvious requirement is for firms to understand their supply chains.

There is considerable familiarity with the efforts to thwart the sale of conflict diamonds to prevent the revenue from such sales from supporting unscrupulous dictatorships or financing repressive con-flicts. Now, the same notion is being applied to conflict minerals. In the U.S, the Dodd Frank Act de-fines specific materials from nine central African countries that are prohibited. Firms are required to investigate their supply chains to determine if they “manufacture or contract to manufacture products that contain conflict minerals.” In other words, the purpose here is to restrict use of funds where human rights abuses exist. The European Commission and the government of Canada are pursuing similar re-strictions (Perry, 2013). All of these situations require understanding of an organization’s supply chains beyond the superficial. Considerable risks may accrue for non-compliance. These requirements demon-strate the interactions that must be considered, with legal requirements impact risk, profitability, re-source use, ethics, social responsibility and customer perceptions, among others.

When viewing supply chain risk, issues of sustainability inevitably arise. There have been several discussions of the design of low risk supply chains (Wagner & Bode, 2008). In addition to minimizing risks of supplier failures, delivery problems and labor difficulties, low risk supply chains embody mini-mizing negative environmental impacts, and minimizing social responsibility transgressions, all of which contribute, in large fashion, to profitability and organizational sustainability.

4. Suggestions for managers

The themes of this discussion are twofold:

Do what’s right (sustainability). Manage the supplier selection process to partner with suppliers who have sustainability as a core value, as well as on-time delivery, zero-defects quality and a fair (not nec-essarily the cheapest) price. Use the same strategy when selecting carriers. Build a low risk supply chain that, in terms of total cost of ownership, will be the low cost solution. Extend that same focus and atten-tion to internal activities to practice sustainability in its broader context, including minimizing environ-mental impact, and making social responsibility an imperative.

Do what attracts and retains customers (minimize supply chain risk). In doing so, organizations should focus on those things over which they have some measure of control. This means paying close



attention to internal sources of risk by critically examining organizational supply chain-related policies and internal practices. Work to address the high-probability, frequent (although perhaps lower cost) risks – nagging irritations such as late deliveries, minor quality problems, even incorrect invoices – things that fester over time and harm customer relationships. Working with suppliers to improve per-formance also minimizes risk and reduces costs.

5. Future Research

The notion that supply chain sustainability and risk should be considered collectively is not widely rec-ognized. Interactions are always interesting. In this case, two forms of interaction are attractive as future research subjects. First, the study of the interactions between supply chain risk and supply chain sustai-nability will prove enlightening. Empirical investigation of the extent to which organizations recognize risk/sustainability interactions, and plan and develop strategies for them collectively would be most in-teresting. If they do, how do they do it? Second, the internal sustainability interactions between envi-ronmental actions and organizational sustainability may prove edifying, as well.

Conclusions

Supply chain risk is a foremost concern in today’s global business environment. Clearly there are exten-sive and expansive risks to buying organizations from external sources. However, there may be an even greater risk of transaction or project failure from policies and actions within the buying firm. While ex-ternal risks may be entirely or partially uncontrollable by the purchaser, internal supply chain risk gene-rators are almost always entirely controllable. A great deal of attention has been shown to external risks, but this paper illustrates the degree to which internal policies and actions, as well as external influences, contribute to overall supply chain risk. Sustainability, in its broad context, is another focus of senior management that is increasing the pressure on supply chain managers to produce enhanced results by way if improved internal sustainability practices, as well as demanding the same from the supply base. In the Sloan/Boston Consulting study (Haanaes, et al, 2012) sixty-three percent of respondents said that organizational commitments to sustainability had increased significantly.

Globalization of business is a given, today. Outsourcing, global sourcing, and global marketing are all symptoms of this phenomenon. As organizations expand their scopes to include international opera-tions, supply chain management becomes an increasingly critical function. This paper has examined today’s two leading topics – supply chain risk and supply chain sustainability – and their interconnec-tions. In addition, these two topics have the commonality in that their concerns are both internal and external. The latter has been the focus of much research, but the internal aspects, especially of risk man-agement, have not been extensively explored. This paper illustrates these internal impacts on external operations, risks and sustainability and the interactions among them.

