Int. J.

Production Economics 60 61 (1999) 271 279

Quality assurance in food and agribusiness supply chains:

Developing successful partnerships
Gerrit Willem Ziggers!,*, Jacques Trienekens"
! Department of Quality and Supply Chain Management, State Institute for Quality Control of Agricultural Products, RIKILT-DLO,
P.O. Box 230, NL-6700 AE Wageningen, Netherlands
" Department of Management Studies, Agricultural University Wageningen, Hollandseweg 1, NL-6700 KN Wageningen, Netherlands

Abstract
Specific market and production characteristics of food supply chains are motives for vertical coordination in order to
gain competitive advantage. Quality assurance systems will only contribute as a facilitating factor. The actual com-
petitiveness of the food supply chain will be determined by the ability to develop successful partnerships. The
implications for food supply chains will be a diversity of partnerships characterized by an enhanced asset specificity and
higher exit and entry barriers. ( 1999 Elsevier Science B.V. All rights reserved.

Keywords: Quality assurance; Vertical coordination; Partnership; Competitiveness

1. Introduction the maturity stage it tends to shift to a buyers

In the European Union (EU) its Common Agri-
cultural Policy was aimed at increasing agricultural
productivity, price and income stabilization and
security of food supplies. For Dutch agriculture, as
for agriculture in other European regions, until
recently, emphasis has been put on sustained
growth and efficiency. Within an expanding market
production and efficiency in the food supply chain
was increased through specialization and concen-
tration. However, nowadays markets have become
saturated. Referring to the product life cycle a de-
veloping market can be considered as a sellers
market concentrating on cost competition, while at
* Corresponding author. E-mail: g.w.ziggers@rikilt.dlo.nl.
market concentrating on differentiation strategies
[1]. Other developments affecting food supply
chains are liberalization of trade, changing con-
sumer/customer demands and legislation concern-
ing, e.g. food safety, food quality, animal welfare
and environmental issues. These demands are af-
fecting different stages of the food supply chain.
Fresh produce, such as meat, are characterized by
the direct relation between the internal attributes of
the final product and those of the primary product.
These developments accentuate the degree of inter-
dependence among different levels of the supply
chain. A more closely coordinated system to be
more responsive and to adjust rapidly to changing
conditions is increasingly important to be competi-
tive. Although the concept of the supply chain is
not new, there is an increased interest in it because

0925-5273/99/$ - see front matter ( 1999 Elsevier Science B.V. All rights reserved.
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272 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
of the need to meet customer demands and to gain
competitiveness. This paper will discuss com-
petitiveness of food supply chains with special refer-
ence to quality assurance and vertical coordinated
partnerships.
2. Motives for vertical coordination
Food and agribusiness firms, in general, are con-
fronted with rapidly changing markets, new tech-
nologies and an almost worldwide competition. As
a consequence, markets have become more dy-
namic and more complex. It affects all levels in the
supply chain. A retailer purchasing worldwide per-
ishable foodstuffs needs reliable partners. Also, due
to legislation on liability and foodsafety. To devel-
op and to introduce new produce can only be
effectuated by joint investments and cooperation.
New distribution techniques enable large-scale
production and frequent deliveries, although it
increases the risk of getting out of stock. In agricul-
ture technological developments contributed to
specialization and large-scale production, but also
increased the need for and availability of capital.
These developments imply the need for durable
partnerships [24].
Moreover, the growing awareness of the import-
ance of product quality by agribusiness managers
contrasted to the increasing dissatisfaction with
product quality amongst consumers may be inter-
preted as an example of a failure of the existing
market system [5,6]. Vertical integration is often
mentioned as the conventional solution to dissolve
the destructive results of markets failures [7]. Is it
an alternative? Motives in favour of vertical integ-
ration are:
f Reduction of transaction costs: Transaction costs
are the costs associated with the process of ex-
change itself. When transactions recur frequently
and require high transaction specific investments
and opportunist behaviour is likely and therefore
transaction costs will rise, then vertical integra-
tion might be more efficient [1,8,9].
