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Agrifood Supply Chain Management Management Essay

4506 words (18 pages) Essay in Management

5/12/16 Management Reference this

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Globalization, along with rapid demographic changes and modern regulatory and legislative implications, dictate the increasing demand for high quality and customized agrifood products. In this context, the design, development and operation of effective agrifood supply chains (AFSCs) has gained a pivotal role in modern management science. However, the volatility of weather conditions, the perishability of goods, the complex food safety regulatory environment, the changing consumers’ lifestyle trends, the environmental concerns and the plethora of involved stakeholders pose significant challenges towards the development of robust supply chains within the agrifood sector. In this manuscript, we provide a hierarchical decision-making framework that applies to all stakeholders involved in the design and management of AFSCs. More specifically, we first present the generic system components along with the unique characteristics of AFSCs that differentiate them from conventional supply chain networks. We then recognize the natural hierarchy of the decision-making process for the design and planning of AFSCs and provide a taxonomy of all research efforts as these are mapped on the relevant strategic, tactical and operational levels of the hierarchy. Our critical analysis demonstrates that the agricultural supply has entered a new growth era due to the recent trends in technology and regulations. However, very few studies examine the agrifood supply from a holistic view, but rather focus myopically on specific network echelons without considering the effects on the entire supply chain. Our analysis further allows for the identification of gaps and overlaps in the literature, as well as of critical future research areas.

Keywords: Supply chain management, agrifood sector, agrifood supply chain, hierarchical decision-making framework, taxonomy

1. Introduction

Developing appropriate global strategy for handling agrifood products to fulfill consumers’ demand while responding to ever-increasing changes of lifestyle and dietary preferences has become quite a complex and challenging issue. Specifically, diverse weather conditions, alternative uses of agricultural production, volatile global food demand and instability of commodities’ prices lead to a fragile supply of agricultural products that is expected to exceed its capacity limit in the forthcoming years. Agrifood supply has emerged as a critical issue for the international community. To that effect, developed countries are expected to increase their agricultural production and effectiveness in the agrifood supply chain (AFSC) operations in order to respond to the anticipated rise of 70% on the global food demand by 2050 (FAO, 2006; FAO, 2009; Nelson et al., 2010). At the same time, the agrifood sector, as one of the most regulated and protected sectors in the European Union (EU), has significant implications for sustainability such as the fulfillment of human needs, the support of employment and economic prosperity through export-led growth, the environmental impact, the eradication of poverty and the creation of new markets as dictated by the United Nations Industrial Development Organization (Humphrey & Memedovic, 2006). Furthermore, the European Commission (EC) is promoting great reforms to its Common Agricultural Policy (CAP) in order to respond to the plethora of the internationally emerging agrifood supply challenges (EC, 2010).

One of the most critical bottlenecks in agrifood sector is the complexity and cost-efficiency of the relevant supply chain (SC) operations. Modern, global agrifood networks require multi-tier supply chain management (SCM) approaches due to the increased flows of goods and information both upstream and downstream in the value chain and vice versa. These increased requirements are related to the emerging model of agrifood retail outlets (i.e. grocery retailers, fast-food and catering services’ providers etc), the need for vertical and horizontal integration, the great market segmentation, the plethora of differentiated product offerings, the diversification of market needs, the presence of multinational enterprises in the food processing and retailing sectors, and the branding of firms (Van Roekel, Kopicki, Broekmans, Boselie, 2002; Chen, Chen, Shi, 2003). To this end, SCM embraces the challenge to develop and deploy efficient policies tailored to the specifications of the modern, uncertain environment and subject to the constraints of local and cross-regional conditions with respect to logistics infrastructure, access to land and water resources, allocation of harvesting and processing areas, innovative and good-practice approaches, regulatory and techno-economic environments, and rapid transformation of food market characteristics.

Specifically, for developing competitive and sustainable AFSCs, a number of critical issues need to be tackled in order to create added value for all the involved stakeholders with respect to: (i) the unique characteristics of AFSCs that differentiate them from traditional networks, (ii) the decisions that should be made on the strategic, operational and tactical levels, (iii) the policies which are required to ensure sustainability of the agrifood systems, and (iv) the appropriate innovations which are required to foster radical advances and competitiveness within the changing AFSC context.

