Author/Speaker: E-Markets white paper
Date: June 11, 2001
We have been asked many questions from the grain products industry about the role of contracting in the future. These questions were stimulated by utilization of E-Markets AgContract® information management tool and our experience in deploying it in various contracting systems.
What is the role of contracting in the future? What are the advantages and disadvantages of a contracting program?
Contracting is one means of coordinating buyer driven procurement systems. Many markets and supply chains in agriculture can be characterized as buyer driven. In other words, the buyers in the market tend to set prices and terms for transactions. This occurs either because of buyers' size versus suppliers or because of traditional market workings.
Contracting is a mechanism for coordinating production and delivery of products under more rigorous standards than afforded through existing market channels. The emergence of contracting in various agricultural markets is in response to increasing emphasis by buyers on consistent product quality and the emergence of new product traits.
"Know Thyself" is the advice of the ancients engraved in the Oracle at Delphi. It is good advice for agriculture as well. Recent events and emerging consumer trends show the importance of knowing how and where food is produced. Whether taking steps to ensure food safety or merely attempting to keep more detailed production and logistics records, companies are finding competitive advantage in developing contract procurement systems that help them know their products better.
Contracting as a market mechanism has presented challenges in the past because of its complexity and cost. It inherently entails coordinating activities between suppliers, buyers, and logistics agents in between.
In order for contracting to become a more widely adopted means of coordination, many of the participants in the supply chain will have to become better at participating in more integrated production systems.
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Suppliers need to become adept at preserving quality and delivering products under pre-defined schedules. Buyers need to develop contracts and contracting systems that do not upset the current economics in the supply chain, and make contract-based procurement a planned and
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coordinated process, rather than an ad hoc activity.
Information systems to assist participants in the supply chain in the coordination process are also important to continued growth in contracting. Deployment of E-Markets AgContract has proven to our clients and us the value of a central information system in large-scale procurement systems.
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