SlideShare une entreprise Scribd logo
1  sur  42
Télécharger pour lire hors ligne
Andrew Fearne
Sustainable Food and Wine Value Chains
Andrew Fearne Sustainable Food and Wine Value Chains




Sustainable Food and Wine Value Chains
Prepared by Professor Andrew Fearne
Adelaide Thinker in Residence
Department of the Premier and Cabinet
GPO Box 2343
Adelaide SA 5001

August 2009

©All rights reserved – Crown – in right of the
State of South Australia

ISBN 978-0-9804829-9-7

www.thinkers.sa.gov.au




                                                                            1
Andrew Fearne
Andrew Fearne
                                             Professor Fearne’s integrated chain           Partners in the residency:
                                             analysis research system and style of
                                             communication has been particularly           •   Department of the Premier and Cabinet
                                             effective during a period in the UK food      •   Primary Industries and Resources SA
                                             and beverage sector when assaults to          •   Department of Trade and Economic
                                             public confidence in food products from            Development
                                             livestock disease outbreaks demanded
                                             system change. Growing up on a family         •   Department of Health
                                             farm and his early career role as an          •   University of Adelaide
                                             economist with the National Farmers           •   University of South Australia
                                             Organisation in the UK were formative         •   Yalumba
                                             and influential stepping stones to an
                                             academic and consulting career which          •   Constellation Wines Australia
                                             has been consistently transforming            •   TARAC Technologies Pty Ltd
                                             under-performing supply chains into           •   AMCOR Australasia
                                             value chains by focusing on consumer          •   Barossa and Light Regional
                                             preferences.                                      Development Board
Professor Andrew Fearne is Director of the
Centre for Supply Chain Research at Kent                                                   •   Meat and Livestock Australia
Business School, University of Kent. He is   His research and facilitation activities
                                             have involved the strategic analysis          •   Department of Education and
an expert on food marketing, consumer
                                             of consumer behaviour and the co-                 Children’s Services
behaviour and supply chain management.
An economist by training, Andrew moved       ordination of agri-food supply chains         •   Zero Waste SA
into the area of supply chain management     with clients and research partners from       •   Sustainability and Climate
because of an interest in an area of         around the world.                                 Change Division
growing importance not usually covered
by economists.                               Professor Fearne is the founding editor
                                             of the International Journal of Supply
During the past twenty years he has been     Chain Management, author of over 100
researching consumer requirements and        articles, and editor or contributor to over
expectations in a wide range of food         a dozen books on industry values chains
supply chains in the United Kingdom,         and related matters.
shedding light for farmers, processors
and retailers on the changes needed to
lift agribusiness performance in supply
chains and the consumer food experiences
in supermarkets into better value chains
for stakeholders and better and safer
eating experiences for consumers. He has
also worked in France, Ireland, Slovenia,
Germany, North America, the Middle East
and South-East Asia.




2
Andrew Fearne Sustainable Food and Wine Value Chains




Foreword
Foreword
           South Australia is globally renowned        This not only enhanced his understanding
           for the quality of our food and wine,       of South Australia’s agri-food sector, it
           and these industries remain our State’s     also enabled him to better identify the
           biggest employer and among our largest      challenges and opportunities facing our
           export earners.                             primary producing regions.

           However, the impact of climate change       His message is a confronting one for our
           and rising living and production costs,     food and wine industries – adapt, or risk
           along with the growing demand for           extinction.
           healthy eating and more sustainable
           consumption, means the sector faces         We must embrace improvement and
           significant challenges.                      innovation to ensure we remain globally
                                                       competitive, which is why the State
           During his term as an Adelaide Thinker      Government established the SA Food
           in Residence, Professor Andrew Fearne       Centre at Regency Park, the first facility of
           brought his vast international experience   its kind in Australia.
           to help improve the processes that
           deliver food and wine from producers to     Professor Fearne’s final report also
           consumers.                                  highlights the enormous potential that
                                                       exists, and the key steps we must take in
           Professor Fearne’s residency focussed on    order to position South Australia as the
           assisting local food and wine businesses    leading innovator in Australian food and
           to better understand the importance of      wine.
           value chain thinking – to ensure we value
           add to our products, and maximise our       I thank Andrew for his work and his
           sustainable competitive advantages.         contribution to our State, and I commend
                                                       this final report to you.
           He emphasised the need to work
           beyond traditional boundaries, and
           challenged the conventional thinking of
           organisations and individuals.

           Professor Fearne spent time working
           closely with regional communities –
           in the Barossa Valley, Riverland, Eyre      Mike Rann
           Peninsula and South East – where he met     Premier of South Australia
           with farmers, fishers, growers, packers,     August 2009
           producers and retailers.




                                                                                                          3
Contents
Contents
           Executive Summary                                                          5

           Introduction                                                               7

           Value chain thinking                                                       8
           Value chain                                                                8
           Value chain management                                                    10
           Value chain analysis                                                      13
           Life cycle thinking and the value chain                                   14
           Demonstration projects                                                    16

           Value chain management in practice – insights from around the world       17

           An analysis of South Australia’s food and wine value chains               23
           Contextual challenges                                                     23
           Diagnosis                                                                 24

           Grasping the opportunities – the process of adaptation and                28
           the role of government
           Primary Industry and Resources SA (PIRSA)                                 29
           Department of Trade and Economic Development (DTED)                       29
           Education – Department of Education and Children’s Services (DECS),       30
           Department of Further Education, Employment, Science and
           Technology (DFEEST)
           The ‘Alliance’: SA Health, Sustainability and Climate Change Division –   31
           Department of the Premier and Cabinet, and Zero Waste SA
           Regional Development Boards                                               33

           Recommendations                                                           34

           Acknowledgements                                                          37

           References                                                                38

           Further Reading                                                           40




4
Andrew Fearne Sustainable Food and Wine Value Chains




Executive Summary
Executive Summary
                                                                                            disciplinary and functional silos, as evident
                                                                                            in government as they are in business.

                                                                                            Achieving the requisite change in mindset
                                                                                            that constitutes the first steps on the road
                                                                                            to sustainable competitive advantage has
                                                                                            been the greatest challenge I have faced
                                                                                            in this residency. It is likely to prove one of
                                                                                            the greatest challenges in the future, so
                                                                                            embedded is the supply chain paradigm,
                                                                                            in government and industry alike, in
                                                                                            strategic planning, policy making, program
                                                                                            development and the delivery of products
                                                                                            and services.


                                                                                              Recommendations

    ‘When you stand back and face your issues, a                                            In considering my recommendations, of
                                                                                            which there are five, I have been mindful
    glimpse of light falls on the face in the shadow.’                                      of the depressed economic climate and the
                                                                                            need to ‘do more with less’, which is, after
    Rabbi Lionel Blue                                                                       all, consistent with value chain thinking!
                                                                                            These recommendations are summarised
Sustainable value chains are those in          There is no reason why South Australia
                                                                                            below and explored more fully in the main
which collaborative relationships facilitate   could or should not position itself as the
                                                                                            report.
the effective flow of information, to           innovator in Australian food and wine.
enable rational decision-making and            Indeed, it already has an international
                                                                                            1 Thought leadership
effective resource allocation, for the         reputation for excellence in some
benefit of the chain as a whole. Value          sectors – for example, viticulture and
chains can only be sustainable if chain        aquaculture. However, to develop a           I believe that there is a serious lack of
members are in tune with and responsive        sustainable competitive advantage, South     understanding of value chain principles
to the needs of their customers, the wants     Australian food and wine businesses must     amongst senior managers, in both
of final consumers and the complex              devote more resources to penetrating         government and industry. What is needed
interaction between what they do, how          higher value markets and avoid the ‘race     is a catalyst for change and a mechanism
they do it and the natural environment         to the bottom’, competing purely on price,   for empowering senior managers to turn
within which they operate.                     which they are ill-equipped to win.          the principles into practice. Thus, my first
                                                                                            recommendation is the development of a
                                                                                            global thought leadership program, with
I found pockets of excellence in the South     All organisations can benefit from the
                                                                                            investors from multiple agencies and a
Australian food and wine industries,           application of value chain thinking.
                                                                                            range of industries, not confined to South
where the principles of value chain            However, the process of change is
                                                                                            Australia. The focus of this program is the
management are being implemented               challenging, as it requires a paradigm
                                                                                            development of leaders who will drive
by businesses large and small. However,        shift in thinking (from supply ‘push’
                                                                                            change in their respective organisations
the examples of good practice were             to demand ‘pull’), and a collaborative
                                                                                            and raise the level of awareness,
over-shadowed by an overwhelming               re-allocation of resources and
                                                                                            understanding and implementation of
sense of denial – the rains will come,         responsibilities amongst all stakeholders
                                                                                            value chain thinking and management
the markets will adjust… ‘She’ll be right’     in the value chain. This encompasses
                                                                                            in South Australia and beyond, at a time
– with few substantive changes in the          the relationship between government
                                                                                            when the need could not be greater.
strategic orientation, culture, business       and industry and is applicable to all
processes or incentive structures within       sectors – it is not an imperative that is
many of those organisations – businesses       exclusive to food and wine. Complex          Such a program should attract investment
and government agencies – that                 problems demand holistic solutions,          from across government – all agencies
are struggling with the challenge of           which are stifled by the proliferation of     would benefit from value chain thinking
sustainable business development.                                                           – other states, the Commonwealth
                                                                                                                                               5
Executive Summary


                                            common understanding amongst all             take adequate account of industry needs,
    Recommendations (cont)                  stakeholders of what it is that consumers    are deficient in critical areas, and the
                                            value and how this differs across markets    methods of delivery are not as flexible
Government and the Research and
                                            (distribution channels and geographies)      as they need to be to attract more young
Development (R&D) corporations. This
                                            and consumer segments.                       people into the food and wine industries
program would put South Australia on
the map, in terms of global thought                                                      – an ageing workforce and low levels of
leadership in value chain management.       Whilst this may be a weakness shared         retention are major concerns. Thus, my
The program should also seek to break       by other sectors, the focus here is          fourth recommendation is for a root-and-
down the ‘silo’ culture that is endemic     unequivocally on food and wine               branch review of the current education
within business and government – the        consumers. Thus, I would recommend           and training provisions for the South
benefits should transcend functional,        that the lead agency for implementing        Australian food and wine industries.
disciplinary, geographical and sectoral     this recommendation is PIRSA, in
boundaries. Thus, I believe it would be     partnership with the other state             This is clearly a task for DECS and DFEEST
most appropriate for the Department         agencies responsible for agriculture, food   and was initiated during the course of
of Further Education, Employment,           and wine; the federal Department of          my residency. It must not be allowed to
Science and Technology (DFEEST) to          Agriculture, Fisheries and Food (DAFF);      falter and should involve consultation
be charged with implementing this           and the plethora of trade associations       with PIRSA, DTED and the regional
recommendation, in consultation with        and R&D corporations, whose duplication      development boards.
the Department of Primary Industries        of effort in the exploration of overseas
and Resources (PIRSA), the Department       markets and consumers is bewilderingly       5 Regional co-innovation clusters
of Trade and Economic Development           spectacular.
(DTED) and other agencies with an                                                        Innovative industries are built around
interest in value chain thinking.           3 Holistic food policy                       innovative communities, and I believe
                                                                                         that there is scope for more effective
2 Integrated market intelligence            The current SA Food Plan is devoid of        collaborative innovation at the regional
  and consumer insight                      meaningful linkages to the plans of other    level. Thus, my final recommendation is
                                            agencies, yet the food system impacts        the creation of regional co-innovation
The lack of consumer insight, at all        substantially on the work of many of         clusters. The vision is to create virtual
stages of food and wine value chains (but   them. Thus, my third recommendation is       networks that are rooted in the regions
particularly upstream), amongst input       the development of a holistic food policy,   but extend globally and target young
suppliers and primary producers, is a       to support the implementation of an          people, on whom the future depends
major impediment to the development         SA Food Plan that interacts with other       but who are currently excluded from
of a sustainable competitive advantage      plans (trade and development, health,        the sustainability debate. These clusters
for the South Australian food and wine      education, workforce development,            would act as incubators for ideas, and
industries. This is a ‘blind spot’ which    sustainability and climate change) and       provide pathways for young people to
everyone can ‘see’, the removal of which    will facilitate the development of cross-    gain experience in business and become
is therefore something around which all     agency programs and a more effective         more pro-actively involved in community
stakeholders can unite. Existing market     engagement with industry.                    development.
intelligence is extremely fragmented
and not easily accessible in a form that    This recommendation should be led            This recommendation is strongly
individual businesses can readily use       by PIRSA but must involve other key          influenced by the insightful conclusions
in business planning and marketing          agencies with an interest in the food and    drawn by the A-team1. Thus, I am keen
decision-making. Thus, my second            wine industries – DTED, Department of        that the Office for Youth should have
recommendation is the generation of         Education and Children’s Services (DECS),    a major role in taking this forward, in
an integrated market intelligence and       SA Health, Sustainability and Climate        partnership with DTED and the Barossa
consumer insight service, one that is       Change Division – Department of the          and Light Development Regional Board,
accessible to all stakeholders in the       Premier and Cabinet, and Zero Waste SA.      with whom progress has already been
respective (sector specific) value chains.                                                made in the formulation of a potential
It should combine information about         4 Education and training                     pilot project.
markets (size, structure, organisation,
access), consumers (attitudes and           Pathways through the education and           1
                                                                                          ‘Engaging Young People in Sustainable Value Chains
                                                                                         – Communication, Education and Opportunities’,
perceptions) and shoppers (purchasing       training system are, to say the least,       Office for Youth Policy Action Team (OFY A-Team)
behaviour). The goal is to achieve a        complicated. Syllabuses do not always        Recommendations Report, January 2009.

