Value Chain Management in Agribusiness ZAB108 Week 2

Welcome to Week 2

This week we will be exploring how a value chain is structured, its membership and the functions of the chain and its members.

However, before we do that, let’s remind ourselves about what we (hopefully) learned last week.

To assist with this, refer to the following link:

Value Chains versus Supply Chains | 15:00 mins

Summary Week 1

So, if I asked you to summarise, you would hopefully say….

A supply chain is a chain linking the supplier to the consumer but pushed by the supplier – decisions of stakeholders are made independently of others in the chain.
A value chain, however, is a collaborative chain that functions on consumer demand pull – collaboration is the key, where decisions are made in consultation with others in the chain.

And why are we studying Value Chain Management as part of Agribusiness?

Firstly, we need to learn how to create value along an Agribusiness chain.

Secondly, we need to learn how to grow the pie (more money for all).

Thirdly, we need to be able to create consumer value (know what they want and value).

If we recall the quandary from last week about who gets the extra money in the chain. The question is not about how much of the consumers’ money each chain participant gets. The question is actually....

Does each members share reflect the amount of value each member created and how much effort it took to create that value?

Value Chain Structure

So, let’s turn our attention to structure. For this, I would like you to think about a product. Just for this exercise – let’s use beef cattle, and let’s think about Powranna feedlot. Powranna feedlot don’t breed cattle – but they do grow cattle for both the domestic and export market. In this beef cattle value chain, there is a range of people and services involved.

In value chain circles, looking up and down the chain is often referred to as upstream and downstream. Starting with the steers that are purchased, we have the breeders, the feed suppliers, and transport and vet services upstream. At the site, there is also the feed suppliers and vet services. Downstream, we have the buyers, transport, abattoir, transport, wholesalers (butchers), retailers (butchers/supermarkets) and then possibly restaurants and domestic customers. In between all of these is finance. The money flows, but it is also supplemented from outside the chain (i.e. banks)

A good way to think about how this all works is to grab a pile of sticky notes, and write each member of the chain on a separate sticky note. The next thing is to put them on a large piece of paper in some sort of formation. The next step is to start drawing lines between all the dyads (direct connections) to show how all the members are connected.

Before we do this – what’s a Dyad. Well a Dyad is a group of two. So, simple connections are between 2 groups or 2 members of the chain. In a supply chain, the following shows a number of Dyads.

In a supply chain the characteristic of the Dyad is matched with the following performance level.

The performance level is directly related to the drivers behind ‘innovation’ for example. A performance level of ‘low’ for innovation reflects that whilst a product or service is supplied, and there is a medium reliability, why innovate. Isn’t it said that it’s best to stay with the devil you know than the devil you don’t know.

Id like you to think about the other characteristics and record the reasons you think that the performance levels shown match the characteristic. Please go to your ePortfolio to do this.

Let us now get back to what our diagram of a simple beef value chain might look like….

Now you might start to connect the dots – in other words draw lines between all those members in the chain that you think may be connected.

Then you might come up with this:

Starting to look a bit more complicated isn't it?. And there are many connections not even showing on this diagram. For example, transport is a major connector between just about all members of the chain.

So, let’s now start breaking the chain up into it's components.

The first thing we need to do is identify each member – which we’ve done already. Well, at least a simplified version. The next thing is to identify the function of each member, and the flow of product or services – who are they connected with? The easiest way to do this is to write down each member and then list the function they perform in the chain. To simply say they are supplier or consumer doesn't really cut it as we now know that each member of the chain is both.

I’ll start by showing Breeder.

Breeder

  • Supplier of product (i.e. steers)
  • Customer of feed
  • Customer of transport
  • Consumer of Vet services

In your WordPress, list all the members of the chain and then show who they supply and who they are supplied by.

Let’s take a step back and think about the functions of each member in terms of functions in the value chain as a whole. Remember that value chains are a system that contains sub-systems – a change in one area can affect another. Its human nature that we want to put things in boxes. Name it up and it becomes clear – well, as clear as it can be. Play the following animation. It will help us to move to the next topic.

The Value Chain Concept | 4:07 mins

When the term value chain was introduced by Porter, the generic model was based on a manufacturing organisation with five primary functions; inbound logistics, operations, outbound logistics, marketing and sales and service (Porter, 1985). A value chain within an organisation runs efficiently and effectively when all functions operate at their optimum level. Let's look at these functions in terms of an agribusiness and consider the business as supplying a product or service.

