EdgarRamosE-mail:edgar.ramos@upc.edu.pe

ProfessorofSupplyChainManagementUniversidadPeruanadeCiencias Aplicadas

Lima-Peru

FrameworksandPotentialSolutionsforPeruvianCoffeeSupplyChain,a

supplierperspective

Peru:LatinAmericaCountry

Peru

BackgroundofPeru

Perubythenumbers

§ Population 31.2million§ GDP $192.1billion§ GDPgrowth 3.0%§ GDPexpected20183.5%§ Inflation 2.0%Source:BancoCentraldeReserva delPeru,2018

PerubytheNumbers

40%ofcoffeeexportedarePurchasedbyUSAyGermany

Top9Inglobalproductionofcoffee

228milesofTMisthetotalproductionofcoffee

35%ofproduction(150milesofHa)isbelongingtospecialcoffee

223milesoffamilyareinvolvedinthelocalproduction

1stSupplieroforganiccoffeeinUSA,certifiedbyFairTrade

2ndGlobalproduceroforganiccoffee

48countriesImportscoffeefromPeru

PeruvianCoffeeBeanProfile

Location:QuillabambaCusco- Perú.

Varietal:Arabica:Typica,BourbonandCaturra

Processing:Harvest,Hull,washed,Drying,bulking

Elevation:1,200m– 2,700m

PeruvianCoffeeBeanProfile(continuation...2)

USA UnionEuropean Korean Japan

OrganicCertifications

SustainableCertifications

FAIRTRADE RainforestAlliance

UTZCertified

SMBC C.A.F.EPractices

Theworldtop’sproducersofcoffee(inthousandsof60kgbags)

1 Brazil 51,5002 Vietnam 28,5003 Colombia 14,0004 Indonesia 10,8005 Honduras 8,3506 Ethiopia 7,6507 India 5,8338 Uganda 5,1009 Peru 4,60010 Guatemala 3,500

Source: International CoffeeOrganization, 2017

CurrentRegionalProduction

65%NorthRegion

20.4%CentralRegion

14.2%SouthRegion

ThesupplychainprocessofPeruviancoffee

Thesupplychainprocessofcoffeebeans:

§ 1st Level:Growing§ 2nd Level:Harvesting

§ 3rd Level:Hulling§ 4th Level:Drying

§ 5th Level:Packing§ 6th LevelBulking

§ 7th Blendingandroasting

ThesupplychainprocessofPeruviancoffee(continuation…1)

§ 1st Level:Growing

§ 2ndLevel:Harvesting

• Grow andselect theYoungplants

§ 4th Level:Drying

• Peelingthe externalhull andremoveimpurities

• Mostly made by thefarmer

ThesupplychainprocessofPeruviancoffee(continuation…2)

§ 3rd Level:Hulling

• Peeled grains arelettodry inthe intensesun ofthe mountainsofPerú.

• It takes upto2weeks.

§ 5th Level:Packing

§ 6th LevelBulking

ThesupplychainprocessofPeruviancoffee(continuation…3)

• The product toexportits called “cafépergamino”

• Coffeereadytobetransportedtointermediary/trader

§ 7th Blendingandroasting

ThesupplychainprocessofPeruviancoffee(continuation…4)

Source: “perfectdailygrind.com”

ThePeruviancoffeesupplychainfromQuillabamba

SmallFarmers

Cooperative/Intermediary

Intermediary/Exports Retailers

GrowingandHarvesting

HullingandDrying

PackingandBulking

BlendingandRoasting

1Hato5Ha

LocatedintheAndes/Amazon

Elevation:1,200m– 2,700m

TrucksTransportation 3PL’sforroadTransportation

InternationalShipping96%bysea4%byroad

SmalltrucksorAnimalsfor

transportation

LocatedintheAndean/Amazoncitiesnearlyto

farmers

LocatedincoastofPeru

Locatedinanywhereinthe

world

Groupedbetween100-300farmers

LogisticscostsforinternaloperationsfromFarmerstoCallaoPort

Source: WorldBank, 2015

24%20.4% 19.2%

11.2% 9.6% 8.3%3.9% 3.4%

LogisticscostsforinternaloperationsfromFarmerstoCallaoPort

Farmers COOPERATIVE / INTERMEDIARY ExportersPayment

Product

Cost for an averageshipping of1,562Kg• Processing on ranch• Packing• Load• Transport• Unload

