Nature and Scope of AgriFood

Supply Chain Dynamics

Tom Sporleder
sporleder.1@osu.edu

Presented at FAMPS
Conference May 4-5, 2005

Agenda
Schematic approach to defining a supply chain
Highlight the importance of perishability and

differentiation in commodity supply chains

Present conceptual framework for supply
chain analysis
Supply chain system
Decision scope
Network environment

Classify major supply chain types

Comments about dynamics and heterogeneity

Motivation for Means to Better

Understand Supply Chains and
Networks
Analysts must understand

complexities relative to information &

SHIFT
knowledge
IN
Cascading events:
BASIS
Biotechnology
Food safety

OF
RIVALR
Y

Animal welfare
Decreased costs of information flow

Intellectual Capital vs.

Intellectual Property
Capital is the

broader concept
Property is a
class mostly of
the intangibles
of a firm
Brand equity
Patents
Licenses

Supply Chain Components

Food and Agriculture-Related Cluster
S e c t o r s o f t h e A g r ic u lt u r a l a n d F o o d C lu s t e r : P r im a r y a n d S e c o n d a r y F lo w s

P r o c e s s in g

F o r e ig n
Export

F a r m P r o d u c tio n
D o m e s tic
Export
W h o le s a lin g a n d
R e ta ilin g
F a rm In pu ts a n d
M a c h in e r y

A t H om e
C o n s u m p tio n
F o o d S e r v ic e
(H R I)
A w a y from H o m e
C o n s u m p tio n

Grocery Supply
Chain

Private Label

Interdependencies in Supply
Chain

Growth in Agricultural
Contracting

Source: ERS,
USDA

Selected Commodities and Food

Products Mapped in the
Dependency/Differentiation Space

Typical Transaction Governance

Mapped in
Dependency/Differentiation Space

Supply Chain Bullwhip Effect

Defined

The bullwhip effect refers to the

phenomenon where orders to the
supplier tend to have larger
variance than sales to the buyer
(demand distortion) and the
distortion propagates upstream in
an amplified form (variance
amplification)

The Bullwhip Effect in Supply

Chains

Supply Chain Without

Bullwhip Effect
Customer demand forecast = 10 units
Information

Suppliers

Products &
Services

Producers

10 Units
10 Units

Products &
Products &
Services
Distributors Services
10 Units

10 Units

Retailers

10 Units
10 Units

Cash
Retailers are selling product at a constant rate and price. Firms along the
supply chain are able to set their inventory to meet demand.

Key:

= Inventory Levels

Supply Chain Bullwhip Effect

Customer Demand forecast = 20 units

Information Flow
Suppliers
Products &
Services

Producers

80 Units
160 Units

Products & Distributors Products &

Services
Services
40 Units

80 Units

Retailers

20 Units
40 Units

Cash Flow
As demand increases, the distributor decides to accommodate the forecasted
demand and increase inventory to buffer against unforeseen problems in demand.
Each step along the supply chain increases their inventory (double in this example) to
accommodate demand fluctuations. The top of the supply chain receives the harshest
impact of the whip effect.

Key:

= Inventory Levels

Amplified Bullwhip Effect

from Reciprocal Dependency

Amplifie
d

Amplifie
d

Supply Chain
Concepts

Network Embeddedness
Interdependency that develops

from interfirm relationships

Two types:

Relational - strong or weak ties

Structural - sparse or dense networks
Interaction?

Better connected firms have a

competitive advantage

Components of
Network Embeddedness
Network
Embeddedness

Relational
Embeddedness

Structural
Embeddedness
Connections

Ties
Weak

Strong

Sparse

Dense

Supply Chain Classification

Chain master: supply chain managed

by a domain firm
Chain web: individual firms move in
and out of multiple chains on an
as needed basis
Chain organism: the chain competes
as one entity without a dominant
member

Supply Chain Classification

Chain Master
Dominant agrifood supply chain model
Strong in generating chain efficiency
Weak on incentives for learning
Chain Web
Computer industry and smaller food
firms (without brand equity)
Strong when firms must compete in
multiple chains
Weak on incentives for learning

Supply Chain Classification

Chain Organism
Strong in creating chain efficiency
Strong in creating incentives
Toyota supply system as key example
(Dyer and Nobeoka)

Network-level KM systems exist

Intellectual property rights reside at the
network level and not at the firm level
The creator of knowledge appropriates
100% of benefits in the short run
Trust is a key element

Learning Supply Chain

An integrated supply chain that has

an added dynamic, agile ability to

learn from and respond to changing
markets.
Added capacity: knowledge and
intellectual capital held and applied
collectively by the supply chain
Benefits:
Greater responsiveness and flexibility
Greater efficiency

Prerequisites for a Learning SC

The ability to manage knowledge

exists at the supply chain level.

Capacity:

IT for explicit knowledge

Human processes for tacit knowledge

Incentives through fair distribution of

returns:

To motivate knowledge sharing

To overcome classic coalition problems

Application to Agrifood System

Agrifood examples
LoSatSoy oil supply chain (King)

Lesson: Dominant actors control either the

critical production knowledge or the critical
end-consumer knowledge (chain master).

ECR initiative

Lesson: Path dependency blocks knowledge

management and learning

Frito-Lay and Wyandot Foods ??

More cases need to be explored.

When is dynamic responsiveness
needed?

Concluding Remarks
Dynamics are not uniform across supply chains
The role of spot markets tends to remain

robust in commodity or undifferentiated

portions of supply chains that rely on buffer
stocks for coordination
The bullwhip effect may lead to vertical
information transfer within supply chains
Supply chains are complex at least 3
dimensions: system, decision scope, network
environment
Factors of embeddedness and brand equity are
not well-understood but enrich our
understanding of supply chains

Concluding Remarks
Two types of agriculture have emerged: cost-

based and value added

Supply chains coagulate to serve the unique

economic and logistical requirements of each

Rapid movement to identity preservation and
traceback, motivated primarily by cost minimization
& inventory control incentives

Recognition of the chain master model could

benefit analyses of supply chains (i.e. similar

to principal-agent but more dimensionallycomplex)
Much research remains:
Testing of stylized facts
Implications for supply chain and food firm

performance