Food Chain Management for Sustainable Food System Development

Abstract. Food Chain Management is a rather new research domain. As a consequence, the

domain and the research challenges within the domain are not yet clearly defined. This

corresponds with the variety in the definition of food chains and networks that might focus on

either closely cooperating enterprises along the value chain with an executive coordination

element or, alternatively, on a network of enterprises in dynamically evolving business

relationships. Management challenges in closely cooperating enterprises are closely linked to

challenges in enterprise management and can draw on research in this domain. However,

management activities in and for networks involve additional challenges, that require focused

research engagement. The dependency of all participants in the chain on consumers as the

ultimate customers and the dependency of the quality of final products on the engagement of all

participants in the production and distribution of products require new managerial activities

and, in turn, support by research. This paper discusses the background of future research needs

and formulates priority challenges for managerial improvements towards an increased

sustainability of the food sector.

Key words: Supply Chain Management, research, agribusiness

JEL: Q010, Q130, D290, L140

1. Introduction

The food sector as a whole is faced with major challenges that arise from changes in the sector’s

economic and non-economic environments, from changes in lifestyles, from global increases in

food consumption, from a diminishing production base due to, e.g. the loss of arable land or its

divergence for non-food production alternatives (see, a.o., CIAA, 2007), and, not the least, by

changing attitudes of society towards the consequences of the food system’s activities for

environmental, social and economic issues, captured in the term of ‘sustainability’.

The challenges cannot be met by any individual enterprise but require concerted actions and

coordination of initiatives. 'Food Chain Management' (FCM) aims at providing support for the

identification and realization of 'best' concepts for such actions and coordination needs. This

support, in turn, provides enterprises with the means for improving their own and the sector’s

competitiveness, sustainability and responsibility towards the expectations of its customers and

the society. The complexity is apparent in the variety of indicators that are discussed regarding

the sustainability of the sector and its actors involving a broad spectrum of economic,

environmental, and social indicators (Ondersteijn et al., 2006).

In meeting its challenges, the sector needs to innovate in organizational relationships that reach

beyond innovations in process improvement by building on the innovation potential inherent in

enterprise networks and their flexibility in responding to customers' and consumers' demands

(Pittaway et al., 2004). There is an urgent need to adjust the trend towards increased process

integration along the value chain to the organization of a flexible and responsive network

approach by utilizing the potential of technological change, of information and communication

systems, and of institutional change (Murdoch, 2000; Ritter & Gemuenden, 2003).

There have been extensive discussions in literature on food chain management opportunities

(e.g., Bourlakis, 2001; Eastham et al., 2001; New & Westbrook, 2004). However, discussions

have primarily focused on

a) management in and for chains of closely cooperating enterprises but not on network

environments with dynamically evolving trade relationships and on

b) narrowly defined performance indicators but not on the broad array of indicators that are

linked to today’s understanding of long-term ‘sustainability’ of the sector.

Furthermore, the dynamics in scenario developments (Ingram & Brklacich., 2006) and the

continuous emergence of new managerial activity potentials as, e.g. in information and

communication systems (e.g., Hill & Scudder, 2002) requires new efforts for focused research

engagement (Omta et al., 2001) towards Food Chain Management concepts and their

implementation for the delivery of chain support in dealing with the challenges ahead.

Food Chain Management support is towards the actors that represent the food value chain,

suppliers, primary producers, processors, manufactures, and retailers which have consumers as

the final customers. Its support can focus on operational improvements or on strategic

development perspectives that involve major investments and long-term commitments. A specific

strategic development perspective concerns the investment in sector-wide infrastructures like

electronic networks for tracking and tracing in food safety control. Such infrastructures could

serve and benefit the sector as a whole but are beyond the investment capability of any single

group, especially if their benefit depends on participation of a majority of enterprises, including

small and medium sized enterprises (SMEs) which might take time to materialize. For the

infrastructures to become feasible and to deliver the envisaged benefits not just for enterprises

and the industry but for society as a whole the investment in conceptual design, organizational

agreements, and financial responsibilities requires complimentary engagement of groups from

outside the value chain including research and policy, i.e., a Food Chain Management view that

integrates policy and management initiatives alike.

Specific issues the food sector and its individual actors need to deal with for timely and

appropriate response to the sector's challenges involve (CIAA, 2007)

1. To adapt rapidly to changing scenarios (markets, policy, resource availability etc.) and their

requirements (ESF-COST, 2007) through changes in resource use, products, processes,

services, and governance structures within a sector organization that is difficult to coordinate

as its enterprises are rarely confined to well-structured chain relationships with established

communication and coordination mechanisms but are usually part of an open enterprise

network where enterprises may change their suppliers and customers at will.

