Supply Chain Management Practices In China Food Industry Commerce Essay


World Bank research shows China makes more than 50 percent of the worlds cameras, 30 percent of its air conditioners and televisions, 25 percent of its washing machines, and nearly 20 percent of its refrigerators. But not many know that the food industry plays a big part in China's economy. China's food industry is expected to maintain rapid growth and will become a main driving force to China's economy. According to China Daily (2005) China's food industry is expected to maintain rapid growth over next decade to eventually become China's largest industry by 2015. However, China made food is under questioning from public. The 2007 pet food recall incident, the 2008 Chinese milk scandal, and many other food safety incidents, raised concerns food safety and have severely damaged Chinese international food trades. Domestically, public has immense trusting issue toward China made food. According to China Custom after the milk scandal, foreign milk powder import increased 220% in first quarter 2009.

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Many believe SCM is the answer to Chinese food safety issue. This paper is to study China food supply chain management practices. First some relevant Literatures will be reviewed. Then the problems with Chinese food supply Chain will be presented. A SMC framework is applied, followed by an investigation based on participants of food supply chain. The paper will finish with the consultation and discussion for a further research on the topic.

2. Literature Review:

Fink (1998) once said "A literature review is a systematic, explicit, and reproducible design for identifying, evaluating, and interpreting the existing body of recorded documents". Literature review is an important method to study China food chain, recently more and more literatures were written to study the Chinese food safety issues. More than 20 journals are viewed to study the topic. And the viewed literatures are divided into three categories: supply chain management, various types of food, and SCM frameworks.

2.1. Supply Chain Management

Morgan (1997) defined integrated SCM as: "the alignment of buyers, suppliers, and customers and their processes to achieve an advanced form of competitive advantage." There are numbers of literature tried to examine the link between supply chain management, organizational success, and the company performance. (Green, McGaughey, and Casey 2006 & Martin and Grbac 2003 & Mason 2003) Wang and Zhang (2008) studied Chinese food cold chain development. They pointed out that establish a comprehensive cold chain is essential to China's economy stabilization. They also analyzed the related issues but failed to find the causes of those issues. Small size food supply chain management was exercised during Beijing Olympic game. (Wu, Xia, Ji, Liu, Chen, Hu, and Gao 2010) A comprehensive modern control system was formed to provide safe food for Olympic athletes. However they mentioned that this system is limited to the game, as the loss attentions of Chinese government and the investment is difficult to expand and maintain.

2.2. Various type of food

J. Han, J.H. Trienekens, and S.W.F Omta (2009) employ a stratified random sample of 229 pork processors in eastern China to undertake a partial least squares analysis and find that integrated information technology and logistics management improve the quality management practices of pork processors. They emphasized that it is important to establish better supply chain management to solve the food quality and safety issues in the Chinese pork industry. Stringer, Sang, and Croppenstedt (2009) studied vegetable supply chain in China, but their focuses were on the supply chain itself. Brown, Longworth and Waldron (2002) failed to mention the importance of supply chain management in their study on the beef industry in China. Many other literatures researched different type of food supply chain. (Narrod, Roy, Okello, Avendano, Rich, and Thorat. 2009 & Lu, Trienekens, Omta and Feng 2008) many other literatures studied what the impacts are on food supply chains in China after it became a WTO member (Chen, and Shi 2003 & Huang 2002 & Dong and Jensen 2004)

2.3. SCM frameworks

In recent years, a few SCM frameworks have been developed. Global Supply Chain Forum introduced The Supply Chain Management Institute's framework "it considers supply chain management from a process perspective and helps illustrate the need to view SCM from a boundary spanning perspective that links functional and/or organizational entities." (Lambert, Cooper, and Pagh 1998)

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"The Supply Chain Council (2008) has developed the Supply Chain Operational Reference Model for the purpose of proactively modeling and assessing the relationships between the sequential stages of a supply chain." Similarly, the Supply Chain Consortium's Supply Chain Best Practices Framework (2008) provides "a supply chain mapping ability that allows managers to understand the various flows that are critical to SCM" (Stank, Frankel, Frayer, Goldsby, Keller, and Whipple 2001).

Newman (2009) proposed another supply chain management framework, which formed by four motivating domains and by four levels of supply chain integrations. He believes this framework could help firms to indentify the value of supply chain management initiatives and their impact on firm's strengths and weaknesses

Roth's (2008) research focused on food supply chain quality management. Her six Ts framework offers a deeper understanding of the root causes and robust solutions for the food safety issues. These six Ts include (1) traceability, (2) transparency, (3) testability, (4) time, (5) trust and (6) training. She believes through her six Ts, food safety can be efficiently controlled.

