Vertical Supply Chain Research Articles

Internal supply chain coordination in the electric utility industry

Abstract Electric utilities have a well-established vertical internal and external supply chain. Theoretically, information sharing, involving production, inventory, and other policy variables, between chain entities can improve supply chain performance. Such sharing relies on a systematic determination of the optimal policy variables for the chain. This paper presents an analysis of the electric utility’s decision problem based on an optimal control model in a competitive market environment. Optimal production and inventory policies are developed for a centralized supply chain under full information sharing. The model and policies are tested with electric utility industry data, and performance implications are discussed for electric utility managers and public regulators.

Intervening in Value Chains: Lessons from Zambia's Task Force on Acceleration of Cassava Utilisation

Smallholder farmers operate in vertical supply chains. Therefore, an understanding of key opportunities and constraints up through the value chain becomes necessary for sustaining smallholder growth. Yet market analysis is of little value unless key private and public sector stakeholders agree to implement necessary reforms. This paper advocates an approach which marries together value chain analysis with a stakeholder task force to ensure that analysis of opportunities and constraints gets translated into actions that will facilitate commercial growth. Using Zambia's cassava task force as an example, the paper describes the value chain task force method and identifies elements critical to its effective implementation.

From Metal Bashing to Materials Science and Services: Advanced Manufacturing and Mining Clusters in Transition

Pressures to innovate and sustain competitive advantage in global markets are shifting the structure of advanced manufacturing industries towards a pattern typical of nimbler, high technology clusters. Industries that have historically been structured through vertical supply chains and internalized R&D are adopting a clustered pattern of industrial organization, characterized by regional concentrations of networked suppliers, inter-firm learning and a decentralized and flattened production chain. This paper synthesizes the findings on innovation and learning in six industrial clusters in advanced manufacturing and mining sectors, as they face the challenge of making the transition from one form of industrial production to another.

A Study of the Joint Advertising Channels

The study of joint advertising channels decision-making is a very difficult issue. It mainly focuses on ads investment game between a manufacturer and a retailer in a vertical supply chain. With the rise of the game theory, scholars have been starting to investigate this issue in the frame of game theory in recent years. The paper improves the existing models and introduces single-period and multi-period modified models. The paper obtains the closed-form solutions to the single-period model and the simulation results of the multi-period model. We also examine the implications of these results and obtain some insights into the real practice.

Third-party certification, food standards and quality assurance in supply chains

This paper develops a theoretical framework to address and discuss issues of certifier effort, firm size and cost differences in the provision of credible third-party certification services in vertical food supply chains. The emergence of private and voluntary food standards have opened a fast growing market for the provision of independent third-party certification services for a range of credence attributes from origin, through food quality and safety to social and environmental attributes. This study argues that the quality of certification may be affected by the number of heterogeneous standards a certifier is accredited to verify. Moreover, results suggest that the quality of more complex and costly testing protocols and standards resulting in overall higher certification cost may be better served by smaller certification bodies that on average exert higher effort levels. This finding seems of particular relevance to food chain management given the growing proliferation of highly specialized private standards and contractual arrangements in international food supply.

LEVERAGING CONTRACT FARMING FOR IMPROVING SUPPLY CHAIN EFFICIENCY IN INDIA: SOME INNOVATIVE AND SUCCESSFUL MODELS

Most of the farm operators being small and marginal farmers in India, there were problems in getting quality raw materials for processing or fresh marketing, especially in perishable high value crops. The processing and marketing firms faced issues of high cost, lack of adequate availability, poor quality and timeliness. On the other hand, there were gluts in markets for such produce and farmers realised low or un-remunerative prices. After the opening up of the Indian economy and entry of many domestic and multinational players into agribusiness sector, contract farming which was restricted, largely, to seed production earlier, spread to perishable produce and has now become the dominant and growing mode of raw material production and procurement co-ordination among the processors and fresh produce marketers and exporters including that of organic produce. This paper examines the nature and performance of such contract farming arrangements across crops (potato, mint and organic basmati paddy) and companies in different regions of India with primary evidence. It also examines the factors in the success of such models of vertical supply chain co-ordination and problems encountered by the contracting agencies. The paper concludes by outlining some important managerial and institutional lessons for organising supply chains in perishable produce by global and domestic agribusiness players.