This is a first-time effort towards proposing a comprehensive framework for the design and management of AFSCs following to the natural hierarchy of the decision-making process. Thus, in this paper we identify the most critical AFSC management decisions and provide a synthesis of the existing state-of-the-art research and practices, as these are mapped on the developed hierarchical decision-making framework.

Specifically, in Section 2 we present the structure of AFSCs along with the particular moduli that differentiate them from traditional supply chain networks. Following in Section 3, we recognize the natural hierarchy of the decision-making process for the design and management of AFSCs, and identify the strategic, tactical and operational decisions that should be addressed by all stakeholders. Further, we provide a synthesis of relevant research efforts as these are taxonomized on the strategic, tactical and operational levels. Based on our critical synthesis, in Section 4 we identify the research gaps and perspectives regarding AFSCs design and planning. Finally, we wrap-up with summary and conclusions in the last Section.

2. Agrifood Supply Chains

It was only in the previous decade that the agrifood industry recognized and started embracing SCM as a key concept for its competitiveness. Rapid industrialization of agriculture, concentration of food distribution, expansion of information and logistics technologies, customer and governmental food safety concerns, establishment of specialized food quality requirements, emergence of modern retailer forms, increasing significance of vertical integration and horizontal alliances, and emergence of a plethora of multinational corporations are just few of the real-world challenges that have motivated stakeholders in considering the overall agrifood sector from a supply chain perspective (Chen, 2006).

In general, an AFSC comprises a set of activities in a “farm-to-the-fork” sequence including farming, production, packaging, transportation, warehousing and distribution (Iakovou, Vlachos, Achillas, Anastasiadis, 2012). These operational echelons are supported by logistical, financial, and technical services, whereas they support three fundamental flow types, namely: (i) physical material and product flows, (ii) financial flows, and (iii) information flows. The aforementioned activities, services, and flows are integrated into a dynamic production-supply-consumption entity motivated by stakeholders such as research institutions, industries, producers/farmers, cooperatives/intermediaries, manufacturers/processors, transporters, traders (exporters/importers), wholesalers, retailers, and consumers (Matopoulos, Vlachopoulou, Manthou, Manos, 2007; Jaffee, Siegel, Andrews, 2010; van der Vorst, 2006). Moreover, the continuous evolution of AFSCs, and the overall complexity of the agrifood environment along with global market trends further highlight the need for integration of individual AFSCs in a unified AFSC concept. In such a structure, strategic relationships and collaborations among enterprises are dominant, while the latter maintain their brand identity and autonomy (van der Vorst, da Silve, Trienekens, 2007). A typical configuration of a modern AFSC is presented in Figure 1.

Figure 1: Agrifood Supply Chains: A Conceptual System.

The involved stakeholders acting within the presented AFSC framework, either on national or international level, could generally be clustered into public authorities and private organizations. The former category includes mainly national governments and the associated ministries (agriculture, finance, energy, environment, public health), administrative authorities (regional, district, urban), as well as international organizations (e.g. Food and Agriculture Organization), while the latter category encompasses individual farmers/growers and cooperatives, chemical industries, research institutes and innovation centers, agro-industries and processors, food traders, logistics providers, transporters, food stores and supermarket chains, as well as financial institutions (banking, insurance) (Jaffee et al., 2010). In this context, highly concentrated agro-industrial enterprises and retailers have recently developed into dominant players of the agrifood field, while the public sector has emerged as a key-governance factor (Bachev, 2012).

Although the configuration described above is rather common for traditional SCs, AFSCs exhibit a set of unique characteristics that differentiate them from classical supply chains and raise an imperative need for special managerial capabilities. Based on Van der Vorst (2000; 2006), AFSCs are characterized by: (i) the peculiar nature of the products as most of the times they deal with short life-cycle goods, (ii) the high product differentiation, (iii) the seasonality in harvesting and production operations, (iv) the variability of quality and quantity on farm inputs and processing yields, (v) the specific requirements for transportation, storage conditions, quality, and material recycling, (v) the need for conforming to national/international legislation, regulations and directives regarding food safety and public health, as well as environmental issues (e.g. carbon and water footprints), (vii) the need for specialized operations of high responsibility such as traceability, (viii) the need for high efficiency and productivity of the expensive technical equipment, despite the long production times, (ix) the increased complexity including a wide variety of recipes, installations, etc., and (x) the existence of significant capacity constraints (e.g. storage tanks).

