Professional Documents
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MANAGEMENT
ARE 427
Introduction
• There is fierce competition in today’s global markets and heightened expectations of
consumers has forced businesses to invest in and focus attention on the relationships
with their customers and suppliers.
• Modern management thinking advocates for the collaboration among business partners
and the responsiveness to client needs as additional thrusts towards a successful
competitive strategy.
• Executives of agri-food enterprises are becoming aware that successful coordination,
integration and management of key business processes across members of their supply
chains will ultimately determine their competitive success.
• Agri-food businesses no longer compete as solely autonomous entities. Instead,
competition occurs more and more among entire supply chains.
• Why the need for a joint approach of business partners towards the establishment of
more effective and efficient agri-food supply chains?
➢shelf-life constraints of food and agricultural products
➢increased consumer attention to safe and environment/animal-friendly production
methods.
• Agri-food chains and networks provides access to markets for
smallholders
• Changes in agri-food systems impact the ability of agro-industrial
enterprises to compete; small and large alike will have to innovate
and reduce costs, while being more responsive to consumer needs
• The key movers of agri-food supply chain are:
✓ Globalization,
✓ Urbanization,
✓ Agro-industrialization.
• In a global agri-food system, companies have to work continuously
on innovations in products, processes and forms of cooperation
• How does the increasing integration of local and cross-border agri-food chains
considered both a threat and a challenge for agricultural and rural development in LDC?
✓Limited technological innovations for smallholders
✓Inadequate economies of scale in processing, transport and distribution for smallholders
✓However, smallholder production could offer cost advantages for farming enterprises
based on labour-intensive products that require strong quality supervision.
• By which means can smallholders get into the global agri-food chain?
✓Adapt to the stringent quality and safety standards and regulations in these markets
✓Gain better control over production, trade and distribution of their agricultural products
in order to guarantee traceability and operate in a cost-effective way, so as to compete in
the global market
✓Improve on enabling environment (institutions, support services and infrastructure
facilities)
What is supply chain?
• Is a sequence of (decision making and execution) processes and (material,
information and money) flows that aim to meet final customer requirements,
that take place within and between different stages along a continuum, from
production to final consumption.
• The Supply Chain not only includes the producer and its suppliers, but also,
depending on the logistic flows, transporters, warehouses, retailers, and
consumers themselves.
• In a broader sense, supply chains include also new product development,
marketing, operations, distribution, finance and customer service.
• Figure above depicts a generic supply chain.
• It is shown within the context of what is usually referred to as a
‘total Supply Chain network’.
• In such a network, each firm belongs to at least one supply chain;
i.e. it usually has multiple suppliers and customers.
• Example: A milk producer obtains inputs such as feeds and
veterinary medicines from a number of different suppliers. He
delivers milk to one or more processors, who in turn, distribute
the processed products through one or more retail outlets.
• Reading assignment: bullwhip effect in supply chain (Definition,
causes, disadvantages and advantages)
Stakeholders in Agri-food supply chain networks
• The input suppliers to the food production process;
• The producers involved in growing food;
• The processors, both primary and value-added, involved in processing, manufacturing and
marketing food products;
• The distributors, including wholesalers and retailers, involved in distributing, marketing and
selling food;
• The consumers involved in shopping for and consuming food;
• Government and non-governmental organizations (NGOs) involved in creating policies and
programmes for food sustainability and security;
• Regulators involved in monitoring and regulating the entire food value chain from producer
to consumer;
• Logistics companies involved in moving, storing and managing food throughout the value
chain;
• Financial organizations involved in providing funding to the entities within the food value
chain.
Characteristics of Agri-food supply chains
• The unique nature of their products - short life‐cycle and perishable goods;
• High product differentiation;
• Seasonality in harvesting and production operations;
• Variability of quality and quantity on farm inputs and processing yields;
• Specific requirements regarding transportation, storage conditions, quality and safety,
and material recycling;
• A need for complying with national/international legislation, regulations, and
directives regarding food safety and public health, as well as environmental issues
(e.g., carbon and water footprints);
• A need for specialized attributes, such as traceability and visibility;
• A need for high efficiency and productivity of expensive technical equipment, despite
often lengthy production times;
• Increased complexity of operations; and
• The presence of significant capacity constraints.
Supply chain management
• Definition: Is the integrated planning, implementation, coordination and control of all business processes and
activities necessary to produce and deliver, as efficiently as possible, products that satisfy market
requirements.
• Key terms:
(a) Business process : -Is a structured, measured set of activities designed to produce a specified output for a
particular customer or market.
- It is associated with new product development, marketing, finance, and customer
relationship management.
(b) Value: Is the amount consumers are willing to pay for what a company provides. It can be measured by the
total revenue of a company.
: Value-added activity characterizes the value created by an activity in relation to the cost of
executing it
:Values is associated with the so called ‘Triple P’: People, Planet and Profit (or Prosperity). The Ps
include financial performance, social and environmental dimensions of performance evaluation.
:Social and environmental dimensions lead to attributes that are generally associated with the product
itself, the companies producing it and the raw materials and the resources used. Example: Organically produced
products or use of recycled materials or no child labour or support to community development
FOOD SUPPLY CHAIN FLOW
A food supply chain or food system
It is the processes that describe how food from a farm ends up on our tables.
