Electronic Trade Platforms in Food Networks: An Analysis of Emerging Platform Models and Strategies

Transcription

1 Electronic Trade Platforms in Food Networks: An Analysis of Emerging Platform Models and Strategies Melanie Fritz and Tobias Hausen Corresponding author, Melanie Fritz, Abstract This paper presents empirical evidence on electronic trade platforms in food chains and networks. It identifies emerging platform models and shows that an e-commerce infrastructure has evolved in food supply chains. Based on an empirical analysis, four principal platform models operating in the agrifood sector were identified. Neutral verticals perform transactions along the entire agrifood chain and act in spot market environments. Downstream re-intermediaries are specialized in supporting existing business relationships at specific later stages of the agrifood chain. Ag output subsectorials mediate particular agrifood product lines and focus on agriculture related segments of the chain. Large consortia are driven by agrifood players and particularly adapt to their participants requirements. Results show that cooperation initiatives between platforms exist and evolve. Cooperation initiatives focus on the joint use of trading functionalities and the development of standards regarding product descriptions and platform transactions. Cooperation initiatives result in the emergence of networks of interconnected platforms. It could be shown that existing collaborations between platforms already relate to a platform infrastructure that could cover the marketing processes of a complete agrifood chain. 1.Introduction The provision of food builds on a vertical network of subsequent production, service and trading processes that reach from the production of agricultural inputs to the delivery of final food products to consumers (food supply chain, FSC). Enterprises at various stages of this network contribute to the production and service processes and exchange (trade) goods with their suppliers and customers. Basic models of the food supply chain and network (Davis et al., 1957; Zylbersztajn, 1996; McCorriston, 2002) specify a number of distinguished stages and the market linkages between them. Faced with challenges from increases in globalization, competition, and market concerns regarding food quality and food safety, enterprises in food supply chains need to adapt their traditional business models and improve the efficiency of processes and their interaction throughout the supply chain and network. Key success factors involve improvements in the information and communication infrastructure of enterprises and the food supply chain, and the utilization of opportunities provided by modern information and communication technologies (ICT). In utilizing ICT support, emphasis was initially on internal processes of enterprises. However, the advent of the Internet as information and communication network has opened new support opportunities with high improvement potential specifically for trading and interaction activities on all levels of the supply chain and network. These opportunities are commonly referred to as e-commerce and focus on all types of trade-related activities, either between enterprises (for a food chain related discussion of B2B e-commerce ; see, e.g., Schiefer et al., 2003, Leroux et al., 2001, Boehlje et al., 2000 or Mueller, 2000 for) or between enterprises and consumers at the end of the food supply chain ( B2C e-commerce, see, e.g., Sawhney, 1999 or Duval, 2001). Trade-related activities between companies (B2B) regarding the marketing, selling, buying, and servicing of products can be supported by Internet-based electronic trade platforms to improve process efficiency. Electronic trade platforms or electronic marketplaces are electronic trade support systems on the Internet that match vendors and buyers, intermediate trading transactions up to contract conclusion, and provide the institutional Vol(3) Journal of Information Technology in Agriculture 26

