What is a chain?

What is chain?

The terms:
“logistics”
“supply chain (management)”
“demand chain (management)”
“value chain (management)”
are used interchangeably and confusingly. They overlap
and different actors define them in their own way.
Logistics Vs. Supply chain

Logistics: The process of planning, implementing and

controlling the efficient flow and storage of products, services
and related information through a business.
 Some activities: transportation, warehousing, purchasing and
distribution.

 Focus: individual company

1st generation of supply chains were viewed as individual

companys, customers and suppliers focusing on logistics
integration.
Supply chain Vs demand chain

Chains can focus on

 the efficient physical supply of products/services (risking
producing products that did not meet customer demand) =
supply chain
 market mediation (adjusting production to match actual
demand, often resulting in lowered production efficiencies)
= demand chain
Therefore, demand chain means a shift in emphasis from efficient
supply to meeting the needs of customers
Supply chain Vs demand chain

 A demand chain is a supply chain that emphasizes market

mediation to a greater degree than its role of ensuring
efficient physical supply of the products/services.

 Demand chain reflects the fact that the chain should be

driven by the market, not by suppliers.

 Demand chain starts with the customer and work backwards,

instead of starting with the supplier/manufacturer and
working forward
Value chain

Value chain: search for strategies that will provide

superior added value for customers. First, the value can
be created internally at chain actor level, then via the
chain. The value is created not just by one company, but
by several companies in the chain.
Chain

A set of three or more organisations directly involved in the

upstream and downstream flows of products, services, finances,
information and/or knowledge from a source to a customer
(Mentzer et al, 2001)

Focal
Supplier Customer
company
Degrees of chain complexity

 Direct chain: consists a company, a supplier and a customer

involved in the upstream and/or downstream flows of
products, services, finances, information and/or knowledge.

 Extended chain: in addition to the direct chain it includes

suppliers of the direct supplier and customers of the direct
customer.

 Ultimate chain: includes all the organisations involved in all

the upstream and/or downstream flows of products,
services, finances, information and/or knowledge from the
ultimate suppliers to the ultimate customer/consumer.
Degree of chain complexity

3rd party
logistics External
supplier laboraty

Customer
Customer
Supplier Focal company Customer
Supplier Customers
Suppliers

3rd party
Market
financial
research
provider
Degree of chains complexity
Degree of chain complexity (3)

10. Casing
21.
supplier 22.. Retailer’s
Distribution
center of stores,
1. Farmer: Feed retailer hipermarkets,
6.6.Hungarian
Belgian chain supermarkets
slaughterhouse 11. Spice,
(meat, natural casing ingredient, casing
supplier 16.Meat product
wholesaler
2. Piglet supplier
12. Spice 17. Small, independent retailer, small
7.7.Hungarian
Belgian meat
meat ingredient retailer chains, butcher’s shops,
wholesaler (meat, wholesaler speciality shops
natural casing)
3. Pig breeder 23. Consumer
18. Food
13.Meat
13. Meatprocessor
procesor manufacturer

8. EU (foreign)
slaughterhouse
4. Calf supplier
14. Packaging 19. Caterer, HORECA
wholesaler

9. EU (foreign) meat
5. Beef breeder 15. Packaging 20.Local market, direct
wholesaler
material supplier sale
Chain flows
Chain flows -chain
A set of three or more organisations
directly involved in the upstream and
downstream flows of products, services,
finances, information and/or knowledge
from a source to a customer (Mentzer et
al, 2001)
DOWNstream

Focal
Suppliers Customers
company

UPstream
Chain flows – Product flows

 The product flow represents the value-added movement and

transformation of goods into the finished product from a supplier of
raw materials to the end customer
 The product flow represents the organizations being involved in the
upstream and downstream value added movement of products.
 Traditionally, it is rather downstream (from raw material to final
product), but it also integrate customer returns (upstream)
 Product flow activities includes: transportation, logistics, inventory,
enhancement and maintainance of quality, convertation into final
products, handling (e.g. cooling, sorting) etc.
 Product flow covers: raw materials, work in progress, finished
products, by products and all related inventories.
Chain flows- Service
 The service flow represents the organizations being involved in
the upstream and downstream flows of services.
 Traditionally, the service flow is very tightly tied to the product
flow
 Service flow activities include pest control, waste disposal,
quality certification, laboratory testing, marketing support,
market research, external R&D, etc.
 Services:
o intangible but provide value
o designed to be used (sold) in exchange for revenue (e.g. consulting
service)
Chain flows - information flows
 Information flow represents the bi-directional exchange of
transactional information among chain members
 Information flow activities includes: forecasts, purchase orders,
order acknowledgments, shipping and inventory information,
invoices, replenishment requirements, status of delivery, demand,
price, quality
 Link information systems between chain members in the area of
product flow, service flow and financial flow.
 Support the selling of products or services
o e.g. in the area of product flow: tracking and tracing
Chain flows – Financial flows
 The financial flow generally moves in the reverse direction
of the value added activities (upstream).

 Financial flow activities includes: credit terms, payment

schedules, and consignment and title ownership
arrangements, sharing financial performance information
across the stages or processes and participants in the
chain.

 The financial flow indicates the payment in exchange of

products, services and information (Weill, Vitale 2001).
Chain flows - information flows
 The knowledge flow represents the bi-directional exchange of
knowledge among chain members
 Knowledge flow activities includes: networking, seminars,
participation in research projects etc.
 Must understand how to make more money by sharing
information / knowledge than by holding it!
 Results:
o better practise,
o wider scale of thinking,
o tighter chain, ….
Chain flows – A step forward to chain management

Chain management involves coordinating and

integrating flows in a chain consisting of a focal
company, a supplier and a customer.
What is chain management?
What is chain Management? Chain Management

 The management of multiple relationships

(accompanying products, services, finance,
information and/or knowledge flows) –
focusing on harmonizing the use of:
o resources
o capabilities
o competencies
 along the entire food chain (instead of
focusing on only individual steps)
 to deliver higher added value by improving
the quality of chain relationships.
What is chain Management? Resource @ firm level

 Resources: Inputs into a firm’s production process

(capital, equipment, skills of individual employees,
patents, finance, and talented managers)
o Tangible Resources – financial, physical, technological,
organizational (assets, that can be seen and quantified)

o Intangible Resources – human, innovation, reputation

 By themselves, resources do not create a competitive

advantage for the firm.
What is chain Management? Resource @ firm level

 Financial: borrowing capacity, ability to generate internal funds

 Physical: firm's plant and equipment, access to raw materials

 Technological: technology, patents, trademarks, copyrights, trade secrets etc.

 Organizational: formal reporting structure and formal planning, controlling, and

coordinating systems

 Human: knowledge, trust, mangers, organizational routines

 Innovation: ideas, scientific capabilities, capacity to innovate

 Reputational: reputation with customers, brand name, perceptions of product

quality, durability, and reliability, reputation with suppliers
What is chain Management? Capabilities @ firm level

 Capabilities: Capacity to deploy resources that have been

purposely integrated to achieve a desired end goal.

