Supply Chain Logistics in
Agri-business Sector
Annapoorna. R.
A supply chain is a
network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials
into intermediate and finished products, and the distribution of these
finished products to customers. Supply chains exist in both service and
manufacturing organizations, although the complexity of the chain may
vary greatly from industry to industry and firm to firm.
Below is an example of a very simple supply chain for a single product,
where raw material is procured from vendors, transformed into finished
goods in a single step, and then transported to distribution centers,
and ultimately, customers. Realistic supply chains have multiple end
products with shared components, facilities and capacities. The flow of
materials is not always along an arborescent network, various modes of
transportation may be considered, and the bill of materials for the end
items may be both deep and large.
Supply chain management is typically viewed
to lie between fully vertically integrated firms, where the entire
material flow is owned by a single firm, and those where each channel
member operates independently. Therefore coordination between the
various players in the chain is key in its effective management. Cooper
and Ellram [1993] compare supply chain management to a well-balanced and
well-practiced relay team. Such a team is more competitive when each
player knows how to be positioned for the hand-off. The relationships
are the strongest between players who directly pass the baton, but the
entire team needs to make a coordinated effort to win the race.
Supply Chain Management is attracting increasing attention in
agribusiness worldwide. Growing consumer concerns over food safety and
quality together with retailer demands for large volumes of consistent
and reliable product are driving the need for closer supply chain
integration.
The increasing development of collaborative marketing ventures within
agribusiness supply chains appears to be a global phenomenon. Changing
consumer preferences, food safety legislation, competitive pressures and
the market share dominance of large retailers together with the
rationalisation of their supply bases are driving supply chain
innovation and encouraging greater vertical and horizontal coordination.
With changes in vertical relationships in agribusiness and the
introduction of new technology requiring identity preservation,
logistics is an expanding area of research in management.
Several other characteristics of the food and agribusiness industries,
like player fragmentation, high demand fluctuations and the existence of
many distribution channels, provide the incentive to implement
industry-wide e-commerce strategies that will consolidate and optimise
the supply chain, decrease the response time and increase the geographic
reach of supply, resulting in smoother demand fluctuations.
Logistics in Food and Agriculture
Changes affecting the flow and storage of goods and services in food and
agribusiness have been in motion for a long time, but the cumulative
affects have become most visible, lately. Let us consider separation and
realignment of activities associated with the industrialization of
agriculture. Highly specialized production units, such as the commercial
beef feedlot, the hog integrator or the grain farm, have replaced the
traditional general farm that fed homegrown crops to livestock. While
separation and realignment has increased the need for transportation
services, the cost reductions in transportation and communication have
made those realignments more feasible, especially when combined with the
economies realized with large scale specialized production. Accompanying
that industrialization has been a systems approach to management, first
within the firm, but then to the whole supply chain. Integrators in
poultry and pork production realized a total systems management approach
by vertically owning virtually all the steps in the supply chain and by
exercising control through producer contracts over that which they do
not own. By controlling the total supply chain, they are better able to
meet consumer specifications of quality, especially product consistency.
Elsewhere supply chain management is even when financial vertical
ownership is infeasible.
For example, non-integrated pork producers are working through
cooperatives and other arrangements seeking to obtain similar
efficiencies and product quality control. The beef industry realizes
that to increase demand it must assure the consumer of a more lean,
tasty, consistent product, and that requires coordination from
conception to the retail shelf.
Various groups and firms in the industry are using alliances, contracts,
advanced information technology and other supply chain management tool
in an effort to provide the product consumers prefer. Because the supply
chain for beef is longer than that for chicken or pork, those
coordination arrangements are necessarily more complex and difficult to
manage and can be expected to continue to evolve significantly in the
coming years.
Products of biotechnology are replacing commodities, and as such, must
be segregated from the commodity it replaces in order to provide added
value to the consumer and to reward the supplier. High oil corn, for
example, is better suited for certain applications and in certain
markets where animal fats are less available and more expensive. In
order to capture that value, the grain must be segregated from other
corn— its identity must be preserved. This leads to new problems of
materials handling, transport and exchange, which raises questions of
the value of those new grains. While multinational grain companies, now,
are handling identity preserved grains, the problems of efficiently
handling such grains are far from being resolved. Furthermore, seed and
biotechnology companies continue to explore supply chain arrangements
that will allow them to capture more of the value created by their
biotechnology.
