Dairy aggregation: Case

This case centres on an online dairy farm ing aggregation including SM E dairy farmers. The case narrative com prises three elements, nam ely an agricultural college (trusted third party), a dairy m anagem ent application service provider (A SP), and a survey o f users and non-users. Initially the agricultural college w as approached before gaining access to the A SP w ho assisted in surveying the user com munity. The selection o f non-users was independent o f these participants.

5.3.1 N arrative

The agricultural sector, o f w hich dairy farmers are a part, is SM E-rich in that statistically 100 percent o f the enterprises have less than 250 em ployees (SBS 2002). The dairy industry has been affected by m any structural changes in the past two decades. These include changes to the European U nion’s com m on agricultural policy and the fragm entation o f the supply chain previously dom inated b y one single national governm ental body, the M ilk M arketing Board, into large separate buying groups, including large superm arket chains and food manufacturers. These structural changes have tended to reduce the m argin o f m ilk producers. In addition foot and m outh disease affected m any regions in the year prior to the quantitative study.

The dairy farm ing aggregation was formed from dairy farmers using an online dairy m anagem ent application provided by an ASP, w hich w as a trading division o f an agricultural college. The agricultural college was know n to and trusted b y all users prior to using the online application. The ASP was know n to some users prior to using the online application and w as closely associated w ith the agricultural college.

Chapter 5: Aggregation cases

The dairy m anagem ent application service provider (DM P) developed the application with a trading division o f an agricultural college (AC). It offered an Internet-based fully integrated dairy costings, quota m anagem ent and inform ation system for the dairy industry w ith subscribers having access to AC research inform ation and dairy costings. The application provided the following features: topical, technical and research notes; discussion forum, access to AC dairy specialists; m ilk manager; benchm arking; quota m ilk m anager; m ilk m anager notes; cattle tracing scheme. The D M P application w as a fully interactive m ilk costing system, operated by screen-based input sheets to record physical and financial inform ation about the dairy herd. The system recorded m ilk produced, m ilk sold, changes in cow num bers, feed used and other dairy expenses. The D M P offered various options w ithin the application but the typical annual cost w as around £200. O n-farm dairy consultancy was also available from the AC at an additional cost. It w as the first dairy m anagem ent system to be m ade available over the Internet w ith all physical and financial inform ation being entered via a web brow ser and w ith reports printed locally. The D M P stated that “all data entered w as securely stored and rem ained confidential” . A precursor application w as originally developed as a PC -based product w ith data entered centrally from postal data sheets com pleted m anually by dairy farmers. The m anager stated that “significantly m ore functionality is available w ith the online application. It can be provided econom ically by an ASP m odel” . The m anager recognised the im portance o f a central database w hich could provide additional inform ation regarding the dairy industry. Even though the D M P w as a division o f the AC it operated on a separate basis and w orked w ith other service providers to deliver the online application.

The AC w as an innovative, know ledge-based organisation, w hich supported the developm ent o f rural industries and com m unities through specialist resources including

Chapter 5: Aggregation cases

education, training and expert services from farm advisors. The A C ’s w ork was w ide-ranging but there was a particular em phasis on agriculture and related sciences, rural business developm ent, food chain quality, and environm ental m anagem ent. It attem pted to provide a m echanism for the transfer o f know ledge and ideas, w hich em erged both from its ow n research activities and from other expert sources. It w as w ell-regarded and trusted w ithin the farm ing com m unities to w hich it provided support and services. The AC dairy services offered im partial advice on all aspects o f dairy husbandry and m anagem ent to dairy farmers. The A C ’s independent expertise w as backed by active research program m es and on-going trial w ork at A C-run units. Through locally based dairy advisers the AC dairy services covered all aspects o f m ilk production from calf-rearing through to the point o f sale w hen the m ilk left the farm. The AC prom oted the use o f the online application provided by the D M P by using seminars and w orkshops at w hich both A C and DM P personnel w ere presented.

The confectionery m anufacturer (CM ) was part o f a large international food com pany, w hich had a w ide range o f products serving m any sectors, including confectionery. The C M ’s first e-procurem ent priority w as indirect purchasing through both purchasing cards and e-procurem ent. The CM m anagers described their e-business strategy as a ‘toe in the w ater’ approach. The CM had not yet decided w hether to use its ow n e-m arketplace or third party providers for purchasing from SM E suppliers, partly due to uncertainty in service provision. The CM was a founding m em ber o f a consum er packaged goods industry consortium -lead e-marketplace. This e-m arketplace had five elem ents, nam ely tender process, catalogue tools, supply chain, business intelligence and fulfilm ent. There were clear benefits to larger suppliers, such as the CM, in using this e-m arketplace but the m anagers acknow ledged that it was difficult for SM Es to see the benefits. In the view o f

Chapter 5: Aggregation cases

the CM m anagers the responsibility for cataloguing products needed, for cost and practical reasons, to be w ith SM E suppliers. The CM w ere considering recom m ending a third party e-m arketplace through w hich they w ould buy indirect supplies in order to reduce the risks and costs for sm aller suppliers. The difficulties facing SM E suppliers w ere the costs o f updating different catalogues for different suppliers and the risk o f choosing the wrong third party e-m arketplace. For cost reasons the CM stated it w as not possible to use the S M E’s ow n w ebsites to integrate into the C M ’s internal e-procurem ent system and that education w ould be critical to reassuring SM E suppliers that their products w ould not be devalued by using e-m arketplaces. The CM considered using a vendor independent service provider to m anage and integrate the cataloguing activity. The CM considered SM Es to be an im portant part o f their business and recognised it could have an im portant role in encouraging SM E suppliers to use e-m arketplaces but had not decided on a m echanism to achieve this. In addition the CM also had over 10,000 suppliers o f direct goods including 1,000 dairy farmers o f w hom 99 percent supplied the CM exclusively. D em and for m ilk w as higher than supply. There w as an ongoing project considering the provision o f an online dairy m anagem ent application to reduce the adm inistration and internal costs for dairy farmers. This project could have provided positive benefits to dairy farm ers and m ade them m ore loyal to the CM. One possible business m odel being considered w as for the CM to fund the developm ent costs and application usage fees, resulting in little or no cost to dairy farmers. It was too early in the project to say w hether its use w ould be m andatory but the CM had a history o f w orking in partnership w ith sm aller suppliers and were trusted by their m ilk suppliers.

Chapter 5: Aggregation cases

5.3.2 Analysis