2. To overcome the sector’s structural problem with its large number of SMEs (McCorriston,

2002; O’Reilly et al., 2003). Their ability to innovate and interact successfully with the large

and multinational enterprises, especially in agricultural supply industry and retail, depends on

cooperation initiatives and the provision of external coordination support.

3. To focus on changing consumer needs. This depends on a continuous adaptation of new

developments in technology, production, management, communication, organization or

cooperation and on the establishment of trust between all stakeholders along the food value

chain including the consumer (Fritz et al., 2006; Kjaernes et al., 2007).

The challenge for Food Chain Management is to integrate and balance the interests of all

stakeholders, including enterprises, consumers, and the society as a whole considering all of the

relevant factors for successful integration including economic efficiency, environmental control,

social responsibility, fitting process organization, food safety, marketing or transaction rules, etc.

Four interrelated strategic research initiatives have been identified (CIAA, 2007) as decisive for

the sector’s ability to meet its future challenges and to overcome its inherent development

problems. They focus on serving the:

- Sector as a whole through better understanding of the dynamics in those critical success factors

that will improve competitive performance and sustainability in times of globalization and

change,

- Consumers through innovations in production, logistics, and communication processes for

advancements in the sustainable provision of quality and diversity in food, consumers can

afford and trust,

- Food chains and networks through better transparency, interaction and organization for

advancements in governance, trust, efficiency, and innovation dynamics towards long-term

sustainability,

- Network dynamics through better integration of SMEs into the global and regional value

chains for advancements in the utilization of SMEs innovation potential.

Because of the sector's complex enterprise infrastructure and the difficulties in reaching sector

agreements, pilot and demonstration activities are required to facilitate acceptance and

implementation.

2. Dynamics in critical success factors for performance and sustainability: the sector view

In times of globalization and change, the understanding of the dynamics in critical success factors

for competitive performance and sustainability (Bisp et al., 1998) is of crucial importance in

strategic management decision activities. It is the basis for any further discussion of research

needs and challenges .

In principle, successful competitiveness and long-term sustainability depend on benefits

exceeding costs where, in this context, benefits and costs represent general terms representing

advantegous and disadvantegous effects of activities or developments. The indicators for their

determination can vary in times of change as can the critical success factors for performance and

sustainability. This reduces the competitive advantage of the established production and

distribution organization. A current example is the emergence of competitive bio-energy

production.

Any improvements in food chain activities build on the perceived anticipation of improvements

in the balance of benefits over costs. However, there are different perceptions and priorities for

society (policy) and for enterprises (Fritz & Schiefer, 2008). From a society’s point of view,

benefits may involve monetary and non-monetary elements. From an enterprise view the

monetary profitability must be evident. This has consequences for sector developments and

enterprise activities. In principle, enterprises have to focus on those critical success factors that

improve their profitability. However, they cannot neglect the society’s view on benefits and costs

and the dynamics in society’s performance indicators to remain sustainable in order to avoid

regulations and other limitations on an enterprises’ decision flexibility. The consideration of

society’s views is, therefore, one of the critical success factors for the sector’s sustainability in a

competitive environment (Krieger et al., 2007). New developments in sustainability

communication between the retail sector and consumers like ‘food miles’ (Pretty et al., 2005),

‘fair miles’ (MacGregor & Vorley, 2006) and similar indicators reflect some of these

developments . They may have wide-reaching effects on the sector’s development direction in

trade relationships, organization, etc. Furthermore, potential changes in the future scenarios

(SCAR, 2007) due to environmental effects (climate change, depletion of resources, etc.),

demographics, changes in diets or lifestyles, etc. but also due to unexpected events may ask the

sector to develop flexible solutions in production, organization, sourcing or distribution to be able

to easily adapt to changes in scenarios and to remain sustainable in the long run.

In determining their long term development paths, enterprises and chains need to find a balance

between improvements in their monetary benefit-cost balance to assure general competitiveness

in their markets, and the society's consideration of the benefit-cost balance to assure acceptance

and sustainability. It will be essential to understand the relevance and dynamic developments in

those critical success factors and indicators that determine performance from the view point of

enterprises, chains and the society (Aramyan et al., 2007; Gerbens-Leenes et al., 2003;

Gunasekaran et al., 2001, 2004).