Logistics is integral to the whole area of supply chain management. Key
to supply chain management is the physical and informational flows to
meet consumer requirements and to provide value to the firms involved.
Supply chain coordination can be obtained through means other than the
spot markets or vertical ownership, such as through long- or short-term
contracts. If contracts are used there are issues of monitoring those
contracts to safeguard the interests of the principal relative to the
performance of the contracted agent. At the same time, the loss of open
markets means the loss of valuable management information that must be
acquired in another fashion, such as through benchmarking or estimating
competitor’s costs.
Information technology, by offering cheaper and more powerful
communications and data collection and processing, is rapidly changing
the way business is done up and down the supply chain, and it offers new
tools to address opportunities once considered infeasible. A simple
example is the electronic ear tags for cattle. The ear tag makes it
possible to track the husbandry and performance of an animal all the way
from birth to slaughter and to share that information back to those who
participated in the production of that animal. That makes it possible to
reward participants for the value they created.
Another is the smart card for recording grain shipments. Business and
economic models to take advantage of these advances are still evolving.
ECR or Efficient Consumer Response is the food industry’s response to
the threat from Wal-Mart Stores, a leader in business logistics. ECR
involves the use of information technology and alliances to connect food
retailers and manufacturers to deliver product at the right time and at
the right location at the least cost.
The agri-business companies ADM, Cargill, Cenex Harvest States, DuPont
and Louis Dreyfus announced the formation of Pradium, a separate company
to provide online business-to-business marketplace and information for
all agricultural commodity traders, regardless of size. The impact of
that announcement was major. Rooster.Com announced that Andersons Inc.,
Bunge Corp., IMC Global Inc. and Louis Dreyfus Group had become their
strategic investors.
Logistics plays a critical role in the sale of agricultural products.
Escalating congestion impose a threat to the continuity of the
agribusiness. At the same time, market developments demand the
agricultural supply chain of the future to respond in a quick and
high-frequent manner to changing market needs. Products would have to be
delivered within a manageable and reliable lead-time to a great
diversity of outlets.
The market aside, the government and society also exert their share of
the pressure. This has resulted in setting stricter regulations to
reduce the demands on the environment, the space and living conditions.
The transport of agricultural products would have to be organised more
efficiently to conform to a higher utilisation of loading capacity, and
environmental-friendly concepts would have to be found to enable the
transport of agricultural products to pursue its course.
If logistics can accomplish its role efficiently, it can help, on the
one hand, to cater to the demands of the consumer, and, on the other
hand, to reduce unnecessary transport kilometers and the demands on the
environment, space and living conditions. An example is the bundling of
deliveries by different suppliers. This can result in a high frequency
of deliveries to retailers, as well as a reduction in transport
kilometers. In this study, a model will be developed for the role of
logistics in 15 years' time comprising the following interlinked
building blocks: quality-driven logistics, stocks in transit,
cross-docking, and joint distribution facilities. Adjacent developments,
such as a more efficient use of road transport and the alternative
transport modes - rail, inland waterways and pipelines - play an
important role in further solving the congestion problem.
Quality-driven logistics is necessary to tackle the demands of customers
with regards to customization, quality guarantee and product
information. An essential aspect is an intelligent tracing and tracking
system and the use of intelligent load carriers. Tracing and tracking
systems would not only enable the correct amount of goods to be located,
but also that which is of the right quality. Or at least, in such a way
that by control of the storage conditions at the level of the load
carrier, the right quality can be guaranteed at the time of delivery.
In order to also provide for the other logistical demands of the future
(responsiveness, high frequency of delivery, controllable and reliable
lead time, and involvement of a great diversity of outlets),
time-related concepts play an important role in agricultural supply
chains. If goods are already sent before the customer actually places an
order, the distribution network will comprise an assortment of products
('stocks in transit'), which could respond to and has a high frequency
reaction to the demands of the consumer. Speeding up or delaying their
transportation can realize a controllable and reliable lead-time. The
stock is based on sales forecasts derived from aggregated historical
point-of-sale data. The actual orders would be automatically placed on a
high-frequency level and drawn upon based on current point-of-sale data.