 Primary base for the firm’s capabilities is the skills and

knowledge of its employees.

 Just because the firm has a strong capacity for deploying

resources does not mean it has a competitive advantage.
What is chain Management? Capabilities @ firm level

 Distribution: Effective use of logistics management techniques

 Human resources: Motivating, empowering, and retaining employees
 Management information systems: 1) Effective and efficient control of
inventories through point-of-purchase data collection methods, 2) Acquiring
market information
 Marketing: 1) Effective promotion, 2) Effective customer service, 3)
Innovative merchandising
 Management: 1) Ability to envision the future of business, 2) Effective
organizational structure
 Manufacturing: Production skills yielding reliable products, 2) Product quality
 Research and development: Innovative technology
What is chain Management? Capabilities @ firm level

 Core competencies: Resources and capabilities can serve

as a source of competitive advantage for a chain actor over
its rivals.

 Not all resources and capabilities create core competencies.

 Core competencies: firm’s innovatively bundled and

leveraged resources and capabilities.
What is chain Management? Capabilities @ firm level

 Core competencies: may be in any area but are most likely to

develop in the critical, central areas of the firm where the most
value is added to its products, such as:
o Inbound Logistics, Operations, Outbound Logistics, Marketing and
Sales, Service, Procurement, Technological Development, Human
Resources, Firm Infrastructure

 Core competencies must

o be distinctive, do better than competitors, be critical to long term
growth, be competitively unique, not be easily duplicateble (costly
to imitate), be valuable, be rare, and be none-substitutable.
What is chain Management? Capabilities @ firm level

 Your resources and your suppliers’ and/or

Core
customers’ capabilities can be basis for the Competencies
core competency of your relationships
S Resource

Capability

Core Competencies
Your capabilities and the resources of your

Core Competencies

suppliers’ and/or customers’ resources can Core
Competencies
be basis for the core competency of your
relationship FC Resource

Capability

 Chain management requires chain actors to

rethink about their and their suppliers’ Core
Competencies
and/or customers’ resources, capabilities
and competencies and to harmonize them. C Resource

Capability
Chain performance
Performance: Definition

 Performance measurement: Putting in place the right

performance indicators to assess the health of your chain.

 Performance management: Using those performance indicators

to support your chain goals.

 Performance indicators are “numbers” that inform about relevant

criteria in a clearly defined way.

 Performance measurement tool: contains a limited number of

performance indicators. It integrates a few key performance
indicators in order to maximize simplicity.
Performance: steps

1. Identification of the main chain partners (being involved

in the performance management process)

2. Setting chain goals

3. Selection of key performance indicators (KPIs) supporting

chain goals

4. Measure performance against chain goals

5. Develop performance-improvement program to help to

meet the chain goals

6. Implement the program

Performance: Steps

1. Identification of the main chain partners (being involved

in the performance management process)
2. Setting chain goals
3. Selection of key performance indicators supporting chain
goals
4. Measure performance against chain goals
5. Develop performance-improvement programs to help to
meet the chain goals
6. Implement the program
Step 2: Setting chain goals

Why to set chain goals?

 When performance measurement is not tailored to chain

goals, it often ends up either being misused or not used at
all.

 There is no point in measuring, unless the results inform

how well various goals are being met.
Step 2: Setting chain goals

How to set chain goals?

Once the main chain partners have been identified, it will

then be possible to set chain goals via two setps:

a. Identification of chain partners’ goals

b. Consolidation of chain partners’ goals

Step 2: Setting chain goals

a) Identification of chain partners’ goals:

 Firms enter into business relationships (become
part of a chain) to fulfill their individual business
goals

 These individual business goals need to be

identified
Step 2: Setting chain goals

b) Consolidation of chain partners’ goals:

 Obstacle: lack of goal consensus

 Individual goals are often conflicting/divergent

 Every individual goal of each chain partner need to be evaluated

based on their conflicting/divergent nature

 Conflicting/divergent goals are not applicable for the entire

chain; they need to be eliminated

 Goals being approved by several stakeholders of the chain are

the chain goals.
Performance: Steps

1. Identification of the main chain partners (being involved

in the performance management process)
2. Setting chain goals
3. Selection of key performance indicators supporting
chain goals
4. Measure performance against chain goals
5. Develop performance-improvement programs to help to
meet the chain goals
6. Implement the program
Step 3: Selection of KPI Supporting Chain goals

a) Identify potential performance

indicators per chain goal

b) Decide about the means by which to

gather information
Step 3: Selection of KPI Supporting Chain goals

a) Identify potential performance indicators per chain goal

 Chain goals are rather general, the selected performance indicators are
more concrete and measurable.
 Different chain goals hardly ever include only one performance indicators
but they usually imply several.
Example:
 Chain goal: “to maintain superior quality”
 Performance indicator: taste, health, safety, attractiveness or
environmental friendliness
 Chain goal: “to increase efficiency”
 Performance indicator: distribution cost, transaction cost, inventory cost or
profit
Step 3: Selection of KPI Supporting Chain goals

b) Decide about the means by which to gather information

 Objective/Perceived
 Objective performance indicators mean little without a benchmark for
comparison
 The benchmark for comparison can be
o internal: which of your chain partners are the best performers
o external: comparison with other chains. (performance in an
industry context)
Chain Governance
Value chain governance
 Governance is about power and ability to exert control along the
chain.

 At any point in the chain, some actors set and/or enforce

parameters under which others in the chain should operate.

 Some of the key parameters to be enforced are:

o What is to be produced (product design and specification)

o How is it to be produced (technology to be used, quality system,

labour and env’tal standards)

o How much is to be produced and when (production scheduling and

logistics)
Value chain governance
 Chain governance exists when some actors work to the
parameters set by a powerful actor in the chain.

 The actor that sets the parameters with which other actors in the
chain must comply is referred to as the lead actor in the chain.

 The need for lead actors to coordinate value chain activities has
primarily come from two main trends.

o Outsourcing non-strategic activities and replacing the managerial

control over it with proper value chain governance mechanisms

o Product differentiation strategies and concern for meeting growing

number of environmental and social rules and standards
Why value chain governance matters?

 Issues of deteriorating food quality and the stories of children

laboring in sweatshops point to the importance of the control
lead actor can and need to exercise over outsourced providers of
both raw materials and finished products.

 Many chain actors do not own the farms and manufacturing

facilities that make the products they sell; they take ownership of
these products only when received them from their suppliers.

 However, these actors can and often do influence what happens

at earlier points in the chain.
Value chain governance

Acquisition of production capacity

 Lead actor can be demanding to reducing costs, raising quality
and increasing on-time performance.

 Yet, along with high standards, lead actor also provide

knowledge and support.