f Reduction of risk: Internal control and coordina-
tion is often associated with the assurance of
supplies. This counts especially for capital inten-
272
sive stages where shortages of material will lead
to a waste of expensive facilities [1,10,11].
f Enhanced ability to innovate and to differenti-
ate: Forward integration gives a firm better or
more timely access to market information allow-
ing a more rapid or specified adjustment of prod-
uct characteristics. Backward integration may
allow a firm to obtain specialized inputs through
which it may improve or at least distinguish its
final product [1,9,11].
f More efficient exchange of information and organ-
izational structures: Vertical integration may
cause the firm to require less information and so
reducing costs. Of course, the potential cost ad-
vantage must be balanced against the disadvan-
tage of the possibility of missing advantageous
external opportunities. Besides, vertical integra-
tion facilitates the introduction of more efficient
and specialized procedures and organizational
structures to improve production [1,11].
f Improved marketposition: Vertical integration
creates entry and mobility barriers in case of
significant economies of scale or requirements of
capital to integrate [1,9].
Motives against vertical integration are:
f Dissipation of resources: In combining various
stages of production or distribution the problem
very often is the varying scale of operations that
each stage may require to operate efficiently.
Either the firm must accept cost disadvantages
due to inefficient operating scales or it has to
sell/purchase outputs/inputs at the market.
Moreover, the firm may foreclose itself from ac-
cess to independent suppliers or buyers
[1,10,11].
f High demand on capital: To make vertical integ-
ration profitable high investments need to be
offset by substantial cost savings or returns
greater than or at least equal to the firms oppor-
tunity cost of capital [1,10,11].
f Reduced flexibility: High investments may cause
exit barriers and reduce flexibility. Changes in
technology, product design and market develop-
ments may cause the produce or technologies to
become more costly, inferior in quality or inap-
propriate compared to those of independent
suppliers or buyers. The integrated firm is then
273 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
confronted with higher switching costs than in
case of contracting independent partners [1,11].
f Rigidity of organizational structures: Managing
various stages may require distinctly different
managerial approaches. Moreover, tightly lin-
ked, captive and assured linkages between the
stages within an integrated firm may cause dull-
ed incentives. In general, markets promote high-
powered incentives and restrain bureaucratic
distortions more effectively than compared to
internal organization [1,7,11].
Potential benefits and costs and potential risks of
vertical integration as compared to market ex-
change may be great. However, many of the ad-
vantages of vertical integration can be gained
without incurring all of its costs and risks through
the use of some kind of vertical coordination [1].
Theoretically, in the case of market exchange, con-
trol is fully located at the separate stages and co-
ordination is arranged solely by market prices.
With vertical integration, control is completely
shared or transferred to central management leav-
ing the different stages without separate control.
Vertical coordination lies in between this con-
tinuum of open markets and vertical integration. It
allows firms to focus on core business and to out-
source other functions
The big scale differences between the various
stages in food supply chains is one of the reasons
for making complete vertical integration less com-
mon than vertical coordination. Specific market
and production characteristics of food supply
chains are additional motives for vertical coordina-
tion. They include:
f perishability of produce;
f variability of quality and quantity of supplies of
farm-based inputs due to biological variation,
seasonality, random factors connected with
weather, diseases or other biological hazards;
f differences in lead time between successive
stages;
f complementarity of agricultural inputs, meaning
that they are available in joint packages only;
f stabilization of consumption of many food pro-
duce;
f increased consumer attention concerning both
product and method of production;
273
f degradating intrinsical quality due to the fact
that the intrinsical quality of raw materials is the
highest quality attainable for fresh produce;
f availability of capital.
The perishability of many produce puts great
demands on duration and conditions of storage,
processing and transportation at all stages of the
supply chain. Therefore, the existence of assured
markets is very important to suppliers of perishable
produce. As mentioned earlier, capital intensive pro-
cessing facilities put high demands on a continuous
flow of supplied inputs to buyers. Differences in lead
time between stages requires efforts to match these
to one and other. For example, pigs need time to
grow, to reach optimal productivity and cannot be
stored alive. Meat production is a process that will
inherently lead to a wide range of final produce.
