Supply chain practices, performance and organizational configuration in the Mexican avocado industry

Recent changes in agrifood supply chains, such as the need for quality improvement and control, enhanced information exchange, and increased customer responsiveness, have made the introduction of Supply Chain Practices (SCPs) essential. Adopting practices such as product standardization, supplier partnerships and IT driven information exchange have resulted in higher supply chain efficiency and economic performance. Producers, traders and processors are able to obtain better control over production and distribution processes, improve and assure quality, obtain more reliable supply, and rationalize logistic processes in the supply chain. While most research on the introduction of SCPs has focused on the potential benefits, little research has been conducted on the conditions under which these benefits are obtained. Earlier studies have called attention to the complexity associated to adoption of SCPs or the specificity of the assets involved and the uncertainty of the context in which the transactions take place. These studies only begin to inform us on the institutional and organizational conditions that favour the application of new SCPs. To obtain better insight in the contingencies affecting the adoption of SCPs in agrifood supply chains, particularly in fresh produce chains, this thesis has studied the introduction of SCPs in the avocado industry in Mexico. The possibility to export to the USA and the concomitant introduction of strict phytosanitary requirements have led to a number of specific supply chain challenges for the Mexican avocado industry, such as the need to enhance product quality, create reliable supply, and improve coordination between supply chain actors. In addition, as avocado is a seasonal product, the industry is faced with specific supply chain challenges such as large variation in the demand for transportation, storage and packaging facilities, making logistic planning more complicated. Within this context, we investigated which SCPs have been adopted to respond to the specific supply chain challenges, what type of contractual arrangements have been used to facilitate the adoption of SCPs, and what features of the relationships between supply chain actors enable a better performance. The overall objective of this thesis is to explain the relationship between supply chain practices and inter-organizational arrangements, and to explain how particular combinations of supply chain practices and inter-organizational arrangements result in better performance in the Mexican avocado industry. To achieve this objective we have collected data from producers and buyers in the Mexican avocado industry on three key constructs: inter-organizational relationships, supply chain practices, and performance. By analysing the interaction among these constructs we seek to contribute to both a theoretical and practical understanding of the organizational practices that enhance quality performance in a supply chain context. For the analysis, three theoretical approaches have been used: Supply Chain Management, Transaction Cost Economics, and Organization Theory. Supply chain challenges and supply chain practices Analysis of agrifood supply chains originating from developing countries has focused on aspects such as quality and safety of products and reliability of supply. Consistent product quality and compliance with complex food safety and phytosanitary standards are required when exporting to high demanding markets. Particular supply chain practices such as product standardization, supplier partnership and information exchange can be used to enhance quality, guarantee safety, and improve coordination between supply and demand. Chapter 2 describes and analyses the technical and organizational solutions that packers in the Mexican avocado industry have introduced in dealing with the main supply chain challenges. The focus in this chapter is on the role of the packer in introducing supply chain practices. The main research strategy used for this chapter has been the case study. We show in Chapter 2 that avocado packers have introduced the following supply practices: product standardization, information exchange, and supplier partnership. Product standardization has been adopted to obtain reliable supply and improve quality. Coordination has been used by packers to improve the management of demand. Partnerships between producers and packers and between packers and buyers have been important organisational solutions in dealing with the supply chain challenges of obtaining uniform product quality and improving reliability of supply. Contractual arrangements and food quality standards Quality is now a key variable in marketing strategies in food chains. Quality improvement often requires transaction-specific investments and tight coordination among transactors. Difficult-to-measure quality attributes imply asymmetric information between buyers and suppliers of food products, while consumer and governments request more information on all processes in the supply chain. A key development in food chains is the shift from market governance towards more contractual and hierarchical governance. Chapter 3 analyzes of the types of contractual arrangements that avocado producers have been using in adopting particular quality standards in the Mexican avocado industry. A survey among 122 avocado producers in the state of Michoacán was used to obtain information on quality standards and contractual arrangements, and a bivariate probit regression model was used for the analysis. Our findings indicate that the type of contractual arrangement is important for the adoption of specific quality standards, and safeguarding specific assets is confirmed as a primary driver of governance structure choice. Specifically, adopting arrangements based on information exchange and expectation of continuity has been an important prerequisite to adopt high quality standards such as Organic, US-GAP or Global-GAP. Relationship characteristics and performance Relationship building has been found to be important governance mechanism for reducing the propensity of opportunistic behaviour. Recently, more depth has been brought into the discussion by disentangling which relationship characteristics function as safeguards for specific investments and which can be considered coordination devices. Chapter 4 seeks to analyse how characteristics of the producer-packer relationship affect producer performance. The analysis is based on the same survey among 122 avocado producers. We show that relationship characteristics influence performance through different paths. Whereas expectation of continuity affects payment uncertainty and thereby indirectly influences yield and product quality, information exchange directly affects these performance measures. In contrast, we found that buyer commitment did not significantly affect behavioural uncertainty of the producers. We conclude that while expectation of continuity only has an impact on performance through reducing the propensity of opportunistic behaviour, information exchange can explain improved performance based on better efficiency and planning of current and future product needs between partners. Inter-firm coordination between packers and buyers Inter-firm coordination has become a subject of considerable managerial interest. Several studies have found that vertical coordination is an effective response to the uncertainties of changing market environments. However, other authors have argued that higher levels of inter-firm coordination increase the hazard posed to the sellers’ specific investments. Therefore, the analysis of inter-firm coordination requires evaluation of aligning actions as well as aligning interests between parties. Chapter 5 studies the interaction between packers and their customers. The chapter presents an analysis of the conditions that affect the level of inter-firm coordination between packers and their buyers. The analysis is based a survey among 44 packers in the Mexican avocado industry. We conclude that inter-firm coordination based on information exchange and expectation of continuity is an important governance mechanism to facilitate aligning actions and to safeguard specific assets between sellers and buyers when substantial environmental uncertainty is present. In addition, we found that inter-firm coordination has a significant positive impact on performance. Whereas a high expectation of continuity reduced sellers’ stock outs, information exchange improved sellers’ sales and performance.