6
Andrew Fearne Sustainable Food and Wine Value Chains




Introduction
Introduction




    ‘I choose life over death... and if I should fail, then
    I will try again. The only true failure would be not
    to explore at all’ Ernest Shackleton


When I began this journey of discovery                                                    My journey, like everyone else’s, is
                                              This report is in four parts:
I had little idea of the terrain before me,                                               coloured by my own background,
my fellow travellers or even the final         • Firstly, I discuss the development of     experiences and intellectual limitations.
destination! After twelve months of             value chain thinking, the benefits of      As a social scientist, my fundamental
looking, listening and engaging with a          value chain management and the            interest is in behaviour – of individuals
fascinating mix of government, industry         generic barriers and enablers to its      and organisations – and in how to change
and academic stakeholders, I have a             application.                              behaviour to achieve different outcomes.
much clearer picture of the landscape                                                     In the context of building sustainable
of the South Australian food and wine         • Secondly, I provide examples of the       food and wine value chains, the purpose
industries.                                     application of value chain thinking       of my residency was primarily to explore
                                                in the food and wine industries from      not what people and organisations
I also have a better understanding of           around the world, to demonstrate          do, but how they do it. Value chain
the adaptation that is required if they         what is possible, and make the case       thinking is concerned primarily with
are to fully exploit their potential, and       for the adoption of value chain           inputs (processes), not outputs (products
become more resilient and responsive            thinking in South Australia.              and services), the assumption being
to the increasingly complex economic                                                      that if the processes are responsive to
and environmental forces that are an          • Thirdly, I present my diagnosis of the    customer needs and consumer wants,
enduring threat to their sustainability.        current state of South Australia’s food   and resilient to the external challenges of
                                                and wine industries, highlighting         climate change and global competition,
The future prospects for the South              what I see as the strategic challenges    then the outcomes will be more
Australian food and wine industries are,        of today and the major opportunities      sustainable – economically, socially and
I believe, fundamentally positive, but the      for the future.                           environmentally. Thus, the focus of my
impediments to sustainable growth and                                                     final report is less on what is happening
                                              • Finally, I set out my recommendations.    in South Australian food and wine value
prosperity are significant and cannot be
ignored.                                                                                  chains and more on how things get done,
                                                                                          with a view to identifying opportunities
                                                                                          for process improvement.


                                                                                                                                             7
Value chain thinking
Value chain thinking
                                                                                           as possible, heavily reliant on wholesalers
                                                                                           and agents, building distribution and
                                                                                           sales and exchanging transactional data
                                                                                           (eg. sales orders, delivery notes, invoices)
                                                                                           with little interest in behavioural drivers
                                                                                           (eg. attitudes, perceptions, motivations),
                                                                                           upstream or downstream. In these chains,
                                                                                           efficiency grows from being a primary
                                                                                           objective to an obsession and businesses
                                                                                           do whatever it takes to cut costs (including
                                                                                           the abuse of market power). Information
                                                                                           is viewed as a cost, which means it can be
                                                                                           cut and the only information exchanged
                                                                                           is transactional. Relationships are ‘arms
                                                                                           length’, due to the lack of trust and
                                                                                           commitment between opportunistic buyers
                                                                                           and sellers. Success in these chains is
                                                                                           measured by the margin each stakeholder
                                                                                           manages to generate over their costs –
    ‘If you talk to a man in a language he understands, that                               for commodity suppliers this will vary
    goes to his head. If you talk to him in his language, that                             according to factors largely beyond their
                                                                                           control (eg. exchange rates and world
    goes to his heart.’ Nelson Mandela                                                     stock levels). The end result is a race to the
                                                                                           bottom (lowest cost) in which there is little
There are various interpretations of (and     The starting point on the journey to         incentive to invest in anything but scale –
some might argue a degree of confusion        sustainable competitive advantage is         commodity production and supply chain
over) what constitutes value chain thinking   a change in mindset that places the          thinking is a hard addiction to kick.
and its relevance to the South Australian     consumer first and everything else
food and wine industries. In the following    subordinate to their wants. Consumer         In value chains (Figure 2), by contrast,
sections I aim to clarify the scope of the    preferences (eg. taste, texture,             the focus is on the identification of
subject and the distinction between three     provenance, convenience, value for           opportunities to differentiate – cutting
key elements: value chain, value chain        money) are not always consistent with        costs where necessary (hence the removal
management and value chain analysis.          customer needs (eg. higher rates of          of wholesalers and agents) but adding
                                              sale or lower levels of in-store waste) or   value wherever consumer preferences
                                              policy objectives (eg. healthier diets or    make so doing profitable. In these chains
Value chain                                   fewer food imports), but whether we          information is regarded as a critical success
                                              are trying to build loyalty for individual   factor in which businesses invest and are
The concept of the value chain was            brands or more sustainable communities       willing to share with like-minded trading
first introduced by Michael Porter in his      and environments, changing peoples’          partners – those with whom trust has
seminal work on competitive advantage         behaviour begins by understanding what       been built through commitment over time
(Porter 1985). The chain, as the name         motivates them. The ability to do that       and with whom conversations focus on
implies, represents a linked set of value-    requires a paradigm shift in the way we      where the opportunities for adding value
added activities. Porter’s view was           view the value chain – from supply push      exist and how the benefits of collaborative
that competitive advantage cannot be          to demand pull.                              cost reduction and differentiation can
discerned by looking at a firm in isolation,
                                                                                           be shared for the longer term benefit of
but stems from the many discrete
                                              The implications of this paradigm shift      all stakeholders in the chain. Notice also
activities in designing, producing,
                                              for the way organisations interact is        that in value chains the barriers between
marketing, delivering, and supporting
                                              summarised in Figures 1 and 2 .              firms (inter-organisational silos) that are
products and services. Hence, sustaining
                                                                                           so prominent in traditional supply chains,
a competitive advantage depends on
                                              In (traditional) supply chains (Figure 1)    dissolve over time as the chain learns to
understanding not only a firm’s value,
                                              the primary focus is on material (product)   pull together, as one, united in the focus on
but how the firm fits in the overall value-
                                              flow – pushing what is made/available         the final consumer and the sustainability of
adding activities (value system) of the
                                              through as many distribution channels        the chain as a whole.
chain as a whole.
8
Andrew Fearne Sustainable Food and Wine Value Chains




Figure 1. Supply chain thinking




                                                                                                                                         IMAGE COURTESY OF PRIMARY INDUSTRIES AND RESOURCES SA
                                             TRADITIONAL SUPPLY CHAIN – SUPPLY PUSH
Figure 2. Value chain thinking




                                         SUSTAINABLE VALUE CHAIN – CONSUMER DEMAND PULL

Focusing on the key enablers –               effective flow of information – within     Thus, when discussing value propositions,
information flow and relationships            and between organisations – which         value chains and the sustainability
– changes the way businesses view            is an essential ingredient for rational   thereof, it is important to distinguish
the world in which they operate. A           decision-making and effective resource    between the terms ‘customer value’ and
switch to value chain thinking has           allocation. More important, in the        ‘consumer value’. The former relates
fundamental implications for the quality     context of sustainability, sustainable    to organisational buyer behaviour and
of information and the strength of           value chains are more in tune with the    focuses on the buyer’s evaluation of a
relationships that underpin strategic        needs of their customers and the wants    product (or service) in the context of
and operational decision-making, and         of final consumers, and more sensitive     organisational performance measures
the financial model that drives the           to the complex interaction between        (eg. margin, rate of sale, waste), and
incentivisation of individuals’ behaviour,   what they do, how they do it, and the     business objectives (eg. profit, return on
from the boardroom to the shop               environment within which they operate.    investment, market share). The latter
floor. Value chain thinking requires                                                    term focuses on final consumers and
firms to embrace the principles of            The value chain proposition               their evaluation of the consumption of
collaboration, which in turn demands                                                   a product or service, in the context of
aligned objectives, open communication,      It is widely recognised that final         individual or collective (eg. household
sharing of resources, risks and rewards.     consumers have exclusive rights to the    or community) utility, which extends
This is not easy and cannot happen           definition of what constitutes value       from the basic fulfilment of physiological
overnight, particularly when the             in a product or service. Firms can only   needs (eg. hunger and thirst) to higher
dominant paradigm, which has served          create successful value propositions by   levels of psychological fulfilment (eg.
so many businesses so well in the past,      understanding what it is that consumers   wellbeing and self-respect).
is diametrically opposed to value chain      value in the products and services they
thinking.                                    create, and subsequently adapt to         Therefore, the primary difference
                                             suit specific target segments (see, for    between a supply chain and a value chain
Sustainable value chains are those in        example, Anderson et al. 2006, Butz       is a fundamental shift in focus, from
which collaborative relationships are        & Goodsten 1996; Parasuraman 1997;        the supply base and producers to the
underpinned by inter-personal and inter-     Rintamäki et al. 2007; Vargo & Lusch      customer base and consumers. Both ends
organisational trust. This facilitates the   2004; Woodruff 1997).                     of the chain are highly heterogeneous

                                                                                                                                        9
Value chain thinking


and require careful segmentation, for the    the form of a price premium. However,       they are to stand any chance of competing
purpose of effective resource allocation.    if consumers remain oblivious to            effectively. Similarly, government agencies
However, in most instances, supply           the challenges of sustainability –          and non-governmental organisations
chains focus upstream on integrating         the response to which is currently          (NGOs) must be tuned into the same
supplier and producer processes –            being led by government policies            wavelengths if they are to stand any
improving efficiency, reducing waste and      and corporate social responsibility         chance of changing consumer perceptions,
meeting customer value – while value         initiatives – the appropriate allocation    attitudes and preferences where it
chains focus unequivocally downstream,       of resources could be very different,       matters most – at the supermarket
on understanding what it is that             with compliance the primary motive          checkout.
consumers value and then delivering it       for changes in the way products and/or
as effectively, efficiently and quickly as    services are produced and delivered.        In collaborative value chains prices
possible. This distinction often gets lost                                               are determined by the value that is
in translation as businesses become too      The potential disconnection between         derived by the final consumer, which for
focused on value as defined by their own      customer needs and consumer wants           commodities is volatile but generally
organisation (or in some cases the next      is not the only one that makes the          falls over time. Thus, in commodity
organisation in the chain) and fail to       concept of ‘value’ in value chains a        markets, the emphasis is very firmly on
recognise the importance of delivering       difficult one to pin down. The tension       reducing supply chain costs to enable
value as defined by the final consumers        between consumerism and citizenship         businesses to survive at lower prices. By
of their products or services.               is at the heart of the sustainability       contrast, the adoption of ‘lean thinking’,
                                             debate, in which too few people are         in which value chains are configured to
The important point here is that             engaged. The resulting degradation          allow product to be pulled through the
whilst customer value is critical in         of our natural environment and              value chain in response to demand, with
order to gain market access – failure        deterioration in social welfare (eg.        minimal inventory and maximum speed
to understand and meet the needs of          public health) represent fundamental        and flexibility of response, is gaining
retail buyers will eventually result in      challenges to the notion of consumer        increased attention. In the UK several
an adversarial relationship, minimal         sovereignty. Some would argue that          pilot projects have been co-ordinated
information sharing and a competitive        sustainable value chains should have        through government-funded initiatives to
strategy wholly reliant on efficiency – it    public good, not private benefit, as the     demonstrate the value of lean thinking in
is the final consumer who ultimately          primary focus. The problem with this        removing waste and improving efficiency2.
determines where the value lies in a         argument is that most commercial
product or service. Failure to understand    enterprises are motivated by financial
                                                                                         Value chain management
and meet the wants of final consumers         returns, not the public good, which of
will result in both suppliers and buyers     course is why the market mechanism
                                                                                         Managers are charged with making
losing ground to competitors who have        often fails to deliver the public
                                                                                         decisions about resource allocation and
likewise satisfied customer needs but         benefits that governments seek.
                                                                                         use. When an organisation recognises
present a stronger and more carefully        This is changing, albeit slowly, as
                                                                                         the merits of value chain thinking and
targeted consumer value proposition.         consumers become more aware of and
                                                                                         comes to terms with the consequences of
                                             concerned about the sustainability of
                                                                                         embracing the paradigm shift from supply
This point is particularly relevant in       their lifestyles and reflect this in their
                                                                                         chains to value chains the question arises:
the context of the growing interest          purchasing decisions.
                                                                                         What should it be doing differently?
in sustainability – of both production
and consumption behaviour – and              In the meantime, whilst the
                                                                                         There are four key ingredients for effective
the increasing demands being made            rapprochement of consumerism and
                                                                                         value chain management (VCM):
of commercial businesses to behave           citizenship may be happening too
more responsibly with respect to             slowly, it remains the most effective       • Strategic alignment – collaboration is
the environmental sustainability of          way to capture the minds of chief             not feasible unless all parties are pulling
their procurement, production and            executives, which is why I continue           in the same direction.
distribution practices. If sustainable       to promote a strong focus on the
production and distribution practices        consumer value proposition in value         • Transparency – this relates to the
are something that consumers value,          chains. Commercial businesses must be         efficient and timely flow of relevant
then suppliers should allocate resources     tuned into the way consumers perceive,        information to all parties in the
to reduce their carbon footprint, in the     form attitudes towards and establish          value chain, without which too many
expectation of a commercial return in        preferences for different products if         decisions will be taken ‘blind’ leading

10
Andrew Fearne Sustainable Food and Wine Value Chains




  Figure 3. Co-innovation Roadmap


                                                        Operational Integration



                                                       Organisational Structures
                                                                 and
                                                          Business Processes



                                           Strategic            Vision &            Strategic
                  BUYER                   Alignment            Leadership          Alignment                     SUPPLIER




                                                              Resources &
                                                               Incentives




                                                         Trust & Commitment




                            Mutual Benefits                  Co-innovation                  Shared Learning




 to inappropriate allocation and use of        develop a conceptual framework for            practice. It begins with the strategy and
 scarce resources.                             the analysis of VCM, and particularly         vision – so often lacking, particularly in
                                               the identification of barriers and             small and medium-sized enterprises
• Relationship integrity – trust,              enablers for its adoption in the food         (SMEs) – which must be aligned with
  commitment and inter-dependence              and wine industries. We have placed           that of key (target) partners – you
  are key success factors that require         specific emphasis on collaborative             cannot ‘do’ VCM with everyone so the
  fundamental changes in the way               innovation (which we refer to as co-          first step is to determine the most
  organisations and people interact.           innovation), where we feel there are          likely candidates. This is followed by
  Without trust, buyers and suppliers          real opportunities for improvement, in        investment in and design of business
  have no choice but to trade on the open      organisational activity (product and/         structures and processes that support
  market or use traditional contracts as       or service innovation) and the way that       the vision and, again, are aligned
  transactional vehicles to reduce the risk    organisations go about their business         with partners. If these are not well
  of opportunistic behaviour.                  (process innovation). We have developed       understood and well integrated then the
                                               the framework, which we refer to as the       strategy will fail, as people within the
• Consumer insight – customers                 co-innovation roadmap (Figure 3), by          organisations will face repeated barriers
  are the gatekeepers, with whose              modifying existing value chain theory in      to change – working around existing
  strategies suppliers must be aligned         light of detailed insights gained from two    processes is a drain on resources and the
  if market access is to be maintained,        Australian case studies – Houston’s Farm      spirit of co-innovation.
  but consumer insight is the key to           (Bonney et al. 2007) and Coles-Simplot
  sustainable competitive advantage as         (Horticulture Australia Ltd 2008).
                                                                                             2
                                                                                              See, for example, the work of the Food Chain Centre
                                                                                             (www.igd.com), the Red Meat Industry Forum (www.
  without it, sooner or later, buyers and
                                                                                             redmeatindustryforum.org.uk), the Cereal Industry
  suppliers fall blindly into the commodity                                                  Forum (www.hgca.com) and the Dairy Industry
                                               The framework builds on the key VCM
  trap.                                                                                      Forum (www.dairyuk.org).
                                               ingredients highlighted above, placing
                                               them in the context of an individual
                                                                                             3
                                                                                              Laurie Bonney and Rob Clark, Tasmanian Institute of
Since 2005 I have been working with                                                          Agricultural Research (www.utas.edu.au/agsci)
                                               business seeking to embrace the
colleagues in the University of Tasmania3
                                                                                             4
                                                                                              Ray Collins and Ben Dent, School of Integrative
                                               principles of VCM and put them into           Systems (http://www.nrsm.uq.edu.au/)
and the University of Queensland4 to
                                                                                                                                                 11
Value chain thinking


