International Academy for Global Business & Trade

248 Pages·2014·6.38 MB·English

IInntteerrnnaattiioonnaall AAccaaddeemmyy ffoorr GGlloobbaall BBuussiinneessss && TTrraaddee
IIAAGGBBTT
Journal of Global Business & Trade
2007. 10, Vol. 3, No. 2, pp. 1-14.
. Introduction
Supply chain management (SCM) is defined by Krajewski,et.al.(2007) as “developing
a strategy to organize, control, and motivate the resources involved in the flow of services
and materials within the network of services, material and information flows that link a
firm’s customer relationship, order fulfillment and supplier relationship processes to those
of its suppliers and customers.” Much has been said about the advantages of SCM primar-
ily from the vantage point of large companies in the manufacturing and agricultural sectors.
Such businesses have embraced the concept in order to continuously search for ways to
build competitive advantage and in response to the trend towards globalized markets.
However, few research studies have focused on SCM as it applies to small and medium
agri-based enterprises particularly in the Philippine setting. Past literature suggests that
SCM concepts in these enterprises may not be applicable due to weaknesses inherent in
their operations and general environment.
AFFA et. al. (2002) as cited by Woods in 2004 identified six key principles of suc-
cessful SCM in recent studies of supply chains in Australia as follows: (1) a customer/con-
sumer focus; (2) chain results in value creation and sharing among all its members; (3) as-
certaining that the product fits the customers’ specifications; (4) effective logistics and dis-
tribution; (5) participation of all chain members in an information and communication strat-
egy; and (6) promoting effective relationships that provide leverage and shared ownership.
While predominantly Western countries immediately pursued and practiced the SCM
concept in the 1990s, Philippine-based enterprises particularly the multinational firms and
- 1 -
Jeanette Angeline B. Madamba
some large-scale companies started showing interest in SCM only a few years ago.
Philippine agri-based SMEs, specifically the micro and small enterprises are not familiar at
all with the SCM concept. A cursory look at their supply chains shows that traditional
tie-ups or linkages which have persisted through the years remain to this day and these en-
trepreneurs are not inclined to change the status quo and therefore leave their comfort
zones. So many agri-based SMEs have closed shop when production surplus cannot be
sold, when sudden hikes in production, operating and marketing expenses result to negative
profit or when working capital dries up. Previously production-driven SMEs, however,
seem to have started recognizing the importance of being market-oriented such that for the
most part, production only commences when a customer places an order for a product.
Nevertheless, the applicability of the SCM concept in such enterprises must be explored
because small and medium enterprises (SMEs) serve as the backbone of the Philippine
economy, representing 99.6% of all registered companies.
This paper attempts to ferret out causes of common critical issues relative to SCM
which these enterprises face as well as to suggest possible solutions to provide policy-
makers and other stakeholders with insights so that these issues may be addressed. A third
objective of this paper is to discuss the applicability of the SCM concept as this relates to
specific supply chain issues plaguing selected enterprises engaged in carabeef and dairy
milk production, charcoal-making and coconut vodka processing (locally known as lamba-
nog) in Laguna, a Philippine province south of Manila.
. Methodology
This paper is exploratory in nature and is based on primary and secondary data from
most recent unpublished special problem reports. Such qualitative and quantitative data
were originally gathered through key informant interviews and with the use of structured
questionnaires administered to 51 dairy carabao raisers and 25 carabeef wholesalers who
were identified through the snowball sampling technique based initially on a list provided
by the Philippine Carabao Center. Respondents for the charcoal-making and coconut vodka
industries were likewise identified through snowball sampling as follows: 66 charcoal pro-
ducers, 78 charcoal-buying households, 38 charcoal traders, 143 charcoal-buying business
- 2 -
Supply Chain Issues of Selected Agri-Based Small And Medium Enterprises In Laguna (Philippines)
establishments and 7 coconut vodka processors. Data from such special problem reports
were collated, summarized or sorted as these relate to the three major supply chain nodes
(supply node, production/processing node and distribution node). These were then analyzed
to identify common issues of such agri-related SMEs. Causal factors that led to these is-
sues were then generated through brainstorming to come up with causal tables. Causal
identification for each supply chain node provided the basis for coming up with possible
solutions to the common problem(s) found in carabeef and dairy milk production, char-
coal-making and coconut vodka processing. For the third objective, the applicability of the
SCM concept was determined by comparing the findings from these studies with the
Australian experience with respect to the AFFA-identified six key principles for successful
SCM.