2 infrastructure that is in line with the legal and technical environment (Bakos, 1998, Kaplan, Sawhney, 2000, Schiefer, 2000). The emergence of electronic trade platforms is closely linked with the dynamic Internet developments during the period known as New Economy, which reached its peak in the year Trade platform applications developed in all sectors of the economy including the agri-food sector to offer support services for more efficient transactions. Their acceptance as primary support base for trade-related activities seemed to be imminent. However, adoption has been much lower than expected. As a consequence, the situation and development paths of electronic trade platforms have changed substantially. The current situation and infrastructure of electronic trade platforms in the agri-food industry as well as their relationship and interaction with agri-food production chains and networks are not clear. As a consequence, the support potential of electronic trade platforms for agrifood companies is unknown and it is difficult for companies to benefit from the support and efficiency potential from electronic trade platforms. It is the objective of this paper to analyze and map the electronic trade platform situation and infrastructure in agri-food chains and networks and the relationships and interaction between platforms and agri-food production chains. The paper analyzes electronic trade platforms in the agri-food industry in the US and Europe where the majority of electronic trade platforms are located, covers food supply chains from agriculture to the retail level, and integrates different product lines. The paper introduces into the subject through an overview of the framework used for the analysis and the focus and direction of the analysis (section 2). The following section 3 discusses the results of the empirical analysis and illustrates the situation of electronic trade platforms in the agri-food by delineating characteristic types of agri-food platforms. The paper concludes with an integrating discussion of the relationships and interaction of platforms with the agrifood production and marketing chains (section 4). 2. Framework for Analysis 2.1 Analysis framework The analysis of the situation and infrastructure of electronic trade platforms in the agri-food sector and their relationship with the food production chains requires an analysis framework and analysis criteria covering the organizational and operational structure of platforms including their interaction with the production chains. Literature provides platform analysis frameworks that differentiate electronic trade platforms based on characteristics such as the composition of the product portfolio (vertical or horizontal platforms), the type of sourcing supported (spot sourcing or systematic sourcing), the pricing rules (fixed prices or dynamic pricing alternatives), or the market orientation (buyer-oriented, seller-oriented or neither) (e.g., Kaplan et al., 2000, Grieger, 2003). However, existing platform analysis frameworks are neither appropriate nor adequate for a thorough analysis of platforms in the agri-food sector with its complex industry infrastructure (e.g., small farms vs. multinational corporate groups), the mix of different product lines (single product vs. multi-product), or the complexity in supply chain organization, and the analysis of the interaction and relationships of platforms with the food supply chains. The study presented in this paper employs a platform analysis framework based on organization theory to analyze the organizational and operational structure of electronic trade platforms in the agri-food sector. This analysis framework integrates organization theory and existing platform characteristics (see above) and was specifically developed to map the situation of platforms in the agri-food industry and their interaction and relationships with the food production chain (Hausen 2005; Hausen et al., 2006). The analysis framework (table 1) consists of four analysis dimensions: The dimensions market orientation, organizational set-up, and implementation mode analyze the organizational structure of trade platforms in the agri-food industry, the dimension process organization accounts for the analysis of the platforms operational structure. Each of these dimensions is operationalized for the empirical platform analysis by a set of hierarchically derived platform characteristics. In total, the analysis framework consists of 30 dichotomous analysis criteria (yes no; 1 0). Vol(3) Journal of Information Technology in Agriculture 27

3 Market orientation Market focus Agri-food Vertical stages of chain Along whole chain1) Stage specific Product categories Agri-food products general Specific products only Non-food Operating radius Regional National Continental (Europe, North America) Worldwide Organizational set-up Ownership Neutral Market participant Single enterprise Consortium Organizational form Seller/buyer n:m (n>>m; n<<m)2) Seller/buyer n:m (n~m) Cooperation with other platforms Table 1: Agri-food platform analysis framework Implementation mode Top-down Bottom-up Process organization Value-added services (VAS) Transaction support (Logistics, Finance, Negotiation, Multimedia) Provision of information Market information Process information Supply chain management Coordination s Dynamic coordination (auction etc.) Static coordination (catalogue) Mixed coordination (e.g., RFx3)) Revenue model Joint investment by members Fee for VAS Fee time-based membership Fee transaction-based Remarks: 1) Baseline analysis criteria in italics 2) n>>m: n fragmented compared to m 3) RFx: Request for (quote etc.) The dimension market orientation considers a platform s position and situation in the agri-food sector and the geographic expansion of its activities. The sub-ordinate characteristic market focus analyzes where in the agrifood supply chains a platform operates, which food products it mediates, and whether it includes non-food products. The characteristic operating radius accounts for the regional, national, continental, or worldwide expansion of a platform s activities. The platform characteristics grouped under this dimension are of special interest as they define the platforms position in the supply chain infrastructure and allow for assessing their relationship to the food production chain. The dimension organizational set-up analyses whether the ownership of a platform is a neutral entity or a traditional player of the agri-food sector, studies the organizational form of a platform by considering the quantitative relation between buyers and sellers on a platform, and examines possible cooperation activities with other platforms. Of particular interest are the ownership of a platform as it allows for assessing the relationship of a platform with the food production chain and cooperation initiatives between platforms. Cooperation initiatives between platforms are basis and prerequisite for the emergence of an e-commerce infrastructure in agri-food supply chains. The dimension implementation mode considers the way a platform is introduced in the agri-food sector and its supply chains: Top-down by suggesting new options for transaction processes and business relationships or bottom up by mapping existing business relationships and transaction processes in the agri-food sector. The dimension process organization analyses the operational structure of a platform and considers value-added services, the s to coordinate demand and supply, and the way a platform generates revenue. The suitability of this analysis framework with its 30 analysis criteria was demonstrated through experimental platform evaluations with the following setting: In a first stage, trade platforms in the agri-food industry were analyzed by experts. In a second stage, the same platforms were analyzed with a strict application of the analysis framework and its rules. The outcomes of both procedures were matched against each other and showed Vol(3) Journal of Information Technology in Agriculture 28