Accepting the need for continuous             markets were in a general state of            difficult for individuals to think
improvement creates a culture and             excess demand and the focus was on            ‘outside of the box’, to consider the
mindset that embrace change rather            operational effectiveness – making            implications of their actions for the
than resist it – people are encouraged        sure there was enough product in              organisation, let alone the chain, as a
to challenge the status quo; where            the chain and shifting it as quickly          whole, and to recognise the value of
skills are deficient, training and support     as possible to strategically located          ‘seeing the whole’. Managers tend to
is provided, often in partnership with        warehouses. The concept of ‘value’,           work in specific functional areas (eg.
collaborating partners. Mentoring and         let alone ‘consumer value’, was               purchasing, manufacturing operations,
mobility within the value chain are the       irrelevant and distribution was the key       logistics, sales, marketing, finance
norm in ‘mature’ value chains that co-        commercial weapon employed.                   and innovation) and are usually
innovate.                                                                                   rewarded for optimising that part
                                             • The planning horizon for too many            of the business for which they have
Trust is a critical component of VCM as        business managers and policy-makers          responsibility. Worse still, CEOs are
it lies at the very heart of relationship      is too short. Small and medium sized         generally paid on results, no matter
development; the co-innovation                 enterprises (SMEs) struggle to find           the process, and as Nicholas Taleb
roadmap highlights the importance              the time or the desire to consider the       laments, in his incredibly insightful
of building trust through what you             longer-term challenges as they grow          book “Fooled by Randomness”6, “We
do (competence) as well as what you            – if growth is their objective. Policy       continue to worship those who won
say (commitment). The key here is the          makers are often politically motivated,      battles and despise those who lost, no
cycle of organisational learning, within       which means the planning cycle is far        matter the reason”. Many CEOs are
and between partner organisations, as          too short, particularly when it comes        revered for their success in commodity
this learning is the hardest thing for         to policy planning for challenges that       markets, which in many, if not most,
competitors to copy.                           voters do not understand or recognise        instances, has more to do with good
                                               as immediate priorities (eg. climate         luck than good judgement.
Despite the well documented benefits            change and sustainability). Focusing
of the collaborative business model that       on the here-and-now leaves businesses       • The benefits of collaborative value
value chain management embraces5, the          (and government) blind to the                 chains generally outweigh the costs,
proportion of businesses practising it is      challenges of tomorrow, and impotent          but the latter are not insignificant.
relatively small. Managers continue to         when required to respond swiftly to           They are often perceived as prohibitive
refer to the value chain as a supply chain     crises, often of their own making and         by those (primary producers,
and practice supply chain management           to which they have paid insufficient           processors and retailers) scarred by
rather than value chain management.            attention to fully comprehend.                opportunistic behaviour upstream and
As Meadows (1999) explains ‘Paradigms                                                        downstream, and for whom the abuse
are the sources of systems. From them,       • Determining what it is that                   of power remains a much easier option
from shared social agreements about            consumers value is conceptually               in the short term, which is as far as
the nature of reality, come system goals       and methodologically challenging.             many stakeholders in the agri-food
and information flows, feedback, stocks         Why focus on the complex when                 industry care to look. The biggest cost
and flows and everything else about             it is much easier to assume that              associated with building collaborative
systems’. The paradigm shift from supply       all consumers want to pay less for            value chains is management time
chain thinking to value chain thinking         everything and then focus on reducing         – generating the trust and goodwill
is in motion but has a long way to go          costs? Within organisations this              necessary to integrate key business
before the transition becomes the norm.        often results in relocation to low-cost       processes in order to reduce costs
                                               countries, outsourcing and process re-        takes time, and results in a degree of
I believe the primary reasons for this are     engineering. Externally, it often results     inter-dependency with which many
fivefold:                                       in the rationalisation of suppliers and       feel uncomfortable and about which
                                               the abuse of market power.                    those outside of these collaborative
• The majority of today’s chief executive
                                                                                             value chains remain sceptical.
  officers (CEOs) and senior managers         • The proliferation of functional and
  – those who make the rules and               disciplinary silos stifles innovation        I believe that these barriers to the
  determine the vocabulary and culture         and adaptation to what is becoming          adoption of value chain thinking are
  within and between organisations –           an increasingly turbulent, uncertain        endemic, and embedded in business
  cut their business teeth during the          and dynamic business environment.           organisations and business culture the
  1980s. It was a time when global             The silo mentality makes it extremely       world over. Overcoming them is bound

12
Andrew Fearne Sustainable Food and Wine Value Chains




                                                                                            the multi-dimensional assessment
                                                                                            of the performance of value chains
                                                                                            including the analysis of product flows,
                                                                                            information flows and the management
                                                                                            and control of the value chain’. It
                                                                                            provides a mechanism for drawing the
                                                                                            attention of different stakeholders to
                                                                                            the opportunities for improvement at
                                                                                            different stages in the value chain, and
                                                                                            can be an effective catalyst for change.

                                                                                            VCA involves an assessment of the
                                                                                            relationships between the different
                                                                                            stakeholders which, coupled with the
                                                                                            effective flow of information, enables
                                                                                            the economic optimisation of material
                                                                                            flows – allocating time, people and
                                                                                            technology appropriately. Consequently,
to take considerable time and effort. As       by industry associations, government         the methodology focuses on three key
Meadows puts it: ‘You keep pointing at         agencies or regulators. Yet all              issues:
the failures in the old paradigm, you keep     organisations (large or small, public or
speaking louder and with assurance from                                                     • the dynamics of information in the
                                               private) can benefit from the application
the new one... you don’t waste time with                                                      value chain, from final consumption
                                               of value chain thinking – using scarce
reactionaries; rather you work with active                                                    through to primary production and
                                               resources more efficiently and effectively
change agents and with the vast middle                                                        input suppliers and back again – how
                                               by focusing on specific consumer
ground of people who are open-minded’                                                         inclusive, transparent and responsive
                                               segments in distinct target markets.
(Meadows 1999). Nobody said it was easy!                                                      are the information flows in the chain?
                                                                                              To what extent are stakeholders’
                                               The process of change is challenging, as
It is important to acknowledge that                                                           decisions (what to produce, when to
                                               it requires a paradigm shift in thinking
the collaborative business model is                                                           produce, how to produce) influenced
                                               (from supply chains to value chains)
more appropriate for some enterprises/                                                        by what consumers value?
                                               and a re-allocation of resources, risks
markets/value chains than others. For          and rewards. Many, perhaps most,             • the creation and flow of value, in the
example, in commodity markets (in              businesses in the food and wine                eyes of the final consumer, at each
which the opportunities for growth are         industries find this difficult to accept, so     stage in the value chain – how many
diminishing), price is the key driver of       scarred are they by the systemic abuse         of the production and processing
resource allocation, and volume growth,        of market power, particularly from             activities truly add value? How much
market share and efficiency are the             stakeholders downstream, in the past.          investment is being made in these
key performance measures. In these
                                                                                              critical activities? How many are
circumstances there is less scope (and it is
                                                                                              necessary but do not add value (these
fundamentally more difficult) for trading       Value chain analysis
                                                                                              should be completed with minimal
partners to develop relationships beyond
                                                                                              resource allocation)? How many are
‘arms length’ and share information            There are opportunities for improvement
beyond the transactional level. In contrast,                                                  unnecessary (wasteful activities must
                                               in all organisations and all value chains.
in value-added, differentiated, fragmented                                                    be eliminated and resources re-
                                               The problem is that all too often
and rapidly changing markets (which tend                                                      allocated to drive value creation and
                                               organisations (or at least the people
to provide the greatest opportunities for                                                     efficiency)?
                                               that manage them) are reluctant to
growth) the scope and need for improved        accept the principle of continuous           5
                                                                                              See, for example, Bello et al. 2003; Cannon &
vertical co-ordination is far greater.         improvement, or believe it applies only      Homburg 2001; Duffy & Fearne 2004; Kalwani &
                                               to other organisations with whom they        Narayandas 1995; Lusch & Brown 1996; Noordewier
It is also important to stress that VCM is     interact and not themselves!                 et al. 1990; Whipple et al. 2002)
a strategy that businesses, individually
and collectively within a chain, choose
                                                                                            6
                                                                                              Taleb, N. 2004. Fooled by Randomness: The hidden
                                               Value chain analysis (VCA) is a diagnostic   role of chance in life and in the markets, Penguin
to do; it cannot be imposed from above,        tool, defined by Taylor (2005) as ‘...        Books

                                                                                                                                                13
Value chain thinking


                                           of life cycle thinking has been applied      recognised environmental management
                                           to the field of industrial ecology as a       system uses a streamlined LCA that
                                           means of understanding the interaction       underpins the company’s commitment
                                           of industrial systems with the natural       to sustainable winemaking, and provides
                                           environment7. Life cycle thinking does       a catalyst for strategic dialogue within
                                           not produce easy answers, but it does        Yalumba and with its trading partners,
                                           provide a framework to recognise and         upstream and downstream (Camilleri,
                                           understand complex systems and their         2008).
                                           inter-relationships.
                                                                                        Sustainable value chain analysis
                                           The goal of life cycle thinking is to
                                           reduce resource use and emissions            VCA and LCA are diagnostic tools, the
                                           to the environment from a brand,             value of which lies in their ability to
                                           product or service whilst simultaneously     stimulate behaviour change amongst
                                           improving its socioeconomic                  multiple stakeholders in the value
                                           performance throughout the life              chain. LCA, by definition, requires
                                           cycle. This way of thinking leads to         an assessment to be made of the
                                           extended and shared responsibilities         environmental sustainability of a
                                           from cradle to grave. It goes beyond the     product, from input supply to final
                                           traditional focus on production sites        consumption and end of life. VCA
                                           and manufacturing processes so that          requires value chain members to expose
                                           the environmental, social, and economic      themselves to scrutiny with respect
• the nature of relationships – how        impacts of a brand, product or service       to the economic efficiency of material
  much trust exists between different      over its entire life cycle, including the    flows, the effectiveness of information
  stakeholders? What is the nature of      consumption and end-of-use phase, are        flows and the resilience of stakeholder
  communication within and between         taken into account.                          relationships.
  organisations? What evidence is there
  of organisational commitment? How        Life cycle analysis                          Together they have the potential to
  are risks shared and the assumption of                                                provide a more powerful diagnosis of
  risks rewarded in the chain?             Life cycle analysis (LCA), often called      sustainability, within and between
                                           ‘cradle-to-grave’ analysis, is the most      organisations in the value chain. Their
Understanding the nature and source        comprehensive of the analytical              combined application was explored
of consumer value (as opposed to           tools available for quantifying the          during the course of my residency, in a
cost or margin) facilitates behaviour      environmental impacts related to the         demonstration case study sponsored by
change at all stages in the value chain,   production, processing, packaging,           PIRSA and involving a host of partners8.
the operation of which will always be      distribution, use and disposal of a          The case study used the value chain
sub-optimal when there is a lack of        product (Camilleri 2008). The focus          for Oxford Landing (one of Yalumba’s
transparency (poor information flow) and    of LCA is on the intensity of resource       brands) to Tesco (the largest single
poor communication between trading         use (eg. energy, water) and the              overseas customer of Australian wine) in
partners due to a lack of trust and        environmental impact of outputs (eg.         the UK (the largest overseas market).
commitment (poor relationships).           by-products, waste and emissions)
                                           at each stage of the value chain, the        The full results of the project can be
                                           aim being to identify opportunities          downloaded from the PIRSA website9 –
Life cycle thinking and                    for improving resource use, reducing         they represent one of the major outputs
the value chain                            environmental impacts and targeting          from the residency – but are summarised
                                           parts of the life cycle where the greatest   in the following case study.
Life cycle thinking is a qualitative       improvements can be made.                    7
                                                                                          Cohen-Rosenthal 2004; Ehrenfeld 1997; Ehrenfeld
framework used to understand and                                                        2000; Nielsen 2006; O’Rourke 1996
assess systems. It has historically been   During the course of the residency
applied to natural systems through fields   I was exposed to life-cycle thinking         8
                                                                                         Yalumba, Tesco, Amcor, PIRSA, DTED, University of
like ecology, where the relationships                                                   South Australia, University of Adelaide, Kent Business
                                           through my involvement with Yalumba,         School
between species and their habitats are     Australia’s oldest family-owned              9
studied. More recently, the framework                                                     http://www.pir.sa.gov.au/__data/assets/pdf_
                                           winemaker. Yalumba’s internationally         file/0003/93225/V2D_Final_Report.pdf

14
Andrew Fearne Sustainable Food and Wine Value Chains




Case Study

Sustainable Value Chain Analysis –
Key Findings from the ‘Vine to Dine’ Project
CONSUMER VALUE: More sustainable
wine production/packaging may
be something that retail buyers are
requesting of their suppliers, in an
effort to support socially responsible
strategic initiatives, but very few UK
shoppers currently value sustainability
as an attribute of the wine they
purchase from supermarkets. Oxford
Landing is regarded as a ‘typical’
Australian wine (a ‘safe bet’) but for
many supermarket shoppers the
selection of Oxford Landing, like most
‘everyday’ wines, is triggered by a
promotion, which in the case of a
known brand is difficult to resist and
requires little effort, and thus, attention
to the bottle or the label.
                                              emissions. However, the fact that       INFORMATION FLOW: The OLT value
                                              consumers regard the appearance of      chain contains a mixture of strong
MATERIAL FLOW: The VCA highlighted
                                              the bottle and the information on the   and weak information flows between
the dominance of necessary but non-
                                              label as ‘value adding’ means that      and within organisations. A clear
value adding activities in the Oxford
                                              low cost solutions that are effective   correlation exists between the nature
Landing/Tesco (OLT) value chain,
                                              in reducing emissions may reduce        of relationships and information flows.
which implies a focus on efficiency and
                                              the perceived value of the wine in      Relationships appear slightly weaker
suggests that there is limited scope
                                              the eyes of the consumer, resulting     with downstream partners (eg. Tesco)
for adding value. Tesco’s approach to
                                              in less not more value being added      and with the secondary players (eg.
merchandising and setting promotion
                                              as a result of reducing the carbon      logistics providers). Moreover, the
slots introduces greater uncertainty
                                              footprint                               understanding of the customer (Tesco)
in forecasting annual sales, which
                                                                                      needs and consumer wants (value) is
potentially creates waste or loss of
                                              RELATIONSHIPS: The OLT value            distinctly limited upstream, particularly
profit along the value chain.
                                              chain is characterised by strong        amongst input suppliers and growers.
                                              relationships. There are many
CARBON EMISSIONS: The LCA revealed
                                              examples of best practice throughout    The case study highlights the value
relatively low carbon emissions
                                              the chain – Yalumba is widely           of emissions data – when viewed
occurring downstream (retail and
                                              respected as a customer, a supplier     alongside the categorisation (in the eyes
final consumption) but substantial
                                              and as a place to work. However,        of the consumer) of activities involved
contribution made in the vineyard
                                              they need to make more use of           in the production and distribution
and at the winery. Together these
                                              their strong relationship with          of wine – as an input to sustainable
account for more than one-half of
                                              Tesco to engage more effectively        value chain management and resource
the total carbon emissions from the
                                              in strategic dialogue with respect      allocation for capital expenditure,
chain. The recent attention directed
                                              to sustainability and to the longer     R&D, and government intervention
towards alternative packaging formats
                                              term development (and possible          programs. This ensures that decision-
is justified by the emissions data –
                                              re-positioning) of the Oxford Landing   making is more closely aligned with and
bottling, packaging and labelling
                                              range.                                  driven by environmental and economic
together account for 15% of total
                                                                                      sustainability.