Subsidiary roles, vertical linkages and economic development: Lessons from transition economies

Abstract Vertical supply chain linkages between foreign subsidiaries and domestic firms are important mechanisms for knowledge spillovers, contributing to the economic development of host economies. This paper argues that subsidiary roles and technological competences affect the extent of vertical linkages as such as well as their potential for technological spillovers. Using survey evidence from 424 foreign subsidiaries based in transition economies, we tested for the effect of subsidiaries’ autonomy, initiative, technological capability, internal and external technological embeddedness on the extent and intensity of forward and backward vertical linkages. The evidence supports our main argument that the potential of technology diffusion via vertical linkages depends on the nature of subsidiary roles. We discuss the implications for transition as well as other developing countries.

Economics of Traceability for Mitigation of Food Recall Costs

We rely on case study interviews and on the literature to develop conceptual and process simulation models for investigating the value of traceability for food recall. Our models incorporate quality control in a vertical food supply chain and identify key factors that affect the value of traceability. Simulations for recalls caused by Escherichia coli O157:H7 contaminations in ground beef demonstrate the value of traceability for reducing recall costs. Our models enable firms and policy makers to simulate alternative costs/values for traceability as improved cost parameters and uses of information systems become more standardized.

Business-to-business collaboration through electronic marketplaces: An exploratory study

Many business-to-business electronic marketplaces (EMs) are now offering collaboration functionalities, but the collaboration concept in an EM context has not been studied systematically. This paper is a preliminary effort to explore and categorise the different types of collaboration functionalities that may be offered by EMs. By surveying websites, we identified five types of horizontal collaboration (buying groups) and four kinds of vertical supply chain collaboration in EMs. Our findings suggest that supply chain collaboration tends to be supported more than buying groups by existing EMs, and a high percentage of EMs now offers supply chain coordination and integration. Among online buying groups, the exchange-catalogue model is the most popular, possibly since it puts fewer burdens on members and coordinators.

Optimizing and retaining product quality in the supply chain: for whom and who profits?

Present day retail groups are demanding extremely high quality and safety measures from their suppliers. The large retail chain called Tesco’s in the UK recently demanded a logistic performance from its suppliers of 99.8% as a minimum! The main retail chain of the Netherlands has demanded that it’s fruit and vegetable supplier will source globally for all it’s products resulting in great difficulties when it comes down to maintaining the residue levels of agrochemicals within acceptable limits. It is evident that a production and supply chain consisting of different companies operating on the spot market cannot meet these requirements. A recent change in the policy of the German government, making the tests for residue levels of agro-chemicals in fruits and vegetables public, resulted in a switch in policy of discount retail groups like Aldi and Lidl to stop buying their fruits and vegetables on the spot market and start sourcing from preferred suppliers through contracts. This allows for the build up of steady supply chains that can cope with the high demands on safety, logistics and quality. These chains need to innovate to cut costs and to speed up their processes in order to maintain their competitive edge. However through the close intermingling of the vertical chain partners it is not evident any more that when one invests in an innovation the profit of that investment can also be reaped by the investing party. Very often an investment in one part of the chain results in a profit in another part of the chain. A good example is the drive towards a longer shelf life of fresh products. Through investments in breeding this has led to an increase of shelf life of many fresh products. However the breeders got their profit through a competitive advantage, the growers got no profit, but the traders reaped the main profit through enhancement of their ability to speculate on the spot market. This can work as an inhibitory effect on the drive to innovate. It is therefore adamant that innovations in such complex interdependent vertical production and supply chains are set up in a strategic context. Chain partners should develop innovation strategies together and discuss the possible profits and costs in advance in order to negotiate the division of costs and benefits to create a win-win situation for all participants. This necessitates a means to predict possible profit and cost distributions among the participants across the entire supply chain. Therefore it is necessary to predict dynamic consumer responses in relation to product performance in the market. Here we need to interface consumer science with product physiology, both on a product level as well as on a batch level.

The Vertical Information Transfer Effects of Earnings Restatements Along the Supply Chain

Vertical supply chain relations are potentially important information channels as investors infer value relevant information from economic links. We hypothesize that restatements reveal information about the payoff on the implicit claims held by a restating firm's suppliers and customers becomes uncertainty, which results in negative valuation effects on these stakeholders. Consistent with our hypothesis, we find that significant negative abnormal returns to customers and suppliers surrounding restatement announcements. Further, we find that customers and suppliers exhibit a significantly decrease in post-restatement operating performance. We also show that customers and suppliers experience downward analyst forecast revisions after restatement announcements. Finally, we find that the restatement adversely affects the post-restatement relationship-specific investments by customers and suppliers. Overall, our finding suggests that earnings restatement announcement provides valuation-relevant information about both firms in supplier and customer industries of the restating firms.

