Introduction to Agricultural Supply Chain Management
Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer.
Agribusiness, supply chain management (SCM) implies managing the relationships between the businesses responsible for the efficient production and supply of products from the farm level to the consumers to meet consumers’ requirements reliably in terms of quantity, quality and price.
Why is supply chain management is particularly important in agribusiness?
The supply chain performs both physical and market functions which means understanding market requirements, converting raw material into finished products and moving them from production centres to consumption points in a effective and efficient manner and fulfil consumer expectations.
Market Driving Forces
Three main important market driving forces urge supply chain partners to collaborate, namely market segmentation, consumers’ demand and low cost strategy. Especially for chain partners in developing countries who wish to participate on the global market (far away markets),supply chain collaboration is of utmost importance for the connection with profitable markets and consumer’s demands, the flow of information, goods, technology and capital and to limit
The changing life-style of especially western consumers’ is driving demand for particular products such as organic, exotic, fair trade, pre-cut, ready-to-eat products, etc. This development challenges chain partners to differentiate their chain to offer value-added products and services to a particular market segment.
Consumer choices are increasingly being determined by requirements in the area of safety and health. Care for the environment, social components and animal welfare are becoming more important. Striving to sustainability is the new goal set by society. All companies in the chain should cooperate together in order to avoid loss of consumer confidence. Integral chain care and quality assurances are the key.
The supply chain partners are being forced to minimize costs because of the increasing worldwide competition. The collaboration of the successive links to tune activities and minimize costs by decreasing transaction costs optimizes chain results.
Supply Chain Management and its Benefits
Managing supply chains requires an integral approach in which chain partners jointly plan and control the flow of goods, information, technology and capital from ‘farm to fork’, meaning from the suppliers of raw materials to the final consumers and vice versa.
In order to react effectively and quick to consumer’s demand, supply chain management is consumer-oriented. It aims at coordination of production processes (Lambert and Cooper 2000, Handfield and Nichols 1999). Supply chain management results in lower transaction costs and increased margins. Because of the many activities and aspects involved it demands a
multidisciplinary approach and sustainable trade relations. Supply chain partnerships are based on interdependence, trust, open communication and mutual benefits.
The advantages of the supply chain management approach are numerous. Some important
– Reduction of product losses in transportation and storage.
– Increasing of sales.
– Dissemination of technology, advanced techniques, capital and knowledge among the
– Better information about the flow of products, markets and technologies.
– Transparency of the supply chain.
– Tracking & tracing to the source.
– Better control of product safety and quality.
– Large investments and risks are shared among partners in the chain.
Building Supply Chains
Supply chains are not developed by itself but requires a lot of efforts and competencies of those involved. Before a supply chain is developed, certain steps have to be taken in order to formulate the right chain organization. Special care is required for the formation of cross-border supply chains as differences in business and social culture can have for instance large influences in the performance of the chain collaboration.
The first step in agri supply chain development is the analyses of the existing trade system and the trade environment (product flow, exchange levels, forces affecting the operation of the supply chain such as governmental policies, etc.). From this analysis, potential supply chain players can be identified and their function, role and relationships in the trade system can be delineated.
The success of a supply chain depends on a strong chain leader. The chain leader acts as the supply chain manager. The explicit acceptance of the chain leader is very important for initial chain formation and the sustainable supply chain collaboration.
Included in the analysis, the performance of the supply chain should be measured according to criteria set by the chain partners (such as efficiency, flexibility, innovation, responsiveness, etc.).
For international benchmarking, the present situation in the chain organization will be compared to the desired situation. Through this benchmarking, the different aspects of the supply chains can be analyzed and the critical success factors can be determined. A SWOT-analysis is conducted for the overall assessment to assess the strengths and weaknesses of the supply chain and the opportunities and threats of the supply chain environment.
Supply Chain Management Tools
A range of new supply chain management tools have been developed over the past decade.‘Efficient consumer response’ (ECR) has been developed to increase the consumer orientation and cost-effectiveness of supply chains (Kurt Salmon Associates, 1993).
New management systems have been implemented to improve logistics, increase the use of information and communications technologies and boost quality management (Lambert and Cooper, 2000).
New generation cooperatives are merging, strengthening the position of farmers’ groups (Cook et al.,2001) and strategic partnering and vertical alliances are cementing sustainable partnerships throughout the supply chain (Zylbersztajn & Farina, 1999).
Food safety concerns have led to the development of ‘integral chain-care’ tools such as social accountability, good agricultural practice (GAP), total quality management, and HACCP (hazard analysis at critical control points).
Implementation of such tools throughout a cross-border supply chain enables chain partners to ensure the quality and safety of their products and guarantees acceptable social chain performance.
Supermarkets in Brazil and Thailand, for example, have initiated total quality management programs and HACCP rules for perishables like fresh fish and
Retailers (e.g., Walmart, Carrefour, Royal Ahold, Tesco and Sainsbury) have increasingly established their own quality standards (e.g., EUREP-GAP and BRC2) which suppliers must meet.
Tracking and tracing systems are used to certify the quality of products and ensure transparency in the flow of goods throughout the supply chain. Implementing such standards and systems impacts not only the organization of supply chains, but also financial aspects of chain cooperation (Cook et al., 2001).
These standards and systems are now being used in the agricultural sector and have proven their value in cross-border projects, as we will see in the examples described in section 4 below.
Sharpened requirements for standards have prompted public and private actors to establish a variety of initiatives to build or strengthen agri-supply chains.
– National Institute Of Agricultural Extension Management,India
– Jan van Roekel, Director, Agri Chain Competence center;Sabine Willems, Agri Chain Competence center
Dave M. Boselie, Wageningen UR – Agricultural Economics Research Institute (LEI)