Monday, May 23, 2011
Value chain best practices
Here's some great entrepreneurship guidelines for creating valuable commercial partnerships. We worked hard to build these kinds of relationships in our businesses.
My friend Joe from our Great Lakes Hubba Hubba food group sent a link to a really good doc I put to use right away.
The title is 'Value Chain Best Practices: Building Knowledge for Value Chains that Contribute to the Health of Source Communities'.
The subject of the paper is building effective 'value chains'. This is a term or art that improves on the old idea of exploiting and extracting profit from your suppliers, those in your 'supply chain'. The value chain approach is to make all links in the chain increasingly sustainable and valuable to all the other links.
I'm utilizing this model to help the Wisconsin Innovation Kitchen become valuable commercial partner to new and emerging food businesses.
I doctored their graphic (above) for this post to highlight one specific stage: PILOT, at supply chain scale.
This is exactly where the Innovation Kitchen fits into the emerging commerce of local food and regional food systems. It can pilot and produce local food processing at supply chain scale.
The data from our market based, real-time experiments in regional food processing will make this, and many emerging models of all kinds increasingly replicable.
This capacity - this link - is helping build value chain partnerships right now. Today.
I print this out and take it with me on sales calls:
From 'Value Chain Best Practices':
Changes in infrastructure that enable healthy value chains:
• Contracts to increase knowledge and stability of prices
• Minimum price arrangements to provide predictability of pricing; premiums for established practices (sourcing from small scale producers, environmentally sustainable practices, quality of production, etc); and rapid payments on delivery terms
• Preferential sourcing arrangements based on criteria (quality, scale, environmental practices, certification, etc).
• Information and knowledge management mechanisms that support regular two-way communication and innovation.
• Risk Sharing Fund
• Sustainability Manager embedded in buyer group
• Specialized intermediaries to aggregate production and ensure
traceability and quality
• Alignment of incentives within organizations so that the goals of the
value chain are symbiotic with the goals of the engaged organizations
• Working with clusters/associations of smaller scale producers, including the facilitation of effective production associations and investing in their
long term business management capacity.
• Harmonize standards and certification schemes
• Fair implementation of standards to ensure that the cost of certification doesn’t unfairly reduce access for smallholders and that producers participate in the development and implementation of standards.
• Equity arrangements including shared ownership business structures and price sharing arrangements
• Make contributions visible through chain
Practices to avoid in a value chain:
• Threats of “delisting” approved suppliers if prices are too high
• Suppliers required paying for promotions or openings.
• Suppliers have to pay back a percentage of annual sales
• Minus margins (can’t supply at a higher price than to competitors)
• Delayed payment for produce already delivered
• Lowering prices at the last minute to suppliers who have few alternative outlets
• Last minute changing of quantities
• Changing standards with no support or time to change the production system
• Arbitrary removal of farmers from the supplier lists
• Using contracts that cannot be enforced by the suppliers
• Institutionalization of results: how can the learning from a value chain project ripple out from the specific chain to impact the core strategies of a large company and ultimately the whole industry?
• Are there public policies that get in the way of the chain, or if changed may help it grow?
Good directions for the many regional food systems now emerging. I look forward to helping this story grow.
Download this summary from the larger Value Chain Best Practices report.
Value Chain Best Practices: Building Knowledge for Value Chains that Contribute to the Health of Source Communities. Full article.
Thanks to my friend Joe at HollyMead Capital for this valuable and timely addition to the conversation.
Graphic borrowed and enhanced without permission from the final report. Thanks!