Nada Sanders is the Director of EcoNautics Sustainability Institute at Lehigh University. Her thoughts are worth noting. “Given increasingly conscientious consumers and growing limits to resource availability, success in the era of climate change will be reserved for companies that have sustainable supply chains and operations.” (Sanders, 2013). The clear implication from this is that not doing these things puts a firm at considerable risk. We must pursue strategies that recognize that supply chain risk and sustainability are inextricably intertwined.

Appendix 1

RISK CATEGORIES

internal risks ● policies low bid freight terms continuity resources ethics



● operational expertise demand management design

external risks ● governmental regulatory infrastructure policy

● supplier operational management financial cultural/language resources labor scalability sustainability ethics

● logistics damage capacity schedule sustainability

● customer demand variability payment confidentiality ethics

Appendix 2

SUSTAINABILITY CATEGORIES

environmental - negative ● emissions ● discharge ● operational waste

environmental – positive ● zero landfill ● emissions reduction ● energy reduction ● recycle/reuse/

social ● living wage ● child labor ● gender equity ● ethics

organizational ● cost reduction ● profitability ● customer perceptions

● low risk supply chains SM



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Correspondence

Lee Buddress

Portland State University PO Box 751,Portland, USA

E-mail: [email protected]

STRATEGIC MANAGEMENT, Vol. 18 (2013), No. 2, pp. 017-024 UDC 005.52:005.331.1 ; 658.1:631(497.13)"2007/2010"

Received: March 15 , 2013

Accepted: June 3, 2013

Performance Analysis of Agricultural Companies in Vojvodina Mirko Andrić, Bojana Vuković University of Novi Sad, Faculty of Economics Subotica, Serbia

Abstract Performance measurement system is an integral part of the control and management system in the company. In order to measure the performance of agricultural companies in Vojvodina and possibilities for their im-provement, this paper presents a comparative analysis of the most important operating parameters. Researchaimed at performance evaluation is based on the theoretical and methodological analysis of income, fixedassets and financial position of companies. The basis for the study consists of aggregated data from the fi-nancial statements of agricultural companies in Vojvodina in the period 2007-2010 year. The results obtained will form the concluding observations in order to assess the current position of the company and the opportuni-ties for further development by improving the economic position of agriculture. Keywords Analysis, agricultural companies, business performance.

Introduction

Several decades of negative trends in terms of business conditions of agricultural companies in the Autonomous Province of Vojvodina have been causing a constant devastation of the agricultural sector, accompanied by a fall in the farmers’ revenue. Growth in the input prices, disparity of prices at the ex-pense of farmers, low redemption price of produce, high margins on agricultural and food products, un-favourable contractual terms and conditions in terms of interest rates, prices and payment deadlines re-sulted in the operation of agricultural companies to be characterised by unbalanced conditions for con-ducting regular activities in the observed time period (2007-2010). The lower demand for agrarian in-puts by agricultural producers due to the fall in the purchasing power has resulted in extensive agricul-tural production, stagnation in yield levels and production volumes, and a comparatively low level of capacity utilisation. This was also a period of diminishing areas of arable land due to urban develop-ment and infrastructure requirements (Chamber of Commerce of Vojvodina, 2010). In addition, a con-stant shortage of finance led to reduced investment, limited export market surplus and thus, reduced competitiveness of agricultural producers (Andrić, Vuković, & Mijić, 2011, p. 249). In such circum-stances the agricultural companies in the AP Vojvodina faced a whole range of obstacles in their en-deavour to achieve economic, financial and production results, which was also manifested on the total business performance of these companies.

The sector of agriculture, fish farming and forestry in Vojvodina includes crop farming, fruit and vineyard, animal farming, mixed-type farming, agricultural services, hunting, game farming, forest tree nurseries, forest exploitation and related services water management, fish farming, fishing and services. Performance will be monitored and assessed in order to analyse the operations of this sector based on companies’ financial reports as a reflection of resource exploitation, Methodological approach to the analysis will be used to view the agricultural companies’ business activities and signalling the compro-mised ability for long-term successful operation. Performance measurement of the given companies will be used for drawing inferences on the companies’ abilities and potentials, i.e. the effects of the corporate

18 Mirko Andrić et al. Performance Analysis of Agricultural Companies in Vojvodina


management policy in the observation period, so that the measures for possible company performance can be defined based on achieved results (Andrić & Vuković, 2011, p. 509). Performance measurement of agricultural companies will be conducted based on the analysis of the indicators o property, financial and earning power between 2007 and 2010. Aggregated data from financial reports of agriculture sector companies on the territory of Vojvodina were used for the needs of research.

