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Suggestions for Developing Efficient Fertilizer Supply Chains in COMESA Presentation by Ron Kopicki, K Squared International Victoria Falls, June 2009. The integrated supply chain management concept accepts the entire distribution chain as a single entity and attempts to
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Suggestions for Developing Efficient Fertilizer Supply Chains in COMESAPresentation by Ron Kopicki, K Squared InternationalVictoria Falls, June 2009
The integrated supply chain management concept accepts the entire distribution chain as a single entity and attempts to synchronize all business processes across the chain. Integrated supply chain management implies total transparency of demand and inventory information across all business partners. Supply chain management requires three critical elements: Supply chain infrastructure or hardware. The location as well as the technology, processing speed and other dimensions of supply chain infrastructure affect operating costs over the chain’s entire economic life. Supply chain management competence or software. ITC assisted real time management decision making is essential to competitive chain operations. Supply chain finance designed to cover inventory and working capital costs absorbed within the chain. Fertilizer Supply Chains
At the core of Chain Management is Process Synchronization • concept
Fertilizer Supply Chain Metrics Efficiency Agility Adaptability Value Addition
Supply Chain Efficiency Metrics Farm Gate Port Warehouse Cost CIF Port Ex-plant Bulk shipment Blend and bag Fill orders Wholesale storage Production Store Retail Farmer Supply Chain Processes • Economies of Scale: Regional Market Development • Economies of Efficient Facility Utilization: Storage Planning and Linked Facility Operations • Economies of Process Coordination: Vertical Integration of Processes
Supply Chain Value Addition Metrics Value delivered to farmer Bulk shipment Blend and bag Fill orders Wholesale storage Production Store Retail Farmer Supply Chain Processes • Increased product value delivered to farmer: More precise blending, closer to the field • Provides trade credits: Provide risk management for stand by financing from commercial banks • Increased information delivered to farmer: Stockists qua extension advisors • Extended array of cropping options opened to the farmer: Fertilizer matched to non traditional • crops
Supply Chain Agility Metrics 210 180 150 Lead Time ( days) 120 90 Bulk shipment Blend and bag Fill orders Wholesale storage Production Store Retail Farmer Supply Chain Processes • Precise matching of supply and demand • Faster working capital turnover • Liquidation and second best use options opened
Supply Chain Adaptability Metrics Value Delivered To Farmer 180 60 120 240 Cycle Time ( days) • Enable farmers to adopt new plant science more quickly • Allow farmers to adapt to changing relative output/input costs • Lowers financial risk
Options for Fertilizer Supply Chain Strengthening Agglomeration Integration Competition in the market based on spot price and availability Induce Structural change through Transactions Regulate Create Incentives for Structural Change Competition for the market based on efficient supply chain, value adding service, reliable supply
Transaction Oriented: Incentive Media: Matching Grants Franchises Joint Ventures Public Procurement Public Private Partnerships
Very Broadly Speaking, Public Private Partnerships are: • A contractual framework, or structure, in which the public and private sector come together to deliver a project/service which either has not been provided before or which the public sector has traditionally provided , by means of risk transference • Various structures exist. However, the key principle is that better value can be achieved through leverage of private sector competencies and the allocation of risks to those parties best-suited to manage them
Guiding Principles • PPP’s should ideally achieve the following objectives: • Improve service levels above those which are currently available • Expand the regional market, year over year, as supply chain • arrangements are serially implemented and the chain extended. • Leverage private sector supply chain management, through better • controls and forecasting systems, superior management skills, • improved service training for stockists, trade credits managed through • the chain, superior agronomic technologies and innovation in farm • production systems • Procurement of appropriate materials handing technology utilizing life- • cycle costs • Efficient asset management and increased utilization of fixed assets.
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What Would a Regional Fertilizer Market Utility Look Like? • A project corporation which owns or leases a deep water ocean terminal, controls • railway trackage rights and inland fertilizer storage facilities and outsources other • critical logistics services. • Regulated at the regional level under the terms of a multinational concession • agreement, which conforms to the business environment conditions, which investors • stipulate in their business plan, and, also to incentives specified in the concession • contract. • Business Charter specifies objectives including: i) capture of • economies of scale and economies of vertical integration, ii) increased • local value addition, iii) reduced transaction costs and iv) local • prices linked to global fertilizer prices. • Corporate Structure would involve a Project Corporation holding a 10 year • concession right which a renewal option. Project corporation would have internal • buy out provisions and would anticipate a reorganization and possible spinoff. • Integrated Regional Market would emerges from the service network of the fertilizer • service utility. Over time a “basis point pricing system” would emerge to replace • tariffs set by the utility.
Way Forward: Full Due Diligence Analysis • Articulate a time phased regional fertilizer market • development strategy designed to improve efficiency, • adaptability, value addition and adaptability • Determine the set of services required to integrate • the East African Fertilizer Market • Develop business plans for each component of this • service ensemble • Integrate these several components into an integrated • chain • Define the terms of “Building Block Transactions” • necessary to affect regional market development and • the agenda of “Supporting Reforms” which would • likely become an investor pre-conditions for the • transaction