Finally, AFSCs are dynamically evolving over time in order to follow the incessant changes within the broader agrifood environment. In the forthcoming years, modern AFSCs have to cope with major challenges that are underway, encompassing: rapid urbanization, growth of domestic food markets, liberalization of domestic/global factors and markets, decrease of public sector funding, changes on demographics, changes of incomes, changes of consumers’ demand and preferences, emergence of global SCs, establishment of customers’ and enterprises’ concerns for food quality and safety, changes of technology, shift of business interest to the end levels of AFSCs, weakness of regional rural populations to comply with the requirement posed by dominant enterprises, emerging socio-economic inequalities, climate change effects on farming, establishment of corporate social responsibility practices, and the persistence of financial crisis. Therefore, the recognition of the most critical issues that need to be addressed by all AFSCs stakeholders towards an integrated decision-making process emerges as a prerequisite for managing such complex, multi-tier supply chains and ensuring their overall efficiency and sustainability.

3. A Hierarchical Decision-Making Framework

Designing, managing and operating AFSCs involves a complex and integrated decision-making process. This is even more complicated when AFSCs deal with fresh, perishable and seasonable products that lead to high volatility of supply and demand. In general, the design and planning of AFSCs should capture issues with refer to the crops’ planning, harvesting practices, food processing operations, marketing channels, logistics activities, vertical integration and horizontal co-operation, risk and environmental management, food safety and sustainability assurance.

In Table 1, we capture the natural hierarchy of the decision-making process for the design and planning of AFSCs, as already encountered in practice. We identify the decisions that involve all AFSC stakeholders and provide a taxonomy of related research efforts as these are mapped on the strategic, tactical and operational levels of the recognized hierarchy, in the subsequent subsections. Notably, there are decisions that transcend more than one levels of the hierarchy.

Table 1: Hierarchical Decision-Making Framework

Strategic Decisions

Selection of Farming Technologies

Determination of capital requirements and expenditure on farming equipment

Development of co-operative schemes in utilization of farming machinery

Adoption of innovative farming applications

Selection of Investment Portfolio

Determination of investments in pivotal resources

Assessment of alternative financing options and optimization criteria

Establishment of Collaborative Structures

Configuration of Supply Chain Network

Sourcing

Allocation of Warehouses

Allocation of Processing Facilities

Network Design

Establishment of Performance Measurement System

Determination of key-performance indicators (KPIs)

Selection and development of measuring methods

Development of data handling processes and mechanisms

Establishment of stakeholders’ collaboration structures

Development of Risk Management Policy

Selection of the appropriate risk governance mode

Implementation of risk mitigation strategies

Ensuring Sustainability

Adoption of CSR business practices

Development of waste management policies

Assessment of system’s sustainability

Establishment of carbon & water footprint control systems

Adoption of green farming practises

Design of sustainable supply chain networks

Adoption of Quality Management Policies

Determination of scope of QMSs

Determination of scale of QMSs

Tactical and Operational Decisions

Planning of Harvesting Operations

Scheduling of planting and harvesting operations

Resource management

Planning of Logistics Operations

Fleet management, vehicle routing planning & scheduling

Identification of inventory management & control systems

Adoption of

Fleet Management, Vehicle Planning & Scheduling

Determination of farming machinery field routes

Establishment Transparency, Food Safety & Traceability Mechanisms

Promotion of common governance mechanisms and organizational arrangements

Adoption of innovative tracking and tracing technologies

3.1 Decision-Making at the Strategic Echelon

The strategic decisions concern all stakeholders that are interested in participating at the supply chain network of agricultural goods. Thus, decisions at the strategic level of the hierarchy span the following aspects: Farming Technologies, Investments’ Portfolio, Collaborative Structures, Supply Chain Network, Performance Measurement System, Risk Management, Sustainability, and Quality Management. Below, these decisions are further discussed, while a taxonomy of the relevant and up-to-date research efforts are synthesized.

