How do consumers respond to promotions on fresh meat

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South Australian Food and Wine Value Chains How
Can Agricultural and Resource Economists Add
Value?Andrew FearneProfessor of food
marketing supply chain management Kent
Business School, University of Kentand Adelaide
Thinker in Residence
Australian Agricultural and Resource Economics
Society April 30th, 2008
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Contents

• Overview of value chain thinking
• Value Chains
• Value Chain Analysis
• Value Chain Management
• Case Study
• Discussion

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Value Chain Thinking
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Sustainable competitive advantage

• Allocation and utilisation of resources that is
  hard for others to contest and even harder to
  replicate
• Add more value (effectiveness)
• At lower cost (efficiency)
• Faster than the competition (responsiveness)
• Responsibly (CSR or enlightened self-interest!)
• Environmental
• Economic
• Ethical

holistic and multi-dimensional
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Elements of value chain thinking

• Value chains Who
• Organisational architecture and governance
  structures
• Economics (SCP, NIE)

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Value Chain
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Supermarket value chains
Vertical co-ordination becoming the preferred
model for commodities and own label products
Paradoxically, powerful buyers are becoming
increasingly dependent on fewer, larger, more
sophisticated? suppliers
Horizontal co-ordination becoming increasingly
important upstream
Source Duffy Fearne, 2003
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Elements of value chain thinking

• Value Chain Analysis What
• Diagnosis
• Process engineering and operations management
  (Womack Jones)
• lean thinking continuous improvement

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Value Chain Analysis

• Scope for improvement everywhere but often hard
  to see (particularly when nobody is looking!)
• Need to find ways to draw the attention of
  different stakeholders to the opportunities for
  improvement at different stages in the supply
  chain
• Value chain analysis can be an effective way to
  extend the line of sight
• Analytical tool
• Communication tool
• Catalyst for change
• Seeing the whole

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Value Chain Analysis

• Multi-dimensional diagnosis of the current state
• Material flow (what?)
• categorisation of activities (in the eyes of the
  consumer)
• wasteful, necessary, value adding
• Information flow (how?)
• basis for decision-making (strategic
  operational)
• Relationships (why?)
• Trust, commitment, communication (within and
  between organisations)
• Identification of improvement projects (future
  state)
• Implementation is a collective responsibility and
  the benefits must be shared
• Silo solutions will always be sub-optimal and
  will not deliver sustainable competitive advantage

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Elements of value chain thinking

• Value Chain Management How
• Process integration (Lambert et al)
• Strategy, OB, HR, psychology, geography,
  Management Science, Food Science Technology...

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Value Chain Management Integrating and Managing
Processes Across the Value Chain
Manufacturer
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
Supply Chain Business Processes
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
SUPPLIER RELATIONSHIP MANAGEMENT
PRODUCT DEVELOPMENT AND COMMERCIALISATION
RETURNS
Source Adapted from Douglas M Lambert, Martha C
Cooper and Janus D Pagh, Supply Chain
Management Implementation Issues and Research
Opportunities, The International Journal of
Logistics Management, Vol 9, No 2 (1998) p2
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Value Chain Management

• Collaborative innovation within and between
  businesses in the value chain, the purpose of
  which is to improve the competitiveness of the
  value chain as a whole
• Development of new (value added) propositions for
  distinct customers and targeted consumer segments
• What we do output
• Process improvement for existing
  products/services beyond organisational
  boundaries
• How we do it input

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Value Chain Management
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Value chain management fundamental enablers

• Strategic alignment
• Drives resource allocation and process
  integration
• Value chain visibility
• Information flow (extends the line of sight)
• Relationships
• Inter-personal (inter and intra-organisational)
• Communication (strategic and operational)
• Trust and commitment (asset specificity)
• Consumer insight
• Value propositions and value chain design
• Collective responsibility

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Case Study
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Houstons Farm
Houston's Farm first recipient of Woolworths'
bursary Tasmania's Houston's Farm has been
awarded 100,000 by Woolworths-money it will use
to develop a blueprint for analysing the carbon
footprint of Australian-grown fresh produce.
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Packaging (V)
3rd Party Logistics (N)
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
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Packaging (V)
3rd Party Logistics
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
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Packaging (V)
3rd Party Logistics
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
Relationship Strength Red Weak Orange
Basic Green Strong
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Packaging (V)
3rd Party Logistics
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
Relationship Strength Red Weak Orange
Basic Green Strong
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Impact

