Chris Schroeder`s Presentation Slides

Agricultural Value Chains:
What have we learned?
Chris Schroeder
Centrec Consulting Group, LLC
February 15, 2006
My Perspective
zProducer
zLand Owner/Manager
zManagement Consultant
{Agribusiness
{Commodity Groups
{Economics, System Dynamics, and Strategy
Discussion Flow
zTheoretical view of value chains
zObservations from our work over the years
zOpportunities for consultants
Key theme
“The ability to learn faster
than your competitors may
be the only sustainable
competitive advantage”.
Arie de Geus
Theoretical View
Alliance-Based Supply Chain - def
Consists of firms that participate in a
vertically-linked organizational network and
share a strategic vision centered on the
objective of creating value within the network.
Theoretical View
Traditional Supply Chain
Relationships
e
d
a
Gr
Inputs
Suppliers
Transfer
s
Producers
Inc
e
nti
Sta
n
ve
s
Product Flows
Transfer
da
rds
Originators Transfer Processors Transfer End Users
Cash Flows
co
s
i
D
ts
n
u
Theoretical View
The Consumer’s Perspective
The consumer
wants:
A product that
perfectly meets their
specific needs and at
the lowest possible
cost.
The consumer gets:
A product that is the
result of a series of
individual entities
whose objective is to
buy low and sell high.
Theoretical View
Alliance-Based Supply Chain
Inputs
Suppliers
Transfer
Producers
Transfer
Originators Transfer Processors Transfer End Users
Theoretical View
Alliance-Based Supply Chain
Inputs
Suppliers
Transfer
Producers
Transfer
Originators Transfer Processors Transfer End Users
Theoretical View
Drivers of the Need for AllianceBased Supply Chains (opportunities)
Investments in
new quality traits
are extremely risky
Inputs
Suppliers
Cannot risk
losing access
to markets
Producers
Inventory
management
Excessive inventory
represents a $30 billion
annual savings opportunity.
Originators
Processors
Raw materials
consistency
Retailers
60% of the cost of a
typical product such as
cereal, is transportation
related.
Out-of-stock products
cost the food industry
$7-12 billion annually.
Consumers
ERS estimates foodborne disease costs
at $6.9 bil. per year.
Theoretical View
Enablers Available to Create AllianceBased Supply Chains
zNew breeding and biotech capabilities
zInformation technologies Î networks
zMeasurement technologies
zAutomated controls
zTransportation & logistics
zEconomies of scale
Theoretical View
Impediments to Creating Alliance-Based
Value Chains
zLong-standing behaviors
{Focused between my brick walls
{Lack of trust
{Short-term perspective
zThey take a lot of work
zThey require new skills
zThey introduce new types of risk
zLack of specific models of success
Discussion Flow
zTheoretical view of value chains
zObservations from our work over the years
zOpportunities for consultants
Observations
What we have learned?
zHave not realized the much anticipated
panacea
zChange is constant
zOnly a relatively few producers have been
directly involved (though there is a lot of
premium chasing)
zIt is tough to describe it, but you will know it
when you see it (Ron Brar)
Observations
Key Skills of Successful Value Chain
Players at the Production Ag Level
zUnderstand customers needs
zEffective negotiators
zLong-run perspective
zFlexible and willing to change
zRealistic about how much value is really in
the chain
Observations
Understand customer’s needs
Anticipate needs and take the lead
{Amazon does it
Customers
Customerswho
whobought
boughtthis
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{ConAgra does it
…it is the cost of being
able to stay in the game!
Observations
Understand customer’s needs
zFigure out how to create “stickiness” with
your customer
{What can you offer that few others can?
zTangible – consistency, timeliness, quality
zIntangible – knowledge, empathy, flexibility
zBe flexible and integrate with their world
Observations
Effective negotiators
zThe notion is that we are all going to be
“buddies” is largely false.
{Organizations still need to meet their bottom
lines and will be ruthless when they need to.
{Don’t get mad, leave yourself room to get even.
Observations
Effective negotiators
zNegotiation skills replace rigid terms
{Everything is about serving the customer…
while keeping your own options open
zThere are many things to negotiate about
other than price
{Options, timing, access, variances
{Discover what it is that they need and negotiate
around that
Need to understand what really matters to your own bottom line
Observations
Long-run perspective
zMental model is often one of “my new
arrangement with value chain partners
must make me more money with every
transaction”.
zHowever, those who are successful tend
to take a longer-term view and recognize
that returns will accrue in due time.