3.1.1 Selection of Farming Technologies

During the industrialization period, agricultural mechanization evolved as a means to the respond to the increased demand for mass production. Today, the modern trends towards diversified crops, quality standards, increased environmental concerns, biological and weather implications, and safety regulations dictate the need for the optimal selection of the required farming technologies in order to reassure the aforementioned requirements. Farming technologies span from the traditional farming machinery to the sophisticated IT applications.

The main decisions involved in the selection process of the farming technologies refer to: (i) the determination of the capital requirements and expenditure on farming equipment, and (ii) the development of co-operative schemes in utilization of farming machinery, and (iii) the adoption of innovative farming applications. In terms of capital expenditure and co-operative actions, the optimum solution must be investigated with relevance to the type of planting, tillage practices, harvesting methods, ownership costs, operating costs, labor costs and timeliness costs. In terms of innovation and performance, the factors that need to be scrutinized refer to the skill of the operators, the size of the yielded production, the required quality and the volatility of weather and soil conditions.

Farming technologies ensure the uninterrupted supply of adequate goods so that a specific AFSC can respond to the market demand over the strategic horizon. In literature, there are well documented quantitative models that deal with the optimal mechanization level of farms with regard to the economic efficiency and capacity utilization (e.g. Søgaard & Sørensen, 2004; Glen, 1987). De Toro and Hansson (2004) also stress the importance of co-operations in the machinery utilization in order to grasp financial benefits, especially in the case of small and medium scale farms which are characterized by common agricultural factors as the cultivated crop varieties, farm size, soil type and employability. Nevertheless, modern researches deal with the incorporation of innovative approaches into applied farming technologies. The documentation of robotics and IT applications towards production automation, image analysis and quality sensing are only few of the radical advancements that have been developed for vegetables’ propagation, picking, trimming and packaging, robotic milking, and livestock monitoring (The Wrest Park, 2009). Lately, the employment of precision agriculture technology (i.e. satellite imagery and geospatial tools) has emerged as a means to promote farming efficiency and environmental sustainability (e.g. Isgin, Bilgic, Forster, Batte, 2008; Aubert, Schroeder, Grimaudo, 2012).

3.1.2 Developing an appropriately supportive Investment Portfolio

The greatest bottleneck in the development of effective and cooperative AFSCs is usually identified among the local agrifood suppliers that neither demonstrate the desired professionalism nor posse the required know-how and financial resources to comply with the rigid standards for high quantity, distinctive quality and low prices which are dictated by the global retailers. However, the dawn of the agro-industrialization era further highlights the need for substantial investments in technological R&D, radical knowledge generation and development of novel services as key drivers to innovation and growth in the AFSC (World Bank, 2008; Reardon & Barrett, 2000).

Decisions that need to be tackled when strategically planning the investment portfolio in an AFSC regard: (i) the determination of investments in pivotal resources and infrastructure, and (ii) the assessment of alternative financing options and optimization criteria with refer to agrifood projects. The careful scrutiny of investments relates to the minimization of cost whereas the alternative funding options relate to the ownership status of the utilized resources. The investments towards the adoption of common traceability systems, quality assurance certifications and overall integration in the AFSC cannot be also neglected.