. Profile of Laguna
The Province of Laguna, which covers a total land area of 1,769.7 square kilometers,
is situated south of Manila and is bounded on the north by Laguna de Bay and the prov-
ince of Rizal, on the northeast by the Sierra Madre Mountain Range, on the east by
Quezon Province, on the south by Batangas and on the west by Cavite.
Laguna’s proximity to Metro Manila makes it a strategic site for domestic and interna-
tional business inasmuch as the Ninoy Aquino International Airport is a 1 ½-hour drive
from the Calamba industrial estates and the Manila International Seaport is two hours away
by land. The industrial estates that have mushroomed in key Laguna towns such as Binan,
Sta. Rosa and Calamba are home to many industrial and agro-industrial companies that ac-
count for about one-fourth of total Philippine exports. Moreover, Laguna is within commut-
ing distance from Makati City, the country’s primary business and financial hub. In addi-
tion, it is accessible to the agricultural provinces of Batangas and Quezon as well as the
resource-rich provinces of Marinduque, Mindoro, Palawan and Romblon through the
Batangas and Quezon ports. The completion of the Batangas port also enhances this strate-
gic location.
As of the year 2000, Laguna, which is comprised of 28 municipalities and two cities,
had approximately 1.96 million inhabitants. Population growth rate is estimated at 4.08
- 3 -
Jeanette Angeline B. Madamba
percent. Since the 1980’s, an overall downtrend in crop production was evident due to a
huge drop in sugarcane production and more recently, due to devastation wrought by super
typhoons. Crop farming (such as coconut) continues to dominate the agricultural landscape.
Other crops planted or cultured include rice, vegetables, fruits (such as rambutan and lan-
zones), orchids and ornamental plants. Backyard farms where livestock and poultry are
raised such as carabaos, swine, chickens, ducks, geese and turkeys are maintained. For
those living along Laguna de Bay, tilapia culture is a means of livelihood. Though quanti-
tative data is lacking in terms of the extent of agri-based SMEs in Laguna, various ag-
ri-based micro-scale, small and medium enterprises prevail such as those engaged in mak-
ing buko or coconut pie (Los Banos), lambanog or coconut vodka (Liliw), white cheese
from carabao’s milk (Sta. Cruz), rice cake or puto Binan (Binan) among others.
. Overview of Selected Enterprises in Laguna
4.1. Carabeef Wholesaling/Retailing and Dairy Carabao Industry
Demand for carabeef in Laguna has been on the uptrend (averaging 4.14% per annum
from 1998-2005) while the available supply of carabeef which initially increased by
20.93% started to exhibit a decreasing trend towards the end of 2003. Nevertheless, the
surplus was still double that of Laguna’s requirement. Much of Laguna’s surplus of car-
abeef was consumed outside of the province. With carabeef cheaper than beef, it is a pop-
ular meat added by meat processors to corned beef.
In the dairy carabao industry, no available historical data was available. However,
based on the recent information gathered from the respondents, all dairy milk produced
was purchased by consumers and white cheese processors from Sta. Cruz, Laguna. In fact,
the dairy caracow herd in Laguna is insufficient to meet all demand requirements of car-
abao milk processors.