• Houstons now measuring more aspects of
  production
• change process accelerated because it highlighted
  what needed to be changed
• company would be leaner as it grew
• focusing on consumer research as the basis for
  consumer focus and had employed a data analyst
• company re-focused its RD from 60 products to
  about seven four of which were new leaves to
  which Houstons had the IP rights
• able to leverage their relationships better
• Coles and Woolworths now bought in to
  co-innovation and were more reliant on Houstons
• Houstons now the sole supplier of baby leaf to
  Coles (Harvest Freshcuts dumped)
• RD and NPD operations now the responsibility of
  one manager
• Company introduced into new networks of SCM
  expertise
• Coles have asked what they could do better to
  help Houstons!
• The process doesnt end

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Case Study 2 Coles-Simplot (frozen vegetables)

• Objectives
• Assess the capacity of the Coles-Simplot
  processed vegetable value chain to innovate
• to improve the efficiency and effectiveness of
  existing processes and to introduce new products
  and services that consumers value
• Identify improvement projects to enable the
  Coles-Simplot vegetable processing value chain to
  develop collaborative solutions for sustainable
  competitive advantage
• Provide generic lessons for the Australian
  vegetable processing industry as a whole

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Methodology

• 76 Semi-structured interviews with value chain
  members
• Input suppliers seed company, seedling producer,
  agronomists, contractors
• Growers
• Tasmanian Farmers and Growers Association
• Simplot field staff, factory staff, Head Office
  supply chain, HR, sales and marketing
• Logistics providers
• Coles buyer, category manager, consumer insight
  manager, supply chain manager, store managers
• Consumer survey (1,000 telephone interviews
  across 6 capital cities)
• Other materials (copies of contracts, in-house
  reports, production, sales and waste data)

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Analysis

• Content analysis for preliminary findings
• Validation by repeat interviews and feedback to
  chain members
• Identifying and scoping chain improvement
  projects
• Final reports
• Generic
• Coles
• Simplot
• Growers

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Consumer Survey
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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
Relationship Strength Red Weak Orange
Basic Green Strong
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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Relationship Strength Red Weak Orange
Basic Green Strong
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Relationship Strength Red Weak Orange
Basic Green Strong
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
Relationship Strength Red Weak Orange
Basic Green Strong
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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Relationship Strength Red Weak Orange
Basic Green Strong
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
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Headline Findings

• Isolated examples of functional good practice BUT
  too much unmanaged variability
• Strained relationships between key players
• Information flows too often fractured or weak
• Valuable data sets unused
• Low levels of process integration
• Low levels of innovation
• Commodity focus means costs are the key to
  profitability, but changing consumer behaviour
  could represent value creation opportunities

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Contractors
3rd Party Logistics
Agronomists
Field Service
Simplot HQ Marketing, Logistics, NPD
Relationship Strength Red Weak Orange
Basic Green Strong
Material Flow W Waste N Necessary but non
Value-adding V Value-adding
Information Flow Weak . . . . . .
Partial Strong
Balance of Information Flow Equal Unequal Uni-dire
ctional
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Conclusions
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Conclusions

• Status Quo is unsustainable
• Geographic location
• Business structure
• Resource constraints
• The SA food and wine industry is on a journey to
  where?
• Is there a strategic vision that is aligned (with
  whom?)
• Lack of collaboration (trust, commitment)
• Poor information flows (particularly upstream)
• Limited consumer insight
• Inefficient and ineffective allocation of
  resources

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Conclusions

• There are no blueprints or quick-fixes for
  the lack of profitability upstream
• It is every bit as challenging to extract
  additional value from the market as it is to
  extract extra output from the land or the factory
• Strategic approach to value chain management
  shifts the emphasis from internal processes to
  external relationships and the integration of key
  business processes with key customers and key
  suppliers
• Innovation potential constrained by existing
  processes and capability of stakeholders to adapt

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• Thank you!