Transforming Agri-Commodity Business: Supplier Options and Cost Analysis for Industry Leaders
Scope For This Project
Agri commodity business refers to the buying, selling, and trading of agricultural products or commodities. These products can be categorized into various groups such as grains, oilseeds, dairy, livestock, and fruits and vegetables. Agri commodity business plays a vital role in the global economy as it is the backbone of food production and distribution, which is necessary for human survival.
The agri commodity business involves various players such as farmers, traders, processors, distributors, exporters, and importers. These players are involved in different stages of the supply chain, from cultivation to consumption. The supply chain can be divided into four stages: production, processing, distribution, and consumption.
- Production:
- Processing:
- Distribution:
- Consumption:
Table of Contents
Factors affecting agri commodity business
There are several factors that affect the agri commodity business. These include:
- Weather conditions: Weather plays a critical role in the agri commodity business, as it directly impacts crop yields and livestock production. Droughts, floods, and other extreme weather events can damage crops, reduce yields, and increase the cost of production.
- Supply and demand: The supply and demand of agricultural products in the market are crucial factors that influence the agri commodity business. The demand for certain products can fluctuate based on factors such as population growth, changing consumer preferences, and economic conditions. Additionally, supply factors such as crop yields, weather patterns, and input costs can also affect the supply of agricultural products.
- Trade policies: Trade policies can significantly affect the agri commodity business. Tariffs, quotas, and subsidies can impact the prices and demand for agricultural products. Changes in trade policies can affect the competitiveness of farmers, traders, and processors in different countries.
- Government regulations: Government regulations related to food safety, environmental standards, and labor laws can affect the agri commodity business. Compliance with these regulations can add to the cost of production and impact the competitiveness of agricultural products in the market.
- Currency exchange rates: Currency exchange rates can impact the agri commodity business, especially in global markets. A stronger currency can make exports more expensive, while a weaker currency can make imports more expensive.
- Technological advancements: Technological advancements such as precision agriculture, genetic engineering, and biotechnology can impact the agri commodity business. These advancements can increase yields, improve the quality of agricultural products, and reduce the cost of production.
- Energy costs: Energy costs can affect the cost of production of agricultural products, especially for crops that require a lot of energy for processing and transportation.
Industry trends
The agro-based commodity industry is constantly evolving to meet the changing demands of the global market. Some of the current industry trends in agro-based commodity include:
- Sustainability: Sustainability has become a critical issue in the agro-based commodity industry. Companies are increasingly focusing on reducing their environmental impact and promoting sustainable farming practices. This trend is driven by increasing consumer demand for sustainable products and a growing awareness of the need to protect the environment.
- Digitalization: Digitalization is transforming the agro-based commodity industry, making it more efficient and transparent. Companies are using technology to track and monitor their supply chain, optimize production processes, and improve customer service. This trend is driven by the need for increased efficiency, improved quality control, and reduced costs.
- Traceability: Consumers are increasingly demanding transparency and traceability in the products they buy. Agro-based commodity companies are responding by implementing systems to trace the origin of their products and ensure that they meet quality and safety standards. This trend is driven by consumer demand for safe and high-quality products.
- Organic and Non-GMO: There is a growing demand for organic and non-GMO products in the agro-based commodity industry. Companies are responding by increasing their production of organic and non-GMO products to meet this demand. This trend is driven by growing health and environmental concerns and a preference for natural and chemical-free products.
- Plant-Based: The plant-based food trend is gaining momentum, with consumers increasingly turning to plant-based products for health and environmental reasons. Agro-based commodity companies are responding by developing new plant-based products and investing in plant-based technologies. This trend is driven by increasing consumer demand for healthy and sustainable food options.
The agro-based commodity industry is constantly evolving to meet the changing demands of the global market. Some of the current industry trends in agro-based commodity include:
- Sustainability: Sustainability has become a critical issue in the agro-based commodity industry. Companies are increasingly focusing on reducing their environmental impact and promoting sustainable farming practices. This trend is driven by increasing consumer demand for sustainable products and a growing awareness of the need to protect the environment.
- Digitalization: Digitalization is transforming the agro-based commodity industry, making it more efficient and transparent. Companies are using technology to track and monitor their supply chain, optimize production processes, and improve customer service. This trend is driven by the need for increased efficiency, improved quality control, and reduced costs.
- Traceability: Consumers are increasingly demanding transparency and traceability in the products they buy. Agro-based commodity companies are responding by implementing systems to trace the origin of their products and ensure that they meet quality and safety standards. This trend is driven by consumer demand for safe and high-quality products.
