Facilitating exports:

a value chain approach

Peter J. Batt

Associate Professor

Food and Agribusiness Marketing

Definition supply chain management refers to the coordination and alignment of resources financial and information flows for all actors and activities involved in a supply chain Simchi-Levi et al (2000)

Socio-economic &political environment

Agro-climatic-ecologicalenvironment

Inputs &services

Productionsystem

Postharvest

Processingpackaging

Marketingsales

Consumers

Agribusiness systemboundary

Information

Logistics

Management

Waste

Waste Waste Waste WasteWaste

Supply chain

McGregor (1998)

A supply chain describes

the full range of activities that are required

to bring a product or service from

conception through the different stages

of production and processing

to deliver superior value to the customer

at least cost

Globalisation

implies that a buyer can purchase

whatever they want

from anywhere in the world

at the cheapest price

To remain competitive, suppliers seek to reduce costs

increase production relocate production invest in new technology

differentiate their product offer

Quality

is the key concept

in building customer value

and satisfaction

Quality

is a customer determination

based upon the customer’s

actual experience with the product

measured against the customer’s

stated objectives

Quality means

providing customers

with products that

consistently meets their specifications

Quality does NOT mean best

Quality

also means

the way suppliers go about

meeting the needs of their

downstream customers

Quality can thus be conceptualised at three different levels: technical quality functional quality service quality

technical quality describes the customer’s specifications size shape colour variety purity maturity or freshness product packaging

functional quality describes the way in which the supplier goes about delivering the product to the customer transport and logistics production scheduling storage and warehousing ordering and invoicing credit arrangements

service quality describes the extra things a supplier is prepared to do to retain the customer’s business providing technical assistance promotional support new product innovations advance notice of impeding changes in price or shortages in supply

Quality is a multifaceted concept consumers requirements intrinsic extrinsic experience credence

consumers requirements food safety requirements

microbial contamination chemical contamination physical contamination

consumers requirements (contd)

commodity requirements conformity of a product to its definition legal or voluntary regulations or customary

practices fraud

consumers requirements (contd)

nutritional requirements health and nutrition functional foods probiotics

intrinsic cannot be changed without also changing

the physical characteristics of the product freshness firmness colour size and shape freedom from blemishes freedom from pests and diseases freedom from chemical residues

extrinsic extrinsic cues, although related to the

product, are not physically part of it price brand package place of purchase

experience ascertained on the basis of actual

experience taste includes

sweetness acidity astringency

texture relates to the mechanical properties of the flesh, mouth-feel and juiciness

flavour is related with aroma

credence attributes sustainable production conservation and biodiversity Fairtrade and equity worker welfare animal welfare organics religion

Competition has intensified deregulation

low cost producers globalisation

aggregation and consolidation market saturation

Top 10 food and drink groups Food Sales (US$ million) 2003

Nestlé 46,628Kraft Foods 38,119ConAgra Foods 27,630Pepsico 26,935Unilever 26,672Archer Daniel 23,454Cargill 21,500Coca Cola 20,092Diageo 16,644Mars Inc 15,300

Top 100 global retailers

Wal-Mart Stores 1Carrefour Group 2Tesco 3Seven and I 4Kroger 5Target 6Home Depot 7Walgreen 8Aldi 9Royal Alhold 10

Competition has intensified (contd)

improved technology transport and logistics communication biotechnology

Implications for agribusiness firms fewer customers customers are more demanding

quality cost competitiveness exclusivity

own labels new product innovations

Implications for agribusiness firms (contd)

customers have more power reject poor quality product impose penalties require suppliers to invest

production capacity infrastructure information and communications technology quality assurance systems

Customers have a legitimate right to command most basic principle of marketing is the need

to satisfy customer wants power is not always negative power is the means by which supply chains

are coordinated suppliers must make choices

Implication for agribusiness firms (contd)

emergence of a dual marketing system “in” suppliers

comply “out” suppliers

do not comply risk of becoming increasingly marginalised

Firms can respond by minimising costs

minimise the use of inputs ipm

focus on what customers really want reduce wastage

leverage competitive advantage

Porter (1990)

Firms can respond by (contd)

consolidation improve reliability of supply

secure greater volumes production planning

improve quality implement quality standards make investments in infrastructure/logistics

Firms can respond by (contd)

differentiation offering superior service to customers

cultivating desired proprietary varieties greater product assortment pre-packing pre-cut and semi-prepared products

Firms can respond by (contd)

differentiation pursuing alternative market segments

direct marketing home delivery internet

Firms can respond by (contd)

differentiation brand

method of production organics hydroponic

ethical production Fairtrade sustainability

religion

Firms can respond by (contd)

building enduring long-term relationships interdependence compatible goals trust and respect commitment

attitudinal instrumental temporal

Firms can respond by (contd)

becoming a preferred supplier regular market access greater access to market information

production planning incentives to invest

less risk