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Research and Consulting services on agro based supply chain

 

 

 

Integrated Agro - supply chain

 

Integrated supply chains are one of the most powerful competitive tools in today's globalizing business economy. For agricultural products, successful supply chain development projects reduce not only the transaction costs but also the institutional barriers that decouple individual links in traditional distribution channels. They allow participants to achieve higher levels of service and to capture substantial added value thereby serving as leverage points both for economic growth and for poverty alleviation. This paper also draws on the experience of the Agri-Chain Competence Center to discuss the critical issues and step-by-step actions necessary to stimulate and support the emergence of supply chains in developing countries.

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The advantages for supply chain members

 

Individual suppliers, producers and marketers who are associated through a supply chain coordinate their value creating activities with one another and in the process create greater value than they can when they operate independently.  Supply chains create synergies in one of three ways:

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They expand traditional markets beyond their original boundaries and thus increase sales volume for members;

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They reduce the delivered cost of products below the cost of competing chains and thus increase the gross margin for the working capital committed by members of the chain; and

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They target specific market segments with specific products and they differentiate the service, product quality or brand reputation of the products they deliver to these market segments and thus increase consumer perception of delivered value. In this way, they allow chain members to charge higher prices.

 

Generally, however, supply chains increase market contestability both at the producer end and at the consumer ends of the chain. At the consumer end, chains compete primarily through price, differentiated products and services and differentiated terms of sale. At the producer end of the chain, supply chains compete with one another primarily for "producer affiliation" and core vendor commitments. "Producer's affiliation" implies a long-term relationship between producers and other members of the chain based on process integration, stability in supply, and greater investment in efficient integration into the chain. Rather than unaffiliated "arms length transactions", supply chains substitute intra corporate, contractual or franchise affiliation thereby enabling them to transfer risks among participants in the chain.

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In this way, supplies chains effect and progressively increase comparative advantage based on specialization among chain partners. Many producers in developing countries can benefit by joining supply chains. Indeed only through chain affiliation can many producers determine whether they will target their production for upscale, product differentiated markets or down scale, commodity markets.  Agile and innovative agro-supply chains allow producers to improve their gross margins, increase their savings from cash crop sales and adapt their products, value adding processes and channel alignment to dynamic market circumstances. Competition among chains for the best producers allows producers to rise above a price taking relationship and to affiliate strategically with chains.

 

The forms of association among supply chain partners are various and may include corporate affiliation, contractual affiliation, membership in a trading community, membership in a producers cooperative, etc. Well-designed supply chains are capable of realizing several kinds of captured value for their participants.

 

For example, they assure:

i) through quality control that exacting product requirements (e.g. eco certification) of retail customers can be met or exceeded in each step within the chain,

ii) through innovation in product, in production/ distribution processes and in chain alignment that individual chains compete successfully with other chains based on superior product quality, price-to-value, value-to-cost and, importantly, logistics innovation and that the chain itself continuously adapts in its design, component competencies and market feedback systems to dynamic market requirements;

iii) through the comp recession of the order-to-delivery cycle, improved demand forecasting, quicker supply response and ‘strongest link’ financing of the entire chain that working capital required to produce and deliver marketable products to end consumers is minimized,

iv) through risk management that production/ delivery/ sale risks are allocated efficiently both among chain participants based on their capacity to manage specific risks and to third parties when chain participants cannot effectively manage specific risks;

v) through competitive chain management that the value premises which underlie the chain’s design are continuously tested, validated and adapted to changing circumstances.

 

The impact of agro- supply chain affiliation

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Customer oriented cross-border agro supply chains have an enormous reciprocal effect on each of the successive companies involved in the chain. The following lessons can be learned from successfully implemented agro -supply chain projects:

 

Long term relationships between partners in the chain, lead to improved margins and improved market knowledge for the primary producers (growers and farmers)

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Reduction of product losses during storage and transportation, result from optimal coordination of the successive activities in the chain

 

Quality and /or freshness of products can be improved greatly

 

Improved safety of food products can be assured;

 

Sales can be increased significantly, due to exchanging market information

 

Coordinated supply chains tend to generate "high value added" products that generate considerable revenue as they match with the demands of high-end markets and high income segments.

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