 Chain actors learn by observing what their buyers are doing or

in other cases, the lead actor transmits best practices by
providing hands-on advice on how to improve production
processes and producers' skills.
Value chain governance
Market access
 Even as developed countries dismantle trade barriers,
developing countries’ producers do not necessarily gain
market access because chains are often governed by a limited
number of powerful buyers.
 In order to participate in export manufacturing to developed
countries, small chain actors need to be on the radar of the
lead actors b/c the lead actor frequently makes the decisions
on where products will be produced and who will produce
them.
 Producers need access to lead actors and can gain it only by
learning how to communicate with the actor and produce to
specifications.
Value chain governance
Distribution of gains 
 The activities that reap the highest returns are usually found in intangible
competences (R&D, design, branding) characterized by high barriers to entry
that are frequently synonymous with holding the lead actor’s status in the
chain.
 In contrast, chain actors in developing country tend to engage in the tangible,
production-related activities under terms set by the lead actor that have low
entry barriers.
 It is important to know which activities in the chain bring in the most
profitable returns and who engages in these value-adding segments.
 Understanding how a chain is governed provides chain actors with valuable
information on how to develop skills and with whom to develop relationships
that would give them the flexibility and freedom to undertake additional
functions in the chain, thus altering the current distribution of gains.
Value chain governance

Leverage for policy initiatives

 Given the power lead actors have to impose product and

process parameters on other chain actors, they are also
excellent leverage points for the business environment to
exert influence on what happens in the organization of other
actors.

 Understanding chain governance and the power of lead

actors can assist local and global, public and private,
government and nongovernmental agencies and practitioners
to advocate for better labor and environmental standards or a
more equitable distribution of gains
Types of chain governance

 The connections between chain actors’ activities within a

chain can be described along a continuum extending from
the market, characterized by "arm's-length" relationships,
to hierarchical value chains illustrated through direct
ownership of production facilities and processes.

 Between these two extremes are three network-style

modes of governance: modular, relational, and captive.

 Network-style of governance represents a situation in

which the lead actor exercises power through coordination
of chain activities (to varying degrees), without any direct
ownership of the firms.
Types of chain governance
 Market: Market governance involves transactions that are relatively
simple, information on product specifications is easily transmitted, and
producers can make products with minimal input from buyers.

 Modular: Modular governance occurs when a product requires the

actor in the chain to undertake complex transactions that are relatively
easy to codify. Suppliers in modular governance tend to take full
responsibility for process technology and often use generic
machinery that spreads investments across a wide customer base. 

 Relational: In this network-style of governance pattern, interactions

between buyers and sellers are characterized by the transfer of
information based on mutual reliance regulated through reputation,
social and spatial proximity, family and ethnic ties, and the like.
Types of chain governance

 Captive: In these chains, small suppliers are dependent on a few

buyers that often have a great deal of power and control. Such
networks are frequently characterized by a high degree of
monitoring and control by the lead actor.

 Hierarchy: Hierarchical governance describes chains that are

characterized by vertical integration and managerial control within
a set of lead firms that develops and manufactures products in-
house. This usually occurs when product specifications cannot be
codified, products are complex, or highly competent suppliers
cannot be found.
 Determinants of value chain governance
 The form of governance can change as a chain evolves and matures, and
governance patterns vary from one stage of the chain to another.

 The dynamic nature of governance can be largely accounted for with three
variables: the complexity of information on the product design and process; the
ability to codify or systematize the transfer of knowledge to suppliers; and the
capabilities of existing suppliers to efficiently and reliably produce the product.

 Additional influences on the governance structure include the quality, stability,

and power of the business-enabling environment and institutions, as well as
other sources of power in the chain, such as suppliers and consumers.
Determinants of value chain governance structure
More specifically:

Information complexity: refers to the intricacy of information and

knowledge that must be transferred to ensure a particular transaction to
occur.

Information codification: is the extent to which lead actors can convert

tacit, implied information and knowledge into explicit, concrete and
situation-specific information and transmit it to producers effectively,
efficiently and at minimal cost.

Suppliers’ capability: refers to the ability of suppliers to meet all

transaction requirements. These may include quantity and quality
specifications; on-time delivery; and environmental, labor and safety
standards.
Recommended good practices

Analyze chain governance to determine leverage points: where, how and

when can practitioners intervene to effect systemic change and influence
industry behavior.
Analysis should seek to understand:
 Economic interests: Assess interests and incentives at aggregation points and
determine how changes in the system will impact the benefits, profits, and power that
are likely to accrue to lead actors versus to others.
 Social structure: Work with respected social figures, such as key farmers, chiefs and
elders who can influence others to adopt or purchase new techniques, technologies,
services or inputs.
 Competition and strategy: Changes in the level of competition or in lead actors’
strategies can pressure buyers, traders and others to change predatory or abusive
behavior.
Global Supply Chain
Management:
An Overview
HISTORY OF THE GLOBAL SUPPLY
CHAIN
 Global supply chain management is directly linked to the rise of globalization.

  Global supply chain management trend is evolving as new technologies emerge.

 Instead of vendors mailing their products and assuring its delivery, companies are
now able to track the product's exact location through GPS tracking devices.

 These devices are imperative for global supply chains.

 The moment a product is purchased; inventory levels are updated to reflect the sale.

 A third trend affecting global supply chain management is the lowered barriers of
economic trade.

 The General Agreement on Tariffs and Trade (GATT) enabled companies to buy
products from other countries for lower costs.
Global Supply Chain
Management
 Any company that uses parts and services from another
factory overseas faces issues with global supply chain
management.

 A global supply chain is made up of the interrelated

organizations, resources, and processes that create and
deliver products and services to end customers.

 In the instance of global supply chains, it is extended

around the world.
Why do we need GLOBAL SUPPLY
CHAIN MANAGEMENT?

 Global market forces

 Technological forces

 Global cost factors

 Political and economic factors

GLOBAL MARKET FORCES

 Foreign competition in local markets

 Growth in foreign demand

 Global presence as a defensive tool

 Companies forced to develop and enhance

leading - edge technologies and products
TECHNOLOGICAL FORCES

 Knowledge diffusion across national boundaries,

hence need for technology sharing to be competitive
 Global location of R&D facilities
 Close to production (as product cycles get shorter)

 Close to expertise (Indian programmers)

GLOBAL COST FACTORS

 Availability of skilled/unskilled labor at lower

cost

 Integrated supplier infrastructure (as suppliers

become more involved in design)

 Capital intensive facilities like tax breaks, price

breaks etc.
Political and Economic Factors

 Trade protection mechanisms

 Tariffs, Quotas, Voluntary export restrictions, Local content
requirements, Environmental regulations, Government
procurement policies (discount for local)

 Exchange rate fluctuations and operating flexibility

Global Supply Chain System Components
 International distribution systems
 Manufacturing domestically and Distributing overseas.
 International suppliers
 Raw materials and components from foreign suppliers, and manufacturing and
distribution domestically.
 Offshore manufacturing
 Product is sourced & manufactured in a single foreign location, Shipped back to
domestic warehouses for sale and distribution.
 Fully integrated global supply chain
 Products are supplied, manufactured and distributed from factories located
throughout the world.
 In a truly global supply chain, it may appear that the supply chain was designed
without regard to national boundaries.
 The true value of a global supply chain is realized by taking advantage of these
national boundaries
Global Supply Chain Management Factors
 Costs
 Local labor rates/International freight tariffs
 Currency exchange rates
 Customs Duty
 Duty rates differ by commodity and level of assembly
 Impact of GATT/WTO: Changes over time
 Export Regulations & Local Content
 Denied parties list/Export licenses
 Local content requirement for government purchases
 Time
 Lead/Cycle/Transit times & Customs clearance
 Taxes on Corporate Income
 Tax havens and not havens
 Make vs. buy effect
Objectives of Global Supply Chain

 International manufacturing sources - whether company -

owned or external suppliers - have in recent years been
sought out by managers because of reduced cost,
increased revenues, and improved reliability.