Carabeef wholesalers were predominantly male, with the ages of 25-35 years, married
and high school graduates. Majority were retailers of other meat cuts in addition to
carabeef. Carabeef was sold in public markets usually on weekends. Carabaos for slaughter
were sourced from the auction market in Batangas or from viajeros or traders from
- 4 -
Supply Chain Issues of Selected Agri-Based Small And Medium Enterprises In Laguna (Philippines)
Quezon, Bicol and as far north as the Ilocos region.
Dairy carabao raisers had a similar personal profile to that of carabeef wholesalers.
They were fairly recent entrants into dairy carabao raising with less than five years’ expe-
rience in dairy carabao raising as this was only an additional source of income for them.
Their main occupation was still crop farming, usually rice.
4.2. Charcoal Industry
The charcoal industry in Laguna can be described as akin to pure competition as there
are many sellers and buyers. Many of the enterprises operate on a micro-scale level or are
backyard producers concentrated in the forested and distant towns of the province and had
a low degree of product differentiation. Most micro-scale charcoal producers made the tra-
ditional wood or coconut shell lump charcoal which they sold to the domestic market.
Only a handful had small or medium-scale operations. Two small-scale firms made
charcoal briquettes for the domestic market while the medium-scale firms also sold to the
domestic market and were exporters of either granulated charcoal from rice hull or coconut
shell granulated charcoal.
Demand and supply information are practically non-existent. However, the previous
study indicated that demand for charcoal came from households and commercial and in-
dustrial establishments utilizing such charcoal essentially as fuel. It appears that current
supply exceeds the demand of business establishments probably due to the abundance of
wood from trees felled by last year’s super typhoon but supply of wood can become crit-
ical when the excess supply from felled trees gets exhausted. Export demand from Korea
and Japan has reportedly been increasing.
Fifty-eight (58%) of the charcoal producers were within the ages of 36-55 years.
About one-half were male and married with one-third of these entrepreneurs having fin-
ished high school. Majority (84%) of such charcoal producers considered charcoal pro-
duction as merely a means of livelihood during the off-farm season after serving as farm
laborers during crop planting and harvesting seasons. In addition, they had other sources of
income such as engaging in dairy farming or livestock raising.
- 5 -
Jeanette Angeline B. Madamba
4.3. Coconut Vodka (Lambanog) Processing Industry
Coconut vodka processing/distilling enterprises in Liliw, Laguna were family busi-
nesses all operating on a micro-scale level. These enterprises were operated in mostly
leased coconut farms where the coconut sap (tuba) needed for production were directly
sourced. After a serious pest infestation in 2002, new players have started to venture in the
lambanog processing business though majority of the distillers have been in the lambanog
business for over 20 years.
Processors/distillery owner-operators were at least 40 years old, married and most of
them did not finish high school. Except for one distillery owner-operator, most learned co-
conut vodka processing from their elders. Over half of the respondents had other sources
of income such as vegetable farming, piggery, sari-sari store operations or fresh/ whole nut
retailing.
Approximately 70% of lambanog products were sold within Liliw, about 23% were
sold within Laguna and the remaining 3% were sold to Rizal, a nearby province. Buyers
go to the houses of distillery operators and purchase the products from them. Containers
are provided by buyers who purchase directly from the processing sites. While products
made are primarily pure lambanog, distillery operators, upon request by customers, make
flavored lambanog such as coffee-flavored wine, tea-flavored wine, lambanog soaked with
apple peeling or prune-soaked lambanog.
. Issues in Supply Chain Management
Problems pointed out by carabeef producers, dairy carabao raisers, charcoal en-
trepreneurs and coconut vodka processors in Laguna can be categorized as follows:
5.1. Problems in the Supply Node
According to Punto (2007), carabeef sellers at times found no available carabao for
slaughter which means they did not get to sell carabeef on certain days. The lack of a sta-
ble supply of carabao for slaughter had ripple effects downstream which means during un-
planned moments, there were times when consumers were not be able to find carabeef
- 6 -
Supply Chain Issues of Selected Agri-Based Small And Medium Enterprises In Laguna (Philippines)
when desired.