The financial planning and investments of an AFSC are of pivotal importance as they further define the capacity, performance and financial viability of the stakeholders involved in the SC. To that end, financial planning can be reviewed from a plethora of perspectives. From a financial perspective, Turvey and Baker (1990) elaborated stochastic programming to investigate farmers’ decision for hedging through futures and options. Many other studies examine a plethora of cases such as the cost of harvesting operations (Boyce & Rutherford, 1972), the improvement of the applied cultivation policies (Glen & Tipper, 2001), the economic feasibility of adopting innovative technologies at the agrifood processing level (e.g. Mosquela, Tollner, Boyhan, McClendon, 2011; Magagnotti, Nati, Pari, Spinelliu, Visser, 2011). Additionally, Belaya et al. (2012) demonstrate that Foreign Direct Investments (FDIs) on the farming, food processing and retailing sectors positively influence the performance of an entire AFSC. Finally, the issue of ownership structure and power authority along the agrifood value chain, in relevance to the investments for the optimization of AFSC performance, has also been discussed (e.g. Hendriske & Bijman, 2000). From a social-oriented perspective, Hebebrand (2011) underlines the need for innovative financing plans and farm investments in rural, developing communities. On the corporate side, the author emphasizes the need of public-private partnerships to stimulate shared-market development and profit maximization for all stakeholders in the AFSC whereas she consults MNEs to substantially invest in developing countries and adopt a long-term perspective on the anticipated investment returns. From a technical aspect, Ekman (2000) proposed a stochastic program for determining the optimal investment on farming machinery to deal with the uncertain time constraints of tillage, with respect to the unpredictable nature of the weather. Towards this direction, Berge ten et al. (2000) formulated a multi-objective linear program for the determination of the equipment that maximizes the economic returns while at same time minimizes the environmental impact in terms of pesticides and fertilizers’ utilization. Furthermore, Stoecker et al. (1985) developed an LP model to define the optimal structure of capital expenditure funding with respect to single-period cropping plans and multi-period groundwater exploitation. Under this context, Tan and Fong (1988) developed a linear programming (LP) model for the selection of the optimal mix for perennial crops in terms of maximizing revenues.

3.1.3 Fostering Supply Chain Partnering Relationships

Modern AFSCs in general are structured in multiple echelons encompassing a significant number of stakeholders with common but also conflicting objectives that need to build robust and long-term relationships. Into this context, one of the key factors towards the development of sustainable and efficient AFSCs is collaboration as “collaboration can be more effective than competition as a general organizational mode to achieve economic efficiency” (Fischer and Hartman, 2010).

Effective relationships among SC stakeholders are of vital importance for sustaining high-performance of AFSCs and should be based on clear understanding of the “inter-organizational relationships” scheme, including concepts such as integration, collaboration, coordination, cooperation, and contracts among partners. The issue of SC partners’ relationships is rather common in the relevant SC literature, and thus few indicative papers are presented below in order to figure out the field framework and current trends.

Initially, a point of interest that rises through real-world practice is the dynamics of the relationships between producers and retailers in the global sourcing and retail chain context, where Burch and Goss (1999) identify the emerging rivalry between retail channels capital and manufacturing capital. Moreover, a critical consumer-driven issue that concerns the majority of the AFSCs stakeholders is the assurance of food safety and quality, as well as the transparency and traceability throughout the SC, with Beulens et al. (2005) pointing out the relevant challenges and the need for cooperation among SC networks.

Contracting among AFSC partners is another vital issue that affects directly the AFSC level of efficiency and sustainability. Fischer et al. (2009) highlight these market, industry, and enterprise characteristics that influence the relevant contractual selection process (contract type), as well as the enterprise-level factors that affect the sustainability of relationships. Ligon (2003) deals with the optimal risk mitigation in agricultural contracts. Moreover, Hovelaque et al. (2009) employ Monte-Carlo simulation to discuss the effects of constraint supply on agricultural cooperatives, as well as the impacts of price contracts in such an environment. Da Silva (2005) discusses contract farming as a critical component of an agrifood system development and chain governance strategy. Finally, from a technical aspect, Zanoni and Zavanella (2007) deal with perishable goods, providing models and heuristic algorithms for an integrated transport and inventory control system, while Higgins et al. (2004) present a framework for integrating transport and harvesting systems.

Integration of SCs, and especially AFSCs, is yet another substantial concept for designing and operating the entire chain. In this direction, van der Vorst et al. (2009) propose a simulation model for the integrated design of food SCs, in terms of logistics, product quality, and sustainability decision-making procedures. Mintcheva (2004) presents an approach of indicators to the concept of integrating the environmental policy for a food SC. The concept of risk management integration is addressed by Shepherd et al. (2006) involving stakeholders in determining the interfaces and processes that are necessary to communicate risks. Moreover, end-to-end integration is recognized by Netland et al. (2008) as a prerequisite for developing lean AFSCs that add value to final products, while they emphasize on the significance of close coordination among manufacturing teams, customers, and farmers. Karantininis at al. (2010) point out the role of vertical integration and contractual arrangements in enhancing firms’ innovative behaviour.

