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7/31/2019 Nature and Scope of AgriFood Supply Chain Dynamics
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Nature and Scope of AgriFoodNature and Scope of AgriFoodSupply Chain DynamicsSupply Chain Dynamics
Tom Sporleder
Presented at FAMPSConference May 4-5, 2005
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Agenda
Schematic approach to defining a supplychain
Highlight the importance of perishability
and differentiation in commodity supplychains
Present conceptual framework for supplychain analysis Supply chain system
Decision scope
Network environment
Classify major supply chain types
Comments about dynamics andheterogeneity
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Motivation for Means to BetterUnderstand Supply Chains andNetworks
Analysts must understandcomplexities relative to information& knowledge
Cascading events:Biotechnology
Food safety
Animal welfare
Decreased costs of information flow
SHIFT IN
BASIS
OF
RIVALRY
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Intellectual Capital vs.Intellectual Property
Capital is thebroader concept
Property is a
class mostly ofthe intangiblesof a firmBrand equity
PatentsLicenses
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F a r m P r o d u c t i o n
F a r m I n p u t s a n d
M a c h i n e r y
P r o c e s s i n g
W h o l e s a l i n g a n d
R e t a i l i n g
F o o d S e r v i c e
( H R I )
F o r e i g n
E x p o r t
D o m e s t i c
E x p o r t
A t H o m e
C o n s u m p t i o n
A w a y f r o m H
C o n s u m p t i o n
Supply Chain ComponentsFood and Agriculture-Related Cluste
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Self-distributing Stores:
National Chains
, stores11111
in ,1111
Median selling area
, sq. ft.11111
Wholesaler-supplied
Stores:
Independents
, stores in ,11111 1111
Median selling area
, sq. ft.11111
Food Wholesalers:
Super Valu,
C&S Wholesale
National Brand
Food Manufacturers:
Campbell Soup, Kraft
Heinz, Kellogg
Small Food Processor
without Significant
Brand Equity
Distribution WarehouseAffiliated with a
National Grocery Retailer
DSD
Grocery SupplyChain
Private Label
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Interdependencies in SupplyChain
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Growth in AgriculturalContracting
Source: ERS, USDA
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Products Mapped in theDependency/Differentiation Space
Sequential
Dependency
Differentiated
Reciprocal
Dependency
Generic
Dole Canned Peaches
Private Label Pickles
High Oil Corn
Pharmaceutical Corn
Dole Bagged Salad
Tyson Chicken Breast
Organic Sweet Corn
Soybean Oil
No, Yellow Corn1
Baby Greens
Fed Cattle
Raw Milk
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Typical Transaction GovernanceMapped in
Dependency/Differentiation Space
Sequential
Dependency
Differentiated
Reciprocal
Dependency
Generic
* Specification buying
Under Contract
* Just-in-time deliveries
*Joint ventures
Seasonal Contracts
* Long - term contracts
* Strategic partnering
*Ownership integration
* Buffer Stocks
* Cash Market
Transactions
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Supply Chain Bullwhip EffectDefined
The bullwhip effect refers to the
phenomenon where orders to thesupplier tend to have largervariance than sales to the buyer(demand distortion) and the
distortion propagates upstream inan amplified form (varianceamplification)
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The Bullwhip Effect in SupplyChains
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Supply Chain WithoutBullwhip Effect
Customer demand forecast = 10 units
Suppliers Producers Distributors Retailers
Products &
Services
Products &
Services
Products &
Services
Information
Cash
Key: = Inventory Levels
10 Units 10 Units 10 Units
10 Units 10 Units 10 Units
Retailers are selling product at a constant rate and price. Firms along thesupply chain are able to set their inventory to meet demand.
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Supply Chain Bullwhip Effect
Customer Demand forecast = 20 units
SuppliersProducers
Distributors
Retailers
Products &
Services
Products &
Services
Products &
Services
Information Flow
Cash Flow
Key: = Inventory Levels
160 Units 80 Units 40 Units
80 Units 40 Units 20 Units
As demand increases, the distributor decides to accommodate the forecasted
demand and increase inventory to buffer against unforeseen problems in demand.