 Manufacturers typically set up foreign factories to benefit

from tariff and trade concessions, low cost direct labor,
capital subsidies, and reduced logistics costs in foreign
markets
Advantages of GSCM
 When you go global, then the likelihood of increasing sales goes up as you open up
your market to consumers all over the world.

 This allows businesses to reduce dependence on their local and national economies.

 With the number of Internet users on the rise, global businesses are able to do
business at all hours of the day with consumers from every point on the globe.

 The potential for expansion for businesses increase as they enter into more markets.

 Diversified business and trading

 Lower supply chain costs

 Competitive advantage

 Untapped markets
Disadvantage GSCM
 The biggest disadvantage of global supply chain management is the heavy
investment of time, money, and resources needed to implement.

 Inefficient and undersized transportation and distribution systems

 Market instability

 Integrating the supply chain and choosing the correct suppliers is much
more difficult than one can imagine.

 Not only do companies have to strongly consider price and quality, but
they also have to make sure that all the organizations are willing to
cooperate to benefit the group.

 Difficulty of fitting managerial styles, objectives, and goals; and unevenly

distribution of power between all companies involved.
Disadvantages GSCM
 When entering the global market, businesses need to be aware that the gains may not be
seen in the short term.

 It may be many years before they start reaping the rewards of their efforts.

 Another disadvantage is that they have to hire additional staff to help launch their
companies in the global markets they expand into.

 Companies usually have to modify their products and packaging to suit the local culture,
preferences and language of the new market.

 Travel expenses are sure to increase for the administrative staff, as they will now be
expected to travel all over the world to oversee their business outlets in other countries.

 Also, companies need to know the regulations and tax laws in foreign countries, which
take time and money, and they may need to hire professionals in those countries to help
with legal and financial issues.
Benefits of GSCM
 As opposed to a poorly organized supply chain a global supply is extremely
competitive and so you can obtain a really good price for supplies that will all be
produced to excellent standards, without even having to search widely.
 Excellent products completed to the highest standard of quality controls can be
sourced quickly and efficiently.
 A global supply chain therefore brings with it benefits in terms of companies who
are involved in a global supply chain being able to shave their costs right down and
therefore ensure the economic viability of their business.
 Global supply chains are often one of the first methods used for supply chain cost
reduction activities.
 The global supply chain means that businesses within countries which traditionally
did not operate to high standards have had to ‘up their game’.
 Companies that operate within developing countries or those such as India and
China know that if they do not come up with the goods, there are a myriad of other
businesses that will.
Benefits of GSCM
 If you have sufficient contacts and suppliers internationally, then you can really
reduce the amount of stock that you have to retain.

 These costs can add up, so this certainly helps sharpen the competitive edge
that comes with a global supply chain.

 The global supply chain also makes the securing of almost any item easy, since
somewhere in the world it is probably being produced or manufactured.

 Item with high standard can be bought from the country where it has been
made.

 The global supply chain really does operate on a 24/7 basis, simply because of
the time differences in different countries.
Benefits of GSCM
 Operating a global supply chain also brings with it new opportunities
for the markets.
 If you are sourcing items from China, then it is feasible that you may
wish to look at other markets that you may be able to tap in to since
you have already established sources in China.
 It is almost as if once a company has taken the first step to source
supplies globally, new markets and opportunities follow.
 One of the most interesting factors of the global supply chain is that
we can learn from others!
 Business is done differently in different parts of the world and we are
able to learn new ways of doing business, new production methods
and new distribution methods, if we keep an open mind and have a
willingness to learn.
Benefits of GSCM
 A global supply chain has to be flexible or it will simply implode, but
given that any supply chain has to be flexible, with a global supply
chain the flexibility is always given a higher priority and as such,
flexibility within the chain is maximized, allowing for the chain to be as
effective as possible.
 The final benefit of a global supply chain is that if you are within this
kind of framework then you have a chance of success and being able to
even grow during the economic downturn.
 If you are not part of it, then your chances of survival are lower.
 So being in it is almost not a choice and the benefit (of survival) is a
difficult thorn to grasp, but if your company is not operating within a
global supply chain framework, you are well behind those who are!
Process of GSCM
 Process means a practice, a series of actions, done for a specific purpose,
such as satisfying customers.
 Supply chain process is a flow of activities with the goal of meeting the
requirements of customers.
 It includes all internal functions, logistics, distribution, sourcing, customer
service, sales, manufacturing and accounting.
 It includes external companies.
 The series flows backward--from delivering each customer order each order
as demanded back through the performance of suppliers to provide needed
finished products, components, parts and assemblies.
 Process has structure.
Collaborative processes for the global
supply chain
 In today’s world, more and more companies need to
collaborate globally.
 In the supply chain, this is a result of companies wanting to
optimize their operations and having more suppliers involved in
all processes of their activities.
 With the current development of online tools, Internet, and
services, supply chain members can access online spaces
where they can share and exchange information and transmit
messages.
 Supply chain members can benefit more from these tools if
they are able to connect these solutions to their organizational
processes
Global Supply Chain
Challenges
Global Supply Chain
Challenges
 Geopolitical risk, for example:
 Global conflict stimulated by shortage/control of resources (increasingly water rather
than oil)
 National controls in reaction to changing circumstances, e.g. regulatory advice
regarding off-shoring, protectionism

 Impact of increasing energy prices and volatility caused by supply

uncertainty

 Increasing dependence upon technology, which is fine until it fails

 Reduction of buffer stock

 Concentration of risk through constant drive to reduce cost and increase

efficiency
Full Team Ahead

 If you've got the guys working on operations on the first floor and
on the second floor you've got the CFO and treasurer looking at the
books, shocked that they are paying 'x' million dollars on duty costs,
that's a failure.

 First step is to get these two groups together so that a whole

picture of the organization can be visualized. 

 Managing a global supply chain affects not one or two

departments, but the whole company
Go to the Experts First

 From the beginning, managing the supply chain requires retaining

someone with expertise in the international locations.
 We need a partner that is a master in that market, because it's very
important to have someone that can help further develop the brand.
 For other small businesses, find a business consultant that specializes
in that location, who can help navigate everything from cost-saving
transit options to taxes. 
 Find someone who is very familiar with the location, someone who
spends most of their time in that country and well versed in the local
business world as well, know companies and contractors, and know
how to deal them.
 You need to be convinced on how significant a good consultant to your
company. 
Don't Assume Too Much

 One of the biggest mistakes seen in small businesses

considering international expansion make is, well, too
much guessing. 
 Things like electrical power or Internet access, which
developed country businesses have easy access to,
might not be so easily accessed in another country
 Organizations actually have to go to the locations
where they have to make sure that their partners can
sustain the business.
Emerging issues in GSCM

 First, firms are increasingly outsourcing to both domestic and

global locations.