1. General characteristics of agricultural activity in Vojvodina

The Autonomous Province of Vojvodina has arable agricultural surface. Out of the total area of Vo-jvodina, 82.7% was categorised as agricultural soil in 2008, meaning 21.588 km2 in absolute values. The province accounts for over 50% of total annual production of cereals and other clops (55% of wheat, 65% of maize, 92% of sunflower and 97% of sugar beet), with a yield substantially higher than the national average (Republic Statistical Office, 2012) The rich resource and raw material base stimu-lates the development of processing industry, notably food production, which is, at the same time, one of the oldest branches of the province’s industry.

In 2010, Vojvodina had a total of 1,730,357 plough fields, vegetable gardens and pastures. The dis-tribution of agricultural land by purpose is given in the table below.

Table 1 Distribution of agricultural land in Vojvodina by purpose in 2010.

Purpose of agricultural land Number of ploughfields, vegetable gardens and pastures wheat 1,009,083 industrial crops 404,501 vegetables 69,914 fodder crops 74,926 orchards 17,994 vineyards 9,648 meadows 42254 pastures 102,037 Total 1,730,357

Source: Republic Statistical Office, 2012

From the employment aspect, according to data from 2008, as many as 21.4% of the employed population work in agriculture, accounting for 18% of economically active population. The main reason for high dependence on agriculture is, undoubtedly, lack of employment opportunities and low invest-ment activity especially in rural areas (Ministry of Agriculure, Forestry and Water Management, 2009). However, judging by the data of the Republic Statistical Office, the number of employed persons in Vojvodina is constantly decreasing, as a result of deteriorating overall economic conditions for business operation, leading to redundancies and fall in the number of companies in this sector.

Table 2 Number of employees in agriculture, forestry and fisheries sector in the period 2007 – 2010

Agriculture, forestry and fisheries Number of employees 2007 55,904 2008 51,108 2009 27,070 2010 38,803

Source: Republic Statistical Office, 2012 The total number of companies operating in the agricultural sector in 2010 was 3416. The distribu-

tion of companies classified by size operating in the agriculture, forestry and fisheries sector over the observed period is given in the table below.

Mirko Andrić et al. Performance Analysis of Agricultural Companies in Vojvodina 19


Table 3 Number of companies classified by size in the agriculture, forestry and fisheries sector in the period 2007 - 2010

Year Number of companies in the agriculture, forestry and fisheries sector

Micro enterprises Small enterprises Medium-sized enterprises Large enterprises Total

2007 2976 481 202 24 3683

2008 3004 474 196 20 3694

2009 2952 393 177 20 3542 2010 2872 406 124 14 3416

Source: Republic Statistical Office, 2012 The above presented structure classified by company size shows a significantly high number of mi-

cro enterprises operating in this sector in Vojvodina. Micro enterprises employ up to 9 workers. Judging by the available data of the Republic Statistical Office, the number of companies operating as medium-sized and large has taken a downward trend in comparison with micro and small enterprises, so that the share of large and medium-sized companies in 2010 was only 4.04%. The recorded share of these com-panies in was the highest in 2008 – as much as 94.15%. The high share of these enterprises can be as-cribed to the disbursement of a substantial number of loans for small enterprise development in 2008, and their ability for a timely response to market and business environment demand, and thus a higher likelihood of survival and development. The overview of innovation activities in the agriculture sector in Vojvodina in 2009-2010 shows that only 3.85% of small and medium sized companies improved their performance substantially in terms of products, services or processes, introducing new organisation methods in external and internal operations.