                                                                                                                                         15
Value chain thinking


Demonstration projects                       imported prawns (in partnership with          the right format (eg. fresh, prepared,
                                             Rural Solutions SA, PIRSA, Spencer Gulf       pre-packed) for different target groups
Achieving the requisite change in            and West Coast Prawn Fishermen’s              (in partnership with the Department of
mindset that constitutes the first            Association, Seafood CRC).                    Health, PIRSA, Rural Solutions SA and
steps on the long and winding road                                                         Adelaide Produce Markets).
                                            • Barossa Valley Community Store –
to sustainable competitive advantage
                                              leverage of their existing co-operative    • Riverland Futures – a value chain
has been the greatest challenge I have
                                              membership and purchasing databases          workshop was held with a wide range
faced in this residency, and is likely to
                                              to enable more effective use of targeted     of stakeholders from government
prove one of the greatest challenges
                                              promotions and the maintenance of            and industry, the result of which was
facing the South Australian food
                                              store loyalty in the face of growing         the identification of a number of
and wine industries in the future, so
embedded have they become in the              competition from national supermarket        potential value chain projects designed
supply chain paradigm.                        chains (in partnership with Barossa          to support innovative approaches
                                              & Light Regional Development Board,          to much-needed community and
                                              University of Adelaide).                     industry restructuring in the face of
Demonstration projects are key to
                                                                                           a chronic lack of water for irrigation
engaging people and organisations           • ‘Feast’ Fresh Meat retail stores –           and declining demand for the crops
in the change process. Thus, during           development of a loyalty card program        traditionally grown in the region (in
the course of my residency a Value            to enable the targeting of specific
Chain Project Development Team                                                             partnership with PIRSA, Rural Solutions
                                              shopper segments with specific                SA, DTED, Riverland Grape Growers
(VCPDT) was established to assist in          promotional offers, encouraging
the design and implementation of a                                                         Association, Riverland Tourist Board).
                                              repeat purchase and building shopper
range of value chain projects to help
                                              loyalty to help grow the business from     The legacy is that many of these
promote the message. The VCPDT
                                              the strong niche base established in       projects continue to progress and will
comprised of eighteen people from
                                              Adelaide (in partnership with Meat         hopefully generate lasting benefits to
across a number of disciplines and
                                              & Livestock Australia, University of       the stakeholders, providing relevant
experiences, representing relevant
                                              Adelaide).                                 (local) examples of value chain thinking
government agencies and industry
stakeholders10. Their prime task                                                         in practice.
                                            • Free Eyre – feasibility study for the
was to identify projects that would           development of sustainable lamb            10
                                                                                            Rural Solutions SA (convenor), Primary Industries
enable the participants in the chain          value chains in the Eyre Peninsula, for    and Resources SA, Dept of Trade & Economic
to embrace the principles of value                                                       Development, SA Health, University of Adelaide,
                                              the benefit of more than 240 mixed          University of South Australia, Yalumba Wines, Tarac
chain management and to work                  farming enterprises who have come          Technologies, Amcor, Barossa and Light Regional
towards collaborative solutions that          together in pursuit of a collaborative     Development Board, Zero Waste SA, Meat and
involve multiple stakeholders and an                                                     Livestock Australia
                                              business model based on value chain
acceptance of the need to change what         efficiency. The scoping project includes
is done, as well as the way it is done.
                                              mapping existing resources (flock
                                              sizes and genetic pool) and potential
The VCPDT was successful in working           links into differentiated markets (in
through a number of project proposals         partnership with PIRSA, Rural Solutions
and kick-starting several ‘live’ projects     SA, Meat & Livestock Australia, Eyre
during the course of the residency, in        Regional Development Board).
addition to the Vine to Dine project
summarised above:                           • Fruit & Vegetable Consumption – South
                                              Australian consumption of fresh fruit
• Spencer Gulf Prawns – mapping               and vegetables is amongst the lowest
  of existing South Australian                in Australia and the Departments of
  prawn value chains with a view to           Health is keen to engage with industry
  identifying opportunities for greater       stakeholders to explore collaborative
  collaboration between fishermen              interventions to raise awareness and
  and vertical co-ordination with             educate consumers about the benefits
  agents, distributors and end users, to      of eating more fruit and vegetables,
  differentiate South Australian prawns       whilst simultaneously making sure
  from (lower cost but inferior quality)      that quality produce is available and in
16
Andrew Fearne Sustainable Food and Wine Value Chains




Value chain management in practice – insights
from around the world




   ‘The range of what we think, do, and
   achieve is limited by what we fail to
   notice’ John Grinder

Value chain thinking, management                                                       dedicated to Asda, whose range is
                                             Case Study 1
and analysis are not new concepts, but                                                 less diverse, comprising 10 key lines.
their application to the food and wine     Dedicated value chains for dedicated        Rationalisation of the respective
industries remains limited outside                                                     value chains, at packer level, occurred
Northern Europe, and particularly the
                                           retail strategies – fresh potatoes in       several years ago, so both companies
UK, where supermarket strategies,          Asda and Waitrose                           have been working as sole suppliers
government regulations, market             (Duffy et al, 2008)                         for some time.
conditions and industry structure have
conspired to promote an increasingly       Asda and Waitrose are at opposite           Both business are extremely well
collaborative model of doing business.     ends of the retail spectrum – Asda is       integrated with their respective
                                           the second largest supermarket in the       customers’ operations. Solanum has a
The case studies presented here are not    UK with an every-day low price (EDLP)       desk at Waitrose head office and the
intended to provide exhaustive insights    strategy that drives volume; Waitrose is    account manager spends two days
into the scope of collaborative value      a niche player with quality and choice      per week working directly with the
chain initiatives. Indeed, the focus is    at the heart of their offer to consumers.   Waitrose team, who encourage open
deliberately on small-scale businesses     Yet in recent years these two retailers     communication with their supply
operating in commodity (eg. largely un-    have led the pack in terms of market        base. Fenmarc is given a free hand to
branded) sectors, in order to illustrate   growth in fresh produce, a category that    develop the category plan for Asda to
that value chain management is not the     both retailers regard as strategically      ensure that they remain on target over
exclusive domain of global corporations    important and in which they have            the course of the season. There are no
with well-developed systems and            adopted very similar value chain            panic buttons in the Fenmarc/Asda
integrated business processes. Further     strategies.                                 relationship – Fenmarc is entrusted
examples can be found in the additional                                                to get it right over time and Asda
readings and on websites listed at the     Solanum packs fresh potatoes from           trust them to take difficult decisions
end of the report.                         its Sutton Bridge site, which is almost     on their behalf. A trusted source of
                                           100% dedicated to Waitrose, who stock       supply means fewer inspections, fewer
                                           up to 35 different varieties throughout     rejects, better availability and fewer
                                           the year. Fenmarc packs from its            customer complaints.
                                           site at March, which is almost 100%
                                                                                                                                         17
Value chain management in practice –
insights from around the world

Both Fenmarc and Solanum see                                                               KG Fruits is a grower-controlled soft fruit
dedication as a key part of their
                                              Case Study 2
                                                                                           marketing co-operative and the largest
competitive advantage and want to           Implanting the benefits of buyer-               of Sainsbury’s five soft fruit suppliers. In
see greater dedication at the grower                                                       Susan Barrow they had someone who
level, but for different reasons. For       supplier collaboration in the soft fruit
                                                                                           was IT literate, well informed about
Fenmarc, fewer, larger, dedicated           sector – KG Fruits and Sainsbury’s             consumer needs (having worked for
growers is consistent with the Asda         (Fearne et al, 2006)                           several years on KG’s extensive program
model of volume growth and cost                                                            of consumer research) and keen to get
reduction, but Mark Harrod, Managing        Forecasting sales is notoriously difficult      an insight into retail systems, for the
Director of Fenmarc, is keen to stress      for many food products, but particularly       benefit of all concerned.
that it is not just about taking out the    for those susceptible to surges in
cost; it is what you do with the savings    demand due to unforeseen changes in            Susan was given the objective of ‘...
that makes the difference in the long       key environmental factors, such as the         assisting the accurate forecasting of soft
run:                                        weather. This makes it difficult for food       fruit to maximise sales and reduce waste
                                            retailers to predict accurately what will      across the Sainsbury’s estate’. Associated
‘A dedicated grower base with               be needed and hence what to order. In          responsibilities included:
fewer larger growers will provide           their efforts to ensure adequate on-shelf
opportunities to keep driving down          availability, retailers will tend to over-     • assistance in the provision of accurate
the cost of doing business. It is really    order when demand is uncertain, to avoid         soft fruit forecasts, with final sign off
simple, but organisational culture is a     running out of stocks and disappointing          from the supply chain manager and
major barrier to change. Taking cost out    consumers. This can cause significant             buyer
is one thing, investing in growth and       problems for suppliers of short shelf-life
further cost-saving is another thing.       products, such as soft fruit, for which        • interrogation of data at store level
Many farmers will use profit from one        wastage can, in extreme cases, reach
                                                                                           • management of weekly service level
enterprise to subsidise another. The        15 to 20%.
                                                                                             analyses for all suppliers, including
big prize is investment in continuous
                                                                                             rationale for performance
improvement – a lot of or growers have      Sainsbury’s is one of the few multiple
invested in cold storage on the back of a   retailers to open their doors to suppliers     • assistance to the buyer in post-
cost-plus contract.’                        and invite them to collaborate, specifically      promotional analysis, planning
                                            in the highly sensitive area of sales            analysis for seasonal programming,
Solanum sees communication as a             forecasting. Supplier implants now               and daily (summer), weekly and
key in driving down costs and raising       populate Sainsbury’s Holborn office               monthly customer complaints
quality across the grower base, as          on a regular basis but, as soft fruit            management
Paul Tracey, Logistics and Purchasing       buyer, Dominique Schulenburg recalls,
Manager explains:                           the decision to open up their demand           • weekly store visits and quality
                                            management systems to suppliers was not          benchmarking
‘Growers have a better chance if they       taken lightly:
have a full understanding of what                                                          • collation of Electronic Point of
Waitrose want and take responsibility       ‘At first we were nervous about pulling           Sale (EPOS) data and working with
for what they do, for which they will be    suppliers in and exposing our systems but        Sainsbury’s other soft fruit supplier, AFI
paid a premium. We have worked really       it was obvious to most of us that we did         Ltd, to produce periodic reviews.
hard on crop intelligence. We don’t         not have the capacity to give the soft fruit
want to be giving Waitrose problems,        category the attention it deserved... we       This seemed a tall order and the implant
we want to offer solutions. The key         suspected the problem was largely down         was scheduled for six months, starting
is communicating early when we do           to our inability to generate store-level       in February 2003. However, as Susan
have a problem. Waitrose encourage          forecasts that responded more effectively to   recalls, it was obvious to everyone that
that and are very open to discuss plans     local buying behaviour and short of a major    any improvement, however small,
as well as problems. Waitrose want          system overhaul we knew the solution           would have a positive impact on the
the best potatoes and growers want          required manual intervention, product-         supply base and so the investment (KG
the best prices, our job is to make         specific knowledge and time that we simply      continued to pay Susan’s salary for
this possible and retain a margin for       did not have within our internal forecasting   the duration of the implant) appeared
ourselves!’                                 team. The scenario was unwelcome but           justified:
                                            tailor-made for a supplier implant.’

18
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains
Andrew Fearne examines SA food and wine value chains

Contenu connexe

Similaire à Andrew Fearne examines SA food and wine value chains

Sustainable development and Maori Leadership growing wealth for New Zealand
Sustainable development and Maori Leadership growing wealth for New ZealandSustainable development and Maori Leadership growing wealth for New Zealand
Sustainable development and Maori Leadership growing wealth for New ZealandKaramea Insley
 
Final break out group speakers
Final break out group speakersFinal break out group speakers
Final break out group speakers3 Pillars Network
 
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...Francois Stepman
 
From Individual to Collective Action | Exploring Business Cases for Address...
From Individual to Collective Action | Exploring Business Cases for Address...From Individual to Collective Action | Exploring Business Cases for Address...
From Individual to Collective Action | Exploring Business Cases for Address...Sustainable Brands
 
Ag Innovation Investment in Australia: An International Challenge or Opportunity
Ag Innovation Investment in Australia: An International Challenge or OpportunityAg Innovation Investment in Australia: An International Challenge or Opportunity
Ag Innovation Investment in Australia: An International Challenge or OpportunityRichard Dickmann
 
Nestle presentation
Nestle presentationNestle presentation
Nestle presentationDeniz Niyazi
 
FoodProcure 2nd & 3rd June, Sydney
FoodProcure 2nd & 3rd June, SydneyFoodProcure 2nd & 3rd June, Sydney
FoodProcure 2nd & 3rd June, SydneyPASA Events
 
SOFAD Newsletter - Issue 1 February 2014
SOFAD Newsletter - Issue 1 February 2014SOFAD Newsletter - Issue 1 February 2014
SOFAD Newsletter - Issue 1 February 2014Vic Shao-Chih Chiang
 
Final sustainble tourism certifiction in a biosphere reserve c.withyman-eco...
Final   sustainble tourism certifiction in a biosphere reserve c.withyman-eco...Final   sustainble tourism certifiction in a biosphere reserve c.withyman-eco...
Final sustainble tourism certifiction in a biosphere reserve c.withyman-eco...Cathie Withyman
 
National Sustainable Food Summit Conference Report
National Sustainable Food Summit Conference Report National Sustainable Food Summit Conference Report
National Sustainable Food Summit Conference Report 3 Pillars Network
 
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462ZSL Biodiversity & Palm Oil Platform
 
Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...
 Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci... Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...
Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...Brussels Briefings (brusselsbriefings.net)
 

Similaire à Andrew Fearne examines SA food and wine value chains (20)

Sustainable development and Maori Leadership growing wealth for New Zealand
Sustainable development and Maori Leadership growing wealth for New ZealandSustainable development and Maori Leadership growing wealth for New Zealand
Sustainable development and Maori Leadership growing wealth for New Zealand
 
Fmi power point fmi deck
Fmi power point fmi deckFmi power point fmi deck
Fmi power point fmi deck
 
Final break out group speakers
Final break out group speakersFinal break out group speakers
Final break out group speakers
 
Boston workshop 3 8
Boston workshop 3 8Boston workshop 3 8
Boston workshop 3 8
 
Bio fertilizer company in India
Bio fertilizer company in IndiaBio fertilizer company in India
Bio fertilizer company in India
 
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...
RELOAD: Reduction of Post-harvest Losses and Value Addition in East African F...
 
