Information Structure and Coordination in Vegetable Supply Chains

Lincoln University Digital Thesis Copyright Statement The digital copy of this thesis is protected by the Copyright Act 1994 (New Zealand). This thesis may be consulted by you, provided you comply with the provisions of the Act and the following conditions of use: you will use the copy only for the purposes of research or private study you will recognise the author's right to be identified as the author of the thesis and due acknowledgement will be made to the author where appropriate you will obtain the author's permission before publishing any material from the thesis. Information Structure and Coordination in Vegetable Supply Chains A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy in Agribusiness at Lincoln University by Mahendra Prasad Khanal Lincoln University 2012 Abstract of a thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy in Agribusiness. Abstract Information Structure and Coordination in Vegetable Supply Chains by Mahendra Prasad Khanal The purpose of this study on Nepalese fresh vegetable supply chains is to identify factors that impact on the environment external to these chains, information flows along them, and relationships between actors within them. It identifies the role that information structure plays in chain coordination, and so contributes to the emerging literature on this, while also providing policy insights for the Nepalese government. A theoretical framework was developed by incorporating principles of coordination theory, transaction cost economics and network theory, to postulate relationships between information structure and coordination in a supply chain. Empirical research on four Nepalese vegetable supply chains was conducted using an embedded multiple case study approach. It was found that the environment external to the chains had little influence on information structure and chain coordination. Instead, factors internal to the chain were shown to be more important. The results showed that the four chains could be collapsed into two models. The first model exhibited a relatively complete information structure and strong vertical and horizontal coordination. The second model had a relatively asymmetric information structure, along with weak horizontal and vertical coordination. Hence, the completeness of information structure was positively associated with the degree of coordination, both horizontal and vertical. It was observed that strong horizontal coordination accompanied by complete information structure at the farmers’ level aligns producers in the production and supply of vegetables according to market requirements, assembles vegetables to attract buyers, and disseminates knowledge and experience to increase the efficiency of all members. Similarly, strong vertical ii coordination in association with a complete information structure from input suppliers to retailers aligns activities and incentives, leads actors towards achieving the chain goal, and increases efficiency in the delivery of produce. One insight to emerge is that the observed relationship between information structure and chain coordination result from an underlying factor. This factor was identified as the benefits that chain actors receive or expect to receive from the information they share and the transactions they conduct with other actors. Profits, assurance in buying and selling and strong buyer-supplier relationships are such benefits, which then drive both the completeness of information structure and the degree of coordination, leading to an association between complete information structures and strong coordination and conversely, less complete information structures and weak coordination. Another insight to emerge is that the completeness of information structure and the degree of coordination in these chains also depends on the role that cooperatives play in sharing information and performing business activities. In particular, the greater is the role of cooperatives in information sharing and in performing business activities, the stronger is the coordination in the chain, and vice versa. Keywords: vegetable supply chain, information structure, horizontal coordination, vertical coordination, embedded multiple case study, benefits, cooperatives iii Acknowledgements I would like to express my sincere thanks and gratitude to my supervisors, Associate Professor Sandra Martin and Dr Mark Wilson for their guidance, suggestions and encouragement throughout my study, and for patiently editing the thesis and providing me the feedback. This thesis would not have been possible without your continuous support. Special thanks to Dr Liesbeth Dries for her supervisory role during the first year of my study. I am very much thankful to the New Zealand Aid Programme for awarding me a New Zealand Development Scholarship for four years to undertake this study. I also acknowledge the help provided by Lincoln University and its staff, particularly the Faculty of Commerce, Lincoln University’s Centre for International Development (LUCID), and the Agriculture and Life Sciences Division, for creating good academic environment during the study period. Thanks to my colleagues in Lincoln, Christchurch, and abroad for friendship and support during my stay in Lincoln. Back in Nepal, my sincere thanks goes to the Government of Nepal, Ministry of Agriculture and Cooperatives for providing me study leave. I appreciate the help provided by the staff of this Ministry and the organizations under it during data collection. I acknowledge their help in selecting the cases, introducing key members of selected chains, and providing accommodation, valuable time for interviews, and secondary data. Special thanks to the staff of Department of Cooperatives, Division Cooperative Offices, Wholesale Market Boards, Nepal Smallholder Irrigation Market Initiative, and other Governmental and Non- Governmental Organizations for providing valuable information through meetings and published and unpublished materials. I am indebted to the help of all interviewees for providing warm hospitality in their workplaces and valuable time for interviews. I also appreciate their help in explaining their business to me and showing me some of their activities. My stay in Lincoln will remain as a wonderful memory in my life. I was fortunate to meet several cooperative Nepali friends and families in Lincoln and Christchurch. I appreciate their help and support from the beginning to the end of my study. I never felt I was away from my home country from the tradition that these families have developed for organizing programmes and gatherings. Thanks to Nepal New Zealand Friendship Society for celebrating all important festivals and Nepali New Year, in which everybody can participate. iv My sincere thanks to Resham for her all dedicated help and support not only being my wife but also by taking care of all household matters. I appreciate the help of daughter Asmita and son Ashish in my study. Finally, I would like to express sincere thanks to my father, mother, brother, sisters, and other relatives for their co-operation and love, and for the inspiration throughout my study. v Table of Contents Abstract ..................................................................................................................................... ii Acknowledgements .................................................................................................................. iv Table of Contents ..................................................................................................................... vi List of Tables ........................................................................................................................... xii List of Figures ........................................................................................................................ xiii Abbreviations .......................................................................................................................... xv Chapter 1 INTRODUCTION .................................................................................................. 1 1.1 Background 1 1.2 Research Questions 7 1.3 Outline of the Study 8 Chapter 2 LITERATURE REVIEW ...................................................................................... 9 2.1 Introduction 9 2.2 Theoretical Review 9 2.2.1 Coordination Theory 9 2.2.2 Transaction Cost Economics 11 2.2.3 Network Theory 13 2.3 The Supply Chain Concept 14 2.3.1 Fresh Produce Supply Chains 16 2.3.2 Supply Chain Management 18 2.3.2.1 Concept and Definition 18 2.3.2.2 Objectives of Supply Chain Management 19 2.3.2.3 Principles of Supply Chain Management 20 2.4 Chain Coordination 23 2.4.1 Vertical Coordination 23 2.4.2 Horizontal Coordination 23 2.4.3 Factors Affecting Chain Coordination 24 2.4.3.1 Compatible or Common Goal 24 2.4.3.2 Efficiency of Chain Actors 24 2.4.3.3 Incentive Alignment 24 2.4.3.4 Information Flow 25 2.4.3.5 Behaviour of Chain Actors 25 2.4.3.6 Chain Structure and External Environment 26 2.4.3.7 Level of Interdependency 26 2.4.4 Coordination of Vegetable Supply Chains in Nepal 27 2.4.5 Coordination Problems 30 2.5 Information Flow in a Supply Chain 32 2.5.1 Information Structure 35 2.5.2 Types of Information Structure 35 2.5.3 Relationship between Information Structure and Chain Coordination 36 2.6 Conclusion 38 Chapter 3 TOWARDS A THEORETICAL FRAMEWORK ............................................ 41 3.1 Introduction

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