Comparative benchmarking studies within the food sector, as well as across sectors, are required

to understand the complex interdependencies between chain organization alternatives and their

performance in economic and non-economic (e.g. quality, environmental consequences, etc.)

aspects. Benchmarking research does focus on the basic functions chain organization alternatives

build on and identify ‘best practice’ reference models, the critical success factors for success in

different dimensions of interest (quality, environment, etc.) and the related performance

indicators for their evaluation (e.g., Hunkeler et al., 2003). Cross-sector benchmarking studies

attempt to identify so-called ‘best of class’ examples for organizational functions irrespective of

the products under consideration (Bisp et al., 1998; Gilmour, 1999; Togar et al., 2004).

Approaches derived from Life Cycle Assessment (LCA) and involving economic and social

elements (e.g., SLCA, Social Life Cycle Analysis), from chain encompassing ‘hot-spot-analysis’

or from Balanced Scorecard (BSC) concepts (e.g., BSSC, Balanced Sustainability Scorecard) and

others are being discussed for the necessary multi-dimensional analysis needs (Guinée, 1992;

Hendrickson et al., 1998; Graedel, 1996; Heijungs, 1996; Hagelaar & Vorst, 2002; Schiefer,

2002; Mourad et al., 2007).

Results from benchmarking studies can be combined with modelling results and linked to

performance indicators to produce performance maps, which support evaluation of alternatives

and the decisions required for their realization.

3. The market focus: consumer needs for affordable food of quality and diversity

The food sector faces three strategic developments regarding its production base that put pressure

on its capacity to deliver the necessary food supply. They are: a) increasing demand for bio-

energy, b) limits in the availability of water and c) diminishing production resources (e.g. land for

agricultural use) (SCAR, 2007). Furthermore, food production will be affected by pressure from a

growing world population and the desire for an increased consumption of meat (Pingali, 2007).

Possible changes in climate might aggravate the consequences. Without innovations, consumers'

need for affordable food without compromises in quality, and which continues to retain their

trust, cannot be served in the long run.

Consumers’ perception of food quality is a dynamic variable. It might focus on products,

processes, process management or on management issues like fairness in trade, working

conditions, environmental consciousness, or the origin of products. Its understanding depends on

lifestyles, cultures, etc. (Lobb et. al., 2007; Grunert & Wills, 2007; Gronhoj & Thogersen, 2008;

Hughner et al., 2007; Ozcaglar-Toulouse et al., 2006; Jaffry et al., 2004). New types of efficient

and responsive coordinated production, distribution, and communication networks (logistics

networks) must emerge that can support these changing demands, taking into account varying

quality parameters, organizational conditions and different requirements of market segments

(Bakker & Nijhof, 2002; Lindgreen, 2003; Taylor & Fearne, 2006; Webster et al., 2006). This

may include, e.g. new organizational structures for flexible chain-encompassing distribution and

logistics systems that utilize advanced technologies for communication, control, or tracking and

tracing, developments in quality preservation, new packaging and processing technologies or

organizational innovations like parallel chains that could provide opportunities to better serve the

needs of consumers.

Diversity in food is a strength of today’s food system. It is the basis for a further diversification in

the production of tailor-made foods that specifically relate to people’s age, health status, activity,

or any other criteria (Thiele & Weiss, 2003). New business-to-business relationships are required

that are highly responsive to dynamic consumer and market demands and at the same time cost-

effective (Matopoulos et al., 2007; Zanquetto-Filho et al., 2003; Storer & Taylor, 2006; Vachona

& Klassen, 2006). This poses challenges for innovations in chain encompassing production,

distribution and communication networks that can efficiently compete with classical systems in

commodity markets.

The continuous provision of affordable quality food from a decreasing production base can be

supported through process improvements involving, e.g. reductions in losses which may amount

to 25-50% of total production depending on source (Fehr et al., 2002; Hagelaar & Vorst, 2002;

Vorst & Beulens, 2002), delivery on demand (just-in-time) to avoid over-supply, the efficient

integration of new technological developments (in, e.g. production, analytical methods, logistics,

or communication) and through an institutional environment that supports successful adoption of

different principal technological developments. The analysis of ‘best practice’ experiences can

serve as a basis for suitable process reorganizations and institutional infrastructures on which

innovations in technology, manufacturing, organization, and management can build.

