Following deregulation, participants in the Australian dairy-food supply chain, especially milk producers, are confronted with a more complex and rapidly changing environment. The milk producers have found it difficult to adjust to a situation marked by an intensely competitive retail market in the key dairy categories, aggressive competition among processors for rights to supply private labels of the major retailers, and increasing use of contracts with producers, with stringent quality and quantity obligations, to ensure milk supply.
This research, set in south-east Queensland and northern NSW, studied the strategic options available to the milk producers in a dynamic and transitory dairy-food supply chain environment. Initially, the research was directed towards identifying risks facing milk producers in a deregulated market environment, and proposing strategies to manage them. However, after a preliminary analysis of the situation, it became clear that identifying the strategic options for milk producers and understanding the dynamics of the domestic dairy markets would require a much broader scope, with understanding of the strategies pursued by the dairy-food supply chain participants (including retailers, processors, milk producers and input providers), the nature of relationships between the chain participants, and how these strategies and the relationships were developing.
The profound impact of the trends shaping the dairy-food supply chain necessitated the adoption of supply chain management theory to underpin the conceptual framework for the research. The framework, which provided the focus and boundaries to the research, was designed to integrate two different perspectives in strategic management literature, namely industry competition and organisational capability. It focused on the supply chain, along with the firm, as the proper levels for analysing key factors affecting competitive strategies. A conceptual model was developed based on this framework, and was subsequently adapted to the developing line of reasoning, as the findings from this research were analysed and interpreted.
A qualitative research approach was adopted to accommodate the complexity and multi-dimensionality of the research topic. A constructivist research paradigm, and a flexible, iterative and continuous research design involving qualitative interviews with the key supply-chain participants, allowed an in-depth analysis of the situation, which was continually changing in terms of its structure and issues. The data analysis plan was formulated to identify the range and salience of key items and concepts, discover the relationships among these, and adapt the conceptual model to more effectively deal with these findings. NVivo software-assisted analysis helped with consolidation, consistency, speed and representation of data; whereas theory and data triangulation enhanced validity and trustworthiness of the results.
While the strategies of different firms analysed in this research varied depending on their corporate philosophy, capabilities, and choice of market positioning; a common strategic direction can be discerned in the aggregate dairy-food supply chain, where strategies of individual firms were interlinked and interdependent in pursuit of end-user satisfaction with the principal motivation of increasing economic value for the chain as a whole, and thereby for its participants. The retailers have focused on increasing market share and lowering cost of business in order to achieve better returns on the invested capital. This had led to their pursuing private label strategies, and taking control of product movements from processor to the retailer in a bid for supply chain efficiency. The processors in turn have sought to expand into new markets, strengthen brand portfolios in growing dairy segments and pursue targeted market leadership strategies to counter increasing private label influence, and at the same time use private label contracts to establish multi-functional linkages with the retailers. Processors were also increasingly entering into contractual agreements with their milk suppliers and putting greater emphasis on farm services for a reliable and sustainable supply base.
Milk producers' major strategic focus was on operational efficiencies, while their industry representatives were lobbying with the regulatory authorities to obtain a 'fair' farmgate milk price, as farmgate milk returns were increasingly being affected by the developments at the retail end and the export market conditions.
This research, on the other hand, shows that for business success a paradigm shift may be required in the way dairy-farm businesses are managed. While continued efficiency improvement on-farm is essential, there are additional challenges for milk producers in managing their businesses strategically. Being part of a dynamic supply chain environment would necessitate taking a position which makes best use of their capabilities and resources. The distinctive positioning could be aligning with a particular processor, or accessing a niche market. It could be entering into an individual contract with a processor or being part of a supply group. The strategic choice of the producer will need to be backed by capabilities such as market knowledge, strong business relationships in the output and input markets, and financial, contract negotiation, and people management skills. The focus should be on profitability rather than operational efficiency for its own sake.
The results demonstrate that the Australian dairy-food supply chain is in the early stages of development, with issues of coordination, risk/reward, strategic fit, and power relations undergoing rapid adjustment among the chain members. The desire of the chain participants is sustained profitability. To co-ordinate in pursuit of this desire requires renegotiation of inter-sectoral relationships on an ongoing basis. Future supply chain development will depend on the capabilities of the chain participants in operational and strategic management within the firm, and also in successfully negotiating linkages within the chain. In addition, the organisational structures of the both the firms and the chain need to be responsive to changing end-user needs and the dynamic business environment.