From Individual to Collective Action | Exploring Business Cases for Address...
From Individual to Collective Action | Exploring Business Cases for Address...From Individual to Collective Action | Exploring Business Cases for Address...
From Individual to Collective Action | Exploring Business Cases for Address...
 
Pro-Poor Livestock Programs
Pro-Poor Livestock ProgramsPro-Poor Livestock Programs
Pro-Poor Livestock Programs
 
Ag Innovation Investment in Australia: An International Challenge or Opportunity
Ag Innovation Investment in Australia: An International Challenge or OpportunityAg Innovation Investment in Australia: An International Challenge or Opportunity
Ag Innovation Investment in Australia: An International Challenge or Opportunity
 
Nestle presentation
Nestle presentationNestle presentation
Nestle presentation
 
FoodProcure 2nd & 3rd June, Sydney
FoodProcure 2nd & 3rd June, SydneyFoodProcure 2nd & 3rd June, Sydney
FoodProcure 2nd & 3rd June, Sydney
 
EN-Presentation_Groupe
EN-Presentation_GroupeEN-Presentation_Groupe
EN-Presentation_Groupe
 
BBSRC Strategy and More
BBSRC Strategy and MoreBBSRC Strategy and More
BBSRC Strategy and More
 
SOFAD Newsletter - Issue 1 February 2014
SOFAD Newsletter - Issue 1 February 2014SOFAD Newsletter - Issue 1 February 2014
SOFAD Newsletter - Issue 1 February 2014
 
Food drink 2020_strategic_visioning_event
Food drink 2020_strategic_visioning_eventFood drink 2020_strategic_visioning_event
Food drink 2020_strategic_visioning_event
 
Final sustainble tourism certifiction in a biosphere reserve c.withyman-eco...
Final   sustainble tourism certifiction in a biosphere reserve c.withyman-eco...Final   sustainble tourism certifiction in a biosphere reserve c.withyman-eco...
Final sustainble tourism certifiction in a biosphere reserve c.withyman-eco...
 
National Sustainable Food Summit Conference Report
National Sustainable Food Summit Conference Report National Sustainable Food Summit Conference Report
National Sustainable Food Summit Conference Report
 
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462
Session 1-1-duncan-pollard-the-business-case-for-sustainable-practice-1462
 
Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...
 Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci... Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...
Nambo Moses, Chairman, POETCom: Experiences from organic production and Paci...
 
Crocodile 2
Crocodile 2Crocodile 2
Crocodile 2
 

Plus de SOS Interim Management

Review of livestock self sufficiency in indonesia
Review of livestock self sufficiency in indonesiaReview of livestock self sufficiency in indonesia
Review of livestock self sufficiency in indonesiaSOS Interim Management
 
Global Food & Agribusiness Studies Short Essay.
Global Food & Agribusiness Studies Short Essay.Global Food & Agribusiness Studies Short Essay.
Global Food & Agribusiness Studies Short Essay.SOS Interim Management
 
Northern Growers Thinkers In Residence Day
Northern Growers Thinkers In Residence DayNorthern Growers Thinkers In Residence Day
Northern Growers Thinkers In Residence DaySOS Interim Management
 
New Tech Fertilisers Advertisement - Fertiliser Agronomy Professionals
New Tech Fertilisers Advertisement - Fertiliser Agronomy ProfessionalsNew Tech Fertilisers Advertisement - Fertiliser Agronomy Professionals
New Tech Fertilisers Advertisement - Fertiliser Agronomy ProfessionalsSOS Interim Management
 
National Food Brand - December 2013 Update
National Food Brand - December 2013 UpdateNational Food Brand - December 2013 Update
National Food Brand - December 2013 UpdateSOS Interim Management
 
South Australian Food Industry Awards 2014
South Australian Food Industry Awards 2014South Australian Food Industry Awards 2014
South Australian Food Industry Awards 2014SOS Interim Management
 
Bowmans Intermodal - Prospectus Brochure
Bowmans Intermodal - Prospectus BrochureBowmans Intermodal - Prospectus Brochure
Bowmans Intermodal - Prospectus BrochureSOS Interim Management
 
Australian wheat competitiveness in 2014.
Australian wheat competitiveness in 2014.Australian wheat competitiveness in 2014.
Australian wheat competitiveness in 2014.SOS Interim Management
 
Hunger for Growth 2013 - Grant Thornton
Hunger for Growth 2013 - Grant ThorntonHunger for Growth 2013 - Grant Thornton
Hunger for Growth 2013 - Grant ThorntonSOS Interim Management
 
World Co-operative Monitor Report 2013
World Co-operative Monitor Report 2013World Co-operative Monitor Report 2013
World Co-operative Monitor Report 2013SOS Interim Management
 
Investment Brief for Woodlands Hill Grain.
Investment Brief for Woodlands Hill Grain.Investment Brief for Woodlands Hill Grain.
Investment Brief for Woodlands Hill Grain.SOS Interim Management
 
World agricultural industry investment in export market development for grain.
World agricultural industry investment in export market development for grain.World agricultural industry investment in export market development for grain.
World agricultural industry investment in export market development for grain.SOS Interim Management
 
Innovation & Productivity In The Australian Grains Industry
Innovation & Productivity In The Australian Grains IndustryInnovation & Productivity In The Australian Grains Industry
Innovation & Productivity In The Australian Grains IndustrySOS Interim Management
 

Plus de SOS Interim Management (20)

Review of livestock self sufficiency in indonesia
Review of livestock self sufficiency in indonesiaReview of livestock self sufficiency in indonesia
Review of livestock self sufficiency in indonesia
 
Global Food & Agribusiness Studies Short Essay.
Global Food & Agribusiness Studies Short Essay.Global Food & Agribusiness Studies Short Essay.
Global Food & Agribusiness Studies Short Essay.
 
Northern Growers Thinkers In Residence Day
Northern Growers Thinkers In Residence DayNorthern Growers Thinkers In Residence Day
Northern Growers Thinkers In Residence Day
 
New Tech Fertilisers Advertisement - Fertiliser Agronomy Professionals
New Tech Fertilisers Advertisement - Fertiliser Agronomy ProfessionalsNew Tech Fertilisers Advertisement - Fertiliser Agronomy Professionals
New Tech Fertilisers Advertisement - Fertiliser Agronomy Professionals
 
Australian eChallenge in schools.
Australian eChallenge in schools.Australian eChallenge in schools.
Australian eChallenge in schools.
 
ODI - Food Prices Annual Review 2014
ODI - Food Prices Annual Review 2014ODI - Food Prices Annual Review 2014
ODI - Food Prices Annual Review 2014
 
National Food Brand - May 2014 Update
National Food Brand - May 2014 UpdateNational Food Brand - May 2014 Update
National Food Brand - May 2014 Update
 
National Food Brand - December 2013 Update
National Food Brand - December 2013 UpdateNational Food Brand - December 2013 Update
National Food Brand - December 2013 Update
 
South Australian Food Industry Awards 2014
South Australian Food Industry Awards 2014South Australian Food Industry Awards 2014
South Australian Food Industry Awards 2014
 
Bowmans Intermodal - Prospectus Brochure
Bowmans Intermodal - Prospectus BrochureBowmans Intermodal - Prospectus Brochure
Bowmans Intermodal - Prospectus Brochure
 
The End of the Age of Entitlement
The End of the Age of EntitlementThe End of the Age of Entitlement
The End of the Age of Entitlement
 
Australian wheat competitiveness in 2014.
Australian wheat competitiveness in 2014.Australian wheat competitiveness in 2014.
Australian wheat competitiveness in 2014.
 
17th Annual Global CEO Survey - PwC
17th Annual Global CEO Survey - PwC17th Annual Global CEO Survey - PwC
17th Annual Global CEO Survey - PwC
 
Hunger for Growth 2013 - Grant Thornton
Hunger for Growth 2013 - Grant ThorntonHunger for Growth 2013 - Grant Thornton
Hunger for Growth 2013 - Grant Thornton
 
World Co-operative Monitor Report 2013
World Co-operative Monitor Report 2013World Co-operative Monitor Report 2013
World Co-operative Monitor Report 2013
 
Global300 Report 2011
Global300 Report 2011Global300 Report 2011
Global300 Report 2011
 
Investment Brief for Woodlands Hill Grain.
Investment Brief for Woodlands Hill Grain.Investment Brief for Woodlands Hill Grain.
Investment Brief for Woodlands Hill Grain.
 
World agricultural industry investment in export market development for grain.
World agricultural industry investment in export market development for grain.World agricultural industry investment in export market development for grain.
World agricultural industry investment in export market development for grain.
 
Innovation & Productivity In The Australian Grains Industry
Innovation & Productivity In The Australian Grains IndustryInnovation & Productivity In The Australian Grains Industry
Innovation & Productivity In The Australian Grains Industry
 