Using learning networks to enable industrial development

PurposeThe purpose of this paper is to explore the dynamics of inter‐firm learning and the ways in which “learning networks” can be established and facilitated. Underlying this is the argument that significant traction on the problem of organizational learning – in this case around process innovations – can be gained through deploying structured and purposeful inter‐organizational learning networks.Design/methodology/approachThe paper builds on three case studies drawn from the experience of firms in South Africa, covering both vertical (supply chain) and horizontal (cross‐sector) groupings in automotive components and timber products.FindingsThe paper reports on the ways in which the learning networks were set‐up and operated, mapping this experience against a model framework which emphasizes a number of core operational processes. It suggests that the success of both the automotive component groupings and the failure of the timber products network can be explained through reference to this model and the different approaches taken to managing these core processes.Research limitations/implicationsThe research reported here draws on a small number of detailed cases and further work is needed to verify the model and the guidelines for action.Practical implicationsThe paper highlights guidelines for policy agents – for example, in business support agencies or regional development authorities – in setting up and running effective learning networks.Originality/valueThe paper contributes to theory around inter‐organizational networking and organizational learning and provides micro‐level detail of how learning networks can be established and sustained.

A framework for implementing information and communication technologies in agricultural development in India

Knowledge is an increasingly significant factor of production in modern agriculture. Information and Communication Technologies (ICTs) can accelerate agricultural development by facilitating knowledge management. Based on an evaluation of several ICT initiatives in rural India, a framework to guide policy and implementation of ICTs in Indian agriculture is proposed. In this framework, agricultural development is visualized from two perspectives, a rural incomes and livelihoods perspective at the farm level, and a sustainability perspective at the regional level. The implementation of ICTs is proposed in three unique institutional environments: (i) closed vertical supply chain network for agribusiness enterprises, (ii) an open chain network with dynamically evolving partners and supply chain situations for the public, non-governmental and multilateral organizations, and (iii) a spatial data services network to address natural resources management and sustainability concerns. Each environment is assessed to identify its appropriate business models centered around ICTs, required technologies, scope for up-scaling the models, and required institutional and policy initiatives. In the future, as ICT infrastructure grows and connectivity and hardware costs decline, the critical constraints are likely to be the development of appropriate policy and institutional environments for the creation and delivery of information and knowledge to the end users. Significant policy, institutional networking and capacity building initiatives will be required at various levels to overcome the constraints and effectively integrate ICTs into the agricultural development process in India.

Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice

This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies. Copyright © 2006 John Wiley & Sons, Ltd.

A heuristic methodology for order distribution in a demand driven collaborative supply chain

This paper studies vertical and horizontal supply chain collaboration, and proposes a demand sharing methodology based on a set of predefined collaboration rules. Supply chain collaboration is prevalent, and has been recognized to be one of the important issues in improving competition strength. However, implementation of supply chain collaboration encounters many barriers, such as type, scope and security of information sharing, equity in benefits sharing, joint decision making, coordination tasks etc. For these reasons this paper proposes a framework of a central coordination system, which is equipped with a multi-criteria genetic optimization feature. The optimization methodology combines an analytic hierarchy process with genetic algorithms. It deploys an analytic hierarchy process to model the collaboration rules, govern the demand allocations, and evaluate the fitness values of chromosomes. The implementation of the proposed central coordination system is demonstrated by a hypothetical three-echelons supply chain network.

Relationship Governance in a Supply Chain Network

The authors examine how a firm's strategy in a (downstream) customer relationship is contingent on how a related relationship outside of the focal dyad is organized. Drawing on emerging perspectives on interfirm governance and networks, the authors propose that the ability to show flexibility toward a (downstream) customer under uncertain market conditions depends on the governance mechanisms that have been deployed in an (upstream) supplier relationship. The governance mechanisms take the form of (1) supplier qualification programs and (2) incentive structures based on hostages. The authors develop a set of contingency predictions and test them empirically in the context of vertical supply chain networks in the apparel industry. The tests show good support for the hypotheses. The authors discuss the implications of the findings for marketing theory and practice.

Myths and realities of e‐commerce in the perishable foods industries: unleashing the power of reputation and relationship assets

Argues that the Internet does not signal the end of relationships nor level the playing field for powerful buyers and traditionally weak sellers in the perishable foods industries. The Internet and e‐commere are regarded by some as potential barriers to the continued development of vertical supply chain partnerships. Research shows that it is the intangible assets, such as culture, corporate reputation, and relationships with customers, that are the most difficult for competitors to copy and are the foundation for long‐term, success. The power of B2B e‐commerce in the perishable food industries is based on unleashing the value of past investments in reputation and relationship assets.