According to Omta (2002), SCM integrates and balances the different dimensions in the overall research and development to establish production, processing, trade and distribution of high quality agri-products. To effectively address paradoxical demands facing the businesses, a multi-disciplinary approach from farm gate to kitchen table must be made between different aspects of production, processing, trade and distribution of agricultural products as represented in Figure 2.1.
Figure62.1: The Institutional View on Chains Source: Beers, Beulens & Van Dalen, (1997)
Based on Figure 2.1, Omta (2002) believes that the system that covers the mechanism of demand and supply of agro-products should have a multi-disciplinary approach. These disciplines should represent different perspectives of production, processing, trade and distribution of products; they are complimentary in agri and food system explanation. From the diagram above Omta (2002) describes the following:-
The Economics dimension is related to efficiency (in cost-benefit perspective) and to consumer orientation. To be effective and profitable, farmers must form alliances with other parties in the production column resulting in supply chain and networks.
The Environment dimension is related to the way production, processing, trade and distribution of agri- products is embedded in its (ecological) environment. Issues are such as use of energy and energy emissions in production and distribution of products, recycling of waste and packaging materials and sustainable food production system.
The Technology dimension is all about the way production, processing, transportation, information and communication technologies can be applied to improve production and distribution of quality products. The aim is to meet standards of national and international legislation and regulations, guide and control processes and provision of products and information to the public.
The Social and Legal dimension (norms and values) is about societal constraints to production, processing, trade and distribution of agri-products to the human well being and social economic development. It focuses on legislation and secondary legislation (business norms and conventions regarding agri-products), consumer expectation and behaviour as well as international regulatory framework on agri-products.
As described in the definition, SCM seeks to integrate and balance the different dimensions in the overall chain in order to make critical decisions. It also seeks to develop and establish production, processing, trade and distribution of high quality agri-products. Some of the major decisions are:
2.4.1 Chain Management Decisions
Ellram (1991) and Stevens (1989) trust that CM decisions are classified into two broad categories namely strategic and operational. As the term implies, they believe that strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they are sometimes called the corporate strategy) and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The main idea behind these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain. There are four major decision areas in SCM namely location, production, inventory, and transportation (distribution), and there are both strategic and operational elements in each of these decision areas.
2.4.2 Location Decisions
The geographic placement of production facilities, stocking points and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once
the size, number, and location of these are determined, the possible paths by which the product flows through to the final customer are established. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost and level of service. According to Arntzen et al. (1995), these decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback.
2.4.3 Production Decisions
The strategic decisions also include what products to produce and which plants to produce them in, allocation of suppliers to plants, plants to distribution centres (DC’s) and DC's to customer markets (Bello et al. 2004). As stated earlier, these decisions have a big impact on the revenues, costs and customer service levels of the firm. They assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities as this largely depends on the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. The decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing and quality control measures at a production facility.
2.4.4 Inventory Decisions
Bello et al. (2004) and Lambert and Cooper, (2000) believe that inventory decisions refers to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi- finished or finished goods. They can also be in the process between locations. Their primary purpose is to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, the decisions on inventory should take into account other aspects of the production process so as bring the true sense of chain management.
2.4.5 Transportation and Marketing Decisions
The chosen mode of transport and marketing decisions are more strategic in nature. Lambert and Cooper, (2000) trust that they are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable and warrant lesser safety stocks, they are expensive.
Conversely, shipping by sea or rail may be much cheaper, but it necessitates holding of relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Since transportation is more than 30 % of the logistics costs, operating efficiently makes good economic sense.
The theory of SCM presented above suggests that it is a rapidly evolving area of interest to academics and business management practitioners. It further implies that SCM has been viewed as one of the most powerful operations paradigms or approach for improving organisational competitiveness both in manufacturing and services. As regardsthe application of SCM by the top management of organisations, Chen and Paulraj (2004) observe that the important role of the top management has been greatly emphasised in this managerial approach. Bello et al. (2004) feel that the adoption of sophisticated SCM in agribusiness is often limited by the institutional context of transaction. In particular, the regulatory, normative and cultural-cognitive elements of institutional environments can enhance or inhibit the ability of agribusiness partners to include all the essential elements required by agribusiness. The existence of these different viewpoints about SCM is a point of departure for this research work. It stimulates a debate on its relevance in agribusiness. It seeks to generate a balance model of SCM that may apply to the crop sub sector in Tanzania to improve production and productivity in it.