The total value of export of Vojvodina in the period 2007-2011 amounted to 12.184 billion euros (Republic Statistical Office, 2012). The Province recorded an 11.7% decrease in exports compared to the previous years due to the negative industrial and agricultural production growth rate of 14.1% and 1.7% respectively. The structure of exports of Vojvodina is dominated by raw materials, produce, or products at lower stages of processing, including energy-generating products and produce on the one hand, and chemical, metal and food industry products. The period 2007-2011 saw exports of these products worth 8.6 billion, 20.1% of which is accounted for by agriculture and food industry. The larg-est volume of import and export is achieved by medium sized companies in the agriculture, forestry and fisheries sector. Surplus in this sector amounted to 7.5 billion dinars in 2010.

2. The subject of performance assessment of agricultural companies in Vojvodina

Indicators of profitability, assets structure and financial status of companies in Vojvodina were analysed in order to gain insight into their performance. Profitability indicators were used to assess the compa-nies’ ability from the aspect of return on invested capital and meeting the need for rational operation by way of

1. total capital cost-efficiency, 2. net profit margin, 3. net asset profitability, and 4. cost-effectiveness of regular business operations. The companies’ assets status was measured by activity indicators in terms of:

1. inventory and receivables turnover rate, and 2. asset efficiency. The companies’ financial performance was observed from the aspect of:

1. solvency, 2. equity,



3. financial leverage, and 4. asset to debt ratio.

2.1. Earning power analysis of agricultural companies in Vojvodina

The overview of research of earning power indicators of agricultural companies in Vojvodina is given in the table below:

Table 4 Earning power indicators of agricultural companies in Vojvodina in the period 2007-2010.

Earning power indicators for Sector A

Year

2010 2009 2008 2007

Return on total assets ratio 1.26% 1.15% 0.85% Net profit margin 5.00% 6.00% 5.00% 6.00% Net asset cost-efficiency 3.00% 3.00% 3.00% 4.00% Regular operation cost-effectiveness 0.99 0.97 0.99 0.99

Source: The authors’ calculation based on data of the Chamber of Commerce of Vojvodina, 2012 Starting from the gross return on total assets rate as the indicator of creating surplus value the com-

pany’s invested assets, we can infer that the time period observed shows a positive trend in the opera-tion of agricultural companies. An exception is 2009, when agricultural companies made a loss, so that the earning power assessment for this year is redundant. The growth in the gross return on total asset ratio in dynamics is ascribed to simultaneous growth of business gains and the company’s average as-sets. Thus, a higher capital employed yields a higher return rate, which means that the assets are used more economically and rationally. Despite the growth in the gross return rate over the observed period, their values are far below average, showing that agricultural companies achieve very low returns on employed capital.

From the aspect of net profit margin as an indicator of final performance, i.e. achieved business re-sults of agricultural companies, the situation is unenviable. Only 5-6% of returns in the observed period were left to companies as freely disposable profit. Companies should aim to maximise the value of this indicator, as it represents the measure of success in making profits. The measure of success in the ex-ploitation of disposable assets is represented by means of net assets cost-efficiency, whose values over the observed period clearly point that one can hardly speak of earning power of agricultural companies. The stagnant value of this indicator over the three years of observed period results from proportional growth in interest rate cost and the company’s available assets. During those years, companies made losses, which is the key reason of the worrying values of this indicator. Only in 2007 did companies make profit and were burdened with lower interest rate costs on smaller employed funds, but it did not change their earning power significantly, as one monetary unit of employed available monetary unit yield only 0.04 paras of profit.

Cost-efficiency of the companies’ regular operations over the observed period shows no major fluc-tuation, amounting to approximately 1, i.e. the reference value of this indicator. The amount of revenues and expenditures over the observed period is almost the same, except in 2009, when expenditures were slightly higher than revenues. To be assessed as cost-efficient in their regular operation, agricultural companies should maximise the share of revenue from regular operation per unit of expenditure in regu-lar operation, which will be corroborated by a higher value of his indicator.



Figure 1 Trends in agricultural companies’ earning power indicators. Source: The authors’ calculations based on the data of the Chamber of Commerce of Vojvodina, 2012

3. Analysis of the status of assets of companies in Vojvodina

The overview of obtained results of research into the status of assets of agricultural companies in Vo-jvodina is given in the table below.

Table 5 Indicators of the status of assets of agricultural companies in Vojvodina in the period 2007-2010.

