11/4/19

1

Modeling the Peruvian coffee supply chainOctober 2019

Presentation Outline

• Speaker Introduction• Research Overview• Case Study: Peruvian Coffee Supply Chain• Conclusions• Research in progress• Questions & Answers

11/4/19

2

Edgar Ramos

Supply Chain Management ProfessorIndustrial Engineering ProgramUniversidad Peruana de Ciencias Aplicadas, Lima-Peru

Edgar has more than 28 years of working experience in Operations, Logistics andSupply Chain Management. He used to work for Logistics, Manufacturer and Distributorcompanies in Peru. He is founder and actual President at Peru Roundtable of CSCMP(Council of Supply Chain Management Professionals). Since 2015 he is the full-timeSupply Chain Management Professor. His researches and publications have beendeveloped in Agri-food Supply Chain, Supply Chain and Logistics fields.Edgar earned his B.S in Industrial Engineering from Universidad Nacional de Ingenieria,MBA from Universidad del Pacifico. He is pursuing his Doctoral degree in IndustrialEngineering from Universidad Nacional Mayor de San Marcos, in Lima-Peru.

Speaker Introduction

• Coffee grows from 800 meters until 1,200 meters above sea level in Peru.

• This grain is cultivated by Quechua, Aymara and Ashaninka cultures all of them located in the Andean and Amazon Regions.

• Main types: Arabic

• Peruvian farmers are facing growing challenges from climate change, plagues, natural disaster, and price variations

Research Overview

Source: FAO, 2014

Overview ResultsAgriculture, value added (% of GD) 7.4%

Export Coffee Green, RoastedExtracts

Organic Area (% total agricultural area) 0.8%

11/4/19

3

Coffee Supply Chain Features

• It is a long-life agriculture product

• Suppliers have little influence on farmers. Ancestral customs have used historical methods for crops.

• Thousands of farmers at tiers 2 level are providing to the Processors or Intermediaries

• Most of the production are exports to North America, Europe, Asia, and other countries (>50 countries)

Agribusiness Product

Crops Livestock

Perishable Long-life Perishable Long-life

Respiring

Non-Respiring

Fresh

Chilled

Frozen

Agribusiness Supply Chain

The Scope of this Research

Supply Chain Risk

Management

Supply Chain Collaboration

11/4/19

4

Global Supply Chain Risk in Operations Management

Global Supply Chain Risk in Operations Management

DemandDemand Risk

Demand VariabilityCompetitors

SourceSupply Risk

Supplier RiskTransit time Risk

OperationsOperational Risk

Inventory RiskAsset and Tools Risk

Quality Risk

11/4/19

5

Types of supply chain environments in the coffee SC

Supply RiskDemand Risk

Low HighLow SLDL SLDH

High SHDL SHDH

Source: Adopted from Manuj, I. and Mentzer (2008)

The world top’s producers of coffee in thousands of 60kg bags

1 Brazil 63,400 2 Vietnam 30,400 3 Colombia 14,300 4 Indonesia 10,900 5 Honduras 7,600 6 Ethiopia 7,100 7 India 5,2008 Uganda 4,800 9 Mexico 4,500

10 Peru 4,400 Source: International Coffee Organization, 2019

11/4/19

6

Case Study: Peruvian Coffee Supply Chain Operations

Bean Profile:Region Cusco, Puno,Perú.

Varietal:Arabica: Typica, Caturra and Catimor

Processing:Harvest, Hull, washed,Drying, bulking

Elevation:1,200m – 2,000m

Peruvian Coffee Bean Profile

11/4/19

7

Peruvian Coffee Exportation

Source: Sunat-Peru, 2018

181

154

79

40 34 32 26 22 18 17

UnitedStates

Germany Belgium Sweden Canada Colombia England Italy France Korea

MillionsDollars

Coffee Cost Variation

Source: Ministry of Agriculture of Peru (2019)

FOB Price(USD/Kg)