Efficiency and flexibility are at the core of quality assurance in scenarios with changing

consumer demands (Zokaei & Hines, 2007; Henningsson et al., 2004; Fritz & Hausen, 2008).

Research on the identification of separable functions in production and trade and on the

standardization of interactions could allow the identification of new flexible organizational

alternatives (as, e.g., flexibility in sourcing through new technologies that allow to transfer

different initial raw materials into unified raw material for standardized manufacturing processes

(Vorst et al., 2001)) and the formulation of new organizational generic simulation and

optimization models that support flexible adjustments of global production and logistics networks

in case of changing customer and consumer demands or in case of disruptions in deliveries. The

focus is on new types of efficient, flexible, and responsive logistics networks that could reduce

current inefficiencies, lower costs and increase the creation of value and product differentiation

(Landeghem & Vanmaele, 2002). New flexible enterprise relationships are required that support

the re-bundling of functions across enterprise borders for better serving changing consumer

needs.

4. Transparency, interaction, and organization for advancements in governance, efficiency,

innovation dynamics, and trust

Strategic advancements in the competitive strength of food value chains and their adherence to

society’s values build on a number of critical success factors, of which 'appropriate' transparency

i.e. transparency that fits the different needs of the various stakeholders stands out as decisive.

Focused information and communication concepts that serve the different transparency needs are

the key for the dissemination of knowledge, for innovation, for risk containment, for appropriate

cooperation and coordination within the value chain, for appropriate integration of SMEs in chain

activities, and for the establishment of trusted relationships between enterprises, consumers and

the society (Lamming et al., 2001, 2004; Deimel et al., 2008; Beulens et al., 2005; Theuvsen,

2004).

Transparency follows the production and distribution paths along the value chain. As such, it

builds (and depends) on information infrastructures that monitor process activities and allow the

tracking and tracing of products and services throughout the value chain. Transparency has a

backward and a forward perspective depending on the stage of the value chain from where the

value chain is looked at (Schiefer, 2006). For the consumer, transparency is based on a backward

perspective. However, for enterprises it might have both, a backward and a forward perspective.

In its risk containment strategies it might not only want to know the production history of its

products (backward perspective) but the distributional activities of its enterprise customers

(forward perspective) to understand its potential risk in recall situations (Huirne et al., 2006),

especially if consumers are involved.

The ability for tracking and tracing is a pre-condition for the identification of many other food

quality issues. Its implementation requires a consistent system approach that in order to be

effective requires a broad acceptance by the food sector, including its SMEs. It involves sector

agreements on many different issues, including content and format of communication, data

ownership, management organization, system organization, technology, access, rules, decision

authority, etc. While systems for tracking and tracing are the basis for any further development of

quality-based communication networks, the dynamics of these innovations need to be supported

by complementary quality communication that allows the efficient exchange of information on

quality innovations within the food value chain and, eventually, with the consumer (Verbecke,

2005; Lobb & Mazzocchi, 2007; Grunert, 2005).

Transparency may be served through an institutional environment that finds its expression in

business norms, technology standards, communication agreements, information networks, codes

of practice, legislative frameworks and societal rules (Menard & Valceschini, 2005; Hendrikse,

2003; Fritz et al., 2008). To take food safety and quality as an example, its understanding has

many dimensions and might differ between cultures, regions, or products or along the value

chain. It might focus on products, processes, process management or on management issues like

fairness in trade, working conditions, environmental consciousness, or the origin of products.

This makes coordination of trade relationships and harmonisation of policies, quality systems,

standards, information networks and communication agreements a prerequisite for transparency

and balanced development.

Transparency along the value chain of enterprise relationships and process activities needs to

support the objectives of the different actors in a variety of ways. This support includes e.g.

improvements in efficiency or flexibility, the ability to deliver guarantees of various kinds,

including guarantees for food quality, for food safety or for continuing deliveries in case of

failures in food safety or quality, in risk control, and for the sustainable generation of trust. This

wide array of transparency needs shows the complexity and variability of transparency needs

which need to be understood and integrated into transparency maps which could serve as a basis

for the development of appropriate transparency schemes and systems.

Limitations in actual implementations of sector transparency together with dynamically changing

needs require the design and delivery of reference models for the establishment of flexible

transparency systems that match current transparency needs. They must be flexible to adapt to

changing requirements and sector infrastructures.