Complementarity of produce makes it impossible
to produce in isolation exactly what is required.
Hams cannot be produced without pork chops.
Vertical coordination is also believed to offer
comparable advantages with respect to product
differentiation and flexibility. Regarding the (ex-
pected) shortening of product lifecycles this is of
great relevance. With respect to the latter different
forces can be distinguished. A consumer demand
force concerning demands on animal welfare, food
safety, food quality and environment. Other forces
are driven by efficiency and supply considerations.
Being closer linked to (a smaller number of ) sup-
pliers product differentiation might enable food
producers to realize higher efficiencies [12]. A sup-
ply force such as biotechnology enables a closer
match of food produce with specific attributes de-
sired by certain discriminating markets, e.g. cloned
animals producing lean meat produce. Information
technology (IT) enables to information about
a wide range of product attributes and is an effec-
tive and important mean to coordinate activities in
the supply chain. With respect to the latter, one can
refer to electronic data interchange (EDI), such as
EDI-pigs and EDI-flowers in the Netherlands [13].
Other ongoing developments are the development
of identification and recording (I&R) systems of
produce and the implementation of (certified) qual-
ity assurance systems to assure quality of produce
and by doing so to improve competitiveness.
274 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
3. Quality assurance and competitiveness
There is no doubt that food and agribusiness
firms have increasingly to deal with competitive
markets in which market directedness of produce
and services and the efficiency and reliability of
their delivery become decisive aspects for com-
petitiveness. With regard to these developments,
firms are implementing quality assurance systems,
such as good manufacturing practice (GAP)-codes,
hazard analysis critical control point (HACCP),
International Standard Organization 9000 (ISO)
and Total Quality Management.
To establish quality assurance in agri- and food-
business it is important to consider the specific
characteristics of raw materials, produce and struc-
ture of this line of business as mentioned before. It
advocates for an integrated chain approach of qual-
ity assurance: integrated quality assurance (IQA).
The surplus value of IQA can be related to the
individual firm, the supply chain and competing
supply chains [14]. The surplus value for a firm
lays in a more effective and efficient conduct of
business. The second advantage for an individual
firm to participate in an IQA-programme is as-
sured sales. The surplus value for the entire chain of
IQA concerns an increased profitability. Both by
producing produce of high-quality standards and
by improving production throughout the entire
supply chain. High-quality produce generating
more value, optimizing production reducing costs.
This way IQA enables an increase in the com-
petitiveness with regard to competing supply
chains, which might be of national importance.
In general, quality control or assurance is about
management or can be considered as a peculiariz-
ation of management. Management conceived as
initiating, directing and controlling objective-di-
rected activities [15,16] aimed to improve produce
and production, to meet customer demands, to
optimize utilization of resources and reflecting the
policy of the firm, both adjusted to the business
environment in which a firm operates. Quality as-
surance at the firm level reflects this interrelation.
Implementing IQA is more or less the same. Firms
and groups of firms show only gradual differences
along the dimensions that measure the degree of
organization and therefore can be analysed with
274
the same concepts and theories as organizations
[17]. With regard to IQA this means agreements
about specifications, exchange of information, co-
ordination and control or even redesigning the
supply chain to realize superior customer value at
minimal costs at the interorganizational level. This
means, to be successful, firms have to cooperate.
Therefore, the main challenge will be to develop
partnerships and to use each others competencies
in order to increase the performance of the supply
chain. The actual competitiveness of the supply
chain will not be determined by its (certificated)
IQA-system, which will only be a facilitating factor,
but by the cooperating ability of firms in the supply
chain.
4. Partnerships as a result of mutual
interdependencies and forces
The different stages of the supply chain may be
interdependent and should cooperate with each
other, however, the question is how to develop
partnerships? The main idea is to build-up com-
petitiveness in cooperation with others. This is also
supported by Lagnevik [18] ... high networking
capability creates competitive power... and Moss-
Kanter [19] ...co-operation with suppliers and cus-
tomers are important tools in upgrading com-
petitiveness.... Partnerships provide firms with the
opportunity to improve their conduct of business
by means of cooperation. It allows firms to focus on
core business and to out-source other functions.
