Professional Documents
Culture Documents
648662, 2005
2005 Elsevier Ltd. All rights reserved.
Printed in Great Britain
0263-2373 $30.00
doi:10.1016/j.emj.2005.10.010
The UK red meat industry is experiencing unparalleled challenges and has been thinking radically
about its future. The major threats to the industry
range from health related problemslike the Foot
and Mouth Disease and BSEto the de-coupling of
farmers CAP subsidies after 2005. Relatedly there
have been changes in consumer preferences, with
per capita meat consumption falling from 20.9 kg
in 1980 to 16.6 kg in 2002 (Meat and Livestock Commission, 2005) and increasing concentration of market power, with 75% of fresh/frozen beef sold
through multiple retailers. Recent health and safety
concerns, coupled with changes in consumer lifestyles and demand, have resulted in the share of
Introduction
The article analyses the current crisis of profitability
and competitiveness in the UK food industry and
red meat supply chains, followed by a description
of the recent UK government and farming industry
responsebased primarily on the adoption of lean
principles to these problems. The article then presents the findings from a study, based on the power
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
649
Distinguishing Attributes
Lean Supply
Agile Supply
Typical products
Marketplace demand
Product variety
Product life cycle
Customer drivers
Profit margin
Dominant costs
Stockout penalties
Purchasing policy
Informatioin enrichment
Forecasting mechanism
Functional products
Predictable
Low
Long
Cost
Low
Physical costs
Long-term contractual
Buy materials
Highly desirable
Algorithmic
Innovative products
Volatile
High
Short
Availability
High
Marketability costs
Immediate and volatile
Assign capacity
Obligatory
Consultative
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
HIGH
Attributes
to Buyer
Power
Relative to
Supplier
INDEPENDENCE (0)
LOW
INTERDEPENDENCE (=)
Few buyers/few suppliers
Buyer has relatively high % share of total
market for supplier
Supplier is highly dependent on buyer for
revenue with few alternatives
Suppliers switching costs are high
Buyers switching costs are high
Buyers account is attractive to supplier
Supplier s offering is relatively unique
Buyers search costs are relatively high
Supplier has moderate information
asymmetry advantages over buyer
LOW
HIGH
Attributes to
Supplier Power
Relative to Buyer
Robertson Cox Ltd. 2000 All Rights Reserved Source: Adapted from Cox, A (2001), p. 14
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
651
BUYERS
BUYERS
Individual
Individual
and/or
and/or
Corporate
Corporate
Customers
Customers
JANUS-FACED
JANUS-FACEDDOMINANCE
DOMINANCE
Supplier
Dominance
(<)
Demand
Demand
management
management
competence
competence
Procurement
Procurement
and
andsupply
supply
competence
competence
SUPPLIERS
SUPPLIERS
Buyer
Dominance
(>)
All
Alltypes
typesofof
suppliers
suppliersofof
products
productsand
and
services
services
RENTS
Company
Companyable
abletotomake
make
above
abovenormal
normalreturns
returns
atatthis
point
in
the
this point in the
supply
supplychain
chain
schools normally recommend that operational collaboration should be based on win-win (equity based)
approaches to commercial exchange. It has been
argued that, while equitable sharing of commercial
value is one approach to exchange, it may not be the
best way to maximise commercial returns for either
party. If there is an alternative for either party that
provides a higher share of value than equity, and
which is also just as sustainable overtime, then this
approach may be seen to be commercially superior
for whichever party is able to achieve it (Cox, 2004b).
It has also been argued that power circumstances
underpin the successful operational and commercial
implementation of exchange relationships. This is because, unless there is a power situation of buyer dominance or interdependence, long-term collaboration
cannot be sustained by a buyer. Conversely, collaboration cannot be sustained overtime for a supplier
unless there is a power circumstance of supplier dominance or interdependence (Cox et al., 2004). This perspective also holds, therefore, that lean approaches
cannot be implemented successfully within supply
chains as a whole unless they are characterised by extended dyadic exchange transactions of buyer dominance and/or interdependence. This means that
without an understanding of the power and leverage
circumstances that prevail it is not possible to predict
which operational means are capable of successful
commercial implementation in relationships.
From this perspective lean is normally a strategy for
low commercial returns (a treadmill to oblivion), especially when it is based on passing value to customers
using equity-based collaboration. In these circumstances value will have to be shared but, since most
of it is to be passed to customers, there is unlikely
to be much value left for participants in the chain.