360 Feedback Survey
360 Feedback Survey360 Feedback Survey
360 Feedback Survey
 

Andrew Fearne examines SA food and wine value chains

  • 1. Andrew Fearne Sustainable Food and Wine Value Chains
  • 2. Andrew Fearne Sustainable Food and Wine Value Chains Sustainable Food and Wine Value Chains Prepared by Professor Andrew Fearne Adelaide Thinker in Residence Department of the Premier and Cabinet GPO Box 2343 Adelaide SA 5001 August 2009 ©All rights reserved – Crown – in right of the State of South Australia ISBN 978-0-9804829-9-7 www.thinkers.sa.gov.au 1
  • 3. Andrew Fearne Andrew Fearne Professor Fearne’s integrated chain Partners in the residency: analysis research system and style of communication has been particularly • Department of the Premier and Cabinet effective during a period in the UK food • Primary Industries and Resources SA and beverage sector when assaults to • Department of Trade and Economic public confidence in food products from Development livestock disease outbreaks demanded system change. Growing up on a family • Department of Health farm and his early career role as an • University of Adelaide economist with the National Farmers • University of South Australia Organisation in the UK were formative • Yalumba and influential stepping stones to an academic and consulting career which • Constellation Wines Australia has been consistently transforming • TARAC Technologies Pty Ltd under-performing supply chains into • AMCOR Australasia value chains by focusing on consumer • Barossa and Light Regional preferences. Development Board Professor Andrew Fearne is Director of the Centre for Supply Chain Research at Kent • Meat and Livestock Australia Business School, University of Kent. He is His research and facilitation activities have involved the strategic analysis • Department of Education and an expert on food marketing, consumer of consumer behaviour and the co- Children’s Services behaviour and supply chain management. An economist by training, Andrew moved ordination of agri-food supply chains • Zero Waste SA into the area of supply chain management with clients and research partners from • Sustainability and Climate because of an interest in an area of around the world. Change Division growing importance not usually covered by economists. Professor Fearne is the founding editor of the International Journal of Supply During the past twenty years he has been Chain Management, author of over 100 researching consumer requirements and articles, and editor or contributor to over expectations in a wide range of food a dozen books on industry values chains supply chains in the United Kingdom, and related matters. shedding light for farmers, processors and retailers on the changes needed to lift agribusiness performance in supply chains and the consumer food experiences in supermarkets into better value chains for stakeholders and better and safer eating experiences for consumers. He has also worked in France, Ireland, Slovenia, Germany, North America, the Middle East and South-East Asia. 2
  • 4. Andrew Fearne Sustainable Food and Wine Value Chains Foreword Foreword South Australia is globally renowned This not only enhanced his understanding for the quality of our food and wine, of South Australia’s agri-food sector, it and these industries remain our State’s also enabled him to better identify the biggest employer and among our largest challenges and opportunities facing our export earners. primary producing regions. However, the impact of climate change His message is a confronting one for our and rising living and production costs, food and wine industries – adapt, or risk along with the growing demand for extinction. healthy eating and more sustainable consumption, means the sector faces We must embrace improvement and significant challenges. innovation to ensure we remain globally competitive, which is why the State During his term as an Adelaide Thinker Government established the SA Food in Residence, Professor Andrew Fearne Centre at Regency Park, the first facility of brought his vast international experience its kind in Australia. to help improve the processes that deliver food and wine from producers to Professor Fearne’s final report also consumers. highlights the enormous potential that exists, and the key steps we must take in Professor Fearne’s residency focussed on order to position South Australia as the assisting local food and wine businesses leading innovator in Australian food and to better understand the importance of wine. value chain thinking – to ensure we value add to our products, and maximise our I thank Andrew for his work and his sustainable competitive advantages. contribution to our State, and I commend this final report to you. He emphasised the need to work beyond traditional boundaries, and challenged the conventional thinking of organisations and individuals. Professor Fearne spent time working closely with regional communities – in the Barossa Valley, Riverland, Eyre Mike Rann Peninsula and South East – where he met Premier of South Australia with farmers, fishers, growers, packers, August 2009 producers and retailers. 3
  • 5. Contents Contents Executive Summary 5 Introduction 7 Value chain thinking 8 Value chain 8 Value chain management 10 Value chain analysis 13 Life cycle thinking and the value chain 14 Demonstration projects 16 Value chain management in practice – insights from around the world 17 An analysis of South Australia’s food and wine value chains 23 Contextual challenges 23 Diagnosis 24 Grasping the opportunities – the process of adaptation and 28 the role of government Primary Industry and Resources SA (PIRSA) 29 Department of Trade and Economic Development (DTED) 29 Education – Department of Education and Children’s Services (DECS), 30 Department of Further Education, Employment, Science and Technology (DFEEST) The ‘Alliance’: SA Health, Sustainability and Climate Change Division – 31 Department of the Premier and Cabinet, and Zero Waste SA Regional Development Boards 33 Recommendations 34 Acknowledgements 37 References 38 Further Reading 40 4
  • 6. Andrew Fearne Sustainable Food and Wine Value Chains Executive Summary Executive Summary disciplinary and functional silos, as evident in government as they are in business. Achieving the requisite change in mindset that constitutes the first steps on the road to sustainable competitive advantage has been the greatest challenge I have faced in this residency. It is likely to prove one of the greatest challenges in the future, so embedded is the supply chain paradigm, in government and industry alike, in strategic planning, policy making, program development and the delivery of products and services. Recommendations ‘When you stand back and face your issues, a In considering my recommendations, of which there are five, I have been mindful glimpse of light falls on the face in the shadow.’ of the depressed economic climate and the need to ‘do more with less’, which is, after Rabbi Lionel Blue all, consistent with value chain thinking! These recommendations are summarised Sustainable value chains are those in There is no reason why South Australia below and explored more fully in the main which collaborative relationships facilitate could or should not position itself as the report. the effective flow of information, to innovator in Australian food and wine. enable rational decision-making and Indeed, it already has an international 1 Thought leadership effective resource allocation, for the reputation for excellence in some benefit of the chain as a whole. Value sectors – for example, viticulture and chains can only be sustainable if chain aquaculture. However, to develop a I believe that there is a serious lack of members are in tune with and responsive sustainable competitive advantage, South understanding of value chain principles to the needs of their customers, the wants Australian food and wine businesses must amongst senior managers, in both of final consumers and the complex devote more resources to penetrating government and industry. What is needed interaction between what they do, how higher value markets and avoid the ‘race is a catalyst for change and a mechanism they do it and the natural environment to the bottom’, competing purely on price, for empowering senior managers to turn within which they operate. which they are ill-equipped to win. the principles into practice. Thus, my first recommendation is the development of a global thought leadership program, with I found pockets of excellence in the South All organisations can benefit from the investors from multiple agencies and a Australian food and wine industries, application of value chain thinking. range of industries, not confined to South where the principles of value chain However, the process of change is Australia. The focus of this program is the management are being implemented challenging, as it requires a paradigm development of leaders who will drive by businesses large and small. However, shift in thinking (from supply ‘push’ change in their respective organisations the examples of good practice were to demand ‘pull’), and a collaborative and raise the level of awareness, over-shadowed by an overwhelming re-allocation of resources and understanding and implementation of sense of denial – the rains will come, responsibilities amongst all stakeholders value chain thinking and management the markets will adjust… ‘She’ll be right’ in the value chain. This encompasses in South Australia and beyond, at a time – with few substantive changes in the the relationship between government when the need could not be greater. strategic orientation, culture, business and industry and is applicable to all processes or incentive structures within sectors – it is not an imperative that is many of those organisations – businesses exclusive to food and wine. Complex Such a program should attract investment and government agencies – that problems demand holistic solutions, from across government – all agencies are struggling with the challenge of which are stifled by the proliferation of would benefit from value chain thinking sustainable business development. – other states, the Commonwealth 5
  • 7. Executive Summary common understanding amongst all take adequate account of industry needs, Recommendations (cont) stakeholders of what it is that consumers are deficient in critical areas, and the value and how this differs across markets methods of delivery are not as flexible Government and the Research and (distribution channels and geographies) as they need to be to attract more young Development (R&D) corporations. This and consumer segments. people into the food and wine industries program would put South Australia on the map, in terms of global thought – an ageing workforce and low levels of leadership in value chain management. Whilst this may be a weakness shared retention are major concerns. Thus, my The program should also seek to break by other sectors, the focus here is fourth recommendation is for a root-and- down the ‘silo’ culture that is endemic unequivocally on food and wine branch review of the current education within business and government – the consumers. Thus, I would recommend and training provisions for the South benefits should transcend functional, that the lead agency for implementing Australian food and wine industries. disciplinary, geographical and sectoral this recommendation is PIRSA, in boundaries. Thus, I believe it would be partnership with the other state This is clearly a task for DECS and DFEEST most appropriate for the Department agencies responsible for agriculture, food and was initiated during the course of of Further Education, Employment, and wine; the federal Department of my residency. It must not be allowed to Science and Technology (DFEEST) to Agriculture, Fisheries and Food (DAFF); falter and should involve consultation be charged with implementing this and the plethora of trade associations with PIRSA, DTED and the regional recommendation, in consultation with and R&D corporations, whose duplication development boards. the Department of Primary Industries of effort in the exploration of overseas and Resources (PIRSA), the Department markets and consumers is bewilderingly 5 Regional co-innovation clusters of Trade and Economic Development spectacular. (DTED) and other agencies with an Innovative industries are built around interest in value chain thinking. 3 Holistic food policy innovative communities, and I believe that there is scope for more effective 2 Integrated market intelligence The current SA Food Plan is devoid of collaborative innovation at the regional and consumer insight meaningful linkages to the plans of other level. Thus, my final recommendation is agencies, yet the food system impacts the creation of regional co-innovation The lack of consumer insight, at all substantially on the work of many of clusters. The vision is to create virtual stages of food and wine value chains (but them. Thus, my third recommendation is networks that are rooted in the regions particularly upstream), amongst input the development of a holistic food policy, but extend globally and target young suppliers and primary producers, is a to support the implementation of an people, on whom the future depends major impediment to the development SA Food Plan that interacts with other but who are currently excluded from of a sustainable competitive advantage plans (trade and development, health, the sustainability debate. These clusters for the South Australian food and wine education, workforce development, would act as incubators for ideas, and industries. This is a ‘blind spot’ which sustainability and climate change) and provide pathways for young people to everyone can ‘see’, the removal of which will facilitate the development of cross- gain experience in business and become is therefore something around which all agency programs and a more effective more pro-actively involved in community stakeholders can unite. Existing market engagement with industry. development. intelligence is extremely fragmented and not easily accessible in a form that This recommendation should be led This recommendation is strongly individual businesses can readily use by PIRSA but must involve other key influenced by the insightful conclusions in business planning and marketing agencies with an interest in the food and drawn by the A-team1. Thus, I am keen decision-making. Thus, my second wine industries – DTED, Department of that the Office for Youth should have recommendation is the generation of Education and Children’s Services (DECS), a major role in taking this forward, in an integrated market intelligence and SA Health, Sustainability and Climate partnership with DTED and the Barossa consumer insight service, one that is Change Division – Department of the and Light Development Regional Board, accessible to all stakeholders in the Premier and Cabinet, and Zero Waste SA. with whom progress has already been respective (sector specific) value chains. made in the formulation of a potential It should combine information about 4 Education and training pilot project. markets (size, structure, organisation, access), consumers (attitudes and Pathways through the education and 1 ‘Engaging Young People in Sustainable Value Chains – Communication, Education and Opportunities’, perceptions) and shoppers (purchasing training system are, to say the least, Office for Youth Policy Action Team (OFY A-Team) behaviour). The goal is to achieve a complicated. Syllabuses do not always Recommendations Report, January 2009. 6
  • 8. Andrew Fearne Sustainable Food and Wine Value Chains Introduction Introduction ‘I choose life over death... and if I should fail, then I will try again. The only true failure would be not to explore at all’ Ernest Shackleton When I began this journey of discovery My journey, like everyone else’s, is This report is in four parts: I had little idea of the terrain before me, coloured by my own background, my fellow travellers or even the final • Firstly, I discuss the development of experiences and intellectual limitations. destination! After twelve months of value chain thinking, the benefits of As a social scientist, my fundamental looking, listening and engaging with a value chain management and the interest is in behaviour – of individuals fascinating mix of government, industry generic barriers and enablers to its and organisations – and in how to change and academic stakeholders, I have a application. behaviour to achieve different outcomes. much clearer picture of the landscape In the context of building sustainable of the South Australian food and wine • Secondly, I provide examples of the food and wine value chains, the purpose industries. application of value chain thinking of my residency was primarily to explore in the food and wine industries from not what people and organisations I also have a better understanding of around the world, to demonstrate do, but how they do it. Value chain the adaptation that is required if they what is possible, and make the case thinking is concerned primarily with are to fully exploit their potential, and for the adoption of value chain inputs (processes), not outputs (products become more resilient and responsive thinking in South Australia. and services), the assumption being to the increasingly complex economic that if the processes are responsive to and environmental forces that are an • Thirdly, I present my diagnosis of the customer needs and consumer wants, enduring threat to their sustainability. current state of South Australia’s food and resilient to the external challenges of and wine industries, highlighting climate change and global competition, The future prospects for the South what I see as the strategic challenges then the outcomes will be more Australian food and wine industries are, of today and the major opportunities sustainable – economically, socially and I believe, fundamentally positive, but the for the future. environmentally. Thus, the focus of my impediments to sustainable growth and final report is less on what is happening • Finally, I set out my recommendations. in South Australian food and wine value prosperity are significant and cannot be ignored. chains and more on how things get done, with a view to identifying opportunities for process improvement. 7
  • 9. Value chain thinking Value chain thinking as possible, heavily reliant on wholesalers and agents, building distribution and sales and exchanging transactional data (eg. sales orders, delivery notes, invoices) with little interest in behavioural drivers (eg. attitudes, perceptions, motivations), upstream or downstream. In these chains, efficiency grows from being a primary objective to an obsession and businesses do whatever it takes to cut costs (including the abuse of market power). Information is viewed as a cost, which means it can be cut and the only information exchanged is transactional. Relationships are ‘arms length’, due to the lack of trust and commitment between opportunistic buyers and sellers. Success in these chains is measured by the margin each stakeholder manages to generate over their costs – ‘If you talk to a man in a language he understands, that for commodity suppliers this will vary goes to his head. If you talk to him in his language, that according to factors largely beyond their control (eg. exchange rates and world goes to his heart.’ Nelson Mandela stock levels). The end result is a race to the bottom (lowest cost) in which there is little There are various interpretations of (and The starting point on the journey to incentive to invest in anything but scale – some might argue a degree of confusion sustainable competitive advantage is commodity production and supply chain over) what constitutes value chain thinking a change in mindset that places the thinking is a hard addiction to kick. and its relevance to the South Australian consumer first and everything else food and wine industries. In the following subordinate to their wants. Consumer In value chains (Figure 2), by contrast, sections I aim to clarify the scope of the preferences (eg. taste, texture, the focus is on the identification of subject and the distinction between three provenance, convenience, value for opportunities to differentiate – cutting key elements: value chain, value chain money) are not always consistent with costs where necessary (hence the removal management and value chain analysis. customer needs (eg. higher rates of of wholesalers and agents) but adding sale or lower levels of in-store waste) or value wherever consumer preferences policy objectives (eg. healthier diets or make so doing profitable. In these chains Value chain fewer food imports), but whether we information is regarded as a critical success are trying to build loyalty for individual factor in which businesses invest and are The concept of the value chain was brands or more sustainable communities willing to share with like-minded trading first introduced by Michael Porter in his and environments, changing peoples’ partners – those with whom trust has seminal work on competitive advantage behaviour begins by understanding what been built through commitment over time (Porter 1985). The chain, as the name motivates them. The ability to do that and with whom conversations focus on implies, represents a linked set of value- requires a paradigm shift in the way we where the opportunities for adding value added activities. Porter’s view was view the value chain – from supply push exist and how the benefits of collaborative that competitive advantage cannot be to demand pull. cost reduction and differentiation can discerned by looking at a firm in isolation, be shared for the longer term benefit of but stems from the many discrete The implications of this paradigm shift all stakeholders in the chain. Notice also activities in designing, producing, for the way organisations interact is that in value chains the barriers between marketing, delivering, and supporting summarised in Figures 1 and 2 . firms (inter-organisational silos) that are products and services. Hence, sustaining so prominent in traditional supply chains, a competitive advantage depends on In (traditional) supply chains (Figure 1) dissolve over time as the chain learns to understanding not only a firm’s value, the primary focus is on material (product) pull together, as one, united in the focus on but how the firm fits in the overall value- flow – pushing what is made/available the final consumer and the sustainability of adding activities (value system) of the through as many distribution channels the chain as a whole. chain as a whole. 8