Each step along the supply chain increases their inventory (double in this example) to
accommodate demand fluctuations. The top of the supply chain receives the harshest
impact of the whip effect.
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Amplified Bullwhip Effectfrom Reciprocal Dependency
Sequential
Dependency
Differentiated
Reciprocal
Dependency
Generic
Amplifie
d
Amplified
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Network
Environm
ent
Dec
isionScope
Supply Chain System
Chain
Production:-Firms
-Facilities
-People
-Physical
Processes
-Trade
Customs
-Information
Technologies
-Trade
Regulations
-Uncertainty
-Globalization
Chain
Governance
Structures
-Spot Markets-Contracts
-Alliances
Operations and
Control:
-Inventory-Dependencies
-Quality & Process
Control
-Structural and
Relational
Embeddedness
Supply ChainConcepts
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Network Embeddedness
Interdependency that developsfrom interfirm relationships
Two types:
Relational - strong or weak ties Structural - sparse or dense networks Interaction?
Better connected firms have a
competitive advantage
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Components ofNetwork Embeddedness
Network
Embeddedness
Relational
Embeddedness
Structural
Embeddedness
Ties Connections
Weak Strong Sparse Dense
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Supply Chain Classification
Chain master: supply chain managedby a domain firm
Chain web: individual firms move in
and out of multiple chains on anas needed basisChain organism: the chain competes
as one entity without a dominant
member
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Supply Chain Classification
Chain MasterDominant agrifood supply chain modelStrong in generating chain efficiency
Weak on incentives for learningChain WebComputer industry and smaller food
firms (without brand equity)
Strong when firms must compete inmultiple chains
Weak on incentives for learning
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Supply Chain Classification
Chain OrganismStrong in creating chain efficiency
Strong in creating incentives
Toyota supply system as key example(Dyer and Nobeoka) Network-level KM systems exist Intellectual property rights reside at the
network level and not at the firm level The creator of knowledge appropriates
100% of benefits in the short run
Trust is a key element
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Learning Supply Chain
An integrated supply chain that hasan added dynamic, agile ability tolearn from and respond to changingmarkets.
Added capacity: knowledge andintellectual capital held and appliedcollectively by the supply chain
Benefits:Greater responsiveness and flexibilityGreater efficiency
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Prerequisites for a Learning SC
The ability to manage knowledgeexists at the supply chain level.Capacity:
IT for explicit knowledge Human processes for tacit knowledge
Incentives through fair distribution ofreturns:
To motivate knowledge sharing To overcome classic coalition problems
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Application to Agrifood System
Agrifood examples LoSatSoy oil supply chain (King)
Lesson: Dominant actors control either thecritical production knowledge or the critical
end-consumer knowledge (chain master).
ECR initiative Lesson: Path dependency blocks knowledge
management and learning
Frito-Lay and Wyandot Foods ??More cases need to be explored.When is dynamic responsiveness
needed?
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Concluding Remarks
Dynamics are not uniform across supplychains
The role of spot markets tends to remain
robust in commodity or undifferentiatedportions of supply chains that rely onbuffer stocks for coordination
The bullwhip effect may lead to verticalinformation transfer within supply chains
Supply chains are complex at least 3dimensions: system, decision scope,network environment
Factors of embeddedness and brandequity are not well-understood but enrich
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Concluding Remarks
Two types of agriculture have emerged:cost-based and value added Supply chains coagulate to serve the unique
economic and logistical requirements of each Rapid movement to identity preservation and
traceback, motivated primarily by costminimization & inventory control incentives
Recognition of the chain master modelcould benefit analyses of supply chains(i.e. similar to principal-agent but moredimensionally-complex)
Much research remains: Testing of stylized facts Implications for supply chain and food firm
performance
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