- Organic and Non-GMO: There is a growing demand for organic and non-GMO products in the agro-based commodity industry. Companies are responding by increasing their production of organic and non-GMO products to meet this demand. This trend is driven by growing health and environmental concerns and a preference for natural and chemical-free products.
- Plant-Based: The plant-based food trend is gaining momentum, with consumers increasingly turning to plant-based products for health and environmental reasons. Agro-based commodity companies are responding by developing new plant-based products and investing in plant-based technologies. This trend is driven by increasing consumer demand for healthy and sustainable food options.
Supply chain model of agri commodity
The agri commodity business supply chain model is a complex process that involves several stages, each with different players and activities. These stages include production, processing, distribution, and consumption.
- Production Stage: This stage involves the cultivation of crops, raising of livestock, and production of agricultural products. Farmers are the primary players in this stage, and they grow crops and rear livestock based on the demand in the market. They also store their produce until the market prices are favorable. This stage includes activities such as planting, fertilization, pest control, harvesting, and storage.
- Processing Stage: After the crops are harvested, they need to be processed and converted into usable products. Processing can involve cleaning, grading, sorting, milling, or packaging the commodities to make them market-ready. The processed commodities are then sold to traders, exporters, or processors. The processing stage involves activities such as sorting, cleaning, grading, milling, packaging, and labeling.
- Distribution Stage: The distribution stage involves the transportation of the processed commodities from the production centers to the markets. This stage involves logistics, such as transportation, storage, and handling of commodities. Distributors, wholesalers, and retailers are the primary players in this stage. The distribution stage involves activities such as transportation, warehousing, inventory management, and order fulfillment.
- Consumption Stage: This stage involves the purchase and consumption of agricultural products by consumers. Consumers buy the products from retail outlets or online stores. They also consume products in various forms, such as raw, cooked, or processed. This stage involves activities such as purchasing, cooking, and consuming.
In each stage of the agri commodity supply chain, there are several players involved, including farmers, traders, processors, distributors, exporters, and importers. These players are responsible for different activities, and they work together to ensure that the products reach consumers efficiently. The supply chain is influenced by several factors such as weather conditions, supply and demand, trade policies, and government regulations.
Efficient supply chain management is crucial for the agri commodity business to ensure that products reach consumers on time and at an affordable price. Advanced technology such as GPS tracking, IoT, and blockchain can be used to improve supply chain efficiency, reduce wastage, and increase transparency. These technologies can help to track products from the production stage to the consumption stage, ensuring that they are of high quality and safe for consumption.
In this project
Our client, a leading player in the agro-based commodity industry, sources its goods from both domestic and international suppliers, resulting in a complex supply chain with varying quality standards and payment processes. As a result, the company has experienced a significant increase in operational costs.
Objectives of project
- We were tasked with identifying additional potential agri – supplier.
- Set up complex supply chain re-configuration for each client.
- Cost -Quality Analysis.
- Identify Strategic Options.
Our Analysis
Supplier analysis
These factors can be grouped into three main categories: product quality, supplier capability, and cost.
- Product Quality: The quality of the product is an essential factor when selecting a supplier for agro-based commodity. Factors to consider include the product’s appearance, taste, aroma, and nutritional value. It is essential to ensure that the product meets the required standards and regulations in the destination country.
- Supplier Capability: The supplier’s capability to deliver the product in the required quantity and quality is crucial. Factors to consider include the supplier’s production capacity, experience, financial stability, and ability to meet delivery deadlines. It is also essential to consider the supplier’s communication and support capabilities.
- Cost: The cost of the product is a crucial factor when selecting a supplier. It is essential to compare the cost of the product with other suppliers in the market. Factors to consider include the price of the product, payment terms, and delivery costs.
To analyze suppliers for international agro-based commodity, follow these steps:
- Identify potential suppliers: Identify potential suppliers through trade shows, online directories, and trade associations.
- Verify supplier credentials: Verify the supplier’s credentials, including their production capabilities, experience, financial stability, and ability to meet delivery deadlines.
- Check product quality: Request samples of the product to check its quality, including appearance, taste, aroma, and nutritional value. Ensure that the product meets the required standards and regulations in the destination country.
- Evaluate supplier capabilities: Evaluate the supplier’s capabilities, including their communication and support capabilities, production capacity, and delivery timeline.
- Compare costs: Compare the costs of the product, including the price of the product, payment terms, and delivery costs, with other suppliers in the market.
- Negotiate terms: Negotiate the terms of the contract, including payment terms, delivery timelines, and quality control measures.
Strategies for supply chain reconfiguration
For agro-based commodity companies, supply chain re-configuration can involve several strategies, including the following:
- Vertical Integration: Agro-based commodity companies can vertically integrate by acquiring or investing in companies involved in different stages of the supply chain. For example, a company can acquire a farm or processing facility to control the production and processing of its products.