  • 10. Andrew Fearne Sustainable Food and Wine Value Chains Figure 1. Supply chain thinking IMAGE COURTESY OF PRIMARY INDUSTRIES AND RESOURCES SA TRADITIONAL SUPPLY CHAIN – SUPPLY PUSH Figure 2. Value chain thinking SUSTAINABLE VALUE CHAIN – CONSUMER DEMAND PULL Focusing on the key enablers – effective flow of information – within Thus, when discussing value propositions, information flow and relationships and between organisations – which value chains and the sustainability – changes the way businesses view is an essential ingredient for rational thereof, it is important to distinguish the world in which they operate. A decision-making and effective resource between the terms ‘customer value’ and switch to value chain thinking has allocation. More important, in the ‘consumer value’. The former relates fundamental implications for the quality context of sustainability, sustainable to organisational buyer behaviour and of information and the strength of value chains are more in tune with the focuses on the buyer’s evaluation of a relationships that underpin strategic needs of their customers and the wants product (or service) in the context of and operational decision-making, and of final consumers, and more sensitive organisational performance measures the financial model that drives the to the complex interaction between (eg. margin, rate of sale, waste), and incentivisation of individuals’ behaviour, what they do, how they do it, and the business objectives (eg. profit, return on from the boardroom to the shop environment within which they operate. investment, market share). The latter floor. Value chain thinking requires term focuses on final consumers and firms to embrace the principles of The value chain proposition their evaluation of the consumption of collaboration, which in turn demands a product or service, in the context of aligned objectives, open communication, It is widely recognised that final individual or collective (eg. household sharing of resources, risks and rewards. consumers have exclusive rights to the or community) utility, which extends This is not easy and cannot happen definition of what constitutes value from the basic fulfilment of physiological overnight, particularly when the in a product or service. Firms can only needs (eg. hunger and thirst) to higher dominant paradigm, which has served create successful value propositions by levels of psychological fulfilment (eg. so many businesses so well in the past, understanding what it is that consumers wellbeing and self-respect). is diametrically opposed to value chain value in the products and services they thinking. create, and subsequently adapt to Therefore, the primary difference suit specific target segments (see, for between a supply chain and a value chain Sustainable value chains are those in example, Anderson et al. 2006, Butz is a fundamental shift in focus, from which collaborative relationships are & Goodsten 1996; Parasuraman 1997; the supply base and producers to the underpinned by inter-personal and inter- Rintamäki et al. 2007; Vargo & Lusch customer base and consumers. Both ends organisational trust. This facilitates the 2004; Woodruff 1997). of the chain are highly heterogeneous 9
  • 11. Value chain thinking and require careful segmentation, for the the form of a price premium. However, they are to stand any chance of competing purpose of effective resource allocation. if consumers remain oblivious to effectively. Similarly, government agencies However, in most instances, supply the challenges of sustainability – and non-governmental organisations chains focus upstream on integrating the response to which is currently (NGOs) must be tuned into the same supplier and producer processes – being led by government policies wavelengths if they are to stand any improving efficiency, reducing waste and and corporate social responsibility chance of changing consumer perceptions, meeting customer value – while value initiatives – the appropriate allocation attitudes and preferences where it chains focus unequivocally downstream, of resources could be very different, matters most – at the supermarket on understanding what it is that with compliance the primary motive checkout. consumers value and then delivering it for changes in the way products and/or as effectively, efficiently and quickly as services are produced and delivered. In collaborative value chains prices possible. This distinction often gets lost are determined by the value that is in translation as businesses become too The potential disconnection between derived by the final consumer, which for focused on value as defined by their own customer needs and consumer wants commodities is volatile but generally organisation (or in some cases the next is not the only one that makes the falls over time. Thus, in commodity organisation in the chain) and fail to concept of ‘value’ in value chains a markets, the emphasis is very firmly on recognise the importance of delivering difficult one to pin down. The tension reducing supply chain costs to enable value as defined by the final consumers between consumerism and citizenship businesses to survive at lower prices. By of their products or services. is at the heart of the sustainability contrast, the adoption of ‘lean thinking’, debate, in which too few people are in which value chains are configured to The important point here is that engaged. The resulting degradation allow product to be pulled through the whilst customer value is critical in of our natural environment and value chain in response to demand, with order to gain market access – failure deterioration in social welfare (eg. minimal inventory and maximum speed to understand and meet the needs of public health) represent fundamental and flexibility of response, is gaining retail buyers will eventually result in challenges to the notion of consumer increased attention. In the UK several an adversarial relationship, minimal sovereignty. Some would argue that pilot projects have been co-ordinated information sharing and a competitive sustainable value chains should have through government-funded initiatives to strategy wholly reliant on efficiency – it public good, not private benefit, as the demonstrate the value of lean thinking in is the final consumer who ultimately primary focus. The problem with this removing waste and improving efficiency2. determines where the value lies in a argument is that most commercial product or service. Failure to understand enterprises are motivated by financial Value chain management and meet the wants of final consumers returns, not the public good, which of will result in both suppliers and buyers course is why the market mechanism Managers are charged with making losing ground to competitors who have often fails to deliver the public decisions about resource allocation and likewise satisfied customer needs but benefits that governments seek. use. When an organisation recognises present a stronger and more carefully This is changing, albeit slowly, as the merits of value chain thinking and targeted consumer value proposition. consumers become more aware of and comes to terms with the consequences of concerned about the sustainability of embracing the paradigm shift from supply This point is particularly relevant in their lifestyles and reflect this in their chains to value chains the question arises: the context of the growing interest purchasing decisions. What should it be doing differently? in sustainability – of both production and consumption behaviour – and In the meantime, whilst the There are four key ingredients for effective the increasing demands being made rapprochement of consumerism and value chain management (VCM): of commercial businesses to behave citizenship may be happening too more responsibly with respect to slowly, it remains the most effective • Strategic alignment – collaboration is the environmental sustainability of way to capture the minds of chief not feasible unless all parties are pulling their procurement, production and executives, which is why I continue in the same direction. distribution practices. If sustainable to promote a strong focus on the production and distribution practices consumer value proposition in value • Transparency – this relates to the are something that consumers value, chains. Commercial businesses must be efficient and timely flow of relevant then suppliers should allocate resources tuned into the way consumers perceive, information to all parties in the to reduce their carbon footprint, in the form attitudes towards and establish value chain, without which too many expectation of a commercial return in preferences for different products if decisions will be taken ‘blind’ leading 10
  • 12. Andrew Fearne Sustainable Food and Wine Value Chains Figure 3. Co-innovation Roadmap Operational Integration Organisational Structures and Business Processes Strategic Vision & Strategic BUYER Alignment Leadership Alignment SUPPLIER Resources & Incentives Trust & Commitment Mutual Benefits Co-innovation Shared Learning to inappropriate allocation and use of develop a conceptual framework for practice. It begins with the strategy and scarce resources. the analysis of VCM, and particularly vision – so often lacking, particularly in the identification of barriers and small and medium-sized enterprises • Relationship integrity – trust, enablers for its adoption in the food (SMEs) – which must be aligned with commitment and inter-dependence and wine industries. We have placed that of key (target) partners – you are key success factors that require specific emphasis on collaborative cannot ‘do’ VCM with everyone so the fundamental changes in the way innovation (which we refer to as co- first step is to determine the most organisations and people interact. innovation), where we feel there are likely candidates. This is followed by Without trust, buyers and suppliers real opportunities for improvement, in investment in and design of business have no choice but to trade on the open organisational activity (product and/ structures and processes that support market or use traditional contracts as or service innovation) and the way that the vision and, again, are aligned transactional vehicles to reduce the risk organisations go about their business with partners. If these are not well of opportunistic behaviour. (process innovation). We have developed understood and well integrated then the the framework, which we refer to as the strategy will fail, as people within the • Consumer insight – customers co-innovation roadmap (Figure 3), by organisations will face repeated barriers are the gatekeepers, with whose modifying existing value chain theory in to change – working around existing strategies suppliers must be aligned light of detailed insights gained from two processes is a drain on resources and the if market access is to be maintained, Australian case studies – Houston’s Farm spirit of co-innovation. but consumer insight is the key to (Bonney et al. 2007) and Coles-Simplot sustainable competitive advantage as (Horticulture Australia Ltd 2008). 2 See, for example, the work of the Food Chain Centre (www.igd.com), the Red Meat Industry Forum (www. without it, sooner or later, buyers and redmeatindustryforum.org.uk), the Cereal Industry suppliers fall blindly into the commodity Forum (www.hgca.com) and the Dairy Industry The framework builds on the key VCM trap. Forum (www.dairyuk.org). ingredients highlighted above, placing them in the context of an individual 3 Laurie Bonney and Rob Clark, Tasmanian Institute of Since 2005 I have been working with Agricultural Research (www.utas.edu.au/agsci) business seeking to embrace the colleagues in the University of Tasmania3 4 Ray Collins and Ben Dent, School of Integrative principles of VCM and put them into Systems (http://www.nrsm.uq.edu.au/) and the University of Queensland4 to 11
  • 13. Value chain thinking Accepting the need for continuous markets were in a general state of difficult for individuals to think improvement creates a culture and excess demand and the focus was on ‘outside of the box’, to consider the mindset that embrace change rather operational effectiveness – making implications of their actions for the than resist it – people are encouraged sure there was enough product in organisation, let alone the chain, as a to challenge the status quo; where the chain and shifting it as quickly whole, and to recognise the value of skills are deficient, training and support as possible to strategically located ‘seeing the whole’. Managers tend to is provided, often in partnership with warehouses. The concept of ‘value’, work in specific functional areas (eg. collaborating partners. Mentoring and let alone ‘consumer value’, was purchasing, manufacturing operations, mobility within the value chain are the irrelevant and distribution was the key logistics, sales, marketing, finance norm in ‘mature’ value chains that co- commercial weapon employed. and innovation) and are usually innovate. rewarded for optimising that part • The planning horizon for too many of the business for which they have Trust is a critical component of VCM as business managers and policy-makers responsibility. Worse still, CEOs are it lies at the very heart of relationship is too short. Small and medium sized generally paid on results, no matter development; the co-innovation enterprises (SMEs) struggle to find the process, and as Nicholas Taleb roadmap highlights the importance the time or the desire to consider the laments, in his incredibly insightful of building trust through what you longer-term challenges as they grow book “Fooled by Randomness”6, “We do (competence) as well as what you – if growth is their objective. Policy continue to worship those who won say (commitment). The key here is the makers are often politically motivated, battles and despise those who lost, no cycle of organisational learning, within which means the planning cycle is far matter the reason”. Many CEOs are and between partner organisations, as too short, particularly when it comes revered for their success in commodity this learning is the hardest thing for to policy planning for challenges that markets, which in many, if not most, competitors to copy. voters do not understand or recognise instances, has more to do with good as immediate priorities (eg. climate luck than good judgement. Despite the well documented benefits change and sustainability). Focusing of the collaborative business model that on the here-and-now leaves businesses • The benefits of collaborative value value chain management embraces5, the (and government) blind to the chains generally outweigh the costs, proportion of businesses practising it is challenges of tomorrow, and impotent but the latter are not insignificant. relatively small. Managers continue to when required to respond swiftly to They are often perceived as prohibitive refer to the value chain as a supply chain crises, often of their own making and by those (primary producers, and practice supply chain management to which they have paid insufficient processors and retailers) scarred by rather than value chain management. attention to fully comprehend. opportunistic behaviour upstream and As Meadows (1999) explains ‘Paradigms downstream, and for whom the abuse are the sources of systems. From them, • Determining what it is that of power remains a much easier option from shared social agreements about consumers value is conceptually in the short term, which is as far as the nature of reality, come system goals and methodologically challenging. many stakeholders in the agri-food and information flows, feedback, stocks Why focus on the complex when industry care to look. The biggest cost and flows and everything else about it is much easier to assume that associated with building collaborative systems’. The paradigm shift from supply all consumers want to pay less for value chains is management time chain thinking to value chain thinking everything and then focus on reducing – generating the trust and goodwill is in motion but has a long way to go costs? Within organisations this necessary to integrate key business before the transition becomes the norm. often results in relocation to low-cost processes in order to reduce costs countries, outsourcing and process re- takes time, and results in a degree of I believe the primary reasons for this are engineering. Externally, it often results inter-dependency with which many fivefold: in the rationalisation of suppliers and feel uncomfortable and about which the abuse of market power. those outside of these collaborative • The majority of today’s chief executive value chains remain sceptical. officers (CEOs) and senior managers • The proliferation of functional and – those who make the rules and disciplinary silos stifles innovation I believe that these barriers to the determine the vocabulary and culture and adaptation to what is becoming adoption of value chain thinking are within and between organisations – an increasingly turbulent, uncertain endemic, and embedded in business cut their business teeth during the and dynamic business environment. organisations and business culture the 1980s. It was a time when global The silo mentality makes it extremely world over. Overcoming them is bound 12
  • 14. Andrew Fearne Sustainable Food and Wine Value Chains the multi-dimensional assessment of the performance of value chains including the analysis of product flows, information flows and the management and control of the value chain’. It provides a mechanism for drawing the attention of different stakeholders to the opportunities for improvement at different stages in the value chain, and can be an effective catalyst for change. VCA involves an assessment of the relationships between the different stakeholders which, coupled with the effective flow of information, enables the economic optimisation of material flows – allocating time, people and technology appropriately. Consequently, to take considerable time and effort. As by industry associations, government the methodology focuses on three key Meadows puts it: ‘You keep pointing at agencies or regulators. Yet all issues: the failures in the old paradigm, you keep organisations (large or small, public or speaking louder and with assurance from • the dynamics of information in the private) can benefit from the application the new one... you don’t waste time with value chain, from final consumption of value chain thinking – using scarce reactionaries; rather you work with active through to primary production and resources more efficiently and effectively change agents and with the vast middle input suppliers and back again – how by focusing on specific consumer ground of people who are open-minded’ inclusive, transparent and responsive segments in distinct target markets. (Meadows 1999). Nobody said it was easy! are the information flows in the chain? To what extent are stakeholders’ The process of change is challenging, as It is important to acknowledge that decisions (what to produce, when to it requires a paradigm shift in thinking the collaborative business model is produce, how to produce) influenced (from supply chains to value chains) more appropriate for some enterprises/ by what consumers value? and a re-allocation of resources, risks markets/value chains than others. For and rewards. Many, perhaps most, • the creation and flow of value, in the example, in commodity markets (in businesses in the food and wine eyes of the final consumer, at each which the opportunities for growth are industries find this difficult to accept, so stage in the value chain – how many diminishing), price is the key driver of scarred are they by the systemic abuse of the production and processing resource allocation, and volume growth, of market power, particularly from activities truly add value? How much market share and efficiency are the stakeholders downstream, in the past. investment is being made in these key performance measures. In these critical activities? How many are circumstances there is less scope (and it is necessary but do not add value (these fundamentally more difficult) for trading Value chain analysis should be completed with minimal partners to develop relationships beyond resource allocation)? How many are ‘arms length’ and share information There are opportunities for improvement beyond the transactional level. In contrast, unnecessary (wasteful activities must in all organisations and all value chains. in value-added, differentiated, fragmented be eliminated and resources re- The problem is that all too often and rapidly changing markets (which tend allocated to drive value creation and organisations (or at least the people to provide the greatest opportunities for efficiency)? that manage them) are reluctant to growth) the scope and need for improved accept the principle of continuous 5 See, for example, Bello et al. 2003; Cannon & vertical co-ordination is far greater. improvement, or believe it applies only Homburg 2001; Duffy & Fearne 2004; Kalwani & to other organisations with whom they Narayandas 1995; Lusch & Brown 1996; Noordewier It is also important to stress that VCM is interact and not themselves! et al. 1990; Whipple et al. 2002) a strategy that businesses, individually and collectively within a chain, choose 6 Taleb, N. 2004. Fooled by Randomness: The hidden Value chain analysis (VCA) is a diagnostic role of chance in life and in the markets, Penguin to do; it cannot be imposed from above, tool, defined by Taylor (2005) as ‘... Books 13