Observations
Long-run perspective
Soybean quality enhancements
Better Bean Capacity Summary
Better Bean Utilization
80
Seed and Other Uses
70
Million Acre Equivalents
Export Beans
60
Domestically
Processed Beans
50
Capacity
40
Total Soybean Acres
30
Seed Capacity
20
Production Capacity
10
Domestic Handling
Capacity
Total Oil, Meal, and
Export Bean Demand
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Observations
Long-run perspective
zGood value chain partners are sustainable
{Relationships require an investment
{Works both ways
zBuyers want to work with producers who are
sustainable
zProducers want to work with buyers who are
sustainable
z“The world is a great place when markets
are growing”
Observations
Flexible and willing to change
zThe days of delivering the same thing for a
career are over!
zDon’t let geography be a constraint
zUnderstand when to let go
Observations
Realistic about how much value is in the
chain
zHow much is being created
zWho contributed to it
zHow long it will last
Observations
Realistic about how much value is in the
chain – high ME soybeans
Premium per Bushel Equivalent
$0.50
Dollar per Bushel Equivalent
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
2004
2006
2008
2010
2012
2014
2016
2018
2020
Seed Premium paid to Seed Sector
Better Bean Producer Premium
Total Meal and Oil Premiums paid to Processors
2022
2024
Observations
Realistic about how much value is in
the chain – who contributed value?
$
Inputs
Suppliers
$
Transfer
Producers
Feed
Efficiency
Transfer
Packer/
Processor
Transfer
Wholesale/
Retail
Transfer
Consumers
Observations
Realistic about how much value is in
the chain – who contributed value?
$
Inputs
Suppliers
$
Transfer
Producers
$
Transfer
Packer/
Processor
$
Transfer
Wholesale/
Retail
$
Transfer
Consumers
Nutritious
Pork Chop
Did they have to do
anything different?
Observations
Realistic about how much value is in
the chain – who contributed value?
$
Inputs
Suppliers
Transfer
Producers
Free-range
production
$
Transfer
Packer/
Processor
$
Transfer
Wholesale/
Retail
$
Transfer
Consumers
Preferred
Pork Chop
Observations
Realistic about how much value is in
the chain – who contributed value?
Custom
cuts
$
Inputs
Suppliers
Transfer
Producers
Transfer
Packer/
Processor
Transfer
Wholesale/
Retail
$
Transfer
Consumers
Preferred
Pork Chop
Observations
Value
Realistic about how much value is in the
chain – understanding value decay
New
product or
service value
Incremental cost
of producing new
Commodity Price
Time
Observations
Realistic about how much value is in the
chain – causes of value decay
z Loss of property rights
(Roundup Ready)
z Substitution
(Fat for high oil)
z Replacement
(Bt corn)
z Commodization
(Loses uniqueness)
z Mitigation
(Downstream users seek alternatives)
Observations
Value
Strategy #1
Stay ahead of value decay
Commodity Price
Time
Observations
Must be conditioned to keep
running on the treadmill
Observations
Strategy #2 create value
with a longer decay What
time will slow the delay?
Value
Attributes that:
Š provide lasting value
Š are unique
Š cannot be easily replicated
by others
New
product or
service value
Incremental cost
of producing new
Commodity Price
Time
Observations
Strategy #2
Sustainable value attributes
Value
z Information
z Knowledge
z Economies of scale
z Rapid response
z Flexibility
z Adaptability
z Client sensitivity
z Risk mitigation
New
product or
service value
Incremental cost
of producing new
Commodity Price
Time
Discussion Flow
zTheoretical view of value chains
zObservations from our work over the years
zOpportunities
Opportunities
Key theme
“The ability to learn faster
than your competitors may
be the only sustainable
competitive advantage”.
Arie de Geus
Opportunities
Key skills for thriving in alliance-based
supply chains
Understand how your strategies add value
and continually work to learn faster than your
competitor to identify new sources of value.
Recommended reading “The Living Company ” by Arie de Geus
Opportunities
Opportunities for consultants
zHelp to learn faster than their
competitors
zHelp step back to see the big picture
and understand value creation
zHelp evaluate the long-term
implications
zParticipate in negotiations
Slides and related resources at: www.centrec.com
Select “Resources”
Agricultural Value Chains:
What have we learned?
Chris Schroeder
Centrec Consulting Group, LLC
February 15, 2006