To keep the stocks in transit to a minimum, a wide coverage of outlets
has to be involved. The application of cross docking and the use of
joint distribution facilities would help to broaden this coverage. The
application of cross docking would shorten the lead-time and therefore
increase the 'depth' of this coverage (due to a shorter lead time, more
customers can be reached in time). The application of joint distribution
facilities increases the 'breadth' of this coverage (due to more
flexibility in the distribution, more customers can be reached in time).
City distribution centers (SDC's) are an example of an intensive form of
co-operation in which storage and transshipment facilities fulfill a
public function.
The underlying principle in time-related concepts is the combining of
cargo-loads. While this is necessary in the face of more rigorous market
demands, the bundling of cargo-loads contributes also to the reduction
in the number of transport flows. Moreover, denser flows make the
setting up of measurement points for objective quality measurements,
cost-wise speaking, more easily attainable. The latter is a necessary
condition for quality-driven logistics.
The application of the above logistical concepts within agricultural
supply chains requires the development of knowledge, which is currently
lacking, and the harnessing of existing know-how. In quality-driven
logistics, sensor technology and ICT for objective quality measurements
and quality change models have to be incorporated into an intelligent
quality-driven tracing and tracking system.
To achieve this, research has to be carried out to enable the entire
assortment of products to be subjected to objective quality
measurements, quality change models, interaction among themselves, and
an optimal harvesting time. It is important that this knowledge
development takes place in two steps. Firstly, a device, which makes use
of existing know-how, has to be developed and implemented. Thereafter,
this device will form the basis for incorporating new and
to-be-developed knowledge.
The concept of stocks in transit requires the development of a method
for assigning products to outlets, and a control concept that can speed
up or delay the transport flows and maintains a stock policy.
Cross docking requires the automatic transshipment of goods. Needed in
this aspect is the standardization of load carriers, and an
IT-infrastructure with a uniform barcode system for goods. The
implementation of cross docking requires the use of point-of-sale data.
The fact that different incoming streams would be bundled in
cross-docking underlines the fact that research is needed to find out
the interaction among products.
Before joint distribution facilities can be realized, the
organizational, financial and juridical consequences have to be studied.
In particular, the combined transport of different cargo-loads would
mean a better utilization of loading capacity for goods transport and
with it, lead to a reduction of the demands on the environment, space
and living conditions. It is also evident that research has to be
carried out to investigate the relationship between and the traceability
of products.
The knowledge lacking for the harnessing of alternative modalities is
the standardization of load carriers, the development of faster
transshipment techniques, and the juridical, financial and
organizational aspects. The analysis of these non-technological aspects
is of great importance for the realization of a new transport and
distribution infrastructure.
The modern consumer demands high-quality products, in broad assortments
throughout the year, and for competitive prices. Society imposes
constraints on companies in order to economize on the use of resources,
ensure animal-friendly and safe production, and restrict pollution.
Together with technological developments and increased international
competition, these demands have changed the production, trade, and
distribution of food products beyond recognition. Demand is no longer
confined to local or regional supply. The food industry is now swiftly
becoming an interconnected system with a large variety of complex
relationships. This is changing the way food is brought to the market.
Currently, even fresh produce shipped from halfway around the world can
be offered at competitive prices. These developments are accompanied by
national and international regulations and legislation in the area of
food quality and safety.
In response to these changes, business strategies must now focus not
only on traditional economical and technological interests, but also on
topical issues such as the safety and healthfulness of food products,
animal friendliness, the environment, etc. To effectively address
paradoxical demands facing businesses, many problems and opportunities
must be approached from a multi-disciplinary perspective, and trade-offs
must be made between different aspects of production, trade and the
distribution of food.
Authored by
Annapoorna. R.
annubdk@yahoo.co.in.
National Institute of Agricultural Marketing (N.I.A.M)
Bambala, Kota Road,
Jaipur, Rajasthan- 303906Jai-Kisan
Jai-Hind
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