Lean can potentially be a recipe for above normal returns, however, if one player in the chain is able to
652
appropriate the lions share of the value for themselves through Janus-faced Dominance. The problem
is, of course, that such an approach cannot be sustained for long unless aligned exchange partners
can be foundi.e. willing supplicants making low
returns. If such supplicants cannot be found, and if
customers can insist on receiving continuous
improvement in value, then it is unlikely that lean
can provide the basis for above normal returns.
It is also argued that, while lean approaches may be
relatively easy to implement internally, they may be
very difficult to implement externallyparticularly
if the power and leverage circumstances are nonconducive, and also if suppliers lack the competencies internally to undertake what is required (Cox
et al., 2004). Given this, the full scale operationalisation of lean, agile and agilean supply chain management thinking is fraught with significant commercial
and operational difficulties for companies implementing these approaches beyond their own organisational boundaries.
The power and leverage perspective, while accepting
that lean approaches may be viable strategies for
some companies, provides therefore a way of predicting the likelihood of success or failure for such
approaches in specific dyadic exchange relationships
and within particular supply chains and markets.
The research findings reported here test out the utility of this perspective based on an analysis of the
supply chain for fresh/frozen beef in the UK.
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
has been a growing scepticism amongst some industry participants about the utility of lean thinking for
everyone in the industry (interviews with NWFA
and RMIF personnel and industry participants).
The industry had assumed that the lean approach
would provide an opportunity for all participants
in the chain to improve their commercial returns
from working together. When this did not materialise there has been disappointment and growing scepticism. In particular there has been a concern that the
ten VCA studies have not provided any new understanding of, or solutions for, carcass imbalance.
This problem arises because there is rarely a balance
of specific types of meat cuts from the beasts that are
slaughtered upstream to allow for a sustainable and
predictable supply, enabling productive efficiency,
downstream (Simmons et al., 2003). As a result of a
mismatch between demand requirements and supply availability there is nearly always inefficiency
and undesirable commercial costs to be borne at
the primary production (processor) stage of the supply chain that is almost impossible to eradicate.
Unfortunately the VCA studies did not find any radical ways of overcoming this problem, nor of eradicating the relatively high levels of opportunism
endemic within red meat supply chains, as a result
of short-term demand and supply misalignments.
Given this the RMIF and the NWFA have looked for
an alternative way of thinking about how to develop
strategies for UK red meat supply chains. The research findings reported here are part of a research
project into the applicability of power and leverage
thinking, as a way of understanding, to what extent
lean or alternative strategies can be implemented
successfully within UK food supply chains. This article specifically addresses the problems of managing
within fresh/frozen beef supply chains in the UK
and shows why it is that lean approaches are very
difficult to implement throughout the chain and
why, even when it is feasible for some participants,
it may not be the basis for above normal returns commercially for all of them. It also explains why opportunism and a lack of trustwhich are often regarded
as the curse of red meat supply chainsis a perfectly
rational response by industry participants experiencing unavoidable demand and supply misalignments
and high levels of uncertainty.
The research project was undertaken using a structured questionnaire and interviews with key industry players within the fresh/frozen beef supply
chain. The questions were derived to allow the
researchers to map the power relationships between
buyers and suppliers at each dyad in the chain.
Questions specifically addressed demand and supply characteristics; the nature of competitive forces;
and, the issues of utility, scarcity and information
asymmetry between buyers and suppliers at each
dyad in the chain (Figure 1). The interview responses
were supplemented with extensive market informa-
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
653
FLOW OF VALUE
FS
E/I
E/I
B
IB
MW
EC
IR
Sec.
Proc
Prim.
Proc
MR
DS
SECONDARY
BYPRODUCT
SUPPLY
CHAIN
Beef from pure bred beasts from suckler herd
PHYSICAL FLOW
Key:
E = Exports, E/I = Exports/Imports, EC= End Customer, FS= Food Services, IB= Independent
Butchers, IR= Independent Retailers, MR= Multiple Retailers, MW = Meat Wholesalers, B= Buying
Agents, A= Auctions, F= Farmers, I= Inputs
Figure 3 The Beef Herd in the UK: Understanding the Flow of Value and Physical Flow
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
may seek lock-in to their overall offerings, this cannot be regarded as a form of collaboration with the
end consumer.
