Supply Chain Management: An International Journal

Challenges in international food supply chains: vertical co-ordination in the European agribusiness and
food industries
Henk Folkerts, Hans Koehorst,
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Insights from industry
Challenges in
international food
supply chains: vertical
co-ordination in the
European agribusiness
and food industries
Henk Folkerts and
Hans Koehorst
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The authors
Henk Folkerts is manager and Hans Koehorst is a
consultant, both of the Agribusiness and Food Industries
Unit, NEHEM Consulting Group, Hertogenbosch, The
Netherlands.
Abstract
Presents the need for the European agribusiness and food
industries to redesign and reposition their activities in the
food supply chain, both at a technical and organizational
level, in order to achieve customer satisfaction and
business efficiency. Focuses on the findings of ten supply
chain projects in the Dutch horticultural sector and on the
results of a benchmarking project in five different
European countries. Describes the activities of the Agri
Chain Competence programme in The Netherlands.
Stresses that more attention should be paid to internation-
al food supply chains and that chain reversal asks for new
methods, tools and expertise on chain analysis and chain
management.
Supply Chain Management
Volume 2 Number 1 1997 pp. 1114
MCB University Press ISSN 1359-8546
11
Introduction
At the moment, the European agribusiness
and food industries are confronted with far-
reaching changes. Customers are more self-
assured and are making new demands on
products and services and thus on suppliers.
This requires a very radical change, i.e. the
transformation of production-driven supply
chains into market-driven supply chains. We
call this chain reversal. This means that
new tools, methods and knowledge for chain
analysis and chain management are necessary,
which can only be developed by increased co-
operation between research institutions and
the agribusiness and food industries.
In this article we will discuss the impor-
tance of vertical co-ordination in food supply
chains, the current vertical co-ordination
activities in The Netherlands, the results of
recent research using an analytical tool
designed specifically for benchmarking supply
chain projects, and the increasing importance
of international food supply chains.
Chain reversal
Chain reversal requires the redesign and
repositioning of the complete food supply
chain and of every company (link) in this
chain (see Figure 1). In this respect, a food
supply chain is defined as a set of interdepen-
dent companies that work closely together to
manage the flow of goods and services along
the value-added chain of agricultural and food
products, in order to realize superior cus-
tomer value at the lowest possible costs.
This chain reversal results in major
changes in the structure, culture and behav-
iour of the firms in the agribusiness and food-
industries. In the future we will see an even
greater emphasis on chain oriented manage-
ment in addition to individual firm manage-
ment, both in terms of organizational innova-
tion and technical innovation. It will mean
greater accuracy, speed and flexibility in
responding to the market, an improved
response to consumer demands and environ-
mental demands, the development of new
technology and products and more co-opera-
tion to maximize profits at chain level. This
can only be realized through improved vertical
co-ordination of chain strategy and chain
activities. It is increasingly evident that indi-
vidual companies in the agribusiness and food
industries cannot achieve their desired market
 Challenges in international food supply chains
Henk Folkerts and Hans Koehorst
Figure 1 Chain reversal in agribusinesses and food supply chains
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position solely through their own efforts.
Instead, they will have to co-operate more
effectively as an integrated supply chain.
Production, processing, distribution and
consumption used to be regarded as individ-
ual processes, with profit maximization at the
firm/product level the prime motivating
factor. Nowadays, the food supply chain is
rapidly becoming an interconnected system
of highly varied processes performed by firms
with complex relationships.
Chain management model
The NEHEM Consulting Group is a Dutch
based company active in the agribusiness and
food industries and in the industrial sector,
Figure 2 Chain management model
12
Supply Chain Management
Volume 2 Number 1 1997 1114
both on a national and international scale.
The group specializes in consulting and train-
ing in the areas of chain development, total
quality management and agri-industrial
development.
Recently, we developed a chain manage-
ment model (see Figure 2) in co-operation
with the Dutch auctions. This model focuses
on the different links in the chain which are
required to manage the supply chain process-
es. We have used it over the past 12 months in
a series of benchmarking exercises.
The model consists of nine fields of
interest, in which a distinction is made
between the activities carried out, the persons
or companies involved, the control and
improvement of the activities and the final
 Challenges in international food supply chains
Henk Folkerts and Hans Koehorst
result. To co-operate in supply chain manage-
ment, somebody or some organization will
have to take the initiative. The driving forces
for co-operation in a supply chain will lead to
the definition of a chain strategy, in which
objectives, administrative procedures, com-
munications and positioning are established.
Each member of the supply chain has to
manage and undertake various activities to
implement the chain strategy. To carry out
the necessary adjustments effectively, a deci-
sion is required on the distribution of chain
resources (e.g. human capital, assets,
technology, etc.). Finally, the results of the
(re)organization of the supply chain are
evaluated by each of the supply chain
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members, final consumers and society at
large.
