Supply chain cooperation and producer organisations
Building understanding throughout the supply chain will not in itself deliver improved margins. With over 7,000 farm businesses producing cattle for sale either as stores to other farmers or finished stock into 22 Scottish beef abattoirs most do not have the negotiating strength that comes from having a significant volume of stock to trade. That will only come through greater cooperation within the supply chain.
Collaborative supply chains have developed in many industries over the last 50 years. Collaboration has been proven to increase competitiveness by creating value chains and networks that are:
- Capable of offering security of market for producers;
- Capable of delivering a secure supply for processors that is in specification, on time and in the volumes required;
- More responsive to changes in the market, and faster to develop and introduce new and premium products;
- More effective and efficient in their information flows and processes, becoming leaner and lower cost;
- More innovative and faster to adopt new technologies;
- More resilient and sustainable, and effective in managing carbon reduction.
Collaboration may take many forms as it becomes more comprehensive, but it is always about achieving commercial objectives and returns, while responding to market needs and opportunities. At the simplest level (process level), collaboration is concerned with improving performance in producing to customers' specifications and performing to their service needs. At higher levels, it is concerned with joint planning and investment decisions across links in the chain, based on long term shared commitment to common business objectives.
As sophistication increases, trust, transparency, risk sharing, and reward sharing assume much higher priority.
Achieving commercial benefit from collaboration does not necessarily have to involve the entire chain. Considerable commercial benefit can be realised from improved business practices and relationships amongst chain partners, especially where there was limited collaboration in the past. Establishing initial building blocks of collaboration between chain partners often leads to more comprehensive and more ambitious collaboration in the chain at a later stage.
The Scottish Rural Development Programme ( SRDP) should make specific provision to support the development of supply chain cooperation through producer organisations that:
- Agree specification and volumes;
- Formulate pricing frameworks and payment terms;
- Enable chain product and process improvement and innovation;
- Participate in new product and new market development; and
- Reduce unknowns, reduce risk and help justify capital investment.