Adopting strategic alliances to enhance
supply chain sustainability and profitability
for agribusinesses.
Collaborations for Agricultural Profitability
University of Connecticut; March 18, 2014
Forrest Stegelin
stegelin@uga.edu
Extension Agribusiness Economist
University of Georgia
What is a strategic alliance?

A strategic alliance is a formal or informal
arrangement/agreement involving at least two firms
pursuing some common long term goals, and close
coordination exists between the alliance partners.

A cooperative is a formal/legal association of memberowners operating a separate business that provides
services (purchasing or farm supply, marketing, or
production services) at cost to its patrons.

An agricultural bargaining association is a group of
producers of a common good/commodity formally
organized to gain greater power in the market for its
members to increase the farmer-members’ incomes,
requiring recognition by buyers the bargaining
association as primary source of product.
Example of a strategic alliance in action.

Costs of transporting environmental plant material
and harvested produce to market and of the
acquisition of relevant production inputs are of
concern to Georgia food and environmental
horticulturalists; transportation costs rose 21% in
past 5 years, and now account for >10% of total cost
of production.

Economic, social and climatic factors also hurt the
food and environmental horticulture crops producers
in Georgia (two droughts, recession, changing
consumer demographics and psychographics).

Georgia lost 45% of production capacity, 35% of
marketing capacity, and 30% of input supply
availability.
Survival and growth strategies.

For those grower operations remaining, how do they
stop the economic hemorrhaging and even re-grow
their businesses?
For the small to mid-sized growing operations,
distribution/shipping costs showed greatest disparity,
variability, and rate of increase (fuel/energy).
 Shipments or deliveries of inputs being made from
same sources to neighboring nurseries at same times.
 Producers making deliveries to common buyers
(sharing clients) at about same time over common
routing, duplicating ownership and variable
transportation costs, driver expenses and time, etc.
 Each operation owned an independent distribution
system that was not fully utilized – inefficient, poor
economics and management decision making.

Issues compounded by “buy local, sell
local.”

With the state and federal-sponsored “buylocal”[Georgia Grown, KYF2, food hubs] emphasis to
buyers, “sell- local” puts expectation on small to midsized operations to deliver to local market venues.

Logistical cooperation becomes an important strategic
alternative to reduce costs (input acquisition,
distribution/marketing, and service provision – the
supply chain) and increase efficiency in the horticulture
sector.

Transportation/distribution/shipping costs account for
over 10% of farm-gate or wholesale value of Georgia’s
environmental horticulture industry, and account for
over 15% of fuel/energy use within produce industry.
Development of a transportation
strategic alliance in Georgia.

Among factors affecting expansion, topics of production,
marketing, personnel and transportation considered most
relevant (Hodges/Haydu); transportation ranked higher
than debt or equity capital and marketing, but below
personnel and production (Brooker et al).

Objectives of strategic alliance study were to determine if a
transportation alliance (a formal or informal arrangement
involving at least two firms pursuing some common long
term goals and close coordination between the alliance
partners) would reduce shipping costs and increase
distribution efficiency and profitability among
producers/suppliers in Georgia who are selling “local” –
supply chain management.

Secondary objective focused on sustainability - to see effect
on carbon footprint. Also desire to conduct sensitivity
analysis, including central distribution versus dispersed
locations.
What is a supply chain?

A supply chain encompasses all activities associated
with the flow and transformation of goods from the
raw materials stage (extraction), through to the end
user, as well as the associated information flows.

Material and information flow both up and down
the supply chain.

For an individual firm, supply chain includes both its
upstream supplier network (including inputs) and
its downstream distribution channel – a series of
linked suppliers and customers. For an industry,
such as the “green industry,” focus is on supply
chain relationships and organizational dynamics.
Integrated supply chain model.
Customers
Information and financial flows
Retailers
Product and material flows
Distribution Centers
Strategic business unit
Assembly/Production/Manufacturing
1st Tier Suppliers
2nd Tier Suppliers
2nd Tier Suppliers
1st Tier Suppliers
2nd Tier Suppliers
Provide end customers and supply chain member organizations
with the materials required/requested, in the proper quantities,
in the desired form, with the appropriate documentation, at
the desired location, at the right time, and at the lowest
possible cost.
The basic green industry crop supply
chain: inputs  production  customer
Aggregation
of Components
Fabrication
or Assembly
Manufacturing
and Packaging
Input Supply Chain
Distribution
or Marketing
Planting or
Growing
Harvesting
Potting from in Field,
for Market
Seed or Stock Container,
Greenhouse
Storage
& Shipping
Distribution
& Sales
Producer/Grower Supply Chain Activities
Distribution Marketing Customer
Customer Supply Chain
Ancillary
Services
The strategic alliance.

Collection of data from collaborators to develop a
simple unit cost allocation model that is adaptable and
useable with the GIS software ArcLogistics 9.3.

Although study seemed to have buy-in from growers,
concerns still arose:
◦ What’s in it for me? Proof? Loss of independence.
◦ Reluctance to provide logistics, marketing and sales information
◦ Tell me again what is an alliance (and don’t tell me it’s a
camouflaged term for cooperative)
◦ Survey design and adequate sample size
◦ Format and availability of data
◦ Lack of commonalities among growers (facilities, vehicles,
customers and their locations, product specifications, shipping
containers, delivery dates and times, driver efficiency, etc.)
◦ Managerial relevance of using averages in conducting a
sensitivity analysis.
The spatial equilibrium model.