A partnership in food and agribusiness can be de-
fined as a set of interdependent firms that work
closely together to manage the flow of produce and
services along the supply chain, in order to realize
superior customer value at minimal costs [13]. In
principle, the partnership is temporary and partial.
Its organization and structure is a result of joint
activities and the exchange of information, people
and resources [4].
Partnerships can be put in a transactional and
a cooperative action perspective. Within a transac-
tional perspective a partnership can be character-
ized as a regulatory system in order to establish an
efficient and reliable flow of transactions. Actors
are interdependent, but primarily directed towards
275 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
their own objectives. Within a cooperative action
perspective a partnership can be characterized as
a coordinating system in order to effectuate com-
mon objectives. Actors are interdependent in their
common objectives as well as in their complement-
ary contributions. This does not mean that transac-
tions and cooperative action are mutually
exclusive. Cooperative action might encompass
contracting between actors and might therefore
serve as a part and precondition of a transaction.
In reverse, transactions often do not involve
cooperative action. Bilateral and multilateral
contracts can specify both procedural and actual
aspects of transactions without referring to
coordinated action [20]. Especially, the develop-
ment of partnerships in the perspective of
cooperative action seems to be relevant for food
and agribusiness as a result of the specific charac-
teristics of this line of business. Nevertheless, the
performance of partnerships will always be a com-
promising one. One has to bear in mind that objec-
tives of partnerships depend to a large extent on the
objectives and strategies of the participating actors
and the nature of their interdependence. In cases
where it has competitive elements the gains of one
party are to some extent the losses of others.
Firms are part of a certain context which put
restrictions to the development of any given partner-
ship. Within the context [21] distinguishes four di-
mensions which influences competitiveness of firms
and by that the suitability of potential partners:
f The geographical dimension. This concerns fac-
tors which determine if a certain area has eco-
nomic potential, e.g. infrastructure, land prizes,
subsidies and legislation.
f The economical dimension. Firms operate in an
area with large and small firms. It will affect the
choice of a product-market channel, but also the
nature of relations with suppliers and buyers.
f The social-cultural dimension. Each firm and
society has its own culture with its specific life-
style. This makes some firms more suitable to
cooperate with than others.
f The time dimension. If one combines the geo-
graphical and time dimension, then, e.g. some
characteristics of agriculture in Eastern Europe
nowadays appears to be comparable with agri-
275
culture in the Netherlands during the 1960s and
1970s.
Very often the decision to cooperate is inspired
by the existence of mutual interdependencies. Sev-
eral interdependencies are at issue e.g. technical,
knowledge, continuity, social and capital interde-
pendencies [21]. Therefore the organizational
structure and the derived transactioncosts are not
purely a matter of asset specificity, transaction fre-
quency and uncertainty [8], but are affected by
forces which affect relations within partnerships.
Hakansson [22] mentions four forces:
f functional interrelations; actors, activities and
resources are a system of interrelated supply and
demand issues,
f power; actors found their power on controlling
the activities and/or resources,
f knowledge; the development of activities as well
as the use of resources is related to the knowl-
edge possessed by partners,
f time; partnerships are the result of contacts,
knowledge and experiences from the past.
Changes within the partnership have to be ac-
cepted at least by a part of the participants
otherwise changes will be marginal.
These forces proceed from the latent relations
which are related to the manifest relations. Activ-
ities of actors are linked within a partnership and
are aimed to be continued in the scope of efficiency,
but through that interdependencies will develop
and/or will be strengthened. The structure and or-
ganization of a partnership will act as a control
mechanism, which makes some changes easier and
others more difficult [23]. Besides the mutual inter-
dependencies, the success of a partnership is also
affected by:
f Bounded rationality of actors: Firms are re-
stricted in getting and processing all available
information [24].
f Opportunist behaviour of actors: Firms may take
advantage of their position and impose on others
by providing incomplete or incorrect informa-
tion deliberately, also affected by uncertainty
and complexity of the business environment and
degree of market concentration with exit-and-
entry barriers [4,24].