- Direct Sourcing: Direct sourcing involves establishing relationships with farmers and other producers to purchase products directly, bypassing intermediaries. This strategy can help to reduce costs and improve the quality of the products.
- Outsourcing: Outsourcing involves contracting third-party companies to handle specific stages of the supply chain. For example, a company can outsource transportation and logistics to a third-party provider to improve efficiency and reduce costs.
- Collaboration: Collaboration involves working with other companies in the supply chain to improve efficiency and reduce costs. For example, a company can collaborate with a logistics provider to optimize transportation routes and reduce delivery times.
- Diversification: Diversification involves expanding the range of products or services offered by the company. For agro-based commodity companies, this can involve diversifying into new products or markets to reduce reliance on a single product or market.
- Digitalization: Digitalization involves the use of technology to automate and optimize supply chain operations. For example, a company can use sensors and data analytics to monitor the quality and condition of products during transportation and storage.
Cost quality trade off
Cost-quality trade-off is a common issue in the agro-based commodity business. Agro-based commodity companies must balance the need to maintain product quality with the need to keep production costs low. This trade-off can have significant implications for the company’s competitiveness, profitability, and customer satisfaction.
To balance cost and quality in agro-based commodity business, companies must consider several factors, including:
- Product Specifications: Agro-based commodity companies must clearly define product specifications and quality standards to ensure that the products meet the customer’s expectations. Companies must also consider the cost implications of these standards and ensure that they are reasonable and achievable.
- Supplier Management: Agro-based commodity companies must carefully select and manage their suppliers to ensure that they provide quality raw materials at a reasonable cost. Companies must also ensure that their suppliers comply with quality and safety standards.
- Process Optimization: Companies must optimize their production processes to minimize waste, reduce production costs, and maintain product quality. Process optimization can involve using technology and automation to increase efficiency and reduce errors.
- Quality Control: Companies must implement quality control measures to ensure that their products meet the required quality standards. Quality control measures can include inspections, testing, and quality assurance procedures.
- Customer Feedback: Companies must listen to their customers’ feedback and continuously improve their products and services to meet their changing needs and expectations. Customer feedback can provide valuable insights into product quality and help companies to identify areas for improvement.
Company x Supplier Options Cost, Quality and Production Capacity Analysis
Results
- Overall cost reduction of -18%
- Supply chain security and options – not possible to quantify impact
- Supply chain sustainability and resilience – not possible to quantify impact
Conclusion
The agro-based commodity industry plays a vital role in meeting the world’s growing demand for food, fuel, and other agricultural products. The industry faces a range of challenges, including price volatility, supply chain complexity, and sustainability concerns. However, there are also many opportunities for growth and innovation, driven by changing consumer preferences, technological advancements, and emerging markets.
To succeed in the agro-based commodity industry, companies must stay abreast of industry trends and leverage new technologies to optimize their supply chain, improve product quality, and reduce costs. They must also adopt sustainable farming practices, implement traceability systems, and prioritize customer satisfaction to remain competitive in the global market.
As the world’s population continues to grow and climate change threatens to disrupt traditional farming practices, the agro-based commodity industry will continue to evolve and face new challenges. However, with the right strategies and investments, companies can seize the opportunities presented by these challenges and contribute to a more sustainable and food-secure future.
Key Learnings
- Sourcing goods from both domestic and international suppliers can result in a complex supply chain.
- Different suppliers may have varying quality standards and payment processes, which can add to the complexity.
- Complexity in the supply chain can result in increased operational costs for the company.
- To minimize operational costs, it is important for companies to carefully evaluate their supplier options and establish quality and payment standards that are consistent across all suppliers.
- Effective supply chain management is critical to the success of agro-based commodity companies, and it requires careful planning, coordination, and monitoring of all aspects of the supply chain.
About the Author
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available www.globalscgroup.com
Vivek is the Managing Director of Global Supply Chain Group, a boutique strategy consulting firm specialising in Supply Chain Strategies, and headquartered in Sydney, Australia . He has over 24 years of experience in strategic transformations and operational excellence within global supply chains. Prior to co-founding Global Supply Chain Group in January 2000, Vivek was a management consultant with top-tier strategy consulting firm Booz Allen & Hamilton.
Vivek provides strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.
Vivek has served world-wide corporations in nearly 500 small and large projects on all continents with a variety of clients in many different industries. Most of projects have involved diagnostic, conceptualisation and transformation of supply chains – releasing significant amount of value for the business. His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations and all other aspects of global supply chains.
Vivek has written a number of path breaking articles and commentaries that are published in several respected journals and magazines. Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. He received his MBA with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.
More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available on www.globalscgroup.com
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