The processes include production, processing, distribution, consumption and
disposal.
The food we eat reaches us via food supply chains through which food moves
systematically in domino-like motion from producers to consumers while the
money consumers pay for food goes to people who work at various stages
along the food supply chain in the reverse direction.
• Both movements of food and money are facilitated by “pulls” and
“pushes.”
• Producers and processors push or supply food and consumers pull
or demand food thereby facilitating the dominoes (food) to fall
(move) towards the consumers
• Producer and processors pull money and consumers push money
to facilitate the movement of money from consumers to producers.
• Thus, if consumers‟ pull for food or push for money is weak or
absent, the producers‟ push for food or pull for money would have
to be strong in order to keep the food supply chain moving.
There are typically three types of flows in the supply chain:
• Materials,
• Information,
• Financial (money).
Material flows
• These are all physical products, raw materials, supplies,
and so forth, that flow along the chain.
• The concept of material flows also includes reverse
flows—returned products, recycled products, and
disposal of materials or products.
• A supply chain thus involves a product life cycle approach,
from “dirt to dust.”
Information flows
and channels
❖ Irregular reviews of safety stock levels causing frequent stock outs or excess
inventory
❖ Lack of flexibility in the network and distribution.
(underutilisation)
VALUE CHAIN
Supply Chain Vs Value Chain
Supply Chain
• is the integration of all activities involved in the process of sourcing,
procurement, conversion and logistics.
• is the interconnection of all the functions that starts from the manufacturing
of raw material into the finished product and ends when the product reaches
the final customer.
Value chain
• implies the series of business operations in which utility is added to the
goods and services offered by the firm so as to enhance customer value.
• is a set of activities that focuses on creating or adding value to the product.
• Concept of Value Chain was first evolved by Michael Porter in 1985 in his
renowned book “Competitive Advantage”.
• In his opinion, two major steps involved in the value chain analysis are:
(a) Identification of individual activities
(b) Analysing the value added in each activity and relating it to firm’s
competitive strength.
Farmer
20%
Assembler
Retailer 10%
60% Abattoir
10%
What is procurement?
The process that manages the sourcing and purchasing process
Strategic sourcing is enabled by the following approaches:
• Total cost procurement models:
These include all costs in the supply chain when comparing sources
and source chains,
• Supplier relationships:
• Value-added services:
• A value-mapping of the supply chain will help in understanding
those activities or suppliers that add the maximum value to the
product and those that are non-value adding.
Sourcing models
(a) Low-cost sourcing
Here, the company sources materials from different countries and locations with lower labour and production costs, with
the aim of lowering operational costs and to achieve sourcing efficiency.
(b) Outsourcing and insourcing
Outsourcing is the act of purchasing goods or services from an external source. Company will decide to focus on its core
competencies and prefer to outsource activities or products that are non-core.
Advantages of Outsourcing:
(i) cost reduction resulting from economies of scale
(ii) access to specialized investments and expertise.
Disadvantages of outsourcing
(i) control over the operations will be reduced, leading to reduced flexibility to react to unpredictable changes in
requirements.
(ii) quality and lead time non-conformance
(iii) a threat from new competitors to emulate the business models and products if the sourcing is not conducted properly.
Examples of outsourcing
(i) supermarkets will outsource the manufacturing of their own-label food products
(ii) Beverage companies will prefer to outsource bottling across international market sectors instead of setting up their own
plants.
Insourcing
Internal sourcing, or insourcing, aims at internal production or purchasing from a subsidiary of the
organization, or bringing outsourced activities back into the company.
(c) Single sourcing or multiple sourcing
Solo sourcing approach
Occurs in a situation when there is only one supplier of the materials. The case of monopolistic
Single sourcing
Is a situation where there are a number of suppliers and the company decides to source from only one
supplier, with the intention of creating a close collaborative relationship.
Advantage: It helps to maintain traceability and food safety.
Disadvantage: It has the risk of disruption
Multiple sourcing
It is whereby the company prefers to have flexibility for responding to strategic consequences of source failure
or for having more negotiating power in the relationship.
Disadvantage: create quality and control issues
(d) Partnership sourcing
Here, the supplier provides the customer with extensive access to its
operations and management systems.
(f) The government set aside KSH 3 billion (USD 27.9 million) to be injected
into the economy as seed capital for a scheme to provide affordable credit to
small and medium enterprises (SMEs).
(g) The government was to spend KSH 3 billion (USD 27.9 million) to supply
farm inputs through e-vouchers in an initiative targeting 200 000 small scale
farmers. The package aims to cushion farmers from the effects of adverse
weather and to secure food supply chains in the post COVID-19 period and
beyond (in addition to opening up the supply chain, as noted above). KSH 1.5
billion (USD 14 million) will be set aside to assist flower and horticultural
producers to access international markets.
Policies to offset the effect of COVID-19 on food supply chain
(a)Keep international markets in agriculture and food products open,
transparent and predictable
(b) Minimize the avoidable trade costs of measures to prevent the spread of
COVID-19
(c) Address labour constraints in the food supply chain
(d) Ensure health and food safety throughout the food chain
(e) Facilitate the movement of food products – including through alternative
channels
(f) Ensure the food and nutrition needs of vulnerable populations are met –
now and in the future
END