Newsletter No. 30 – September 2005 Item 1
Agriculture used to be many small producers growing their produce or livestock and when ready they would take it to the market. Since the end of the 2nd World War there have been progressive changes in agriculture. The reasons for this are complex and regularly discussed through these newsletters. Also discussed is the need to understand the consequences and consider actions needed to be taken if any of our businesses based on ostrich are to be successful. In this context let us define The Supply Chain vs The Value Chain.
What is a Supply Chain?
A supply Chain is where each element of the process to the end consumer is defining their section of the process as the product.
What is a Value Chain?
A Value Chain is where there is collaboration between all processes in the supply chain to ensure that there is no leakage of value through poor performance of one link in that chain.
A Value Chain is an alliance of enterprises collaborating vertically to achieve a more rewarding position in the market.
Companies in a value chain are legally independent operations, but become interdependent because they have common goals and work collaboratively to achieve them. They work together over the long term discussing issues and troubleshooting problems together. It is more than just long-term contracting.
Take a look at the documents developed by the Alberta Provincial and Canadian Agricultural department web site on value chains [link no longer available]. They have developed some excellent documents to help producers understand these differences.
The changes in agriculture over the past few decades have meant that Vertical Integration in agriculture is essential for economic success. Building a “Value Chain” is a method of achieving Vertical Integration through collaboration and interdependence whilst retaining independence.
A quote from the UK Red Meat Industry support web site from an article title: “A Winning Team“. [link no longer available]
Quote: Leading representatives from Tesco and ASDA will be speaking at the Red Meat Industry Forum (RMIF) conference in London on 2nd November 2005 where the results of the three-year initiative will be revealed.
The retailers have played a major part in the Value Chain Analysis work that the RMIF have carried out to date. Their views on lessons learnt and on how the UK red meat supply chain will need to work in the future will be extremely valuable to those striving for success in this industry. End Quote
Another reason for the value chain approach is the increasing requirement for full traceability. Vertical integration can be achieved either by single companies having total control of all aspects or through the value chain approach were each sector remains independent, just interdependent working in collaboration with a common goal. That common goal optimises the value for all in the chain.