Costforanaverageshippingof21,154Kg• Processing• Waiting time• Load• Transport• Unload

Costforanaverageshippingof36,790Kg• Certifications• SenasaInspections• Customs• Transportation• Administrative

expenses• Temporary deposit• Load• Unload

$436USD $3,574USD

$4,402USD

Sellingprice

Sellingprice

Sellingprice(*)

InventoryFlowandPricesintheSupplyChain

$1.75 $2.08 $3.30 $23.5

SmallFarmers

Cooperative/Intermediary

Intermediary/Exporters

Retailers/end

consumer

OrderPayment

Information

Product

OrderPayment

Information

Product

OrderPaymentInformation

Product

Variablecostofcoffeebean$1.75

OtherIntermediaryCostandprofit$0.33

OtherExporterscostandprofit$1.22

Variablecostofcoffeebean$2.08Farmerscost$0.35

Sellingprice

ExportersCost(FOBprice)$3.30

OtherImportscostandNetincome$20.2

(*)Selling price (USD/kg) perarabic coffeeinUSAstore

OtherCostandprofit$1.40

TheHiddenCostsofComplexityPeruviansupplychain

SmallFarmers Cooperative/Intermediary

Intermediary/Exporter

Retailer

Poor performanceofproduction,affectedbyplague“roya”or“broca”

(10%waste)

Waste inwarehousingprocess:

-Hulling(5%),-Drying (3%)

Increasedtransportationcostduethedistance

Locatedany whereintheworld.

Smallquantities fortransportationwithsmalltruck or animal

Poor performanceoftransportation

Higheradministrationcosttomanagetheproducts certification

Lackcoordinationbetweeninspeccion’sagency

Lower utilizationoftransportationresource

LongdistanceanddificultiesintheroadbetweentheAcopiersandPlantforprocessing

Higher expediting,handling&temporalwarehousingtoexports

HeavytraficforaccesstoCallaoPort

Increased costforlocaltransportationduepoorinfrastructure

SecurityProblematCallaoPortClearenceforexportatCustomsinLima,Callao(5-60days)

ActualValueStreamMapforCoffeeSupplyChain

SupplyChainCollaborations:Concepts

§ Supply Chain Collaboration§ In the supply chain collaboration, the chain members work

together and coordinate activities to achieve the desired supply chain results.

§ The Collaboration Framework§ Should be used to structure relationship with key customer

or suppliers, and get them to work together in two directions in order to be successful.

The operational integration along the supply chain is a component of supply chain collaboration

AframeworkofSupplyChainCollaboration

A framework of supply chain collaboration should be used tostructure relationships with key customers and key suppliers towork across the supply chain and add value to all participants

ModellingSupplyChainCollaborations

SupplyChain Collaboration

OperationalComponents

ManagerialComponents

Outcomes

• Partnership• Methods,tools• Information anddata

thebuildthecollaborations

• Sharing risks• Sharing rewards• Trust• Methods,tools• Contractstyleandscope

Feedback

Source: Adapted fromLambert (2010)

SupplierRelationshipManagement

• Identifypartnersinthecoffeesupplychain

• Designimportantactivitiesforcollaboration,anddeterminethelevelofinvolvementandcloserelationship

• Cooperative,FarmersandCompaniesinthecoffeesupplychaincouldcollaborateinstrategic,tacticaloroperationallevel.