4 concordance. As a result, the analysis framework and its rules were qualified as basis for the analysis of electronic trade platforms in the agri-food sector. 2.2 Focus and analysis direction The principal organization of food supply chains and networks in the agri-food sector shows a basic structure of different production chain levels (agriculture, food industry, retail trade, consumer). On a more disaggregated level of enterprise activities the sector shows a great variation in supply chain organization between different product lines such as meat, dairy, cereal, or produce. Different production and trading environments of different product lines influence the basic chain model, especially at the industry level. Electronic trade platforms are not yet part of the agrifood supply chain and network organization. They are entities, and usually enterprises, in their own right and a new addition to the supply chain infrastructure. Initially they have their place in the linkages between the supply chain enterprises. However, they might contribute to a change in trading linkages and chain infrastructure, possibly eliminating certain stages of the chain. With regard to the requirements in the different product lines in the agri-food sector, different demands on electronic trade platforms become evident. Awareness of the structure of a production chain is a prerequisite for the analysis of relationships between platforms and production chains. The analysis of the situation of platforms in the agri-food industry and their relationship with the food production chains in the US and Europe builds on an empirical analysis of platforms to identify emerging typical forms models of platforms demonstrating their position in the sector and their interaction with the companies. The analysis was performed using publicly available data from twelve1 platforms with active agrifood transaction activities in 2002 that provided sufficient information for analysis. These platforms represent an almost complete coverage of the platform market. Of these, ten had already been active in 2000 (Fritz et al., 2001), whereas two had entered the sector sometimes later. 3 Emerging platform models 3.1 Analysis The empirical identification of typical platform models was based on the examination of twelve platforms with active agri-food transaction activities in 2002 utilizing the analysis framework discussed above and a hierarchical cluster analysis (see, e.g., Everitt, Landau, Leese, 2001). This allowed the identification of distinguished patterns in platform characteristics. The results demonstrate that the majority of platforms show similarities in a number of platform characteristics: The majority limit their activities to single stages of the supply chain ( stage specific ), mediate in markets where one side (buyers or sellers) is much more fragmented than the other ( seller/buyer n:m (n>>m; n<<m) ), build on mixed coordination s for trade support such as request for quote or request for proposal ( mixed coordination ), and are driven by traditional market participants ( single enterprise or consortium ). Furthermore more than half of the platforms do not restrict themselves to particular agri-food markets but cover a broad spectrum of different product lines ( agri-food products general ), support existing business relationships by following the bottom-up implementation approach ( bottom-up ), provide active transaction support ( logistics, finance, negotiation, multimedia ) and dynamically coordinate buyers and sellers in auctions ( dynamic coordination ). Half of the platforms have started cooperation initiatives with other platforms ( cooperation with other platforms ), provide supply chain management options ( supply chain management ) and generate revenue by transaction fees ( fee transactionbased ). It appeared that platforms focusing on a specific agrifood product group ( specific products only ) are, at the same time, primarily active in the early, agriculture related stages of the supply chain ( stage specific ). 3.2 The platform models Figure 1 shows the dendrogram resulting from the cluster analysis that illustrates the cluster merging process and the cluster membership of the platforms. As the length of the horizontal lines shows the distance of one cluster to 1 Agribuys, Amphire, CattleSale, CPGmarket, Dairy.com, Foodtrader, GNX, Ordersmart, Schweineboerse, Transora, Vernum, WWRE Vol(3) Journal of Information Technology in Agriculture 29

5 the next cluster, the dendrogram clearly demonstrates four clusters of distinguished platform models. The gray circles in figure 1 were inserted to emphasize the four clusters. Figure 1: Dendrogram of hierarchical cluster analysis The specific combination of platform criteria in each cluster was examined using line plots (see fig. 2). Each cluster represents a typical model of electronic trade platforms in the agri-food sector. Table 2 shows the four platform models with the respective platforms and criteria combinations. According to their respective and criteria combination, the platform models were named neutral verticals, downstream re-intermediaries, ag output subsectorials, and large consortia. Neutral verticals, downstream re-intermediaries, ag output subsectorials, and large consortia are the emerging platform models distinguished by their respective criteria combination. Table 2 shows characteristics unique to the distinguished models in bold. Neutral verticals Neutral verticals are the only agrifood platforms owned by a neutral party and not by an agrifood industry player. They extend their activities across several stages of the vertical supply chain, linking enterprises from several subsequent levels of production, processing, and trade. Besides, neutral verticals operate worldwide, cooperate with other platforms, and provide different transaction support options. They offer several types of coordination s such as static coordination with a catalogue or request for quote. Furthermore, neutral verticals charge a fee for each transaction realized on the platform. These characteristics imply that neutral verticals act in markets with spot market characteristics where transactions are less based on existing relationships between buyers and sellers. Downstream re-intermediaries As opposed to the neutral verticals, downstream re-intermediaries focus on one single stage downstream the agri-food supply chain and are founded and owned by single and traditional market participants. Platforms initiatives started by traditional traders are often referred to as re-intermediaries (see, e.g., Chircu, Kauffman, 2000). The downstream re-intermediaries follow a bottom-up implementation into the market and provide a static, catalogue-based coordination. These platforms charge a time-based fee for participation in the platform s activities. Vol(3) Journal of Information Technology in Agriculture 30