Earning power indicators for Sector A Year

2010 2009 2008 2007

Inventory turnover ratio 4,38 3,91 4,24 4,29 Inventory turnover time 83 93 86 85 Receivables turnover ratio 2,76 2,16 2,67 2,69 Receivables turnover time 132 169 137 135 Total assets turnover ratio 1 1 1 1 Asset return time 43,28 23,32 23,17 23,17

Source: The authors’ calculations based on the data of the Chamber of Commerce of Vojvodina, 2012 The status of assets of agricultural companies was analysed based on the values of the key indicators

of activity, i.e. efficiency in the employment of the companies’ assets from 2007 to 2010. The observed period saw fluctuation in the movement of the value of indicators of companies’ inventories and receiv-ables ratio. The turnover slightly dropped in dynamics and then showed a minor growth in 2010, fol-lowed by the lowest number of days needed to commit operating assets in the observed period, 83 days for inventory commitment and 132 days for receivables commitment. From the aspect of success and security of agricultural companies, the number of days needed to commit operating assets should be reduced constantly, which is achieved by faster inventory and receivables turnover in the business proc-ess. The low values of turnover ratio in the observed period indicate that agricultural companies have high opportunity costs, i.e. use inventories unproductively, or that they possess outdated, damaged or useless inventory. The growth in the average time required to collect liabilities from 2008 to 2008 has shown that agricultural companies had problems in liability collection, or that these were doubtful or disputed debts.

The results of research into the operation of agricultural companies in crop farming and mixed-type farming in Vojvodina in 2009-2010 showed a lower efficiency of operating assets of these companies in 2010. Lower efficiency resulted from a decrease in the asset turnover ratio in companies involved in mixed-type farming from 5.65 to 3.38 and increased number of inventory commitment from 153 to 224. In crop farming companies, the average inventory turnover ratio fell from 7.58 to 5.08, and the number of days grew from 80 to 131. Based on the inventory turnover ratio, inferences were drawn that the effi-ciency of asset turnover in the mixed-type farming was lower (Andrić, Vuković, & Mijić, 2011, p. 264).

One can hardly speak of efficient utilisation of agricultural companies’ assets, as the values of the to-tal revenue and average assets during the observation period are approximately equal. The total revenue as a measure of return on employed assets should be as high as possible, and the return time should be as short as possible. The observation period showed a negative trend in terms of return on assets, as the



time in which agricultural companies manage to return the funds invested in assets is much longer, so that 2010 it amounted up to 43.

Figure 2 Trends in agricultural companies’ assets structure. Source: The authors’ calculations based on the data of the Chamber of Commerce of Vojvodina, 2012

3.1. Analysis of financial performance of agricultural companies in Vojvodina

The results of research into financial performance of agricultural companies in Vojvodina are presented in the table below.

Table 6 Indicators of the financial performance companies in Vojvodina in the period 2007-2010.

Earning power indicators for Sector A Year

2010 2009 2008 2007

Solvency 1.84 2.00 2.02 2.23 Self-financing 0.32 0.35 0.32 0.35 Financial leverage 1.09 0.97 0.94 0.80 Debt factor 4.62 3.84 4.06 4.00

Source: The authors’ calculations based on the data of the Chamber of Commerce of Vojvodina, 2012 The analysis of the self-financing factor of agricultural companies resulted in inferences on the share

of equity in the total operation of these companies. The share of external finance is obvious, as only 32-35% of the companies’ equity accounts for their financing in the observed period. Therefore, the equity rate of all companies over the observed period is low, as the share of their own financing sources amounted to below 50%, which tends to result in lower creditors’ confidence and higher operating risks. Therefore, the demands of the traditional financing rule, according to which companies’ finance is di-vided 50-50% between equity and external financing sources, and the optimum capital structure, accord-ing to which the equity accounts for 60% and external for 40% of the total financing sources, agricul-tural companies failed to achieve satisfactory results over the observed period. The ownership structure of these companies’ liabilities corresponds to more recent concepts of the ratio of possible indebtedness, according to which, in the present business conditions, the focus is placed on results attained by means of total capital, i.e. the permanent strength of revenue. In accordance with this, a higher indebtedness of companies is tolerated, and debt to equity ratio where total indebtedness may amount up to 70%, which is nowadays the limit of a company’s creditworthiness for many banks (Bahtijarević-Šiber & Sikavica, 2001, p. 67). Regardless of the agricultural companies' liability structure, they were capable of repaying the total debt during the observed period, meaning there was no risk that possible future loss will reduce assets below the debt level. The highest level of ability to meet total liabilities, even from the liquidation and bankruptcy estate, were recorded in 2007, followed by weakened ability of companies to meet total liabilities, but they are still within the limits of reference values. The general inference drawn is that if the agricultural companies in Vojvodina had capitalised all assets in the observed period at values shown in the balance sheet, they would have been able to pay total debts, at the level of difference be-tween total debts and operating assets.