276 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
f Rigidity of organizational structures: Within
partnerships routine structures may develop
which impede organizational learning. Firms
may withhold or manipulate information to re-
tain gained positions [25].
f Balance of power between actors: Relations can
vary from symmetric to asymmetric. A relation is
asymmetric if control is unbalanced. These types
of relations can be found in a dual production
system, where a dominant firm ties a group of
dependent firms [35]. As a consequence, new
partnership may develop to create countervail-
ing power.
f Appropriability of actors: The inability to ac-
count costs and benefits to each of the actors
may hamper the development or duration of
partnerships [8,23,24,26].
The success or performance of a partnership is
a result of the context in which the partnership
operates, the interdependencies which exist among
actors and the behaviour of actors (Fig. 1), which
can be expressed as the following
1 1 2 2 3 3
Fig. 1. The concept of partnerships: context, dependencies and behaviour that work upon the performance of the partnership.
276
1
where is the performance of partnership, X the
2
context in which partnerships operates, X the in-
3
terde
Basically, there are four key factors, which deter-
mine successful partnerships [2]:
f clear benefits for all participants;
f a good strategic fit of partners;
f the involvement of all management levels;
f (organizational) flexibility.
This implies that firms have to consider the activ-
ities on which they want to cooperate (core ,
sideline or supporting business activities) and the
consequences of it on the conduct of business and
the need for coordination. An important issue in
this context is the question of the core competencies
of a firm: the bundle of skills and technologies
a firm is really good at [27]. The choice of partners
to deal with (buyers, suppliers) and the decision to
build a partnership should depend on the core
competence of the firm. The firmness of the
relationship will be determined to the extent of
which partners come to an agreement about objec-
tives, strategies, resources, coordination, facts and
277 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
remaining questions [4,28]. It implies also that
a partnership cannot be considered as a collective,
but that one has to consider the individual position
of firms as well. Therefore, the actual performance
of partnerships might depend more on power and
mutual interdependence of actors than on efficiency
[4,20]. For research on competitiveness in the sup-
ply chain this implies that both the supply chain
and the individual firm should be the unit of analy-
sis. This can be illustrated by research of Kuiper
and Meulenberg [29] on the impact of modest
price changes (10%) in a specific stage of the Dutch
pork chain on prices of other companies in the
supply chain. Results indicated that:
f Changes of retail prices bring about changes in
prices of all companies in the channel: slaughter-
houses, fatteners and breeders. It took about 10
months before all prices approached their new
equilibrium by less than 1%.
f Changes of slaughterhouse prices influence pork
pig and feeder prices substantially, but affected
retail prices to a minor extent.
f Changes of feeder prices generated short-term
changes in pork pig prices (and the other way
around), but did not bring about price changes of
slaughterhouse and retail companies.
These results suggested that:
f Price coordination from retailer to feeder farm
did not indicate structural bottlenecks. This re-
sult was considered as in line with the popular
view that retailers have a strong power in the
Dutch pork supply chain.
f Price coordination from feeder farm to retailer
did indicate, in the short run, a bottleneck be-
tween the multiplier and finisher, on one hand,
and the slaughterhouse and retailer on the other
hand. This bottleneck, however, did not persist
in the long run.
Competitiveness is about the relative effec-
tiveness of competing partnerships and no longer
about individual competing firms. The challenge of
partnerships is to adopt a particular strategy and to
implement it. One has to decide whether to acquire
competitive advantage by producing at low costs or
by offering premium, distinctive produce to the
market. Also, one has to decide whether to ap-
277
proach the entire market or to focus on specific
segments [3,11]. One can be successful and profit-
able with any of the above strategies. For example,
it is not always necessary to differentiate oneself by
a strong (consumer) brand. If one does not have the
competence or the financial means to establish such
a brand, it may be wise to build a partnership with
a retailer and, through an outstanding logistic per-
formance become a reliable, low cost, supplier.