6 Fig. 2: Line plot analysis All these factors imply that the downstream re-intermediaries support existing business relationships at a specific level of the agri-food chain and that their customers subscribe to their services. Amphire and Ordersmart act both in the food service and restaurant supply, a downstream area in the agrifood supply chain. This specialization area explains why downstream re-intermediaries operate with a variety of food products and do not restrict themselves to a specific product group. Ag output subsectorials Ag output subsectorials focus in contrary to the other platform models on specific agri-food product groups. As opposed to the downstream re-intermediaries, ag output subsectorials charge a fee for each transaction performed on their platform and provide mixed coordination s. Transaction fees imply that ag output subsectorials support transactions on markets that have spot market characteristics, such as the lack of strong buyer/seller relationships. Vol(3) Journal of Information Technology in Agriculture 31

7 Criteria Platforms Table 2: Emerging platform models Neutral verticals Downstream re-intermediaries Ag output subsectorials Agribuys Amphire CattleSale Foodtrader Ordersmart Schweineboerse Vernum Neutral ownership Along whole chain Worldwide Cooperation with other ETS Seller/buyer n:m (n>>m; n<<m) Transaction support Static coordination Mixed coordination Fee for transaction Fee time-based Single market participant Agrifood products in general Stage specific (downstream) Bottom-up Seller/buyer n:m (n>>m; n<<m) Static coordination Dairy.com Specific products only Fee for transaction Stage specific (upstream) Mixed coordination Large consortia CPGmarket GNX Transora WWRE Non-food products Consortium Supply chain management Agri-food products in general Bottom-up Cooperation with other ETS Seller/buyer n:m (n>>m; n<<m) Dynamic coordination Mixed coordination Ag output subsectorials act in the early agriculture related stages of the supply chain and mediate agricultural output to downstream purchasers or processors. The early stage concentration explains the focus on a specific agri-food subsector, as the various product lines are differentiated at the early stage chain levels. CattleSale and Schweineboerse both act in livestock mediation, Vernum operates transactions with eggs, Dairy.com focuses on the dairy chain. Large consortia Large consortia are platforms initiated by consortia of market participants such as agrifood industry players or retailers. These platforms distinguish themselves from the other platform models by performing transactions with non-food products besides agri-food products. Large consortia platforms support supply chain management, follow the bottom-up implementation approach, and offer a range of different coordination s. These characteristics stand for adaptation to existing business relationships and suggest a concentration on the requirements of the founding market participants. E.g., large consortia include non-food transactions to account for the needs of participating retailer members. Most large consortia platforms cooperate with other electronic trade platforms and are financed by joint investments of their members. These joined investments provide the large consortia with a solid financial basis. Horizontal partnerships between companies aiming at combining efforts to improve competitiveness by, e.g., joint research and development are considered as strategic alliances (e.g., Devlin, Bleakley, 1988). Accordingly, large consortia may be seen as strategic alliances by their member companies. 4. Emerging networks of electronic trade platforms Electronic trade platforms are often related to a possible impact on the market structure (e.g., Wigand, Benjamin, 1995, Giaglis, Klein, O Keefe, 1999). This section takes the perspective on the sector and discusses the relationships and interaction of platforms with the food production chains. The discussion is based on the empirical analysis presented in section 3 and merges and summarizes its results and outcome with regard to agrifood chains and networks. An important empirical result (see section 3) is that half of the platforms start cooperation initiatives with other platforms. Cooperation initiatives between electronic trade platforms in the agri-food sector exist that focus on the joint development of standards and the sharing of trade functionalities (Fritz 2005). Cooperation initiatives for the joint use of trade features occur between large consortia platforms dealing with a broad range of products and neutral verticals focusing on entire food supply chains. Cooperation on the development and use of standards involves standards for product description and standards for transaction processing and Vol(3) Journal of Information Technology in Agriculture 32