Investment risk in agricultural companies measured by financial leverage in the observed period shows a constant growth in the investment risk. The lowest debt levels were recorded in 2008, when 1 dinar of capital comprised 0.8 dinars of debt. In time, this risk grew, so that in 2010, 1 dinar of capital corresponded to 1.09 dinars of debt. The reference value of this indicator is not defined in American literature, but given that it measures risk, it should be as low as possible. The analysis of debt factor measured the number of years to repay the total liabilities of agricultural companies in the current busi-ness conditions and earning. Over the observation period, all observed companies managed to meet their liabilities within the period of 5 years, so it can be concluded that these companies were not insolvent. The time period for meeting the total liabilities of agricultural companies was the lowest in 2009, while the highest number of days for meeting these companies’ liabilities is characteristic of operations in 2010. To conclude, within a period of 3-5 years, agricultural companies managed to earn the last mone-tary unit of money flow even in the future so as to meet all liabilities, provided that they restrain from investment and paying dividends.

Figure 3 Trends in agricultural companies’ performance indicators Source: The authors’ calculations based on the data of the Chamber of Commerce of Vojvodina, 2012

Conclusion

The observed period showed unfavourable economic conditions for operating agricultural companies on the territory of the AP Vojvodina. The consequences of economic crisis are far-reaching and reflected on the agriculture sector as well. The most notable effect of the crisis was a fall in investment activities, lack of cash for maintaining liquidity, growth in prices, fall in the consumers’ purchasing power, and increasingly difficult collection of receivables. These facts were compounded by the reduction in the number of agriculture sector by 7%, and the number of employed workforce by as much as 31% in the observed period. Fall in the export from Vojvodina in individual years of the observed period was mostly ascribed to the negative growth rate of the industrial and agricultural production.

Contemporary business conditions impose high criteria for success, which companies must meet in order to survive and develop. The analysis of performance of agricultural companies, as an important segment of companies managing and monitoring activities, was used, among others, for assessing the future ability to generate cash based on the utilisation of available resources. The review of earning power, asset structure and financial status of the companies resulted in inferences on unenviable per-formance of companies, which could, in the future, seriously compromise the survival of particular ag-ricultural companies. The low solvency and earning power caused by the minor surplus value creation rate and notable losses in operation in some of the years of this period resulted in the companies’ poor earning power. Inefficient asset utilisation minimised the companies’ business operation and slowed down the turnover rate. This lead to increased costs of assets employment, diminished results and ac-cumulation, which failed to secure conditions for creating a favourable structure of finance sources. The structure of finance was dominated by external sources, resulting to low levels of self-financing and increased investment risk. Nevertheless, there was no risk that the possible future losses of agricultural companies in Vojvodina could diminish the assets below the debt level.

Imbalanced and compromised business activity of the agricultural companies in Vojvodina in the observed period creates a need for more varied approach to the agriculture sector improvement strategy, starting from fostering the economic and market link between the primary agriculture production, and



processing industry using agricultural produce. The development of agriculture in Vojvodina, and con-sequently, companies operating in this sector, is tightly linked to the development of other agricultural activities, both in agrarian and in non-agrarian sector. Improved overall macroeconomic, technical and technological conditions, paired with socially responsible behaviour, will enhance the operation of cor-porate entities in this sector, thus contributing to the development of the Autonomous Province of Vo-jvodina in general. SM

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http://webrzs.stat.gov.rs/WebSite/Public/PublicationView.aspx?pKey=41&pubType=6 Correspondence

Mirko Andrić

Faculty of Economics Subotica Segedinski put 9-11, 24000, Subotica, Serbia