Inbound logistics

Inbound logistics includes all the ways in which agribusinesses receive and store raw materials that are needed to make their product or service, including distribution for use.

Operations

The next function of a value chain is operations. Operations takes the raw product supplied, stored and/or distributed from inbound logistics and creates the product. For example, in the beef feedlot, operations includes feed supply and veterinary services. Both of these can influence the successful growth of the cattle. Efficiency in operations equates to savings and overall value to the chain.

Outbound Logistics

When the cattle achieve the right size and specifications, the next phase is outbound logistics. In the case of the feedlot, this is when the animals leave the operation centre and transported to the local abattoir or distributors.

Department of Agriculture and Rural Development Breeding Centre, Dien Bien Province, Vietnam

Marketing and Sales

Saturday morning Organic Market, Vientiane, Lao PDR

This is the fourth function of a value chain. Without getting the word out to consumers, the product remains unknown. In the case of fruit and vegetables, retailers/supermarkets may choose to brand themselves in a particular way. This includes advertising of the product and all that is associated with the production of the product, i.e. ethics, growing region, climate, relationships and people.

The Fresh Food People | 1:41 mins

Service

The final function of a value chain is service. Service can be defined as:

the action of helping or doing work for someone

In a value chain context, service is the support that consumers and suppliers need to ensure a smooth and efficient transition from raw material to final customer. Service also includes training and work health and safety implications. For those that came to DobMac in term 1, Mark Dobson talked about customer service and that it was better for their business to have someone who new the product 'from the factory' to ensure that problems were fixed the right way. He was happy to fly staff to New Zealand to deal with an issue. His reason was that retailers have many products, so cannot be specialist in all. Consumers get to know this and value the 'extra mile'.

Agribusiness Management Field Visit to DobMac | 1:36 mins

So, ultimately, the service component can increase the value of the final product. It's not always about the price.

Margin

Although not specifically a primary function of the value chain, margin or profit is the reason stakeholders are involved in the value chain. As we explained earlier, the margin that each stakeholder receives is relative to the value they provide. Next weeks content will explore value creation in value chains as well as enablers and barriers to the successful operation of a value chain.

Summary

Over the last 2 weeks, we have discussed the difference between supply chains and value chains, the management of value chains, their structure, membership and functions. Before the next topic, which is about creating value, we would like you to log into Canva via the following link. You will notice on the unit outline that after week 3 we have asked you to prepare an Infographic - basically a pictorial narrative of value chains. So, whilst the information is fresh, we want you to develop the skill in preparing a simple Infographic. You will need to log-in via a google account or facebook. Week 2 tutorial will be going through this in more detail. But why not get a head start!!

Then you too will be able to produce something like...

Kenyan Coffee Value Chain infographic sourced from http://theprepaideconomy.com/post/133339679913/coffee-value-chain-infographic-designed-by, accessed 8 May, 2017.

References and Further Reading

Bonney, L., Castles, A., Eversole, R., Miles, M. and Woods, M., 2015. Accounting for agriculture in place-based frameworks for regional development: A value assessment and development framework, and toolbox for building constructed advantage in agriculture based regions. Publication No. 15/002. Project No. PRJ-008839. Rural Industries Research and Development Corporation.

Collins R.C., Dent B. and Bonney L.B., 2015. A guide to value-chain analysis and development for Overseas Development Assistance projects. ACIAR Monograph No. 178. Australian Centre for International Agricultural Research: Canberra, ACT.

Council of Logistics Management. 1986. Proceedings Annual Conference, Anaheim, California.

Lambert, D.M. and Cooper, M.C., 2000: “Issues in Supply Chain Management”. Industrial Marketing Management 29, pp. 65-83.

Mentzer J.T., DeWitt W., Keebler J.S., Min S., Nix N.W., Smith C.D. and Zacharia Z.G., 2001. Defining supply chain management. Journal of Business Logistics 22(2), 1–25.

Porter, M.E., 1985. Competitive Advantage: Creating and Sustaining Superior Performance. University of California.

Credits:

Created with images by Brad.K - "Supermarket" • slightly_different - "apple red fruit" • rvacapinta - "Supermarket" • Meditations - "berry breakfast calories"

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