8 organization. The implementation of both types of standards is a prerequisite for platform interoperability. Product description standards allow the standardized description of products and their characteristics (Maskus et al., 2000, David et al., 1990). Initiatives for the development and use of product description standards are supported by the large consortia platforms Transora, CPGmarket, WWRE, and GNX. Transaction standards focus on the technological aspects of inter-marketplace connectivity and interoperability. Common transaction standards would facilitate the exchange of transactions and related information. Figure 3 maps existing cooperation initiatives between platforms analyzed in this paper and links the respective cooperating platforms. It shows that cooperation initiatives between platforms lead to an interconnected network of linked platforms. Two platform models neutral verticals and large consortia are involved in the cooperation initiatives. In the network of interlinked platforms, large consortia may be considered as a kernel with the formative characteristics of large consortia platforms such as their product portfolio and their ownership, a range of important agrifood players from the industry and retail level of the sector. This kernel is surrounded by neutral verticals, which may be seen as satellites. The satellites are typified by formative characteristics such as their neutral ownership and their activity along the entire food production chain. Agribuys Kernel with Large consortia Satellites with Neutral verticals WWRE CPGmarket GNX Transora Foodtrader Coope ration initiatives bet ween platf orms Figure 3:Example network of cooperating agri-food platforms Platforms in the kernel provided that joint trade functions and platform interoperability (see above) are in place may routinely transfer transaction requests to satellite platforms as an intermediate step in their transaction processing. With regard to the food supply chain, this transfer of transactions would allow for a flexible and dynamic mapping of food chain relationships and match the requirements of infrastructures in agri-food sectors with temporarily evolving chains within a dynamic network of enterprises (see Omta et al., 2002 for a discussion of dynamic company networks in food supply chains). Figure 4 integrates the empirical outcome of an emerging network of cooperating and interconnected platforms into the infrastructure of a real food supply chain. The U.S. perishable chain was taken as example as perishable products (meat, dairy, and produce) are the common basis in the product portfolio of the cooperating platforms. The model of the chain is derived from the North American Industry Classification System (NAICS) and its classification of the food manufacturing industry. Figure 4 spreads the network of cooperating platforms across the perishable supply chain structure according to the respective product portfolio and market position of the platforms (criteria from market specifics, see table 1). The outcome in figure 4 shows that the network of cooperating, linked platforms integrated in the chain structure results in two distinct e-commerce infrastructures (A and B), each of which is active in partly different but large parts of the perishable supply chain. As these infrastructures consist of a number of different, interconnected platforms, they constitute an interlinked platform infrastructure or mega-hub for the perishable supply chain. Additional cooperation initiatives of platforms involved in the mega-hubs with the downstream re-intermediaries Amphire and Ordersmart could, provided that agreements on product and transaction standards are in place, further extend the coverage towards the end of the supply chain (in this case towards food consumption in restaurants). Additional cooperation initiatives with Vol(3) Journal of Information Technology in Agriculture 33

9 ag output specialists would allow for an extension at the beginning of the chain and facilitate transactions with livestock. Figure 4: Mega-hub networks of electronic trade platforms in the U.S. perishable chain 5. Conclusion Electronic trade platforms and their support potential for more efficient transaction processes between companies have entered agrifood chains and networks a few years ago. However, the current situation of electronic platforms in the agri-food industry is unclear. Therefore, agri-food companies cannot use the potential of electronic trade platforms for improving the efficiency of their transaction processes. This paper has presented empirical evidence on electronic trade platforms in agrifood chains and networks. It has identified emerging platform models and shown that an e-commerce infrastructure evolves in agri-food supply chains and networks. Based on an empirical analysis, four principal platform models operating in the agrifood sector were identified. Neutral verticals perform transactions along the entire agrifood chain and act in spot market environments. Downstream re-intermediaries are specialized in supporting existing business relationships at a specific stage of the agrifood chain. Ag output subsectorials mediate particular agrifood product lines and focus on agriculture related segments of the chain. Large consortia are driven by agrifood players and particularly adapt to their participants requirements. The empirical results show that cooperation initiatives between platforms evolve. Cooperation initiatives focus on the joint use of trading functionalities and the development of standards regarding product descriptions and platform transactions. Cooperation initiatives result in the emergence of networks of interconnected platforms. It could be shown that existing collaborations between platforms already relate to a platform infrastructure that could cover the marketing processes of a complete agrifood value chain and network. Vol(3) Journal of Information Technology in Agriculture 34

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