Using the GIS software ArcLogistics 9.3, inventory data
and asset information were collected to develop a simple
unit cost allocation model that generated a sensitivity
analysis to determine logical clusters or alliances, possible
order sharing routings, numbers of orders per shipping
cycle, and vehicle requirements.

While cost is a critical factor in the shipping design, timebased competition to bring product to market in the right
quantity, at the right place and right time made reliability
a key consideration.

Fluctuations in demand, driver issues, maintaining
appropriate temperatures and ventilation, employee
training and turnover, and proper loading and handling are
additional challenges.
Order Sharing Routings
Alliance or Location Clusters
Optimal Number of Orders Routing
Time Windows Routing Maps
Results and implications for
environmental horticulture.

Five transportation alliances have been established among
small to mid-sized greenhouse (floriculture) and container
nurseries (annuals and perennials).

Net results for these alliances and participating firms:
◦ 12% average annual total cost savings to the alliance
(participating firms) operations;
◦ 23% average annual total miles driven savings;
◦ 18% average annual ownership savings in vehicles owned;
◦ 31% average annual savings in hours of driving time and driver
labor;
◦ 19% overall (system-wide) reduction in total carbon dioxide
equivalents (CO2e) emissions reducing the carbon footprint
(but not reaching carbon neutrality) – the sustainability issue.
Net savings results for produce or
fruit and vegetable sector.

Compared to a companion fruit and vegetable
growers study, these savings for the environmental
horticulture producers were higher due to virtually
unlimited seasonality of distribution (nearly yearround for container and greenhouse growers) versus

shipping season of shortly after last frost in spring
for cool season leafy crops to first frost/freeze in fall
for fruit and vegetable producers.
What is sustainability?
Definition of sustainability goes beyond the concern of
going “green” (environmental impact), or being organic,
natural, carbon neutral, environmentally friendly,
reducing greenhouse gas emissions, minimizing global
warming, reducing carbon contribution, etc.

Three components – economics/profitability, societal or
community well-being, and environmental quality.

Challenges to developing a business case for
sustainability:
◦ Forecasting and calculating benefits and costs, and
planning beyond the 1-5 year time horizon typical of
most investment frameworks;
◦ Gauging the system-wide effects of sustainability
investments in a life cycle assessment – a requirement
for “sustainable”.
What is a life cycle assessment?
Most
Difficult

“… a tool to evaluate the environmental consequences of
a product or activity holistically across its entire life.”
[US EPA]

System-oriented because it attempts to integrate
environmental requirements into each stage of the
development and operations/maintenance process so that
total impacts caused by the entire system can be
reduced.

An LCA normally follows 3 distinct steps:
◦ An inventory analysis that identifies materials and
energy resources and their flow patterns;
◦ An impact analysis of qualitative and quantitative
assessments of the consequences to the environment;
◦ An improvement analysis that contemplates actions
that can be taken to improve upon current conditions.
Goal is carbon neutrality.

Event or
Activity
………
Carbon
Carbon
Contribution Sequestered
MT CO2e/year
Net Annual
Carbon

The good news for the food and environmental
horticultural sectors is that vegetation is treated as a
carbon sink (carbon sequestered), while other inventory
items (structures, labor, equipment) are sources of
greenhouse gas (GHG) emissions and carbon
contributions, so the food and environmental
horticulture sectors, including turf and sports fields, are
relatively more carbon neutral than bricks and mortar or
bricks and clicks businesses.
Calculations of LCA for three strategic
transportation alliances in Georgia.
Alliance
North
Central
South
C Contribution
2,173
1,733
2,436
C Sequestered
MT CO2e/year
1,570
1,025
1,061
Net Carbon
603
708
1,375
If the strategic alliance had net annual carbon of slightly
above carbon neutrality, then management strategy
adjustments could be made, without knowingly reducing
product quality.
Adjustments might include switching from petroleum
diesel and electricity to biodiesel and alternative
renewable energy (solar), or reducing the amount of
municipal water used for irrigation, washing, hydrocooling or by implementing better production,
preparation, packaging, and cold storage management
regimes.
How to adopt strategic alliances to
enhance food and environmental
horticulture supply chain sustainability
and profitability?

Using the Georgia situation as an example, strategic
transportation alliances were implemented among
container and greenhouse crops producers and produce
(fruit and vegetable crops) growers and marketers with the
hypothesis that the alliances would reduce shipping costs
and increase distribution efficiency among small to midsized operations who were selling local to common
marketing venues, purchasing inputs from common
sources, and that the collaborating firms would reduce
their overall carbon footprint.

Yes, but! Back to the data and enlisting collaborators?!
Concerns arise with the establishment of
each strategic alliance – need buy-in
among collaborators:
◦ What’s in it for me? Show me the money! Loss of
independence.
◦ Reluctance to provide logistics, marketing and sales
information (#s or $s)
◦ Tell me again what is an alliance (and don’t tell me it’s a
camouflaged term for cooperative)
◦ Survey design and adequate sample size considerations
◦ Format and availability of data; need for computer skills
◦ Lack of commonalities among growers (facilities,
vehicles, customers and their locations, product
specifications, shipping containers, delivery dates and
times, driver efficiency, etc.)
◦ Managerial relevance of using averages in conducting a
sensitivity analysis.
Thank you for your time and attention.
Any questions, comments, suggestions?
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Forrest Stegelin Presentation - College of Agriculture and Natural