Supply Chain Management: is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active stream lining of a business’s supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.
Functions of Value addition and Differentiation of Supply Chains:
The purpose of supply chains is to add value to production and distribution. Depending upon the markets and the value chains they are servicing, supply chains can be differentiated according to criteria such as costs, time reliability, and risk. Efficient logistics contributes to added-value in four major interrelated ways:
- Production costs– Derived from the improved efficiency of manufacturing with appropriate shipment size, packaging, and inventory levels. Thus, logistics contributes to the reduction of production costs by streamlining the supply chain.
- Location– Logistics adds value by taking better advantage of various locations, implying access to expanded markets (more customers), and lower distribution costs.
- Time– Added value derived from having goods and services available when required along the supply chain (e.g., lower lead times) with better inventory and transportation management.
- Control-Added value derived from controlling most, if not all, the stages along the supply chain, from production to distribution. By better synchronizing cycles and lead times, logistics enables better marketing and demand response, thus anticipating flows and allocating distribution resources accordingly.
A variety of factors are jointly shaping the configuration of supply chains:
- Logistics costs– Considers the full array of costs to make products available to the final consumer, namely transport, warehousing, and transhipment. Supply chain managers are particularly sensitive to the stability of the cost structure (consistent costs), implying that routes having cost fluctuations may be discarded in favour of routes of a higher cost but with less volatility. Therefore, costs are a standard criterion where the cheapest routing option is sought, as long as the cost structure remains stable as supply chains are unlikely to be modified if a cost advantage is only temporary. The concept of cost is relative since its importance is concerning the value of the cargo being carried. Cost considerations tend to concern more containerized goods with a low value, such as commodities (e.g. paper), than high-value goods (e.g. electronics).
- Transit time– A factor that is increasingly being considered since it strongly influences inventory carrying costs and inventory cycle time in supply chain management. So, for cargo with a higher value (clothing) or is perishable (refers), the routing option that is the fastest and/or shortest will be preferred.
- Reliability– Relates to a factor that is mitigated by contemporary supply chain management practices. For several supply chains, time can be a secondary factor as long as shipments arrive at the distribution centre within an expected time frame. If shipments are regular and that this reliability remains consistent, it is possible to organize supply chains accordingly by having more inventory in transit.
- Supply chain risk– Relates to a generally imponderable factor and involving the level of confidence that the shipment will reach its final destination within expected costs, time, and reliability considerations. In some cases, risk can also involve potential cargo damage or theft. Low risks routes are obviously preferred over higher-risk routes.
Components of an Agri supply chain
- Agribusiness, supply chain management (SCM) implies managing the relationships between the businesses responsible for the efficient production and supply of products from the farm level to the consumers to meet consumers’ requirements reliably in terms of quantity, quality and price. In practice, this often includes the management of both horizontal and vertical alliances and the relationships and processes between firms.
- Agri-supply chains are economic systems which distribute benefits and apportion risks among participants. Thus, supply chains enforce internal mechanisms and develop chain wide incentives for assuring the timely performance of production and delivery commitments. They are linked and interconnected by virtue of shared information and reciprocal scheduling, product quality assurances and transaction volume commitments.
- Process linkages add value to agricultural products and require individual participants to coordinate their activities as a continuous improvement process. Costs incurred in one link in the chain is determined in significant measure by actions taken or not taken at other links in the chain.
- Extensive pre-planning and co-ordination are required up and down the entire chain to affect key control processes such as forecasting, purchase scheduling, production and processing programming, sales promotion, and new market and product launches etc.
The Components of An Organised Agri- Supply Chain:
- Procurement or sourcing
- Logistic management
- Material management
- On the premise of supplying mostly from production not stock
- Logistics Network modeling
- Organizational management
- Strategic alliances and partnerships
- Vertical integration
- Long term storage
- Packaging technology
- Cold chain management
- Energy efficient transport
- Quality and safety
- Application of Efficient Consumer Response (ECR) System
- Electronic scanning of price and product at the point of sale
- Streamline the entire distribution chain.
AGRI MARKETING AND EMERGENCE OF COORDINATED SUPPLY CHAINS IN INDIA
The Agri supply chains in India and their management are now evolving to respond to the new marketing realities thrown by the wave of globalisation and other internal changes like rise in the level of disposable income of consumers, change in the food basket of the consumers towards high value products like fruits, vegetables and animal protein.
The new challenges of the agricultural economy of the country have now spurred the government agencies to go in for different legal reforms for enabling and inviting private investment in agricultural marketing infrastructure, removing different entry barriers to promote coordinated supply chain and traceability.
The amended APMR Act, the major agricultural Marketing Act of the country, being implemented by the different states of India, now contains enabling provisions to promote contract farming, direct marketing and setting up of private markets (hitherto banned). These measures will go a long way towards providing economies of scale to the small firms in establishing direct linkage between farmers, and processors/ exporters/ retailers, etc. Thus, the measure will provide both backward and forward linkages to evolve integrated supply chains for different Agri produce in the country.
While studying the supply chain-management issues of the agriculture sector, it is worthwhile to analyse the prevalent market channels of some commodities to bring the discussion to perspective. Marketing channels for fruits and vegetables in India vary considerably by commodity and state, but they are generally very long and fragmented.