 Second, many firms that had viewed their sourcing problems

myopically as an enterprise-level concern now strive to integrate
decision processes across tiers in the supply chain.

 A third issue is the broadened definition of supply chain

performance, as mission, strategy and objectives can vary
considerably based on the value of the product offered to the
customer . 
Emerging Issues in Global
Supply Chain Design
 Outsourcing manufacturing to offshore supplier locations is a
practice that has grown in recent years such that managers find
themselves increasingly designing supply chains that include not
only corporate but also supplier facilities.
 Supplier selection decisions change the global supply chain
design problem in fundamental ways, in part because they are
based on more broadly defined criteria.
 Suppliers are typically selected based on the buyer’s perception
of the supplier’s ability to meet quality, quantity, delivery, price
and service needs of the firm.
What is Agribusiness value chain strategy?

 To answer this question, we first need to define supply chain

management (SCM).

 SCM is a set of approaches that efficiently integrate and

coordinate the materials, information and financial flows across
the supply chain

 Thus, merchandise is supplied, produced and distributed in the

right quantities, to the right locations, and at the right time, in
the most cost-efficient way, while satisfying customer
requirements

 The objective of SCM is to achieve a sustainable competitive

advantage
What is agribusiness chain strategy?
 A supply chain strategy is part of the overall business strategy, designed

around a well-defined basis of competition (innovation, low cost, service,

quality)
 It is integrated with the marketing strategy, customers’ needs, the

product strategy, and power position

 SCS are pivotal to the success of most contemporary businesses and

equally important for not-for-profit organizations

 Strategies exist, whether they are planned or not (e.g. de facto strategy)

 To be effective, an organization’s SCS must align with its competitive

strategy
Types of agribusiness value chain strategy?

 There are two generic strategies in supply chain

management, lean and agile strategies
 Leanness developing a value stream to eliminate all
waste, including time, and to enable a level
schedule, while agility is using market knowledge
and a virtual corporation to exploit profitable
opportunities in a volatile marketplace
Lean Supply Chain strategy

 Lean supply chain strategy is an enhancement of value

through elimination of wastes.

 It is concerned with cost reduction by operating the basic

processes with a minimum possible level of waste.

 Its primary objective can be realized through effective

information sharing on inventories, capacities, and
delivery plans and fluctuations - (JIT) principles.
Lean supply chain strategy

 Some of its key features are: predictable market demand; a

lowest-price criterion; product supply based on forecasts; a
long product life cycle; and long order lead time

 Under this strategy, customers are delivered value through

‘low production cost and logistics achieved by using all
available synergies and economies of scale’

 Many organizations have successfully implemented and

benefited from the lean strategies
Agile agribusiness value chain strategies

 Agility is a comprehensive response to the business challenges

of profiting from rapidly changing, continually fragmenting
global markets for high-quality, high-performance, customer-
configured goods and services

 The main objective of agility is based on competition, business

practice, corporate structures, strategic response, adaptability,
building defenses against competitors, a paradigm shift, a step
towards innovation, and the promise of a cooperation

 Thus, agility is an appropriate strategy when coping with

turbulence and reconfiguring operations to enable individual
customer specifications to be accommodated in high-volume
manufacturing
Agile agribusiness value chain strategy
 Agility not only responds to changing market conditions, but also to
exploiting changing opportunities

 Agility was applied to supply chains to transfer the winning strategy and
benefits of agility to supply chains

 Agility as a strategy focuses on ‘Responsiveness’

 It is the ability of the supply chain as a whole and its members, to rapidly
align the chain and its operations to the dynamic and turbulent customers’
requirements

 The key elements of an agility are: being information driven (or virtual);
having market sensitivity (or demand-driven); having integrated processes;
and being network-based
Leagile agribusiness value chain strategy
 Leagile strategy is a hybrid of lean and agile systems.

 It aims to infuse competitiveness in an organization in a cost-effective manner

 It enables the positioning of the chain to best respond to a volatile demand

downstream, yet still provide a level schedule upstream the chain

 It can be interpreted as an integrated approach to supply chain design, in which

the real focus of chain re-engineering is on seeking ways to achieve the
appropriate combination of lean and agile strategies

 In this hybrid strategy, lean focuses on waste elimination, achieving low-cost

delivery of a standardized and stable product, while agility responds to
complexity caused by changes
Determinant of agribusiness value chain strategies

Supply chain strategy and the product

 Customer and market uncertainty,

 functional and innovative attributes,
 product life cycle, and
 the market winner are essential factors should be
considered to align SCS and product characteristics
Determinant of agribusiness chain strategy

Customer and market uncertainty

 These days, customers’]\[po demands not only for quality, but also for service.
 Thus, organization must understand customers’ needs and supply chain
uncertainty.
 The six key market variables that determine the attributes of supply chain
structure: volume, time, service level, price, rate of change, innovation, and
product development
 Customers in different segments may have similar needs, though the
differences will be greater than the similarities in most cases
 New products have higher supply uncertainty while matured products have less
uncertainty
Determinants of agribusiness value chain strategy

Functional versus innovative products

 Products can be categorized as either primarily functional or innovative.

 Functional products are stable, have predictable demand, long life cycle,
and low-profit margin

 In contrast, innovate products can compete through their design or on

the basis of unique concepts. They have tend to have short life cycle,
high profit margin and greater variety, which further increase
unpredictability.
Determinant of agribusiness value chain

Product life cycle

 Product life cycle (PLC) theory can help managers identify which strategies to use
during different phases of the product cycle.

 PLC summarizes all the steps from the product design and development phases to the
decision to remove it from the market

 The product goes through an introduction, growth, maturity and a declining phase
Strategies linked to product life cycle
Market qualifiers and winners

 The concept of ‘order qualifiers’ and ‘order winners’ advocates the basis on which
manufacturing strategies to choose.

 Market qualifiers form the baseline for entering into a competitive arena, while
order winners refer to the specific capabilities that an organization has to actually
win orders.

 Market qualifiers are the basic criteria that permit a firm’s product to be
considered as a candidate for purchase by customers; while order winners are the
criteria that win an order (they differentiate the products and services of one firm
from another).

 The notion here is that to be truly competitive requires not just an appropriate
manufacturing strategy but also an appropriate holistic value chain strategy.
Market winners and qualifiers

 There is a critical connection between the concepts of ‘qualifiers’ and ‘winners’

and ‘lean’ and ‘agility’.

What is supply chain management?

Sustainable & inclusive value chains
Sustainable & inclusive food value chains

Some of the key questions to be addressed are:

 What is a sustainable & inclusive food value chain?

 How does this framework contribute to CSA?

 How does analyzing the sustainable & inclusive food value chain
help to identify possible interventions to improve the performance
of the chain?

