Coordination strategies in the South African egg value chain: A review of chain performance and fragility

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Setene, Letlama
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African Economic Research Consortium
The chain players in the South African egg industry pursue increased coordination which results in strategies that are lean and vertically integrated. These strategies include contracts specifications, vertical integration, the formation of alliances based on equity and relation. The strategies reduce transaction costs and risks the industry’s value chain to improve its chain performance. These strategies improve chain performance and competitive advantage of business only under certain environmental circumstances. This dissertation argued that under uncertainty the strategies become fragile due to the interdependencies between chain players. The interdependencies expose the industry’s role players to unforeseen disruptive events that are detrimental to business continuity. The events are seemly rising and are associated with uncertainty which has a low probability of occurring but a large impact if it occurs. The uncertainty drives the chain vulnerability which accelerates throughout the whole chain as a harmful stressor, and that is referred to as chain fragility. This study aimed to display the most common strategies of coordination in the South African egg industry and the map of its egg value chain. The strategies were divided into two configurations based on the levels of interdependencies between their chain players, which were either high levels or low levels. Then, the fragility measure of both configurations was performed, together with their comparative fragility analysis. The aim was reached by using the heuristic stress-testing approach, which represented 17 chain fragility factors. A questionnaire was sent to the chain players in the South African egg industry and got completed by a sample size of 73 respondents, mainly retailers, egg producers and pullet rearers. The respondents were required to rate fragility factors as adverse events against their business continuity as they progressively deteriorated. The results showed the fragility scores of each factor and their imperativeness to each chain player. Hence, factors such as information visibility and relationship with the supplier are imperative for retailers, while factors such as training of human resources and chain complexity are imperative to pullet rearers. Additionally, the factor that is imperative for egg producers is quality and safety performance requirements. The fragility scores per factor were combined into a fragility composite index of each chain player. Subsequently, the composite index of fragility per chain players was combined into a final composite index that represents the fragility of each of the two configurations. The comparative fragility analysis of the configurations was performed using unequal variance t-test to determine the significant difference of the fragility means of the strategies. The performed t-test resulted in the rejection of the null hypothesis that statistically, there is no significant difference in the chains’ fragility means of the two configurations. Precisely, the difference between the chains’ strategies is associated with a variety of differences at the factor and chain player level that led up to 21% greater overall chain fragility of the chain with higher levels of interdependency. The results concur with literature that considers lean and highly integrated strategies result in interdependencies due to increased coordination. Which in return act as catalysts or causes of agri-food chains fragility because they expose them to uncertainties that are disruptive and detrimental. The affirmation of the results of the analysis with the literature put down the central point of this dissertation that there is a trade-off between the chain performance and fragility. The practical implication of the trade-off is that strategies of increased vertical coordination improve chain performance by reduction of transaction costs and risks within agri-food chains. However, the strategies multiply the fragility of the chains, under uncertainty. Hence, the important strategic choice for chain players of the South African egg industry and their value chains, is to attain a suitable coordination strategy that balances chain performance and fragility. This study concluded that the increased vertical coordination strategies improve chain performance under certain environment. But as uncertainty increases the strategies become fragile and contribute to the closure of businesses. Therefore, the following recommendations are made for the stockholders in the South African egg industry; First, a chain structure and its coordination strategies be decentralised in an organisation’s value chain management. Second, developing a “layered organisational” structure, which allows for containment of adverse impacts within the system and facilitates learning within and across different layers to drive survivorship. Third, planning for spare capacity. Last, considering which value chain strategy an organisation should pursue to improve chain performance and contain fragility.
coordination strategies, chain performance, chain fragility, chain interdependencies, uncertainty, South Africa egg chain