Partnerships will only last if they are able to meet
the key factors of successful partnerships. Changes
occur especially during economical recession in or-
der to maintain continuity and control of gained
positions, next to it functional, strategic and politi-
cal issues are also involved [30]. If common objec-
tives are going to be different and coordinating
actors are losing their influence, then the partner-
ship might decline. Examples in Dutch food and
agribusiness are the development of the VTN
Food Horticulture Holland (food horticulture), the
Greenhouse (ornamental flowers) and DUMECO
(meat production, a merger of the meat processing
firms Coveco, ENCB (both cooperative) and
Gupa). These new organizations meant new and
different positions for and relations between
growers, auction, the central Board of Horticul-
ture-auctions and customers, respectively, coopera-
tive pig farmers and meat processors.
5. Concluding remarks
Developing partnerships are aimed at improving
efficiency and effectiveness in supply chains. Com-
plete vertical integration may have several disad-
vantages, such as dulled incentives and reduced
flexibility. In addition, due to the typical big differ-
ences in scale between successive farm and nonfarm
stages, it may be concluded that vertical coordina-
tion seems to be more appropriate in food supply
chains than vertical integration [1,5]. Improved
control over product quality, and quantity, in gen-
eral and the focus on product differentiation to
supply to increasingly discriminating (niche) mar-
kets in particular, may be considered as primary
motives for vertical coordination modes in food
and agrisupply chains [1,5,12]. Product and
market innovations are necessary to maintain
278 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279
continuity in terms of marketshare and turnover.
Its success depends to a large extent on the distri-
bution of power, agreements about common objec-
tives and agreements about the sharing of costs and
benefits. Developing partnerships in the perspective
of cooperative action seem to be relevant for food
supply chains. Motives for this are, e.g. develop-
ment of competitive power, need for quality, safety
and sustainability of food produce and flexibility to
react fast on changing markets. Several forms of
risk can be reduced this way, risk of fluctuating
prices, risk of quantity/quality features (e.g. trans-
port of pork, scheduling of pork finishing capacity
with slaughterhouse an meat products processing
capacity), risk of food safety and hygiene. More-
over, ongoing developments in EDI, I&R systems
and quality assurance systems may be considered
as facilitating factors.
The trend will be towards greater interdepen-
dence. The ability to produce to specification will
increase and the ability to measure product charac-
teristics also will be enhanced. Thus, the costs of
producing the diverse produce demanded by con-
sumers likely will be lower in a more closely coor-
dinated system. Partnerships are likely to extend
across food supply chains from input supplier
through producer to processor and distributor as is
currently occurring in pork production and horti-
culture. It implies that market position and finan-
cial performance will depend increasingly upon
management rather than on ownership of assets.
Management not only in the form of operations
and strategic management skills internal to the
firm, but also in the form of successful negotiation
of linkages with suppliers and distributors and hav-
ing the proper external partners [6], next to the
organizational structure of both firm and partner-
ship and its ability to be responsive to changing
customer needs and business environmental chal-
lenges. These can be considered as critical skills,
which are more difficult to develop, but might have
a profound contribution to a sustainable competi-
tive advantage [6]. The implications will be a diver-
sity of partnerships characterized by an enhanced
asset specificity (technical, knowledge, skills) and
higher exit and entry barriers.
Therefore, understanding how actors within
partnerships interact with each other is necessary,
278
not only for improving chain efficiency, but also for
exposing the technical and economic consequences
of product development and differentiation [1,11].
Conceptual as well as empirical work is needed.
Conceptual models that relate the attributes of
partnerships, in combination with characteristics of
its competitive environment and to its success in
the business environment. Attributes such as
strength of linkages, opportunist behaviour, flexib-
ility and competitive strategy adopted. Empirical
work to quantify and to test the conceptual models
in order to find the critical success factors of part-
nerships under different conditions. The extensive
work in the area of networks between industrial
organizations may provide inspiration and help for
developing these models [3134].
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