 Which kind of technologies, practices & interventions by different

chain actors can help to improve the sustainability and
inclusiveness of the chain?
Sustainable & inclusive food value chains

The sustainable & inclusive food value chain can be defined as:

“the full range of farms and firms and their successive coordinated value-
adding activities that transform raw agricultural materials into food
products to be sold to final consumers and disposed of after use, in a
manner that is profitable throughout the chain, has broad-based benefits
for society and does not permanently deplete natural resources.”
Sustainable & inclusive food value chains

 One of the characteristics of the sustainable value chain is its inclusiveness, which
implies that value chain development should be inclusive of the poor.

 However, it does not necessarily mean a focus on the poorest of the poor, rather
smallholder farmers that have the capacity and those that are commercially
oriented.
Sustainable & inclusive food value chains

 the value chain actors: these are mainly private sector actors, but can
also consist of public sector organizations. They are heterogeneous and vary
with regard to size;

 four core functions or stages: this includes production (farming),

aggregation, processing, and distribution (wholesale, retail). The aggregation
stage is where basically post-harvest handling and food storage takes place;
and

 governance structure: refers to the coordination mechanisms and

linkages between the different chain actors in the chain.
Sustainable & inclusive food value chains

The ultimate value chain includes:

business development support providers: they facilitate the

value addition process and can be divided into three
groups: input, service and financial providers.
Simplified food value chains
Extended food value chain
Sustainable & inclusive food value chains
 Another characteristic of the food value chain is that value is
determined in end markets.

 This means that if value is added to the product due to, for
example, the use of a green technology, the value is
determined and captured by the chain actors only when the
consumer pays for the product.

 There are different ways in which value adds to a product,

for example, when a product is processed or packaged.

 Value can also be subtracted at any stage in the value chain,

such as when the product is improperly stored and packed.
National & global environment

 Furthermore, value chain actors & support providers operate in a

national & global environment, which contains social and natural
elements.

 The social elements can be categorized into:

o socio-cultural (e.g. customs, beliefs, values),

o organizational (e.g. partnerships, cooperatives, associations),

o institutional (e.g. laws, regulations, policies), and

o infrastructural (e.g. roads, rail lines, electrical grids,

telecommunications) issues.
Social elements

1. An economic dimension: which focuses on activities that each actor

or service provider provides that is commercially viable (profitable) or
services that are fiscally viable.
2. A social dimension: which refers to social and cultural aspects
regarding societal acceptance of the distribution of benefits and costs
associated with the increased value that has been created. For example,
it takes into account how food is consumed, the amounts of energy and
water used when food is prepared or cooked as well as whether
consumers reduce, reuse or recycle their food waste.
3. An environmental dimension: which refers to the sustainable use
of natural inputs and resources throughout any impact on biodiversity,
the amounts of greenhouse gas (GHG) emissions released, and the
carbon sequestration and reduction potential of GHGs in the process of
value creation.
How does SIAVC contributes to CSA?...

 The agricultural sector, including crop and livestock

production, fisheries and forestry, must transform and
become climate-smart in order to successfully tackle
current food security and climate change challenges.

 The sustainable and inclusive food value chain

approaches can be applied for this transition as its
three sustainability dimensions – economic, social and
environmental are directly linked to three pillars of
CSA.
Sustainable and inclusiveness

There are many similarities between the two approaches.

 Both approaches focus on increasing productivity, profitability and incomes.

 The sustainable and inclusive food value chain focuses, in particular, on how
increased value is captured at end markets once consumers willingness to
pay is checked.

 Moreover, it includes distributional principle in which case profits and

incomes should be equally distributed to increase people’s resilience to
shocks and variability, the second pillar of CSA.

 The only difference between the two approaches is that sustainable and
inclusive food value chain looks at environmental impacts in a broader sense,
for example, it also considers the water footprint of food products and not
merely GHG emissions.
Sustainable and inclusiveness

 Practices and technologies, many of which already exist,

need to be not only profitable, but should also be
socially beneficial and reduce the impact on the
environment in order to be sustainable.

 Sustainability that is achieved across this triple bottom

line can also contribute to reaching the objectives of CSA
as the two approaches are complementary.
The three bottom lines
The Principles of SIFVC development

 It is important to understand how to develop sustainable &

inclusive food value chains.

 The aim of food value chain development is to achieve a

positive or desirable change in a value chain.

 A value chain development intervention can range from

improving business operations at production, processing,
storage level or the relationship between different actors or
the access to knowledge, information and innovation
The Principles of SIFVC development

The development of SIFVC can be divided into

three phases:
 understanding performance
 improving performance
 measuring performance
The Principles of SIFVC development
Dynamic system based

 This principle refers to the fact that the value chain is a

dynamic system as it evolves over time due to certain
factors, which can result in desirable or undesirable
directions.

 The main factors that can push the system in certain

directions can include changes in profitability, market
demand, technology, barriers to entry, risk and policies.
Governance - centred

 Chain actors are linked to each other via various governance

mechanisms, which include contracts, agreements and
partnerships.

 These governance mechanisms are linked to the degree of

market power and collective action of chain actors, the type of
service providers and the broader enabling environment (e.g.
laws and regulations, policies and public infrastructure).

 Trust, in both the actors and enabling environment, can have a

positive or negative impact on the performance of the entire
value chain.
End-market driven

 This principle refers to the fact that value addition is eventually

determined in the end-market.

 It is based on the consumer’s decision to buy the product.

 This decision could be based on the price of the product, intrinsic

qualities like physical appearance, nutritional value, attributes of
the brand or how the product was produced taking in to
considerations such issues as carbon footprint.
Targeted

This principle refers to strategic actions to improve the performance of the

chain, which should include:

 firstly a vision and realistic & quantifiable objectives that address the
triple bottom line as well as be in line with national development plans.
In addition, these objectives also need to be acceptable and inspiring to
stakeholders as well as to generate buy-in, political will and
entrepreneurial drive.

 secondly, the strategy needs to involve the right stakeholders (i.e.

inclusiveness) so that poverty and hunger can be addressed not on a
short-term basis, but in a sustainable manner.

 thirdly, strategic actions need to be undertaken where the largest impact

can be achieved in economic, social and environmental terms.
Upgrading focused
 In order to improve the performance of a value chain, upgrading has to be
undertaken.

 The aim of upgrading is to realize one, two or all of the triple bottom line
objectives: 1) increasing profits through efficiency measures or value
addition; 2) increasing inclusiveness by improving social impact; 3)
reducing environmental impacts of the entire chain.

 Upgrading can take place in different forms, e.g. a technology,

organizational, network, institutional, process, product/market or a
functional upgrade.

 Successful upgrading involves the integration of individual upgrades along

the chain as well as actions to improve the enabling environment.
Scalable

 This principle aims to achieve impact at scale.

 Scale is crucial, because a larger impact is highly desirable,

but also because upgrading is often enabled due to an
increase in scale.
Multilateral

Improving the entire performance of a value chain

requires a coordinated and collaborated effort by the
private sector, as the driver in the value addition
process, and the public sector, including donors and
civil society, as facilitators of the enabling
environment.
Economic sustainability

Refers to a value chain performance that provides

equal or higher profits or incomes for each
stakeholder.
Social sustainability

 Refers to a value chain performance where additional value is

created (additional profits and wage incomes) that benefits a
large number of poor households.

