Attributes selection

As noted, the attributes are chosen in such a way as to address the research aim. The aim of this research is to investigate the applicability of using option contracts in the perishable food supply chain. Therefore, option contracts requirements must be considered in defining the attributes. In addition, Chapter 1 raised the issues of food waste in the supply chains and noted that option contracts may be used to reduce waste. It is appropriate, therefore, to include wastage-related attributes.

Two requirements of option contracts are product related and refer to seasonality and to demand uncertainty. Wastage related criteria are volume of waste, short life time, price fluctuations and price range. Another attribute remains, which is related to the consumption of the produce. The sale volume indicates the popularity of the produce in the country and is important because it impacts on the economics of the supply chains. Each of these seven criteria is described below.

Seasonality- Seasonality is one of the option requirements. This attribute addresses this requirement and high seasonality refers to those produce that are considered more seasonal than others. Seasonality refers to the period of product availability in the market. Some of the seasonal FFVs can be found in the market throughout the year. This happens either due to the climate diversity in Australia or product storage facilities. Consequently, some seasonal produce face higher seasonality than others. The retailers need to decide and act quickly for a high seasonal produce if they want to respond to the end consumers’ demand. The supply chain and specifically the retailers need to make maximise profit in the short period of product availability. According to the option contract literature, products with shorter availability in the season match the contract elements better. Therefore, high seasonality has been chosen as one of the attributes. The decision makers are asked to give the highest score for the produce they believe is highly seasonal.

Demand fluctuations- Demand uncertainty is a product-related option contract requirement. According to the literature, the product and supply chain have to deal with demand

Chapter Five

uncertainty in order to apply option contracts. The higher the demand uncertainty involved in the supply chain the better results of option contracts.

Demand uncertainty in the fruit chain influences waste and its associated costs. Uncertainty of demand causes uncertainty in the decision making of the supply chain players. If the retailers retain FFVs inexact of the actual demand, then they have to either maintain cold temperatures to avoid deterioration or discard the produce because of appearance and/or quality standards. Both of the scenarios add extra costs to the supply chain and retailer. Demand volatility is selected as an attribute to address demand uncertainty in the attributes table. The higher demand fluctuations addressed by the decision makers the higher demand uncertainty in the supply chain. The decision makers are asked to score this attribute for each product based on the wider range of demand volatility.

Volume of waste- Wastage within the supply chain negatively impacts the whole supply system. The higher the wastage volume the greater the cost to the supply chain. Since this research looks at the option contract as a mechanism to reduce the wastage in the supply chain, FFVs associated with the highest amount of wastage must be selected. This helps the study to focus on the higher portion of waste and find out how option contracts can be applied into specific FFV supply chains; also it could be expanded to the other FFVs. This criterion asks the expert to weight each product based on the volume of waste that they consider during each sale season. As a consequence, those products with high volumes of waste will be selected.

Short life time- This attribute has direct impact on the wastage amount. The shorter life time the more uncertainty is involved in the decision making process for the supply chain players and especially retailers. The quality of produce decreases over time and reflects their deterioration rate. The short life time makes the process more dynamic and the retailers must make quick decisions. They must sell more produce in the short time, otherwise the produce goes to waste and profits will be reduced. On the supermarket

Case studies: selection and methodology

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Price fluctuations- The produce price is not constant during the sale season and fluctuates during each season. This price volatility must be distinguished from concepts of the time value of money and inflation. These two concepts are investigated further over a longer time frame, not just several months. According to the FoodMap analysis (Spencer 2012) price fluctuations exist during the sale season. However, it is not in the same pattern and range for all of the produce. Some products face high price fluctuation and others are negligible. This volatility causes uncertainty in the supply chain. The end consumers usually select their needs depending on the retail price. The aim of this attribute is to rank the produce based on the price fluctuations, and not consider the price range, or the reasons behind the fluctuations.

Sale volume- This attribute shows the importance of produce in the Australian market according to the consumption volume. Sale volume is not a requirement to option contract neither is it related to the wastage amount. However, consumption of produce is relevant to the population demographic which differs from place to place. This attribute considers the economic aspect of the produce to be studied.

High price- Some enjoy different popularity among consumers which creates different price ranges. Some fruits are considered a good source of nutrition and vitamins, such as bananas, whilst others may be considered luxury fruits, such as stone fruits. The consumers’ behaviour and demand influence the retail price. The product price impacts on the waste costs. Small amounts of wastage of an expensive produce is equal to large amount of wastage of the cheaper ones. The experts are asked to score the most expensive alternative with the highest number.

The next section defines the potential alternatives that could be added to the alternative column in the MADM matrix.