SUPPLY CHAIN MANAGEMENT Supply chain management Business-to-business relationships in parallel vegetable supply chains of Ho Chi Minh City (Viet Nam): reaching for better performance J.-J. Cadilhon FAO Regional Office for Asia and the Pacific THAILAND Email: [email protected] A.P. Fearne Kent Business School UNITED KINGDOM P.T. Giac Tam Nong Lam University VIET NAM P. Moustier CIRAD-MALICA (Markets and Agriculture Linkages for Cities in Asia) VIET NAM N.D. Poole Imperial College London – Wye Campus UNITED KINGDOM Abstract This paper synthesizes research findings on supply chain arrangements and mechanisms in the business-to-business relationships encountered in supply chains distributing fresh vegetables to Ho Chi Minh City. Eleven months were spent in the field from July 2003 to May 2004 to conduct in-depth interviews with stakeholders in the chain. The links between important elements of good supply chain management practice and performance are illustrated by concrete examples from in-depth case studies. The positive impacts on performance of the following elements of business-to-business relationships are reviewed: long-term commitment, coordination and joint planning, market orientation and information sharing, frequency of communication, and innovation. The results show that parallel vegetable supply chains differ in their structure and in the existence or lack of formal links (contracts) between business partners. However, the five elements of good supply chain management practice which are reviewed can be identified at varying degrees in all supply chains as strategies to achieve higher levels of performance. This research shows how all stakeholders in the fresh produce marketing channels – from small farmers and rural collectors to an urban Cash & Carry outlet and its customers in the catering industry – strive to reach a common goal of better performance. It also uncovers the existence of several hybrid forms of economic organization in the local vegetable industry. 135 Supply chain management Introduction Different components of the vegetable marketing system to Ho Chi Minh City (HCMC) have been described in previous publications, all derived from the same research project implemented in partnership between CIRAD, Nong Lam University and Imperial College London. The first article set the Vietnamese vegetable marketing system in its regional context: it emphasized the importance of the institutional, food trading, historical, geographical and cultural environments in shaping the structure of the local supply chains and the marketing relationships between stakeholders (Cadilhon et al., 2003). A second article described the details of the tomato marketing system to HCMC (Cadilhon et al., 2006c): it compared the performance and market share of traditional and modern marketing chains competing to supply tomatoes to eight million city consumers (Figure 1). Figure 1: Market share of competing HCMC supply chains for tomatoes Primary Producers Collectors 2 Cash -& - Carries 114 Wholesale Market Traders 1.4% 98% >1 ,000 Caterers 1,600 Fixed Hawkers 16 Supermarkets 30% Market Retailers 0.6% 69.4% 8 million Consumers Source: Cadilhon et al. (2006c) A third publication gave our insights on the mixed impacts of supermarket development on the sustainability of the vegetable production and marketing system in Viet Nam (Cadilhon et al., 2006a). Finally, a series of shorter articles presented the detailed case studies of some of the individual traditional and modern vegetable supply chains that had been investigated during this research project (Cadilhon and Fearne, 2005; Cadilhon et al., 2005; 2006b). All these publications are available upon request from the authors. Figure 2 shows the five independent supply chains investigated. Supply chain 1 is representative of the traditional vegetable distribution channel from Lam Dong Province to HCMC. The tomatoes in this supply chain are sold by the producer to an assembler-collector who grades the produce but relies on a second broker-collector to find wholesale customers in city markets, gather enough produce for transport to the city on a big truck, and organize the transport logistics. A wholesaler in HCMC then sells the tomatoes to secondary wholesalers and retailers. Supply chains 2 and 3 distribute respectively butterhead lettuce and tomatoes. They are also emblematic 136 Supply chain management of the traditional marketing channels leading to the city wholesaler. Yet, collaboration and exchange of information between stakeholders within these supply chains are facilitated by the fact that there is only one collector between producers and wholesalers. Supply chains 4 and 5 lead to the modern distribution system. Supply chain 4 consists of Metro Cash & Carry and its