A NEW FLOW-BASED MODEL OF END-TO-END INTEGRATION IN PREMIUM PRODUCT SUPPLY CHAINS

• Roberto Andrés Alcívar-Espín National Taiwan University & Escuela Politécnica Nacional https://orcid.org/0000-0003-4811-3381
• Yon-Chun Chou National Taiwan University https://orcid.org/0000-0001-5140-1275
• Che-Wei Tsao National Taiwan University https://orcid.org/0000-0002-9851-7686

DOI:

https://doi.org/10.7166/34-1-2699

Keywords:

premium products, end-to-end supply chain integration, flow-based model, supply contract

Abstract

Driven by the total cost of ownership, US–China trade and technology competition, and the COVID-19 pandemic, global supply chains are undergoing a major restructuring that will soon transform business and economics all over the world. Recently, supply chains with end-to-end integration for premium agri-food products have emerged as a new business model. This paper examines how they should function, and identifies the supply chain structure/production/business conditions necessary for their development. We study a premium supply chain consisting of many small farms that produce top-quality bananas, one integrator firm, and thousands of retail stores. We use industry and business data to calibrate a multiple-route flow-based model from farms to integrator to retailers/markets. We then use sensitivity analysis to illuminate the stakeholders’ decision behaviour, and identify and discuss three main decision issues: contract farming, capacity strategy, and business robustness. For contract specification, contracting on price rather than quantity is conducive to coordinating the interests of the stakeholders. For the capacity strategy, the integrator should source raw products from many small farms rather than fewer large farms. For business robustness, the integrator could still ensure robust profits by regulating its product supply when new competitors arise or demand changes. These results are tested under various scenarios to determine the impact of input parameters or supply chain structure, and are verified with an industry practitioner who has experience with multiple premium agri-food products. The results, along with the flow model and its computation procedure, could be used by supply chain planners to start new businesses or to differentiate retailers’ premium product offerings in competitive business environments.