 It is also about equitably distributions of benefits along the

chain to avoid socially unacceptable impacts and
objectionable practices like unhealthy work conditions, child
labor, violation of strong cultural traditions, etc.
Environmental sustainability

Refers to a value chain performance where additional value is

created without permanently deplete natural resources
(water, soil, air, biodiversity).
Food loss and waste in the FVC

 Food is lost and wasted at every stage within the food value chain.

 In medium- and high-income countries, food is largely lost and

wasted after the farm gate and in particular at the retail and
consumption stage.

 While food is mostly lost during the production, post-harvest and

processing stages of the food chain and much less is wasted at the
consumer level in low-income countries.
Causes of food loss & waste

In developing countries, food is mostly lost and wasted, because

of the way food is:
o produced;
o handled after harvest;
o stored;
o preserved; and
o processed.
In addition, food is lost and wasted due to people’s lack of access
to food, as a result of:
o insufficient income;
o lack of or limited markets; and
o lack of or inadequate infrastructure such as roads, railways,
waterways, port infrastructure.
Causes of food loss & waste

In developed countries, food is wasted or lost due to:

o how food is stored;

o prepared and cooked; and

o the food choices that people make (e.g. people buy more food than they need,
put more food on their plates than what they eat)

among others
At food production stage

Good agricultural practices

Good agricultural practices involve adequate soil management, including

management of weeds, crop protection and maintenance of crop hygiene.

 The latter involves the collection and removal of decaying plants, fruits
and wood that can lead to infections in vegetables and fruits to avoid post-
harvest losses and waste.

 In addition, the amount of water provided to the plant, the use of

fertilizers, pesticides and herbicides can all influence the post-harvest
quality and quantity of the produce and thus provide entry points to
reduce post-harvest losses
At food production stage

Good livestock production and dairy farming practices

 Good livestock production and dairy farming practices include proper
management and housing, sufficient feed (adequate and nutritious) and
water, milking hygiene and regular vaccinations and drugs, all aimed at
minimizing & avoiding food losses, waste and contaminations.

 In particular, zoonotic diseases should be controlled in order to prevent

possible animal and human deaths.
At post-harvest and processing stages

Losses & waste of agricultural products at the post-harvest and processing

stages may occur due to:
 spoilage, as a result of lack of or inadequate cooling facilities and lack of
adequate infrastructure for transportation;
 spillage, contamination, and degradation, not only as a result of poor and
inadequate handling, but also due to wrong processing
 inadequate preservation of the products;
 trimming, as a result of selecting products with the wrong shape, weight, size
and appearance;
 packaging, as a result of damaging due to use of poor quality containers.
At food distribution, marketing and retail stage

Transportation conditions
 Poor transport conditions can easily damage products. For example, vehicles that are
overloaded, products that are poorly packaged or carried in an unsuitable vehicle and
insufficient ventilation and cooling all increase the amount of post-harvest losses.
 In addition, the amount of time it takes for a product to reach the consumer
contributes to losses, because the longer the product is under the sun or in humid or in
other weather conditions, the shorter its life span.
 This is because fruits and vegetables easily spoil and damage as they contain 65 to 95
percent of water and as soon as their food and water reserves are depleted, the
product deteriorates and perishes and may become inedible before it reaches the
consumer.
 Therefore, they need to be marketed as soon as they are harvested.
 Therefore, the transportation of the harvested produce should be planned in advance
so that losses can be minimized
Creating a Value-Added Agricultural Products

Basic terms and concepts

 In agriculture, they can be thought of as a farm-to-fork set of inputs,
processes and flows
 Value chain analysis: refers to assessment of the actors and factors that
influence the performance of an industry (i.e. agriculture) and
relationships among participants
 To identify the main constraints to the increased efficiency, productivity
and competitiveness of an industry (i.e. agriculture) and how these
constraints can be overcome
 Value chain finance: refers to the financial services and products flowing
to and/or through value chain participants to address and alleviate
constraints to growth (i.e. agricultural)
Creating a Value-Added (Access to finance)

 Agricultural value chain finance offers an opportunity to reduce cost

and risk in financing, and reach out to smallholder farmers
 Internal value chain finance Vs. external value chain finance
 Internal value chain finance: refers to finance which takes place within
the value chain such as
Example:
o when an input supplier provides credit to a farmer, or external value
chain finance: refers to finance which is made possible by value chain
relationships and mechanisms
o a bank issues a loan to farmers based on a contract with a trusted buyer
or
o a warehouse receipt from a recognized storage facility
Creating a Value-Added (Access to finance)
 Finance is required to address the constraints and opportunities,
both through the value chain, and to and/or because of the value
chain
 understanding a value chain finance can improve the overall
effectiveness of those providing and requiring agricultural financing.
It can improve the quality and efficiency of financing agricultural
chains by:
o identifying financing needs for strengthening the chain,
o tailoring financial products to fit the needs of the participants in the chain,
o reducing financial transaction costs through direct discount repayments and
delivery of financial services; and
o using value chain linkages and knowledge of the chain to mitigate risks of the
chain and its partners
Creating a Value-Added (Access to finance)

 As agriculture & agribusiness modernize with increased integration and

interdependent relationships, the opportunity and need for value chain finance
becomes increasingly relevant
 The agro-food sector has undergone changes that have influenced new models
of production and marketing involving:
a focus on demand rather than on producer-defined agricultural goods (i.e.
supply driven)
 Integrated agricultural value chains help to understand the whole set of
transactions within each value chain and that of the agricultural sector within
which it operates:
o Agriculture has been changing rapidly from one of fragmented production and
marketing relationships toward integrated market systems or chains.
o Agriculture, as with many other sectors, is now a global market place driven by
competitiveness which demands certain levels of efficiency and productivity.
Creating a Value-Added (Access to finance)

Internal factors limiting access to finance (for agricultural

produces): lack of collateral due to:

 lack of or poor quality of farm assets,

 lack of ownership of assets for women farmers,

 poor financial management, and

 risky nature of farming and inability of clients to prepare viable

project proposals
Creating a Value-Added (Access to finance)

External factors limiting access to finance (for agricultural produces)

constitute:

 high interest rates,

 high cost of service delivery to the sector, and
 perception of financial services providers about farming as being
high risk
Creating a Value-Added (Meeting consumers demands)

Meeting the challenges of consumer trends and the demand for more
processed or value added agricultural products requires:
 increased investment in equipment, working-capital, and skills and
knowledge.
 such investment is not only costly for individual value chain
businesses, but can only be undertaken if there is an assurance from
elsewhere in the chain for supplies, produce or markets.
 this necessitates the need to strengthen the links and commitment
amongst value chain players, often through contracts.