3. Problems, relevant studies and framework

Tan (2007) discussed this issue in his "the Sustainability of Food Supply Chain in China: Review and Comment". He emphasised that there are two main sets of problems within China food industry. 1) Problems in the various links of food supply chain, and 2) Problems with various types of food. In this sector the China food chain statue will be presented based on the studies by A.T. Kearney (2007).

3.1. Problems:

The first set of problems is extremely important as it examined the risks in different supply links. In the first link, the link of primary production, Tan (2007) pointed out that The Chinese agricultural production process is lack of control, too much fertilizers, pesticides, and animal medicine are applied, resulting in both environmental pollution and residue of detrimental materials in food. Roth (2008) also found this problem in her research paper, "Many Chinese farmers also are not highly educated in the use of fertilizers, and they sometimes use pesticides and other chemicals, such as DDT in order to improve crop output and labor productivity". And more officially The U.S. Department of Agriculture has ranked China and some another countries as the highest users of fertilizer per hectare in 2005. (Calvin 2006).

The link of food processing describes the problems during the foods processing. Most of Chinese food processing factories lack of size. According to Tan (2007), many Chinese food processing factories are near the source of food, and are small scale factories with ten or less employees or handwork workshops. Food safety is another concern in this link. Untrained employees, bad working environments and lack of sanitary could result in food safety issues.

There are three main retail channels of food in China, supermarket, free markets of agricultural products, and food shops. Those channels formed the link of China food marketing. Ten years ago Chinese families' primary choice for food is from free markets. This type of channel had a big potential food safety problem, as the inspection mechanism was not fully established. Most of the foods from the free market were out of the scope of safety supervision. Recently some kind of inspective institutions were found. Based on Tan's (2007) report "Safety supervision institutions have been established for the free markets of agricultural products, but the markets are short of enough measures, facilities and personnel for quality and safety check." After china joined the WTO in 2001, international supermarket giants like Carrefour opened hundreds new supermarkets in China, which totally changed China food supply chain, supermarkets became the first choice for food ever since. The "supermarketization" growth rate sits at approximately 40 per cent annually, and the tens of thousands of supermarkets in China achieved sales of $71 billion in 2003. Despite fast growth, we all know that supermarkets have highest credit for food safety. Unfortunately in China, hidden danger of food safety still exists in supermarket. For instance, in 2006 Shenzhen launched a supermarket inspection to examine the food safety in supermarket. The inspection found 3.15% of the inspected pork contained Clenbuterol Hydrochloride, a banned chemical. The investigation also found 6.5% of vegetables sold at 28 supermarkets and 28 farmers' markets had excessive amounts of pesticides.

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The link of food logistics is another concern. This includes two types, delivery and storage. China faces the shortage of cold chain. Moriarty (2008) claimed "There is no real integrated distribution capability. For instance, there is no cold chain system of refrigerated trucks, warehouses and retail space that can guarantee cool temperatures for meats, vegetables, vaccines and similar products". According to a Grand Logistics report (2009) China has not yet formed the food cold chain system. The report shows more details situation, currently about 90% meats, 80% of aquatic products, and a lot of milk and soy products are still largely in the absence of cold chain. It also points out that the food industry's development mainly depends on the development of cold chain. From my own experiences, fresh milks are hardly available in China's supermarkets. Most of available milks are made with preservatives to keep the freshness. Except transportation, there is no easy answer for the China's food storages too. Tan (2007) sharply point out "The volume of food warehouses is not big enough, the warehouses are not reasonably distributed, and the size of the warehouses is generally too small." Although Moriarty's (2008) claim was not entirely correct, he did emphasize the importance of a cold chain for food supply chain. As in the absence of cold chain, food waste is severe. The supply chain waste is the biggest concern in this link, the food wastes, from unqualified transportations and insufficient storage, are enormous. Tan (2007) claimed that in 2002, the food loss during transportation in China is no lower than 75 billion US dollars. He even found that 70% of the retail price of those perishable foodstuffs like seafood and dairy products is used to compensate the cargo damage during circulation. Regardless of the authenticity of this finding, the food waste in this link worth more efforts to study on how to optimize this link of the supply chain, in order to reduce or even eliminate the food waste from transport and storage. Cold chain is the solution for food waste during this link, Research Report of Chinese Cold-Chain Logistic Industry (2009) shows that if a comprehensive cold chain establishes, shelf-life of the commodities can be improved by one fold, equivalent to the sales time of the commodities in the supermarkets. It also concludes that if the shelf-life of the nondurable goods can be extended three times, the losses of the supermarkets can be cut down by 30 to 50 percent.