The majority of domestic fruit and vegetable production is transacted through wholesale markets although depending on the state and commodity; farmers may sell to traders directly at the farm gate, to traders at village markets, or directly to processors, co-ops and others.
COORDINATED SUPPLY CHAINS
- In the last few years there has been an emergence of more coordinated supply chains for fruits and vegetables in India catering to the export market and to the high end domestic market.
- On the domestic front this trend has primarily been led by the growth of large hypermarkets, supermarkets and other organized retailers in metropolitan centers.
- For exports, the emergence of dedicated export chains has been prompted by stricter quality and safety standards in certain export markets. Coordinated supply chains involve structured relationships among producers, traders, processors, and buyers whereby detailed specifications are provided as to what and how much to produce, the time of delivery, quality and safety conditions, and price.
- These relationships often involve exchanges of information and sometimes assistance with technology and finance. Coordinated supply chains fit well with the logistical requirements of modern food markets, especially those for fresh and processed perishable foods. These chains can be used for process control of safety and quality and are more effective and efficient than control only at the end of the supply chain.
- Several companies in India are beginning to invest in integrated supply chain management systems and infrastructure with emphasis on quality and, to a lesser extent, on safety.
- Different models are emerging including fruit and vegetable retail outlets that directly procure produce from farmers or grower associations through various formal/informal contractual arrangements.
- Collection-cum-grading centers have been established in rural areas with all produce moving through a central distribution facility having modern infrastructure including cold storage, ripening rooms and controlled atmosphere chambers. Growers are required to follow certain specifications and are often provided with some inputs and technical advice about agronomic and post-harvest practices.
- Contract farming for fruits and vegetables is already being practiced in several states and is likely to expand considerably due to legal reforms initiated in India, i.e., implementation of Model APMC Act. Until recently, contract farming was not legally recognized in most states and a legal framework for governing contracting arrangements was missing.
- Under the APMC Model Act a new chapter on ‘contract farming’ was added which provides for the registration of contract buyers, the recording of contract farming agreements, and time-bound dispute resolution mechanisms. It also provides an exemption from the levy of market fees for produce covered by contract farming agreements and provides indemnity to farmers’ land to safeguard against the loss of land in the event of a dispute.
- Contract buyers will now be able to legally purchase commodities through individual purchase contracts or from farmers markets. Provision has also been made in the legislation for direct sale of farm produce to contract buyers from farmers’ fields without it being routed through notified markets.
- A terminal market for fruits and vegetables has been set up in Bangalore. The market (known as SAFAL) can physically handle up to 1600 metric tons of produce a day. It is linked to some 250 Farmers Associations and 40 Collection Centers that have been established in selected producing areas. The market receives sorted, graded and packaged produce from these associations and centers and this is then auctioned at the market. SAFAL also has forward linkages to a number of retail outlets (Cash and Carry Stores).
- The market has modern infrastructure, including temperature and humidity-controlled storage facilities, and ripening chambers. This calls for the collective action in supply chains.
- Initiatives are taken to establish more terminal markets based on modern infrastructure. MTMs would endeavor to integrate farm production with buyers by offering multiple choices to farmers for sale of produce such as electronic auctioning and facility for direct sale to exporter, processor and retail chain network under a single roof.
- In addition, the market would provide storage infrastructure thus offering the choice to trade at a future date to the participants. It is envisaged to offer a one-stop-solution that provides Logistics support including transport services & cool chain support and facility for storage (including warehouse, cold storage, ripening chamber, storage shed), facility for cleaning, grading, sorting, packaging and palletization of produce and extension support and advisory to farmers. The model presents integration of Agri supply chains for perishables through MTMs.
- Presently in the regime of fragmented and inefficient Agri supply chains there is no control and command of chain partners on the other following that they are not able to maintain quality of produce in their chain. In order to bring integrated command, source quality produce by way of organizing farmers in groups and providing them the right technical advice and link farmers to the market, modern terminal market complexes will prove a dent.
- The role of Collective Action (CA) in Agri supply chain arises wherever there are economies of scale in production or in marketing. This includes the role of farmer groups in being better able to ensure traceability.
- In these chains, the costs for the establishment of traceability are lower for firms and farms with collective action than without it. Similarly, collective action has a rationale if agents in the supply chain have different comparative advantages. Thus, a producer group (with comparative advantage in production) could benefit from collaboration with agents that have expertise in marketing.
- With increasing private investment in the food retail sector and impending changes in contract and marketing laws, shorter and more direct supply chains with traceability are expected to become more common.
- The incidence and spread of coordinated supply chains will be closely connected with the pace and direction of food retail sector modernization within India. Thus far, changes in food retail have been gradual, and considerably slower than observed in many other developing countries.
- Supermarket procurement regimes for sourcing of fruits, vegetables, dairy and meat strongly influence the organization of the supply chains. The rising scale of organized retail 11 in the Asian countries (like Metro Cash & Carry, Tata Chemicals and Field Fresh Foods, Bharti Enterprises, Reliance Fresh in India) is now playing a vital role in organizing farmer production bases and integrating these into the retailers’ fresh produce supply chain, thus procurement systems in this segment is changing fast responding to the consumer demand and competition.
Source: Supply Chain Management in Agriculture Reading Material by MANAGE
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