Dorado (2007) pointed out the scarcity of raw materials for charcoal-making as a ma-
jor problem of backyard producers. Coconut shells were hard to find because farmers
planted lesser coconut trees, not to mention the fact that coconut shells were either proc-
essed into coconut shell flour or exported to other Asian countries. In addition, the lump
charcoal producers had difficulties sourcing wood from any tree species inasmuch as the
Department of Environment and Natural Resources (DENR) had imposed a logging ban.
Likewise, Agapay (2007) cited the lack of coconut sap for lambanog production par-
ticularly during the rainy season. When it rained, rain water mixed with toddy on the re-
ceptacles of coconut inflorescences thus causing a reduction in the yield of tuba which in
turn reduced the amount of lambanog produced.
5.2. Problems in the Production/Processing Node
Animal stress during transportation resulted in lower weight and therefore reduced
profit. Unfair or low calculations of carabao weight brought about by the practice called
tasahan where the carabao seller estimates the weight of the carabao instead of actually
weighing the carabao was another issue that usually had negative implications on
profitability. Before being sold, carabaos were also forced to drink water to add to the esti-
mated weight. Furthermore, processing losses (loss of parts of the slaughtered carabao)
were reported such that carabeef sellers end up losing more money. Delay in slaughtering
brought about by tardiness on the part of personnel also caused a loss in the opportunity to
sell during peak hours (usually 4-6 a.m.).
With respect to dairy carabao raisers, lower milk yield due to environmental stress and
the inability by milking personnel to collect the expected volume of milk were
experienced. The latter case happened when the milking personnel got drunk the night be-
fore milking. In addition, carabaos to be milked sometimes were hard to restrain resulting
in limited milk production. (Punto, 2007)
In charcoal making enterprises, low recovery of charcoal, lack of information on mod-
ern production techniques, heavy rains and typhoons (which slow down the charcoaling
process), outdated charcoal briquetting equipment and lack of capital for upgrading of fa-
cilities and inadequate working capital were identified as problems. Moreover, difficulty in
- 7 -
Jeanette Angeline B. Madamba
attracting workers because of the perceived low wage rate and hazards on the job as well
as low labor productivity caused by poor worker attitude, difficulty in adapting to mecha-
nized methods of production and inferior working conditions were enumerated as concerns
that must be addressed. (Dorado, 2007)
Absenteeism of toddy gatherers is also an issue in the case of lambanog making.
Moreover, injuries in the farm occur when bamboo structures set up for the toddy gatherers
to perch on are damaged or become slippery due to torrential rains. (Agapay, 2007).
5.3. Problems in the Distribution Node
Decreasing demand for carabeef according to Punto (2007) was cited as an important
issue. Carabeef sellers noted that the volume of carabeef purchased has been going down
as price-conscious consumers shift to cheaper substitutes in view of the lower purchasing
power of the peso.
For the distribution node of charcoal enterprises, Dorado (2007) pinpointed the follow-
ing problems: poor roads and infrastructure facilities, lack of transport facilities and funds
for marketing, the presence of numerous intermediaries, low product awareness and
acceptability.
Stiff competition offered by chemically produced alcoholic beverages such as gin, beer
and vodka, not to mention lambanog produced in nearby towns or provinces (e.g. Quezon)
was a major concern of lambanog processors. Moreover, distillery operators complained
about the poor collection rate of buyers purchasing products on credit (Agapay, 2007).
. Causal Analysis of Problems Raised by Agri-Based Smes
Causal tables (as shown in Tables 1-5) in the succeeding section detail the possible
immediate and root causes of major issues mentioned by Laguna-based small and me-
dium-scale entrepreneurs.
- 8 -
Supply Chain Issues of Selected Agri-Based Small And Medium Enterprises In Laguna (Philippines)
Table 1: Possible causes of lack of /unstable raw material supply (SUPPLY NODE)
Table 2: Possible causes of low productivity (PRODUCTION/PROCESSING NODE)
- 9 -