4 minute read
5 minutes with Hamish Gow
Professor Hamish Gow of Lincoln University explains value chains, why they are important and why he is part of the Value Chain Innovation Programme to develop leaders for the food and fibre sector.
First of all, what is a value chain?
A value chain is the model or architecture by which we organise, coordinate and control the creation and delivery of value for consumers, earn the right to capture some of that value and then distribute this value to the various chain participants. A supply chain refers to the system and resources required to move a product or service from supplier to customer. The value chain concept builds on this to also consider the manner in which value is added along the chain, both to the product or service and to the actors involved. A supply chain is built from the producer to the customer and is associated with the physical movement of the product from the producer to consumer. A value chain is a customercentric business model that describes how the value chain participants collaborate to create value for the consumer and share a proportion of that value amongst each other.
What is our record for efficient value chains, generally and in agriculture in particular?
New Zealand is recognised around the world for developing innovative and effective international value chains that continuously deliver value to consumers and customers in the marketplace, capture part of that value and share it back for producers. We have built a range of different value chain models over the past decades. Several are recognised as industry best practice, including those of Zespri, NZ Merino and Fonterra. All value chain designs are being continuously disrupted. Someone is always working on an improvement. What New Zealand is recognised for is leading the continuous disruption of our own value chains into international markets. We are continually doing this across our primary sector and designing ones that farmers can engage in and share in the value creation. When we get them right, they pull in investment capital and create
substantial economic wealth. Just look at the development of the dairy or kiwifruit industries over the past two decades.
Where is the low hanging fruit for us to get better?
We have to get better in helping chain stakeholders understand how value is created in their value chain and where and how they should invest. Lots of the conflict in value chains occurs due to misalignment of value creation understanding and intent. This lack of understanding also leads to a boom and bust cycle in lots of new value chain ventures. Farmers and investors haven’t been sophisticated enough to understand the business model and value chain design and where and how value is created, captured and shared. Value can be created in different ways. There are three basic valuecreating disciplines: operational excellence; product leadership; and customer intimacy. What is important to understand is that you can create substantial economic value with all three different types of value chain design but you have to choose a dominant model for your business and value chain.
Does the type of value chain influence logistics?
Logistics and the supply chain are a part of any value chain and getting your logistics model right is critical to your value chain model. Different value chain models have different logistics models and needs but the key is understanding your customer and how important timings and logistics are to the value proposition that you are offering them. For example, Zespri, which has a product leadership value chain, operates a proprietary supply chain and logistics system to ensure it always delivers the highest quality kiwifruit to the marketplace and consumer. They effectively have 100 percent control over their distribution and logistics as they need to ensure they always deliver the perfect fruit to consumers in the international marketplace. They couldn’t demand the market premiums if they left this to other external players. Alternatively, someone who is selling a basic commodity product in an operation excellence model at the lowest possible cost will often give their customers options of logistics and generally take the lowest cost as prices sell their products, not service.
| Several New Zealand value chains are recognised as industry best practice, including those of Fonterra, Zespri and NZ Merino.
What are you hoping to achieve with your Value Chain Innovation Programme for Rural Leaders?
The programme’s primary purpose is to increase competency in value chain design and analysis. We will be exposing the participants to the different types of value chain discipline models and exemplars of each type. We want them to develop competencies in evaluating and analysing alternative value chain models, understanding where and how value is created, how it is captured or not and then how it is distributed and shared along the value chain. By the time participants complete the programme, they should be able to rapidly pull apart any value chain, identify where and how value is created, how it is captured, protected and shared and how you incentivise, align and govern all of the value chain participants.
