A case study of a typical value chain in Canada’s pork industry shows that changes at several stages, including less emphasis on cutting costs for efficiency’s sake, could make “major improvements” for the chain’s various links.
The Value Chain Management Centre, a division of the George Morris Centre, also found “an improvement in performance reporting is required in order to enhance profitability and long-term competitiveness,” the Guelph-based ag think tank said in a release Wednesday.
A “great deal” of work has been done to identify and quantify consumer value with regard to pork, the VCMC said.
With that in mind, the “next logical step” is to put change in motion capitalizing on opportunities to improve quality, increase consumer satisfaction and enhance margins, “rather than seeking to remain competitive by placing undue emphasis on reducing costs.”
“Competitiveness is a function of the system in which businesses operate,” VCMC director and study leader Martin Gooch said in the centre’s release, explaining the importance of understanding the relationship between the value chain and the broader system.
“Opportunities to capture value from the market are missed when participants in a chain focus too much on efficiency and too little on effectiveness,” he said.
Fresh pork moves from farms to consumers through a series of steps, the VCMC said. If participants at any single step don’t focus on “maximizing the value proposition” for consumers, the negative impact on individual businesses and the entire chain can be “significant.”
The centre’s case study focused on a single fresh pork value chain, involving farrow-to-finish and finishing hog operations, a pork packer that slaughters 80,000 hogs per year, and a retailer.
It’s often easy to identify spots where a value chain could boost its performance, but sustaining that advancement depends on having and using an improved performance reporting system, the centre said.
“It also relies on the chain possessing the discipline to reward those who are performing beyond minimal requirements while penalizing those who are not.”
For example, Gooch’s case study shows that the mechanism currently in place to price hogs is used because it’s widely accepted and change is challenging. However, it’s not known to be the most appropriate system for “incentivizing” the production of fresh pork which is valued by customers.
The price discovery processes now in place can lead to chain participants unduly focusing on doing things right — that is, seeking efficiency — rather than focusing on doing the right things — that is, seeking effectiveness, the centre said.
Moreover, the study found, “fresh pork is not merchandised well. Instead, the focus is on encouraging consumers to purchase fresh pork at discount prices, and having sufficient volume to meet the resulting demand.”
As well, producing fresh pork from a “standard generic hog” can diminish the overall value that fresh pork is perceived to offer, compared to other meats or proteins consumers could buy instead, the centre said.
The study also found that “key participants” in the value chain have information they’re not sharing that could guide improvements at several levels of the chain. Such a lack of information sharing compromises the chain’s effectiveness, the centre said.
The current measures used to gauge the chain’s performance do not encourage chain participants to stop treating pork as a commodity that possesses little intrinsic value, the study warned.
The chain, Gooch wrote, “exhibits a tendency to focus on maximizing capacity rather than value that could be captured through aligning operations to better meet market demands.”
As well, he wrote, the chain is “largely managed according to transactional measures that have little correlation to consumer demands toward the meats they choose to consume.”
And retail promotions, the study noted, can create demand and supply imbalances that stand to unnecessarily increase costs along the chain.
“Opportunities exist to capture potentially significant added value through developing more detailed insights into consumers’ desires and behaviours,” the centre said.
“These insights could then be used to establish more effective performance criteria along the value chain, which are currently being missed.”