  • 15. Value chain thinking of life cycle thinking has been applied recognised environmental management to the field of industrial ecology as a system uses a streamlined LCA that means of understanding the interaction underpins the company’s commitment of industrial systems with the natural to sustainable winemaking, and provides environment7. Life cycle thinking does a catalyst for strategic dialogue within not produce easy answers, but it does Yalumba and with its trading partners, provide a framework to recognise and upstream and downstream (Camilleri, understand complex systems and their 2008). inter-relationships. Sustainable value chain analysis The goal of life cycle thinking is to reduce resource use and emissions VCA and LCA are diagnostic tools, the to the environment from a brand, value of which lies in their ability to product or service whilst simultaneously stimulate behaviour change amongst improving its socioeconomic multiple stakeholders in the value performance throughout the life chain. LCA, by definition, requires cycle. This way of thinking leads to an assessment to be made of the extended and shared responsibilities environmental sustainability of a from cradle to grave. It goes beyond the product, from input supply to final traditional focus on production sites consumption and end of life. VCA and manufacturing processes so that requires value chain members to expose the environmental, social, and economic themselves to scrutiny with respect • the nature of relationships – how impacts of a brand, product or service to the economic efficiency of material much trust exists between different over its entire life cycle, including the flows, the effectiveness of information stakeholders? What is the nature of consumption and end-of-use phase, are flows and the resilience of stakeholder communication within and between taken into account. relationships. organisations? What evidence is there of organisational commitment? How Life cycle analysis Together they have the potential to are risks shared and the assumption of provide a more powerful diagnosis of risks rewarded in the chain? Life cycle analysis (LCA), often called sustainability, within and between ‘cradle-to-grave’ analysis, is the most organisations in the value chain. Their Understanding the nature and source comprehensive of the analytical combined application was explored of consumer value (as opposed to tools available for quantifying the during the course of my residency, in a cost or margin) facilitates behaviour environmental impacts related to the demonstration case study sponsored by change at all stages in the value chain, production, processing, packaging, PIRSA and involving a host of partners8. the operation of which will always be distribution, use and disposal of a The case study used the value chain sub-optimal when there is a lack of product (Camilleri 2008). The focus for Oxford Landing (one of Yalumba’s transparency (poor information flow) and of LCA is on the intensity of resource brands) to Tesco (the largest single poor communication between trading use (eg. energy, water) and the overseas customer of Australian wine) in partners due to a lack of trust and environmental impact of outputs (eg. the UK (the largest overseas market). commitment (poor relationships). by-products, waste and emissions) at each stage of the value chain, the The full results of the project can be aim being to identify opportunities downloaded from the PIRSA website9 – Life cycle thinking and for improving resource use, reducing they represent one of the major outputs the value chain environmental impacts and targeting from the residency – but are summarised parts of the life cycle where the greatest in the following case study. Life cycle thinking is a qualitative improvements can be made. 7 Cohen-Rosenthal 2004; Ehrenfeld 1997; Ehrenfeld framework used to understand and 2000; Nielsen 2006; O’Rourke 1996 assess systems. It has historically been During the course of the residency applied to natural systems through fields I was exposed to life-cycle thinking 8 Yalumba, Tesco, Amcor, PIRSA, DTED, University of like ecology, where the relationships South Australia, University of Adelaide, Kent Business through my involvement with Yalumba, School between species and their habitats are Australia’s oldest family-owned 9 studied. More recently, the framework http://www.pir.sa.gov.au/__data/assets/pdf_ winemaker. Yalumba’s internationally file/0003/93225/V2D_Final_Report.pdf 14
  • 16. Andrew Fearne Sustainable Food and Wine Value Chains Case Study Sustainable Value Chain Analysis – Key Findings from the ‘Vine to Dine’ Project CONSUMER VALUE: More sustainable wine production/packaging may be something that retail buyers are requesting of their suppliers, in an effort to support socially responsible strategic initiatives, but very few UK shoppers currently value sustainability as an attribute of the wine they purchase from supermarkets. Oxford Landing is regarded as a ‘typical’ Australian wine (a ‘safe bet’) but for many supermarket shoppers the selection of Oxford Landing, like most ‘everyday’ wines, is triggered by a promotion, which in the case of a known brand is difficult to resist and requires little effort, and thus, attention to the bottle or the label. emissions. However, the fact that INFORMATION FLOW: The OLT value consumers regard the appearance of chain contains a mixture of strong MATERIAL FLOW: The VCA highlighted the bottle and the information on the and weak information flows between the dominance of necessary but non- label as ‘value adding’ means that and within organisations. A clear value adding activities in the Oxford low cost solutions that are effective correlation exists between the nature Landing/Tesco (OLT) value chain, in reducing emissions may reduce of relationships and information flows. which implies a focus on efficiency and the perceived value of the wine in Relationships appear slightly weaker suggests that there is limited scope the eyes of the consumer, resulting with downstream partners (eg. Tesco) for adding value. Tesco’s approach to in less not more value being added and with the secondary players (eg. merchandising and setting promotion as a result of reducing the carbon logistics providers). Moreover, the slots introduces greater uncertainty footprint understanding of the customer (Tesco) in forecasting annual sales, which needs and consumer wants (value) is potentially creates waste or loss of RELATIONSHIPS: The OLT value distinctly limited upstream, particularly profit along the value chain. chain is characterised by strong amongst input suppliers and growers. relationships. There are many CARBON EMISSIONS: The LCA revealed examples of best practice throughout The case study highlights the value relatively low carbon emissions the chain – Yalumba is widely of emissions data – when viewed occurring downstream (retail and respected as a customer, a supplier alongside the categorisation (in the eyes final consumption) but substantial and as a place to work. However, of the consumer) of activities involved contribution made in the vineyard they need to make more use of in the production and distribution and at the winery. Together these their strong relationship with of wine – as an input to sustainable account for more than one-half of Tesco to engage more effectively value chain management and resource the total carbon emissions from the in strategic dialogue with respect allocation for capital expenditure, chain. The recent attention directed to sustainability and to the longer R&D, and government intervention towards alternative packaging formats term development (and possible programs. This ensures that decision- is justified by the emissions data – re-positioning) of the Oxford Landing making is more closely aligned with and bottling, packaging and labelling range. driven by environmental and economic together account for 15% of total sustainability. 15
  • 17. Value chain thinking Demonstration projects imported prawns (in partnership with the right format (eg. fresh, prepared, Rural Solutions SA, PIRSA, Spencer Gulf pre-packed) for different target groups Achieving the requisite change in and West Coast Prawn Fishermen’s (in partnership with the Department of mindset that constitutes the first Association, Seafood CRC). Health, PIRSA, Rural Solutions SA and steps on the long and winding road Adelaide Produce Markets). • Barossa Valley Community Store – to sustainable competitive advantage leverage of their existing co-operative • Riverland Futures – a value chain has been the greatest challenge I have membership and purchasing databases workshop was held with a wide range faced in this residency, and is likely to to enable more effective use of targeted of stakeholders from government prove one of the greatest challenges promotions and the maintenance of and industry, the result of which was facing the South Australian food store loyalty in the face of growing the identification of a number of and wine industries in the future, so embedded have they become in the competition from national supermarket potential value chain projects designed supply chain paradigm. chains (in partnership with Barossa to support innovative approaches & Light Regional Development Board, to much-needed community and University of Adelaide). industry restructuring in the face of Demonstration projects are key to a chronic lack of water for irrigation engaging people and organisations • ‘Feast’ Fresh Meat retail stores – and declining demand for the crops in the change process. Thus, during development of a loyalty card program traditionally grown in the region (in the course of my residency a Value to enable the targeting of specific Chain Project Development Team partnership with PIRSA, Rural Solutions shopper segments with specific SA, DTED, Riverland Grape Growers (VCPDT) was established to assist in promotional offers, encouraging the design and implementation of a Association, Riverland Tourist Board). repeat purchase and building shopper range of value chain projects to help loyalty to help grow the business from The legacy is that many of these promote the message. The VCPDT the strong niche base established in projects continue to progress and will comprised of eighteen people from Adelaide (in partnership with Meat hopefully generate lasting benefits to across a number of disciplines and & Livestock Australia, University of the stakeholders, providing relevant experiences, representing relevant Adelaide). (local) examples of value chain thinking government agencies and industry stakeholders10. Their prime task in practice. • Free Eyre – feasibility study for the was to identify projects that would development of sustainable lamb 10 Rural Solutions SA (convenor), Primary Industries enable the participants in the chain value chains in the Eyre Peninsula, for and Resources SA, Dept of Trade & Economic to embrace the principles of value Development, SA Health, University of Adelaide, the benefit of more than 240 mixed University of South Australia, Yalumba Wines, Tarac chain management and to work farming enterprises who have come Technologies, Amcor, Barossa and Light Regional towards collaborative solutions that together in pursuit of a collaborative Development Board, Zero Waste SA, Meat and involve multiple stakeholders and an Livestock Australia business model based on value chain acceptance of the need to change what efficiency. The scoping project includes is done, as well as the way it is done. mapping existing resources (flock sizes and genetic pool) and potential The VCPDT was successful in working links into differentiated markets (in through a number of project proposals partnership with PIRSA, Rural Solutions and kick-starting several ‘live’ projects SA, Meat & Livestock Australia, Eyre during the course of the residency, in Regional Development Board). addition to the Vine to Dine project summarised above: • Fruit & Vegetable Consumption – South Australian consumption of fresh fruit • Spencer Gulf Prawns – mapping and vegetables is amongst the lowest of existing South Australian in Australia and the Departments of prawn value chains with a view to Health is keen to engage with industry identifying opportunities for greater stakeholders to explore collaborative collaboration between fishermen interventions to raise awareness and and vertical co-ordination with educate consumers about the benefits agents, distributors and end users, to of eating more fruit and vegetables, differentiate South Australian prawns whilst simultaneously making sure from (lower cost but inferior quality) that quality produce is available and in 16
  • 18. Andrew Fearne Sustainable Food and Wine Value Chains Value chain management in practice – insights from around the world ‘The range of what we think, do, and achieve is limited by what we fail to notice’ John Grinder Value chain thinking, management dedicated to Asda, whose range is Case Study 1 and analysis are not new concepts, but less diverse, comprising 10 key lines. their application to the food and wine Dedicated value chains for dedicated Rationalisation of the respective industries remains limited outside value chains, at packer level, occurred Northern Europe, and particularly the retail strategies – fresh potatoes in several years ago, so both companies UK, where supermarket strategies, Asda and Waitrose have been working as sole suppliers government regulations, market (Duffy et al, 2008) for some time. conditions and industry structure have conspired to promote an increasingly Asda and Waitrose are at opposite Both business are extremely well collaborative model of doing business. ends of the retail spectrum – Asda is integrated with their respective the second largest supermarket in the customers’ operations. Solanum has a The case studies presented here are not UK with an every-day low price (EDLP) desk at Waitrose head office and the intended to provide exhaustive insights strategy that drives volume; Waitrose is account manager spends two days into the scope of collaborative value a niche player with quality and choice per week working directly with the chain initiatives. Indeed, the focus is at the heart of their offer to consumers. Waitrose team, who encourage open deliberately on small-scale businesses Yet in recent years these two retailers communication with their supply operating in commodity (eg. largely un- have led the pack in terms of market base. Fenmarc is given a free hand to branded) sectors, in order to illustrate growth in fresh produce, a category that develop the category plan for Asda to that value chain management is not the both retailers regard as strategically ensure that they remain on target over exclusive domain of global corporations important and in which they have the course of the season. There are no with well-developed systems and adopted very similar value chain panic buttons in the Fenmarc/Asda integrated business processes. Further strategies. relationship – Fenmarc is entrusted examples can be found in the additional to get it right over time and Asda readings and on websites listed at the Solanum packs fresh potatoes from trust them to take difficult decisions end of the report. its Sutton Bridge site, which is almost on their behalf. A trusted source of 100% dedicated to Waitrose, who stock supply means fewer inspections, fewer up to 35 different varieties throughout rejects, better availability and fewer the year. Fenmarc packs from its customer complaints. site at March, which is almost 100% 17
  • 19. Value chain management in practice – insights from around the world Both Fenmarc and Solanum see KG Fruits is a grower-controlled soft fruit dedication as a key part of their Case Study 2 marketing co-operative and the largest competitive advantage and want to Implanting the benefits of buyer- of Sainsbury’s five soft fruit suppliers. In see greater dedication at the grower Susan Barrow they had someone who level, but for different reasons. For supplier collaboration in the soft fruit was IT literate, well informed about Fenmarc, fewer, larger, dedicated sector – KG Fruits and Sainsbury’s consumer needs (having worked for growers is consistent with the Asda (Fearne et al, 2006) several years on KG’s extensive program model of volume growth and cost of consumer research) and keen to get reduction, but Mark Harrod, Managing Forecasting sales is notoriously difficult an insight into retail systems, for the Director of Fenmarc, is keen to stress for many food products, but particularly benefit of all concerned. that it is not just about taking out the for those susceptible to surges in cost; it is what you do with the savings demand due to unforeseen changes in Susan was given the objective of ‘... that makes the difference in the long key environmental factors, such as the assisting the accurate forecasting of soft run: weather. This makes it difficult for food fruit to maximise sales and reduce waste retailers to predict accurately what will across the Sainsbury’s estate’. Associated ‘A dedicated grower base with be needed and hence what to order. In responsibilities included: fewer larger growers will provide their efforts to ensure adequate on-shelf opportunities to keep driving down availability, retailers will tend to over- • assistance in the provision of accurate the cost of doing business. It is really order when demand is uncertain, to avoid soft fruit forecasts, with final sign off simple, but organisational culture is a running out of stocks and disappointing from the supply chain manager and major barrier to change. Taking cost out consumers. This can cause significant buyer is one thing, investing in growth and problems for suppliers of short shelf-life further cost-saving is another thing. products, such as soft fruit, for which • interrogation of data at store level Many farmers will use profit from one wastage can, in extreme cases, reach • management of weekly service level enterprise to subsidise another. The 15 to 20%. analyses for all suppliers, including big prize is investment in continuous rationale for performance improvement – a lot of or growers have Sainsbury’s is one of the few multiple invested in cold storage on the back of a retailers to open their doors to suppliers • assistance to the buyer in post- cost-plus contract.’ and invite them to collaborate, specifically promotional analysis, planning in the highly sensitive area of sales analysis for seasonal programming, Solanum sees communication as a forecasting. Supplier implants now and daily (summer), weekly and key in driving down costs and raising populate Sainsbury’s Holborn office monthly customer complaints quality across the grower base, as on a regular basis but, as soft fruit management Paul Tracey, Logistics and Purchasing buyer, Dominique Schulenburg recalls, Manager explains: the decision to open up their demand • weekly store visits and quality management systems to suppliers was not benchmarking ‘Growers have a better chance if they taken lightly: have a full understanding of what • collation of Electronic Point of Waitrose want and take responsibility ‘At first we were nervous about pulling Sale (EPOS) data and working with for what they do, for which they will be suppliers in and exposing our systems but Sainsbury’s other soft fruit supplier, AFI paid a premium. We have worked really it was obvious to most of us that we did Ltd, to produce periodic reviews. hard on crop intelligence. We don’t not have the capacity to give the soft fruit want to be giving Waitrose problems, category the attention it deserved... we This seemed a tall order and the implant we want to offer solutions. The key suspected the problem was largely down was scheduled for six months, starting is communicating early when we do to our inability to generate store-level in February 2003. However, as Susan have a problem. Waitrose encourage forecasts that responded more effectively to recalls, it was obvious to everyone that that and are very open to discuss plans local buying behaviour and short of a major any improvement, however small, as well as problems. Waitrose want system overhaul we knew the solution would have a positive impact on the the best potatoes and growers want required manual intervention, product- supply base and so the investment (KG the best prices, our job is to make specific knowledge and time that we simply continued to pay Susan’s salary for this possible and retain a margin for did not have within our internal forecasting the duration of the implant) appeared ourselves!’ team. The scenario was unwelcome but justified: tailor-made for a supplier implant.’ 18