5. Network diversity for innovation dynamics: Integrating SMEs into value chain

relationships

Network communication and network diversity are supportive elements of innovation dynamics

(see, e.g., Castells, 2000; Ritter & Gemuenden, 2003). Innovation builds on knowledge,

knowledge generation, and knowledge exchange. Innovation results from the combination of

knowledge, the identification of suitable comprehensive utilization concepts (technology,

information, management, logistics, marketing, etc.) and their realization in the respective sector

environment (Naim et al., 2004).

The challenge for research is the design of knowledge concepts that support the generation of

innovation and builds on knowledge about discoveries, new product developments, patents, new

managerial concepts, new technologies, new communication potentials, etc. with potential

relevance for food production and distribution (Sporleder & Peterson, 2003). However, the

utilization of knowledge builds on operational cooperation concepts that may involve many

detailed issues such as the organization of internal information and communication systems,

coordination procedures for resource utilization, integrated logistics designs for vertical

relationships, collaborative planning approaches, risk management procedures, etc. (Lefebvre et

al., 2003; Sivadasan et al., 2004).

These challenges are especially relevant for SMEs which, with their diversity and flexibility, may

contribute substantially to the innovation potential of networks (Gellynck et al., 2006). For

SMEs, the integration into horizontal cooperation schemes and networks is usually the base on

which an efficient integration into the vertical trade relationships of food value chains can build.

However, while horizontal cooperation could strengthen the ability of SMEs to become

successful partners in vertical trade relationships that require mutual agreements, as, e.g. on

quality improvement initiatives, the ability of SMEs to cope with the challenges of integration

into value chain relationships may still differ. As a consequence, the food sector will need to

develop different levels of integration, resulting in a segmentation of markets with different

levels of excellence and regionalization, local, national, or global (Raynolds, 2004; Jayasinghe-

Mudalige & Henson, 2006; Garcia & Poole, 2004). SMEs with lower levels of management

excellence might remain outside the emerging global food chain developments and remain

restricted to local or regional markets with different needs and barriers related to horizontal

cooperation or value chain integration but also different needs for support.

However, little is known about the cooperation and integration needs that relate to different

scenarios, value chain organizations, regions, cultures, etc. Cooperation and integration could

focus on many different functions such as planning, quality management, research, logistics,

knowledge, sales, procurement, information management, marketing, packaging, production, etc.

It requires information on what are the cooperation and integration needs in various functions,

their importance for different food chain scenarios, the possible levels of cooperation and

integration, and the consequences for performance and innovation support. However, cooperation

and integration needs usually have to face barriers, which prevented SME cooperation and

integration initiatives in the past. There is a need to understand these barriers and how they might

be overcome. This knowledge allowed the development of reference models for the utilization of

cooperation and integration opportunities and the identification of development paths for their

realization.

Food Chain Management support builds on the identification of cooperation and integration

needs and barriers, and the initiation and management of initiatives and SME networks that allow

SMEs to participate in the food sector’s innovation dynamics, and become an integral part of

future food value chain developments on a regional and global level. Research needs to identify

and analyze economically feasible SME cooperation options, which could support the most

common integration needs. An evaluation of possible performance gains, and of the innovation

potential of cooperation alternatives, should allow realistic proposals to be formulated.

6. Conclusion

Food Chain Management is, as a scientific domain, still rather new and its focus of research is not

yet clearly defined. This paper identifies the domain as a management domain that deals with the

coordination and support of networks of enterprises in changing business relationships. Research

challenges develop dynamically out of changes in future scenarios the food sector might have to

deal with, changes in technical and organizational support opportunities, and changes in the

sector’s infrastructure. Based on the present knowledge, the paper has developed four focus areas

for research challenges that need to be dealt with. They include the need for advancements in

a) the understanding of dynamics in critical success factors that will improve competitive

performance and sustainability in times of globalization and change,

b) innovations in production, logistics, and communication processes for advancements in the

provision of quality and diversity in food, consumers can afford and trust,

c) chain transparency, interaction and organization for advancements in governance, trust,

efficiency, and innovation dynamics, and

d) the integration of SMEs into the global and regional value chains for advancements in the

utilization of SMEs innovation potential.

These focus areas cover the interests of the different stakeholders in the food chain including

consumers, enterprises, policy, and the sector as a virtual unit as well. Some of the focus areas

(as, e.g., the need for transparency) might not immediately appear to ask for front end research.

However, a system analysis of the individual research areas and the many interrelated issues

involving technological, political, organizational, managerial or behavioural aspects that have

scarcely looked upon in a system’s approach demonstrate the challenging needs for the

engagement of research.

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