Creating preferable futures in horticulture using value chainhorticulture using value chain 

systems modelling: th tithree comparative cases

byby

Laurie Bonney (TIAR)

Prof Ray Collins (Uni ersit of Q eensland)Prof Ray Collins (University of Queensland)

This presentation will…This presentation will…

• Introduce some key value chain concepts

• Situate the approach to VCA used by TIARSituate the approach to VCA used by TIAR

• Broadly describe optional types of governance & h i& chains

• Describe three contrasting case studies g

• Provide an intervention framework

• Describe how VCA can be used

The world has changed for value chains…

• Competition has changedCompetition has changed

• Innovate for competitive advantage

• Co‐innovation to create value in the eyes of the consumer

• Value chain management (VCM) is one adaptive strategy

• VCM involves a deliberate decision by chain members to work together to improve their competitiveness by d l l h h d h ddelivering superior value to each other and to the end consumer

DefinitionsDefinitions

• A Supply Chain is the sequence of processes in linked 

businesses that transform raw materials into products,businesses that transform raw materials into products, 

services & information that consumers value & will pay 

ffor

• A Value Chain is a chain whose systems and behaviours• A Value Chain is a chain whose systems and behaviours 

are focused on delivering value to its customers and, 

most importantly, to the end consumer

Conceptions of chains as systems

Linear Value Chains

Netchains

Lambert, DM, Cooper, MC & Pagh, JD (1998)

Value

Lazzarini, SG, Chaddad, FR & Cook, ML (2001)

Value Constellations

Normann, R & Ramirez, R (1993); Stabell, CB & Fjeldstad, ØD (1998); Allee, V 2003

A shift from supply push to demand pull thinking…

InputSuppliers

Primary Producers

Wholesalers Processors Distributors Retailers Consumers

i il CInput                    Primary                    Processors                    Retailers                    ConsumersSuppliers              Producers                                                                                     

Graphics: Fearne & PIRSA (2009)

All chains have five dimensionsAll chains have five dimensions

1. The flows and transformations of product

2. Its people – the chain members

i i l fl3. Financial flows

4. Flows of data, information &4. Flows of data, information & communication

5 G ( l i hi )5. Governance (relationships)

The co‐innovation roadmap…

Source: Bonney, Clark, Collins, Fearne (2007)

The choices managers have for governing relationships in their value chain

Spot/Cash Market Specifications Contract

Relationship‐based Alliance

Equity‐based Alliance Market

Vertical Inte ration

Characteristics of “Invisible Hand” Coordination

Contract Alliance Alliance Market Integration

Self‐interestShort‐term relationship Mutual interestShort term relationshipOpportunismLimited information sharingFlexibility

Mutual interestLong‐term relationship

Shared benefitsOpen information sharing

Independence StabilityInterdependence

Characteristics of “Managed” Coordination

Peterson, HC, Wysocki, A & Harsh, SB 2001, 'Strategic choice along the vertical coordination continuum', Management Review, vol. 4, no. 149, p. 166.

Two types of value chains…

1 Commodity (Efficient) Chains:

Two types of value chains…

1. Commodity (Efficient) Chains:

• Compete on price & efficiency

S li h t & lit• Suppliers chosen on cost & quality

• Farmers are price‐takers

S bj t t titi• Subject to competition

• Top‐down decision‐making

M t i ti li k d t• Monetary incentives linked to meeting contract specs

• Relatively inflexible to changingRelatively inflexible to changing environment

• Opportunistic, antagonistic

Two types of value chains…

2. Innovative chains2. Innovative chains• Consumer focused

• Largely niche, value‐added products

• Suppliers selected for speed, flexibility & quality

• Holistic approach to chain management

• Based on trust commitment values• Based on trust, commitment, values & ethics

• Negotiation & bargaining Organic • Reward DIFOT, chain behaviour & 

innovation performanceBeef

Matching products with value chains

FunctionalP d t

InnovativeP d tProducts Products

in

Match Mismatch

Efficient

alue

 Cha

iVa

Mismatch Matchovative 

e Ch

ain

Inno

Valu

Source: Fisher, ML (1997); Albers, S, Gehring, M & Heurmann, C (2003)

Three case studies with contrasting approaches (A li & C d )

Product Pork Processed Vegetables Processed Veg

(Australia & Canada)

Product Pork Processed Vegetables Processed Veg

Growth Negative 5% last 5 years 10%+ for 20 yrs

Governance Market Specifications contract Relational hybridp y

Type of Prod Commodity Branded & Priv Label Private label

Type of Chain Commodity, no  Innovative, low‐ Innovative, high value‐adding moderate value‐adding value‐adding

Shared vision & goals

No vision & different short term

Different visions & goals

Shared visions & goals& goals different short term 

goalsgoals goals

Trust &  No trust &  Minimal trust &  High trust & commitment opportunistic opportunistic commitment

Values & culture

Incompatible values & culture

Incompatible values & culture

Compatible values & cultureculture & culture culture values & culture

Three case studies with contrasting approaches (Australia & Canada)

Product Pork Processed Vegetables Processed Vegg g

Leadership & followership

No chain leadership

Attempted chain leadership but no f ll hi

Chain leadership & followership

followership

Structure & Processes

Incompatible,missing,

Incompatible,individualistic, no r’ship

High transparency, relationship specific g,

individualistic, p

specific investmentsp p

investments

Relationships Transactional, no t t

Transactional, no trust, t i ti

Strategic l ti hi t ttrust, 

opportunisticopportunistic relationships, trust, 

commitment

Cont Imp (CI) Low  Basic communication Good p ( )& Org Learning (OL)

communicationNo CI or OL

Part CI or OL communicationGood CI or OL

Innovation No innovation Limited innovation High innovationInnovation No innovation Limited innovation High innovation

Capacity Low Low High

Places to intervene in a system…

6 Th f i f i fl ( d f

Places to intervene in a system…

6. The structure of information flows (access to and types of information)

5 The rules of the system (e g incentives punishments5. The rules of the system (e.g. incentives, punishments, constraints)

4 The power to add change evolve or self organise system4. The power to add, change, evolve, or self‐organise system structure

3 The goals of the system3. The goals of the system

2. The mindset or paradigm out of which the system arises ‐ its goals, structure, rules, delays, parametersg , , , y , p

1. The power to transcend paradigmsMeadows, D 1999, Leverage points: places to intervene in a system, The Sustainability Institute, Hartland VT.

How can value chain principles & analysis be used?How can value chain principles & analysis be used?

The analysis & improvement of existing value chains (Projects: Houstons; HAL‐AVIDG; Geo Morris Centre; CHM‐Aus Pork Ltd#1)

The establishment of new value chains (Projects: ACIAR [multiple projects]; ManbullooLimited; Seafood CRC#1)

Determining the focus of public & private investment in industries (Projects: Yalumba – PIRSA; Seafood CRC#2)

Industry or regional evaluation as a basis for developing industry or regional policy and plans (Projects: Seafood CRC#3; Aus Pork Ltd#2)

LCA & carbon or water foot‐printing

As a framework for identifying high impact bio‐physical and social

Analysis of the risks and value‐creating opportunities of climate change (Project: Private‐Uni Queensland)

As a framework for identifying high impact bio physical and social research (Projects: ACIAR [multiple projects]; PIMC‐MLA#2)

Applying related tools to whole systems e.g. LCA & carbon or water foot‐printing (Projects: Yalumba – PIRSA; PIMC‐MLA#1)