The use of this model in order to deter-
mine the performance and the critical success
factors of chain development of ten supply
chain projects in the Dutch horticultural
sector showed that co-operation by means of
vertical co-ordination is based on the expecta-
tion of each co-operator that its activities and
transactions will be executed better than
before the co-operation took place. Chain co-
operation is based on agreements between co-
operators and lasts for as long as co-operation
is deemed necessary. These agreements are
typically concentrated on one or more aspects
of the chain processes, such as logistics, pro-
cessing, planning or quality management.
The benchmarking of the ten horticultural
supply chain projects showed that it is neces-
sary to make agreements, to have confidence
in the other partners and to have clear targets
and expectations about the results of the co-
operation. The critical success factors of these
projects were:
the formulation of a plan for co-operation
and an agreed schedule of activities;
the definition of targets and the formula-
tion of a clear idea of the expected pay-offs;
the formulation of a clear and effective
communication plan;
a mutual understanding of the respective
cultures; and
experience of co-operation with other
partners.
The benchmarking exercise also showed the
reasons why chain co-operation fails. Failure
can be due to:
differences in the targets and the expected
results;
13
Supply Chain Management
Volume 2 Number 1 1997 1114
differences in the levels of competence of
the respective partners;
non-acceptance of necessary changes; and
bad results in the short term.
Vertical co-ordination in
The Netherlands
Vertical co-ordination in Dutch food supply
chains has been researched for some years. In
general, the benchmarking exercises con-
firmed the need to strengthen the agribusiness
and food industries by developing chain
expertise. Therefore the Dutch Ministries of
Agriculture and Economic Affairs, in consul-
tation with the agribusiness and food indus-
tries, launched the Agri-Chain Competence
(ACC) programme. This programme is
designed to stimulate the development of
chain expertise and chain knowledge, as well
as the methods of analysis necessary to
improve the co-operation between the
agribusiness and food industries and research
institutions, both national and international.
Within this programme-specific food supply
chain problems are identified and solutions
developed through specific pilot projects.
In the ACC programme the entire Dutch
agricultural sector and the agricultural
research institutions are involved. At the
moment almost 60 projects are running, each
of them concentrated on specific chain prob-
lems. In addition ten cross-border projects
have already been formulated. One of these
cross-border projects, Learning from other
chains, aims to realize a mutual understand-
ing of the functioning of international food
supply chains. For this, food supply chains in
France, the UK, Germany, Denmark and The
Netherlands have been studied. Until now,
the project results show that co-operation
between actors in food supply chains varies
considerably and is highly dependent on
historical and cultural aspects as well as the
regulatory environment. Also, there is clear
evidence of opportunistic behaviour. This
means that individual actors will only work
together for as long as there are clear and
tangible benefits.
From the field research it is obvious that
those supply chains which are strongly influ-
enced by the primary sector are more product
driven and opportunistic. Finally, the
evidence suggests that the relationships
between supply chain actors originate from
 Challenges in international food supply chains
Henk Folkerts and Hans Koehorst
the underlying market driven benefits, such as
freshness, quality or lower costs.
International food supply chains
In our opinion the number and size of inter-
national food supply chains will continue to
grow over the next few years. The main rea-
sons for this are increased competition, the
international reallocation of production and
processing facilities, the harmonization of
European legislation, the technological inno-
vation in information technology, monetary
developments (should the European Mone-
tary Union materialize) and the influence
from the latest General Agreement on Tariffs
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and Trade agreement. The members of these
supply chains have to deal with the question
of how they can best satisfy the demands of
the retailers customers and their final con-
sumers. For many, the question is whether to
follow the consumer or to lead the consumer.
Each option requires a different strategy. To
follow the consumer, a supplier needs to be
flexible and efficient in order to get the right
products at the right time in the right quantity
to the right place, according to consumers
demands. The strategy to lead the consumer
requires creativity and innovative skills and
the consumer must be motivated to buy the
product or service.
The innovation and implementation of
new concepts and strategies can only be
realized through strong co-operation between
the links in the supply chain and with
14
Supply Chain Management
Volume 2 Number 1 1997 1114
providers of the necessary expertise. The
growing internationalization of food supply
chains means that cross-border linkages are
inevitably growing. In this respect, a scheme
such as the Dutch Agri Chain Competence
programme provides the right facilities to
create a stronger agricultural sector. It is
envisaged that co-operation with similar
organizations in other European countries
will increase, as will the number of cross-
border supply chain projects.
Conclusions
It can be concluded that there is an increased
awareness in many European countries that
vertical co-ordination is essential to further
improve the competitive position of the Euro-
pean agribusiness and food industries and
that the number of international supply
chains will increase. Our chain reversal
approach calls for the development of new
chain expertise and analytical methods. The
challenge for the next few years is to develop
this knowledge and these methods quickly
and effectively. Closer international co-opera-
tion between the agribusiness and food indus-
tries, research establishments and consultan-
cies are an essential ingredient to meeting
these challenges. With projects such as
Learning from other chains, the first steps
have already been taken to improve our
understanding of international food supply
chains. We believe such an approach is the
only way forward.
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