Building a value chain in the organic agriculture sector
* Building a Value Chain in the Organic Agriculture SectorSecond Project for Prof. Chuck Eesleys TechnologyEntrepreneurship ClassTeam Members: Praveen Kumar, Salma El-Banna, Sarraa Hassan, Amr Farag, EngyYasser, Baseem M. Wahid and Moustafa Megahed
*Worst Idea given to our team1. The idea given to us was about a Green-Organic Delivery Service2.The idea was to take organic products from farmers and deliver them directly to the consumers3.Profit/Loss = Selling Price to Direct Consumer - Logistics Cost ( integration of information, transportation, inventory, warehousing, material handling, packaging, and security) - Overheads (Salaries to Employees, Fleet of Vans etc.) - Sales & Marketing Expenses (Advertising, Flyers, Monthly publications of studies and reviews, Website etc.) - Purchase Price from Farmer4.There is zero value addition to the product and it is a commodity5.If the Consumer decides to buy from the Farmers Market where Farmer comes and sells the goods directly to the consumer, the consumer saves a lot of money6. The price difference between Purchase Price and Selling Price at Farmers Market is rarely more than 5%7. Hence the consumer would prefer to go to the farmers market rather pay the extra premium involved for Home Delivery. Very few businesses across the world have perfected the business of home delivery. Even they (Pizza delivery or other food delivery) deliver a value added product (cooked food) and charge a premium when compared to the raw material/products used while cooking8.There is very little money to be made with potential for a huge Loss if the Costs go up
*Turning the Worst Idea into the Best Idea1. Instead of focusing only on two points (Farmer and Consumer) in the value chain, we could focus on all points in the value chain2.Value Chain is a concept that was introduced by Micheal Porter. He is the worlds leading authority on company strategy. He is also a professor at Harvard Business School. His concept was internally focused to a company.3.Value Chain Group further developed this concept into something that focuses on the entire industry. They call it the Value Reference Model (VRM).4.Several multi-billion dollar global companies in the Fortune 500 list are reorganizing their value chains as per the Model and dominating their industries.5.These companies are focusing on their core competence as per their Value Reference Model (VRM) and working with partners to execute other business processes.
*Value Reference Model (VRM)As per the model, a company can focus only one of the following:1. Product Development - Market, Research and Develop2. Supply Chain - Acquire, Build and Fulfill3. Customer Relations - Brand, Sell and Support
* Value Reference Model (VRM) + Food & Agriculture Industry = Food Value Chain1. In the Global Food & Agriculture industry, implementation of VRM across the industry by a company is known as the Food Value Chain2.The business model involves capturing the value at every point of the value chain that includes:Procure agriculture inputs (seeds, fertilizers, pesticides) directly from the supplier and capture 10% marginEngage various best in breed service providers to generate higher productivity, reduce labor costs and increase profitability by at least 25%Engaging in Contract Farming by implementing Best Management Practices (BMP) like SRI to generate an additional yield up to 400%. This alone generates profits of more than 100%.Implement International Standards like FSSC 22000, GlobalG.A.P, ISO 9000 across the value chain and generate additional profits and get premium pricing from customersComply to all rules and regulations and become a good corporate citizen and get additional premium in pricing from customers
*Profits of more than 100%1. What started as a worst idea had been turned into the best idea by focusing on innovation at the industry level.2.We can produce more profits by further fine tuning the model. On the other hand, it is best not to squeeze the partners for our profits.3.It is best to go with a Win-Win-Win model, where we are happy, our partners are happy and our customers are also happy.Thank you for listening and we are happy to take any questions that you may have.