network of tomato suppliers in the rural area of Lam Dong Province; these suppliers are mainly producer groups. The Cash & Carry business is determined to improve its customer portfolio of HCMC five-star hotels. It therefore endeavours to satisfy the needs of these special customers. Supply chain 5 is a direct marketing link between a farmers’ cooperative in Da Lat supplying vegetables to Big C Supermarket in HCMC. Figure 2: Five vegetable supply chains investigated 1 2 3 4 5 Producer Producer Producer Producer Producer Producer Mr Giang Mrs Kim Mr Xe group group cooperative Mr Binh Mrs Lan Mr Phuong Assembler -collector Mr Nguyen Collector Collector Ms Mai Ms Yen Broker- collector Mr Dan Wholesaler Wholesaler Wholesalers Wholesaler Mr Cuong Mr Van Mr & Mrs Tam Metro C&C Hotels Hotel Retailer Caravelle New World Big C & Sheraton Sources: Cadilhon and Fearne (2005); Cadilhon et al. (2005; 2006a; 2006b) What is still missing is a conceptual framework to create the link between the individual supply chains and the marketing system as a whole. The objective of this article is to present a conceptual framework derived from marketing relationship research. We then show how this model is used to integrate the findings already reported in our previous publications into the characterization of the different business-to-business (B2B) relationships that coexist in the vegetable marketing system to HCMC. The following section will review the literature for definitions of the key components of B2B relationships. After briefly describing the research methodology, we will show how all the intermediary B2B relationships existing between independent transactions and vertical integration can be identified in this context of food commodity markets in a developing country. The findings will demonstrate how all the supply chains identified strive to increase their level of performance. The final section will draw conclusions from the results and direct recommendations to policy-makers and entrepreneurs involved in developing food marketing systems in the developing countries. 137 Key components to unveil the busine All the intermediate marketing arrangements which are called hybrid forms by Williamson (1991) and acknowledged as a stable form of governance structure, have only more recently become the focus of research for transaction costs economists Supply chain management other hand, marketing and business management on identifying these various hybrid forms and, considered the distribution of information al Webster (1992) defined a marketing con intermediate forms of interfirm relationship arrangements. Each position on the continuum builds upon the position to its left. In the spot market model where buyers have ss-to-business relationship continuum same seller again. The emphasis of this (Brousseau and Glachant, 2002; Ménard, 2004). On the transactions require at least between spot markets and firm integration, both buyer and seller, leading to research has been traditionally focused in line with transaction cost economics, tinuumong which the chain took asinto the account core of the its variousanalyses. Figure 3: Webster’s range of Independent one previous exchange which ca Spot Tmarketransa ctions regular patronage (Figuredependent 3). transactions Source: Webster (1992) no prior intention of Repeated relationship is on lo Transactions Long-term relationships involve a long-term transaction which may nonethel Long-Term comparing prices with competing suppliers or Relationships marketing relationships a multi-dimensional construct. It reflects the f n start a learningpurchasing processare the from closestin the to dyad believes in and accepts the stated goals w prices. Repeated show a willingness to exert effo Buyer-Seller maintain the relationship (Mohr and Nevin, Partnerships with a long-term orientation, i.e. the atti Hybrid forms stakeholders are focused towards the long te of the relationship (Lusch and Brown, 1996). Strategic ess coexist with some adve Alliances Buyer-seller partnerships represent a state common goals, cooperation, joint planning and tr Network orientation has been defined as the active search for, generation of, dissemination commitment of, from both parties in the Organisations and reaction to market information on customers, competitorsrt on behalf and of environmental the other pa forces in order to satisfy the needs of the final cu customers in the market. Commitment is supply chain stakeholders (Elg, 2002). Coope act that either stakeholder of a marketing of the channel relationship. Both firms also Vertical complementary coordinated actions taken by fi Integration achieve mutual outcomes or 1990). Commitment has oftenrsarial been coupledbehaviour such as Hierarchy (Anderson and Narus, 1984, p.