Remark: financial institutions and policymakers can learn from and engage
more with agricultural value chain actors in order to develop new
products and to reach new market
Creating a Value-Added (Increasing efficiency)

The ‘farm-to-table’ integration of a chain can increase

efficiency and value through:
 reduction of wastage,
 ensuring food safety,
 preserving freshness (i.e. agricultural produces),
 decreasing consumer prices, and
 improving farmer prices and income
Creating a Additional Value (Increase efficiency)

Efficient food value chains normally reduce the use of intermediaries in

the chain and strengthen value-added activities because of:
o better technology and inputs,
o farm gate procurement,
o upgraded infrastructure (such as cold chains),
o improved price opportunities through demand-driven production, and
o facilitation of more secure procurement for food processing and exports
Remark: the key aspects of the value chain definitions for agriculture
are:
o value chains: multiple, linked actors and sequential, and value-adding
activities;
o value chain analysis: assessment of actors, relationships, constraints and
opportunities; and
Creating a Additional Value (Cont...)

Value chain finance

Value Chain Vs. Climate Risks
There are five commonly used steps to design climate-smart value
chains
o selection of the value chain
o identification of key climate risks in the value chain
o choice of the most effective climate interventions
o targeting those most vulnerable to climate risk, and
o reaching scale with climate interventions
Creating a Additional Value (Cont...)

Step 1: selection of the value chain

 Value chains can be pre-selected based on economic priorities
 in some cases future risks (including climate risk) may play a role
in deciding which value chain investments offer most
opportunities for future livelihoods.
Step 2: identification of key climate risks in the value chain
 a mix of scientific and participatory approaches is the best way to
identify which climate risks and opportunities matter most for
future farm livelihoods
 combining empirical data with stakeholders’ advices can unlock
our ability to make more informed choices on what and when to
farm under climatic uncertainty
Creating a Value-Added

Step 3: choice of most effective climate interventions

o Interventions to manage climate risks in value chains range from
specific climate-proofing actions (more heat-resistant storage
facilities) to diversification and transformative change.

o For example a shift in major agricultural commodities, farming

systems or diets decision tools at national and local levels can help
make the best choices, calculate cost-benefit ratios, and understand
the support that farmers need for adoption

o In both cases (national and local levels), effective engagement with

decision-makers is an important success factor
Creating a additional value (Cont...)

Step 4: targeting those most vulnerable to climate risk

 Value chain projects may fail to reach those most at risk from climate
change impacts, or worse still, exacerbate existing inequalities

 Improved understanding of how climate change vulnerability overlaps with

poverty, gender, age or landlessness to get investments to the help of
people most in need.

 Developing interventions that reach and benefit both genders means

greater resilience for communities as a whole

 Participatory vulnerability analysis can help tease out critical differences

within households and communities
Creating a additional value (Cont...)

Step 5: reaching scale with climate interventions

o intelligent investment in institutions and capacity will be
more important than technical innovations to generate
widespread and lasting benefits from climate risk
management

o local institution building in value chain projects provides a

strong foundation for adaptive capacity
o engagement with the private sector can also be an
effective approach
Creating a Value-Added (Cont...)

Storage system and value addition of agricultural produces

 Inadequate level of postharvest facilities is a major constraint to
accelerating agricultural growth and value addition i.e. in developing
countries
 Storage facilities (on-farm) for agricultural produces has some
features: they vary according to climatic-ecological zones of the
country:
o clay built containers: are fairly secure against rodent attacks
o storage structures in forest zone: are less resistant to rodent
and insect infestation; and
o elevated cribs: are commonly used in wetter areas
Creating a Value-Added (Cont...)

Remark: market storage facilities depend on the

sophistication/complexity of the market for agricultural produces
o rural markets lack storage facilities
o semi-urban and urban markets usually offer space for the
wholesale trade i.e. mainly for higher value packaged agricultural
products
 Market infrastructure for agricultural produces: roles
o one important role of markets is to assemble and distribute small
volumes of agricultural produce brought by a large number of
farmers a market is also
o a location of social and political interaction
Creating a Value-Added (Cont...)

In most developing countries, physical markets for farm produces are

characterized by:
 Decrepit degraded infrastructure,
 Lack of suitable commodity specific storage facilities,
 Unhygienic premises, and
 Over-crowding
 Processing of agricultural produce for value addition
 Agro-processing not only help to increase shelf lives and expand
demands, but also reduce postharvest losses (i.e. for perishable
fruits and vegetables).
Creating a Value-Added (Cont...)

 Limitations in processing of agricultural produces, in most

developing countries, constitute:
o inefficient technologies,
o high level of wastage, and
o poor quality of produces
 A holistic approach to strengthen the whole value chain needs to
be taken, to address some of the processing weaknesses, for a
gradual strengthening of local agro-processing initiatives

 mostly, there is therefore need to streamline and harmonise

government strategies aimed at promoting agro-processing
Common challenges of Food VCs in Africa

 Lack of high-yielding and pest-resistant/tolerant

varieties/breeds

 Low quality of produce

 Lack of inputs

 Lack of environmental considerations

Common challenges of Food VCs in Africa

 Negative environmental and climate change impacts, and

climate variability

 Inability of smallholder producers to meet the requirements

of buyers such as retailers, intermediaries or food processing
companies (due to low produce and low quality of produce)

 Lack of integration of small- and medium-sized enterprises

(SMEs) from the informal sector into existing, cross-border
VCs

 Poor post-harvest management and market linkages

Reference materials
 Palombi, L., & Sessa, R. (2013). Climate-smart agriculture: sourcebook. Climate-smart
agriculture: sourcebook.
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Bentley, S. & Barker, R. 2005. Fighting global warming at the farmer’s market: the role of
local food systems in reducing greenhouse gas emissions
 Boer, J. de, Hoogland, C.T. & Boersema, J. J. (2007). Towards more sustainable food
choices: value priorities and motivational orientations. Food Quality and Preference, 18:
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 Carlsson-Kanyama, A. (1998). Food consumption patterns and their influence on climate
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Reference materials
 Davies, S. (2011). Making sustainable choices easier. Nutrition Bulletin, 36: 454 - 459. British
Nutrition Foundation.
 Humphrey, J., and Schmitz, H. (2004). Chain Governance and Upgrading: Taking Stock.  In H.
Schmitz (Ed.), Local Enterprises in the Global Economy: Issues of Governance and
Upgrading (pp. 349-381). UK: Edward Elgar Publishing Limited.
 Humphrey, J. & Schmitz, H. (2008). Inter-firm Relationships in Global Value Chains: Trends in
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Governance and Upgrading in Global Value Chains, Duisburg: University of Duisburg
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Reference materials

 Gereffi, G., Humphrey, J., & Sturgeon, T. (2005). Review of International Political

Economy, 12(1), p. 89.
 Humphrey, J., & Schmitz, H (2005). Governance and Upgrading: Linking Industrial Cluster
Global Value Chain Research, IDS Working Paper (No. 120), Institute of Development
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 Giuliani, E., Pietrobelli, C., & Rabellotti, R. (2005). Upgrading in Global Value Chains:
Lessons from Latin American Clusters. World Development, 33(4), 549-573
 Sturgeon, T. (2009). From Commodity Chains to Value Chains: Interdisciplinary Theory
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