3.865

5.382

3.8412.93

4.0223.311 3.16 2.885

2.605

2010 2011 2012 2013 2014 2015 2016 2017 2018

11/4/19

8

Supply Risk in Coffee Supply Chain Operation

Farmers

Cooperatives/ Intermediaries

Distributors/ Processors

Retailers

Stores

End Consumers

Quality, Disruption,

Yield,Input Cost

Risks

Deliverytime Risk

Reputational Risk

Fulfillment Order Risk

Cost Risk

Sustainability Risk

Innovation Risk

Negative Dependency

Positive Dependency

Technology Risk

Execution LevelTactical LevelStrategic Level

Suppliers

The Peruvian Coffee Global Supply Chain

Growing and Harvesting

Hulling andDrying

Packing and Bulking

Blending and Roasting

Small Farmers

Cooperative/ Intermediary

Intermediary/Exports

Distributor/ Processor

1Ha to 5Ha

Located in theAndes/Amazon

Elevation:1,200m – 2,000m

Trucks Transportation 3PL’s for road Transportation

International Shipping

96% by sea4% by road

Small trucks or Animals for

transportation

Located in the Andean/Amazoncities nearly to

farmers

Located in coast of Peru

Located in anywhere in the

world

Grouped between100-300 farmers

End Consumer

Retailer/Store

Located in anywhere in the

world

11/4/19

9

Supply Chain Problems: Risks

Reception Collection Storage Dispatch

Suppliers Farmers Cooperatives /Intermediaries

March Abril May-June July-October November December January-

February

Pre-harvest

External factors:• Climate: rains, frozen, hailstorm• Animals: birds, insects, virus

Harvest Post-harvestGrowing1) Disruptions2) Yield uncertainty3) Lead time uncertainty 4) Input cost parameter

uncertainty

Crops of Coffee

Growing (1year)

Growing (1 year)

Mapping the coffee Supply Chain

Farmer 1

Supplier A

SeedsCrops

Processor

Local Distributor

PE

Int. Retail Int. Customer

Int. Distributor

Grains

Supplier B

Supplier C

ManufacturerPE

Callao Port

Retail

Retail

Supplier D

Int. Processor

Int. Retail Int. Customer

CustomerPE

CustomerPE

Intermediary

Cooperative 1

Retail CustomerPE

Crops

Farmer 2

Farmer 3

.

.

.

.

.

Farmer n= 50 to 300 families

Cooperative 2

Cooperative n=8-10

.

.

.

.

.

Cooperative 3

11/4/19

10

Supply Chain Manufacturing

Farmers

Intermediaries

Processors

Distributors

Retailers

End Consumers

Feature Manufacturing at Processor plant

Varieties of raw material Low

Type of production Low

Differentiation of product Low

Work in progress low

Material change Physical changes

Intensive Capital intensive

Equipment layout Bach production with interruptions

Flexible equipment layout Low

Stores

Coffee Value Chain (Peru - USA)

0.95 USD/kg

2.6 USD/kg

16.45 USD/kg

23.5 USD/kg

Farmer price

Export price

Wholesale price

Retail price

= 0.95/23.5 = 4.0%

% of Value Chaincaptured by Peruvian farmer

Source: Own Elaboration (2018)

Farmers

Intermediaries

Processors

Distributors

Retailers

End Consumers

Stores

11/4/19

11

Supply Chain Problems: Waste

15%

8%

5%

Harvest

Processing

Distribution

% of Waste in Peruvian Coffee supply chain

7% Post Harvest

6%

7%

4%

% of Waste in another cerealsin Latin America countries, FAO (2016)

4%

Country Yield (kg/Ha)

Peru 6,414

Colombia 8, 464

Brazil 14,215

Source: FAO (2018)

Research in progress

11/4/19

12

1) A Model ISM-MICMAC for Managing Risk in Agri-food Supply Chain:A Research from Andean Region of Peru

Suppliers Farmers Cooperatives / Intermediaries

Physical Natural Environmental Price Financial Social Infrastructure Disaster Economical Cultural

Demand Risk

Supply Risk

External

Internal

2) Modeling the Integration in the Peruvian Coffee Supply Chain with PLS:A Sustainability Perspective

Cluster

Information

Operations in Supply Side

Integration Operational Performance

H1

H2

H3

H4

11/4/19

13

3) A Proposed Model for Optimization the Peruvian Coffee Supply Chain

Source: Own Elaboration based on Anylogix Software (2019)

• Develop a model for risk managing in the coffee supply chain, where farmers (thousands), cooperatives, intermediary must work together in proactive actions

• Collaboration and development of clusters to minimize the waste in the Peruvian coffee supply chain

• Investigation for a deep understanding of the coffee supply chain and improvement of the value chain

• ….More studies about Agri-food Supply Chain are coming soon!

Conclusions

11/4/19

14

§ Collaboration and optimization of clusters to minimize the waste in the coffee value chain

§ Investigation for understanding the coffee supply chain and improving the value chain

Future research

Questions and Answers

… Thank You!