A survey shows that about 40% of the domestic manufacturers for product quality control considerations, the more willing to self-refrigerated logistics operations; but there is still 60% of the companies want professional cold-chain third-party logistics services. Such as cold drinks, frozen food companies mostly want to partial and full outsourcing of logistics operations (Grand Logistics 2009)

3.2. Relevant studies:

From A.T. Kearney's analysis (2007), for an efficient national distribution network in China, more than $100 billion will be required in supply chain investment. A.T. Kearney believes it is the solution to fix the food safety process in China, but require collective actions.

The growing food safety concerns in China have changed Chinese consumers' behaviors. According to CIES food safety survey (A.T. Kearney 2007), in 2005 only 57% Chinese consumers willing to pay premium for safe food with large premium just 6%. But just 2 years later, the figure increased to 83% with large premium almost 15%. More and more people are willing to pay more for safe food. And more than 95% of Chinese consumers rank food safety as very important. This actually provides a great opportunity to establish a national end to end supply chain. By enhance the food safety along will generate $33 billion benefits per year, as the growing Chinese middle class populations are willing to pay 5% premium for safe food. Other benefits like reduce food waste are even higher. Roth (2008) argued "The lack of information technology and captured knowledge causes the trail to get murkier with each hand-off along the supply chain; and it opens the door for deception and other opportunistic behaviors." If a comprehensive supply chain management applied in China, those situations can be easily controlled.

A similar view is made by Johnson (2008). He found that "despite rapid development it is hard to make money in China and that a common belief in China is that the "ultracompetitive business environment" means companies cannot survive without breaking the rules. Companies that do use good business practices are seen to be at an economic disadvantage, the report said. One way to improve safety would be for suppliers to adopt comprehensive supply-chain-management practices that allow tracking of food from production to the table in a transparent way" Tan (2007) found that much food is produced illegally in unlicensed workshops without basic sanitary conditions. Various unimaginable deleterious foods escape governmental supervision and enter the market. He believes this is the primary source of unsafe food in China

3.3. Framework:

The Supply Chain Best Practices Framework is chosen, as it provides an integrated structure for defining, measuring and improving supply chain processes.  The framework establishes an end-to-end view that applies to all entities participating in extended, inter-company supply chains, including vendors/suppliers, manufacturers, distributors and end-user customers.

4. Research design:

As the time limit, and research from a long distant is relatively difficult, telephone interview would be the best research approach. The research targets are from throughout the food supply chain in China. As the Supply Chain Best Practices Framework is applied, finding people work for different integrants for the interview is important. These interviews are from

Source: famers

Make: food processing companies

Store: logistic company and warehouse

Deliver: food transport

Market place: free market, supermarket

22 calls were made in total; only five people were willing to do the interview. The sample number is small. And it needs to point out that the interviews lack of depth. Most of the phone interviews only lasted for a few minutes. A set of questions was prepared for the telephone interviews.

4.1. Interview recalls:

I firstly telephone interviewed a fish famer from Hubei province, named Liu Guofu. He told me that most of his fish go to the free/wet market, where his wife will help him to sell. He mentioned that there were some supermarkets approached him before, but he turned them down. When I asked him why, he laughed and said "supermarkets' offers were too low, the profit margin is very small. I would rather sell fish in free market. I do have a truck, my transportation costs are low."

But not every famer as luck as Liu, for those without their own transportation, they have to deal with the supermarket or food companies, which can collect food from their doorsteps. Wu Ailian, another interviewee, is a potato farmer from Hubei province. She mentioned that she had contract with a Wuhan potato chip company. During the harvest time, her potato will be collected by the company. The transportation used to collect potato is not own by the food company, but with a logistic company's logo on. Unfortunately, the general manager of this food company did not want to have the interview.

In order to continue the research, I found a similar food processing company in Wuhan. The sales manager Luo Xuejun, from Wuhan Yijiang Food Company, told me that their company was found in 1997. About two years ago the company successful established an inter - organizational supply chain system, they even use a SCM software to monitor the supply chain flows. He refused to tell me how much the company benefits from the supply chain management in monetary term, but did mention that the system saved a substantial amount of food wastes during the transport and storage. He claimed the company has its own trucks and a large cold food warehouse just outside Wuhan, but lack of refrigerated trucks. Finally, Luo expressed that in Wuhan even in whole China the food industry, companies have high defensive means to each other, and they tend to compete rather than work together. The collaboration of whole industry is hard to establish. This can be one of the biggest problems for forming a comprehensive supply chain management within the food industry. As A.T. Kearney (2007) demonstrated that to establish a national and end to end supply chain management requires full collaboration from each participant of the industry.

