From arm's-length relationships to collaboration in intermediary food-chain businesses.

AuthorJack, Lisa
PositionTechnical notes

Intense competition and constant change are forcing supply-chain managers in the UK's food industry to design more effective risk management systems that extend beyond organisational boundaries. This is particularly the case for importers of fresh produce from countries such as Spain.

In the first part of our 2012 research project entitled "Performance measurement and risk management in intermediary food chain businesses", we reported on how intermediaries in the UK and Spain viewed their main risks as commercial ones - eg, the loss of business at short notice because of price competition (bitAy/CGMAfoodchainproject). One of our interviewees commented wryly that large companies "want the quality and delivery standards that come from long-term relationships, but the prices that come from trading".

New developments in relationship management have since been observed, with signs that supermarkets are thinking about doing business with a smaller number of preferred suppliers (1). With this in mind we extended our research, sponsored by CIMA and the government of Andalusia, to consider how long-term collaborations are being built as a form of risk management. We spoke to 36 key managers in food supply chains in the UK and Spain. In addition, we surveyed firms in the UK and Ireland to identify relationships between performance measurement and risk management practices. We obtained responses from a further 35 purchasing managers with significant responsibility for risk and supply-chain management.

The horsemeat scandal in late 2013 and widespread flooding in early 2014 reminded everyone in the UK of the vulnerability of the food supply chain. For growers, the risks concern more than weather, disease and currency fluctuations, which they feel that they can manage with contingency plans.

The technical director of a UK-based grower subsidiary told us: "The main risks are that the packer can refuse the crop because of blemishes and that another buyer - for feed, say - will not pay enough to cover our costs of production. There will also be a consequent loss of reputation and goodwill. Other commercial risks relate to marketing."

According to the owner-manager of a UK-based grower-packer, "the main risk lies in visibility. All of our crops are grown outside and are visible to competitors and buyers. Packing activities are less visible, but transport again is visible activity."

The other side of the coin is that customers face corresponding supply...

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