The cooperation among stakeholders is a prominent characteristic of optimal AFSC performance (Wever et al., 2009). Hobbs and Young (2000) propose a framework for analyzing the changes of vertical co-ordination of AFSCs along with the relevant driver forces such as product characteristics, transactions characteristics and cost changes. Additionally, Cechin and Bijman (2009) discuss how agricultural cooperatives respond to this vertical coordination concept in a SC context, emphasizing in generating high quality attributes. Finally, the pivotal importance of the SC collaboration concept is denoted by Matopoulos et al. (2007) along with the relevant constraints that arise due to the nature of the specific structure of the agrifood sector, while the authors point out that collaboration is rather limited to operational issues and logistics activities.

3.1.4 Design of Supply Chain Network

The design of a SC is a vital issue for the overall operation and efficiency of the SC in the long-term, and encompasses a set of critical strategic decisions affecting the materials, products and information as well as the associated costs. These decisions include amongst others sourcing, procurement, purchasing, allocation and capacity of intermediate warehouses, allocation of processing facilities, transportation network design, retailers’ network design and market selection along with the associated capacity limitations and uncertainties. The objective is to minimize chain costs including harvesting, collection or purchasing costs, facility (storage, handling and fixed) and inventory holding costs, and transportation costs, while assuring an adequate level of flexibility in order to be able to adapt to potential future changes.

Despite the significance of the aforementioned decisions and the plethora of papers that address them in the general SCM context, the relevant agrifood specialized literature is rather poor, probably due to difficulties imposed by the structure and relationships complexity of the entire agrifood chain and the incoming uncertainties that characterize this particular type of SCs. To this end, since very few aspects of ASFCs management have been addressed in literature, only an indicative selection of papers with a focus on transportation network design is presented following. Boudahri et al. (2011) propose a model for the design and optimization of the transportation network of an AFSC, and implement this model on a chicken meat SC. Additionally, Higgins et al. (2004) propose a framework for integrating harvesting and transport systems for sugar production. Burch and Goss (1999) discuss the global sourcing issue for retail chains and its impact on the agrifood system. It appears that there is plenty of room for practical and academic contributions in the field of agrifood supply chain network design and the tailoring of the relevant general SC decision-making methodologies to the increased requirements of modern AFSCs is a challenging research field of emerging importance.

3.1.5 Establishing Performance Measurement Systems

Real-world practice has indicated thus far that in order to ensure an organization’s success in the long-term, managers should insightfully consider the measurement of the SC performance (Neely, Gregory, and Platts, 2005; Caplice and Sheffi, 1994). A Performance Measurement System (PMS) allows for monitoring and evaluating the overall SC efficiency, while providing up-to-date information to support the relevant comparison, benchmarking, decision-making and re-engineering processes. In general, measuring the performance of SCs is a challenging process that becomes even more complicated in the case of modern AFSCs as they exhibit few particular characteristics that require additional technical and managerial capabilities (Aramyan, Ondersteijn, van Kooten, and Lansink, 2006).

In this context, the design and development of a PMS for an AFSC should be based upon four fundamental decisions, mainly at the strategic level. Initially, the managers should select efficient key-performance indicators that reflect the organization’s strategy and objectives. Secondly, they should establish efficient data collection, process, and analysis procedures and mechanisms which are critical in order to support these indicators with accurate and valuable inputs. Complementary to these decisions, the selection of the appropriate measuring method is a critical structural component of the PMS, as it plays the role of an operational host platform for the aforementioned data and indicators. Finally, the integration of performance measurement along the supply chain in a co-operational mode, based on partners’ synergies, is the driver of high performance for an AFSC ensuring benefits for all partners. Therefore, the involved stakeholders should identify and develop efficient information sharing processes, collaborative structures, and communication channels in order to support conveniently the overall integration concept. The first, second and fourth decisions are strategic decisions with tactical and operational implementation, while the third one is a pure strategic one.

To that end, Aramyan, Ondersteijn, van Kooten, and Lansink (2006) p

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