The fourth interviewee, named Chang Jiaren, is the service director of Wuhan Today Logistic Company, which is a middle size logistic company. The company's main client is Zhongbai Warehouse. The latter is a large supermarket group based in central China; it has more than 140 branches in central China. Chang told me that because Zhongbai Warehouse has grown too fast, the supermarket's logistic system is overloaded. So Zhongbai Warehouse outsourced part of its logistic to his company. The logistic company manage the physical flows like transport food from distribution centre to supermarket branches. Supermarket only cares if they can deliver the food to the right place at right time. The quality and food safety is not their main concern. Ivanaj and Masson Franzil (2006) defined logistics as "the management and control of physical and informational flows, either by internal means or by outsourced means along a chain from the input to the output encompassing all the operations of transport, stock, manufacturing, packaging, distribution and so on carried out for the customer's satisfaction and in optimized performance conditions for the company." It is clear that Zhongbai Warehouse's view on logistics differs from Ivanaj and Masson Franzil's view.

The final interviewee Xia Shuang is a branch manager of Zhongbai Warehouse in Wuhan. Xia has worked for Zhongbai Warehouse for more than 8 years. He experienced many major changes of the company. Take his store for example, at first, about 5% of foods were damaged during transport, and supply delivery often late than schedule time. If one type of commodity was sold out, it took days to refill. The information flow was extremely slow. But after China Joined WTO, ZhongBai created a grow miracle. It expanded rapidly only just the size, but also the acceptability for innovation. According to ChuTian News (2010) ZhongBai Group opened 20 new supermarkets in 2009, the annual sale revenue increased 25.4% to a total of 10.5 billion RMB. Xia said now his store everything is connected with compute. The computer connected to tills which records food flows and sends data to headquarter, next morning the food will be delivered on time to refill the store and maintain a sufficient level of commodity in the store. So food waste is minimized and out-dated products are rare in his branch. He told an interesting story happened just one month after ZhongBai introduced a complex supply chain management software, one day there was a blackout, all computers were down, but they had to continue serve customers without computers record the flow. When the power backed on next day, they found out that they have to close for one today to sort out the missed records, because without them, the distributing centre was unable to delivery refills as they had no idea what needed to be sent.

4.2. Findings:

Although some food companies and supermarkets have established certain degree of supply chain management, a national wide end to end supply chain management is still largely missing. Rural food chain lacks of order, food waste and food safety is considered as critical situation. Collaboration is urgently required. Recent 2008 Chinese milk scandal provides us with an insight look at the Supply chain management practices in China food industry. For a long time the source of the toxic melamine remains unknown. Without a food supply chain management, the traces of melamine are difficult to find. Finally official did found the source with the helps from some chemists. "It is not known where in the supply chain the melamine was added to the milk. The chemical is not water-soluble and must be mixed with formaldehyde or another chemical before it can be dissolved in milk." (Wong 2008)

4.3. Research limitation:

The interviewees are all from Hubei province and its capital Wuhan, and according to A.T. Kearney (2007) Wuhan is only a tier 2 city in the national food supply chain. If use this piece of research to represent China, the research would be weak. Many of ideal interviewees were unwilling to take the interview. And for those who did, appeared wish to end the interview as fast as possible except Xia Shuang from Zhongbai Group. So the interviews lack of depth. This is also the problem for many other who wish to research Chinese market, as lack of press freedom in China. Some people feel uncomfortable with strangers interview them.

5. Conclusion and discussion:

This research applied the Supply Chain Best Practices Framework to study the Supply chain management practices in China food industry. Despite the research limitation, the paper provides a full picture of the China food supply chains. It is main concern is how the supply chain management could solve the Chinese food safety problem. And the paper also tries to find a standards baseline of the China food supply chains.

Tan (2007) claimed "with the progress of economic development and rise of people's consumption affordability, the influence of the demand side on food safety and quality would become stronger, and the market order would improve under the pressure from the consumers. In certain sense, it is the consumers themselves who chose what degree of food safety" however I believe food safety is human's fundamental right, no matter what degree of economy is

The further research should focus on getting more information from more Participants of China food supply chain national widely.