The multiple retailers oscillate, therefore, between
more or less adversarial forms of arms-length relationship management with their customers. When
there are loss leaders they are operating non-adversarially, when they are premium pricing particular
products they are operating adversarially to maximise returns. In both cases, however, the relationship
is arms-length operationally because neither party is
making the dedicated investments in one another, or
developing the relationship specific adaptations or
the cultural norms, classically associated with high
levels of operational collaboration (Cannon and Perreault, 1999). This is because the switching costs for
consumers in food supply chains are relatively low
and this reduces the scope for operational and commercial collaboration.
This is not necessarily the case at the next dyad in the
chain. As Figure 5 indicates the power structure between the multiple retailers and the integrated food
processors (secondary and primary production/
abattoirs combined) is normally characterised by
buyer dominance (>). Multiple retailers normally have
buyer dominance when they source commoditised
products that are to be sold on a price basis relative
to a given quality standard. This is because they have
the following key power levers over suppliers:
v Few buyers, with many potential suppliers;
v High volume relative to supplier business turnover;
v Supplier switching costs high, those of the buyer relatively low;
v Buyer account is very attractive to suppliers for
revenue;
v Supplier offerings are standard and commoditised;
v Buyer search costs low; and,
v Information asymmetry favours the buyer.
These power attributes ensure that when multiple
retailers negotiate with integrated processors the
relationship is normally commercially unequal. This
is because the processors are normally highly dependent on the multiple retailers (due to the need to attain high utilisation of fixed assets and to aid in
overcoming the issue of carcass balance), and must
supply standard products at a price that minimises
the returns earned by the processors. This power circumstance can change in the short-term if there are
seasonal variations in supply for particular cuts of
meat, however, as the multiple retailers are in a position to switch to alternative suppliers with relative
ease, it is unlikely that the processor will be able to
pass on extra costs due to supply shortages to the
multiple retailers.
With the existence of longer-term collaborative
relationships between the multiple retailers and the
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
655
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
SP
EC
MR
Example 2- Supply Chain for Processed Beef with Multiple Retailer and
B
M
W
EC
SP
FM
MR
PP
Example 3- Supply Chain for Fresh/Frozen Beef with Ind. Retailer and
M
W
SP
EC
PP
IR
Example 4- Supply Chain for processed Beef with Ind. Retailer and
B
M
W
EC
S
P
FM
IR
P
P
IB
EC
EC
R/
S
SP
FS
PP
PP
FM
EC
Key:
EC = End Customer
A = Agent/dealer
M = Marketing Group
IB = Independent Butcher
MW = Meat Wholesalers
MR = Multiple Retailers
Au = Auction
I = Input suppliers
FS = Food Services
IR = Independent Retailers
European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
657
</0/>
B
0/ <
EC
>
MR
>/ = / 0 / <
SP PP
>/=/<
Key:
B =Buying Agents
F = Farmers
I = Input Suppliers
Figure 5 The Frozen/Fresh Beef Power Regime with Multiple Retailers and Integrated Processors
ADVERSARIAL ARMS-LENGTH
UNEQUAL
NATURE OF
ADVERSARIAL COLLABORATION
COMMERCIAL
EXCHANGE
EQUAL
NON-ADVERSARIAL ARMS-LENGTH
NON-ADVERSARIALCOLLABORATION
ARMS LENGTH
COLLABORATIVE
The problem is, however, that in doing so it is possible that they may be creating treadmills to oblivion
for those integrated processors who specialise in
commoditised non-branded products, and those
own branded suppliers who are not able to sustain
differentiation in the face of direct competition from
the multiple retailers own brands. Those that cannot
defend their brands will see their current collaboration shift from interdependence to buyer dominance,
with the supplier increasingly locked into the multiple retailers control of this supply chain. They can
only expect lower commercial returns from collaboration when this occurs. This explains why in recent
years there has been increasing consolidation
amongst integrated processors (in 2002/3 there were
314 abattoirs, a quarter of the 1980 level). Consolidation on the supply-side is a classic response to buyer
dominance as particular suppliers seek to increase
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
659
as non-adversarial collaborative. (The Waitrose supply chain operates in this way because end customers
are willing to pay for better quality and traceability
in the supply chain and processors and farmers receive above normal industry returns). In most other
multiple retailers supply chains the relationship is
better described as adversarial collaboration with
the benefits from close working relationships being
unequally shared in favour of the processor, who in
turn is forced to pass the majority of the value onto
the multiple retailer.