TruckRentals

InformalTraders

Agroveterinaries

Harvest ToolsMarkets

NationalMarket

InformalLabor

Cooperative

AgriculturalProductionAssociations

PrivateCompanies

Goverment Programs

CuscoManufacturer

InternationalMarket

Managed Process Links

Monitored Process LinksNot-Managed Process Links

Non-Member Process Links

ExporterCompany

FinancialEntities

NationalCompanies

InternationalCompanies

HermeticBags

Providers

Managingcoffeesupplychainactivities:asupplierperspective

Tier 2Suppliers Tier 1Suppliers FocalCompany Tier 1Customers Tier 2Customers Tier 3Customers

Farmers

Endconsumers

Endconsumers

ModellingSupplyChainCollaborations

1) StrategicSourcingincoffeesupplychain

• Accordingtoouracademicresearchandinterviewsintheindustryfield,wehavepresentedtwosupplychaincollaborationmodels:

2) Ashortfoodcoffeesupplychain

1)StrategicSourcing incoffeesupplychain

TruckRentals

ProCompiteAgroruralAgroBancoSenasaInnovate Perú

Agroveterinaries

Harvest ToolsMarkets

Japan

Germany

USA

InformalLabor

Colombia

GovermentPrograms

CuscoManufacturer

Sweden

Belgium

Francia

Holanda

Cooperative Cooperative

Endconsumers

Endconsumers

Managed Process Links

Monitored Process LinksNot-Managed Process Links

Non-Member Process Links

InternationalCompanies

ExporterCompany

NationalMarket

NationalCompanies

Tier3Suppliers Tier 2Suppliers Tier 1Suppliers FocalCompany Tier 1Customers Tier 2Customers Tier 3Customers

BagsProviders

Farmers

Actualcoffeesupplychain

Farmer Cooperative Intermediary/Exporter

InternationalManufacturer Store

NationalManufacturer Store

EndConsumer

EndConsumer

TruckRentals

ProCompiteAgroruralAgroBancoSenasaInnovate Perú

Agroveterinaries

Harvest Toolssupplier

InformalLabor

GovermentPrograms

2w 3m 2w 1m 1m 1w 2w 1w Total cycle time=8 months1m

2)Ashortfoodcoffeesupplychain

Farmer Cooperative

InternationalManufacturer Store

NationalManufacturer Store

EndConsumer

EndConsumer

TruckRentals

ProCompiteAgroruralAgroBancoSenasaInnovate Perú

Agroveterinaries

Harvest Toolssupplier

InformalLabor

GovermentPrograms

1w 3m 1w 1m 1m 2w 1w 2w 1w Total cycle time=7months

AdvantagesforCollaborationinAgribusinessSC

q Sourcingactivities:§ Reducesupplybase§ Monitoringandestablishedoperationalcostsandprices

q InventoryManagement:§ Increasethevelocityofinventory§ Wasteminimization

q Manufacturing:§ Increasethequalityofcoffeebean§ Productionstabilizationandminimizationofdisruptions

AdvantagesforCollaboration inAgribusinessSC(continuation… 1)

q Distributionactivities:§ Fasterdelivery§ Increasetheresponsiveness

q CustomerRelationshipManagement:§ Connectrapidlytotheglobalmarket

q Customerservice:§ Reductiontheleadtime§ Improvetheproductavailability

Conclusions

• Given severalproblemsandscarcityresources,thesupplychaincollaborationappliedinPeruvianAgri-foodSupplychainhasopportunitiestoimproveoperationalperformance

• TheresearchinQuillabamba- CuscoconfirmedtheModelingsupplychaincollaborationinallcases,allowingparticipantstoobtainbetteroperationalresults.

• Oneoftheprincipaldriversforsupplychaincollaborationinupstreamsidearethehighercosts,soparticipantsinthecoffeesupplychainmustworkprioritieswitheachsupplier.

Thankyou!=

!MuchasGracias!(Spanish)Yusulpayki!(Quechua)Pasonke!(Ashaninka)