Optimizing and retaining product quality in the supply chain: for whom and who profits?

Abstract

Present day retail groups are demanding extremely high quality and safety measures from their suppliers. The large retail chain called Tesco’s in the UK recently demanded a logistic performance from its suppliers of 99.8% as a minimum! The main retail chain of the Netherlands has demanded that it’s fruit and vegetable supplier will source globally for all it’s products resulting in great difficulties when it comes down to maintaining the residue levels of agrochemicals within acceptable limits. It is evident that a production and supply chain consisting of different companies operating on the spot market cannot meet these requirements. A recent change in the policy of the German government, making the tests for residue levels of agro-chemicals in fruits and vegetables public, resulted in a switch in policy of discount retail groups like Aldi and Lidl to stop buying their fruits and vegetables on the spot market and start sourcing from preferred suppliers through contracts. This allows for the build up of steady supply chains that can cope with the high demands on safety, logistics and quality. These chains need to innovate to cut costs and to speed up their processes in order to maintain their competitive edge. However through the close intermingling of the vertical chain partners it is not evident any more that when one invests in an innovation the profit of that investment can also be reaped by the investing party. Very often an investment in one part of the chain results in a profit in another part of the chain. A good example is the drive towards a longer shelf life of fresh products. Through investments in breeding this has led to an increase of shelf life of many fresh products. However the breeders got their profit through a competitive advantage, the growers got no profit, but the traders reaped the main profit through enhancement of their ability to speculate on the spot market. This can work as an inhibitory effect on the drive to innovate. It is therefore adamant that innovations in such complex interdependent vertical production and supply chains are set up in a strategic context. Chain partners should develop innovation strategies together and discuss the possible profits and costs in advance in order to negotiate the division of costs and benefits to create a win-win situation for all participants. This necessitates a means to predict possible profit and cost distributions among the participants across the entire supply chain. Therefore it is necessary to predict dynamic consumer responses in relation to product performance in the market. Here we need to interface consumer science with product physiology, both on a product level as well as on a batch level.