Overall, however, both the processors and the farmers
normally operate on a short-term adversarial or nonadversarial arms-length basis. This is becausegiven
the volatility and uncertainty in demand and supply
and the problem of carcass imbalancethere are few
incentives available for both parties to pursue lean
supply principles. As a result both parties have tended
to behave opportunistically depending on which of
them has the balance of power given the shortage or
abundance of supply for particular types of beef cuts.
The power position between the buying agents and
the farmers is similar and can be described as oscillating between buyer dominance (>), independence (0) and
supplier dominance (>). The reasons for these changing
power circumstances can be attributed to the same
conditions that operate in the relationship between
processors and farmers. In periods of supply shortages the farmer is often in a strong position, and will
have the option to sell via a range of marketing routes
to obtain the highest returns (for farmers this will include auction markets). Conversely, in some circumstances, the buying agent may find themselves in a
strong position due to their position as middlemen,
especially during periods of excess supply. With
prices depressed, and with high levels of price obscurity, buyers/agents may find themselves in a position
to maximise returns. Again, due to the large number
of potential buying agents within the market as a
whole and the large number of potential suppliers,
the relationship is often one of independence (0), with
the market driving the price. This is similar to the circumstances that exist within a spot market.
The appropriate relationship management styles,
therefore, vary depending on the power relationships that exists but there is a tendencygiven the
volatility and uncertainty of demand and supply
for all relationships to be managed in a short-term
and arms-length manner. A buyer or supplier will
normally choose adversarial over non-adversarial
arms-length relationship styles whenever the power
circumstances favour their bargaining position and
vice versa when it does not. Opportunism is normally
rife in such circumstances and is driven as a rational
response by buyers and sellers to the volatility of demand and supply. This, as we shall see below, is
hardly a conducive environment for the development of a fully integrated and lean supply chain
management approach.
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
as demand and supply fluctuates). Elsewhere upstream the scope for continuous collaboration based
on lean is quite challenging because of the problem
of carcass imbalance associated with short-term demand and supply fluctuations. In these circumstances power structures tend to oscillate between
buyer dominance in gluts and supplier dominance in
periods of shortage. These factors explain why
opportunism is rife in the industry upstream and
trust is so low. Rather than criticising supply chain
participants for this behaviour our findings support
the view that short-term, adversarial arms-length
relationship management is a perfectly rational and
appropriate response to the vagaries of demand
and supply upstream in this supply chain.
This means that, overall, attempts to drive lean collaboration based on flow principles throughout the
fresh/frozen beef supply chain are bound to fail because the problem of carcass imbalance cannot be
fully resolved. Furthermore, even if it could be, it is
likely that the major beneficiaries of this would be
the multiple retailers who can use their Janus-faced
Dominance (dominant power and leverage position)
to extract value from lean collaboration elsewhere
in the chain. The lessons for participants upstream
is that they must either use opportunism as best they
can by playing the market, or transform the current
power situation to their advantage by developing
and marketing their own premium brands. Failing
that, upstream members of the chain will be forced
either to exist in their current state of uncertainty,
or be forced to align themselves operationally with
particular multiple retailers, integrated processors
and buying agents and trade low commercial returns
for guaranteed demand operationally. That is to accept the role of a willing supplicant in the beef supply chain.
It means that the adoption of lean management
thinking in red meat supply chains for fresh/frozen
beef in the UK may assist some industry participants
operationally and commercially, but it does not appear to be a recipe for sustainable competitive advantage for very many participants outside the multiple
retailing stage of the chain. It will be interesting to
see if further research confirms that this is a general
rule in food and farming supply chains or unique to
the fresh/frozen beef supply chain in the UK. Whatever the outcome from future research the findings
here provide a note of caution for managers who embark unthinkingly on the adoption of lean management approaches that have worked in some
industries and supply chains but which may not be
easily replicable elsewhere.
Acknowledgements
(The authors wish to thank the generous support for
this research from the Engineering and Physical Sci-
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005
661
DAN
CHICKSAND,
Birmingham
Business
School, University of Birmingham,
University
House, Birmingham, B15
2TT. E-mail: d.d.chicksand@
bham.ac.uk
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European Management Journal Vol. 23, No. 6, pp. 648662, December 2005