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Responses to FAQs concerning the development of value chains.
Q. How would you define a value chain?
A. In Alberta, we define a value chain as an alliance of enterprises collaborating vertically to achieve a more rewarding position in the marketplace. Through working together, suppliers (producers and processors) invest in the relationship with the retail or food service customer, to provide a better understanding of the consumers’ needs. A successful value chain will strengthen this strategic relationship with the goal of helping the relationship become a valuable and integral asset. This asset provides a competitive advantage that is difficult for competitors to copy or substitute.
Q. Is a value chain, supply chain, and demand chain management the same?
A. Value chain management, supply chain management, and demand chain management are terms used to describe slightly different business strategies. Value chain management takes the perspective that members in the chain earn their place by adding value to the product or service. In return, members are compensated for the value they add. Supply chain management is used when a system employs the most efficient and effective means for delivering a product or service to the customer. Demand chain management looks backwards at the chain. It strives to deliver products and services to a market, ensuring an adequate demand for a product. This demand pulls the product through the chain, rather than producers/processors pushing their product into the market place. The Alberta VCI encompasses the meanings of all three terms in describing value chain management. Regardless of the strategy applied, value chains begin and end with the market. They are driven by market pull.
Q. Who can become involved in a value chain?
A. A business with a challenge or opportunity it can’t resolve on its own may consider a value chain approach. By working together, the producers, processors, and their retail or food service operator can develop new means of innovation in products, in increasing efficiencies, or in differentiating products and services. When developing a value chain, start by determining what your customer wants, and develop the capabilities to meet market demand by collaborating with your value chain partners.
Q. How long does it take to set up a value chain and find partners?
A. Count on a few years to get close to the goals you set. There will be many collaborative decisions, meetings, and much more work than you first imagine. The time it takes to work through processes and problems will ensure that you have the right partners for achieving results. Members of the chain need to trust each other and this takes time. In the beginning, you will want to know the market you’re getting into and what you will have to do to be successful. Groups need to know which strategy is right for them. Moving ahead as a team is involved in this strategy, instead of trying to do it all yourself.
Q. What are the biggest stumbling blocks?
A. People and personalities are seen as the greatest success and also the biggest failure factors when developing value chains. Respect and trust are needed to work together and create new value. When a chain is composed of talented, skilled, and committed individuals that communicate well, and can combine their efforts, there is great potential to succeed.
The VCI has found the involvement of the retailer or food service operator in the value chain development process to be one of the most difficult steps for suppliers. Developing strategic relationships involving retailers and food service operators provide new opportunities for Alberta processors and producers. Working collaboratively with the retailer or food service operator will help to grow these markets.
Q. What types of legal issues are involved in value chain development?
A. We suggest that you hold off on legal concerns; although, we’ve seen a few incidents involving legal issues that did come up early in the development. If you have ongoing concerns, you may want to seek outside advice from specialists working in the legal field.
Q. Where can I find an easy-to-search list of over 200 global value chain resources for the livestock sector?
A. You can link to www.valuechainalberta.ca, the newest ARD resource with information and resources from around the world. This site offers links to international and domestic case studies, information by sector and general value chain information.
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Producer and Processor FAQs:
Q. What are the benefits for the producer and the processor?
A. Here is a key question for everyone in the chain. Value chains aren’t magic, and they don’t always provide a premium upfront, but they can provide other useful benefits. This fact is certain—one size does not fit all. Every value chain has it’s own unique goals and benefits.
Some of the benefits that have been realized in value chain approaches include:
Q. What impact can a value chain have on the industry?
- Access to markets
- Accelerating the rate of innovation
- Improved information
- Benefits of economic scale
- Shared cost and risk of innovation
- Enhanced food safety
- Rewarding business relationships
A. Globalization is increasing the pressure of agriculture and food companies to compete in the commodity markets. In this market, companies deploy least-cost business strategies in which their future is largely determined by factors beyond their control. These include commodity prices, exchange rates, and industry over-capacity. Value chains offer these companies a number of strategic options allowing them to escape the limitations of the commodity market and put their future firmly in their own hands. Competitive value chain approaches help contribute to a competitive agriculture and food industry.
Vertical alliances between growers/processors/retailers and food service can add value to the product or service. The chain can cut costs of production, promote fresh food innovation, and offer a competitive advantage to both the retailer/food service and the suppliers.
Q. Can you provide examples of successful value chains?
A. We invite you to read the success stories and links, found on our web site, to other value chain sites for some great examples of value chains in action.
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Q. What are the challenges facing the retail sector?
A. In this highly competitive marketplace, retailers face the daily challenge of new product innovation, which in turn drives category growth, reduces costs of goods, and secures a sustainable supply of locally grown products to satisfy their customers’ desire to buy Alberta made goods. Retailers continue to struggle to find and work with small-to-medium-sized suppliers who try to get their products listed, but do not have the tools or information to be successful. The vertical alignment of producer/grower/processor and retailer to create a “value chain”, has proven results and will be the preferred method of doing business for all major retailers.
Q. What is the benefit of a value chain approach to my retail customer?
A. The benefits of a value chain to a retail customer include:
Q. How do I involve my retailer in the value chain?
- Obtains maximum efficiencies throughout the entire chain
- Secures a sustainable supply for entire chain
- Drives category growth by test marketing new products and process innovations
- Applies value chain to other category procurement
- First-to-market with new product innovations
- Has limited exclusive listing on new products, and can realize cost savings to bottom line
- Can advertise “locally grown”
A. Your first step is to do market research of what innovative products you can offer your retailer. Investigate ways you can become a more important supplier. When you’ve completed your research and realize the potential of your product as beneficial to the retailer, take the next step and contact the a value chain specialist to begin the process of aligning the vertical partners necessary for success.
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Value Chain Specialist: