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SUNRISE 2.0 Case Study: Unilever’s inclusive Black Soy Supply Chain
1.
© 2014 ir.
A.R. Sjauw-Koen-Fa SUNRISE 2.0 Case Study Unilever’s inclusive Black Soy Supply Chain August Sjauw-Koen-Fa
2.
1109135 © 2014
ir. A.R. Sjauw-Koen-Fa Historical back ground of the black soybean supply chain of ULI • ULI acquired a majority stake in a Javanese company producer of sweet soy sauce brand ‘Kecap Bango’ in 2001. Regular suppliers of black soybeans are local and regional commodity traders. • Large Indonesian market for soy sauce, but growth of KB is limited by a shortage of local black soybean. • Possible sourcing strategies to expand soybean supply are: - to import black soybeans - to expand buying from regional commodity traders - to develop of an own black soybean supply chain. • ULI choose to develop an own supply chain of small-scale rice farmers. • However, the smallholder farming system need to be upgraded to meet market standards and sustainability agricultural practices.
3.
1109135 © 2014
ir. A.R. Sjauw-Koen-Fa Collaboration model for smallholder supplier development • In 2003 Unilever Foundation and Procurement Indonesia start collaborating with University of Gadja Mada (UGM), farmers cooperatives, NGOs and local government. • The aims of the Farmers Development Program (FDP ): - To increase farm productivity - To produce sustainable according the SAC - To improve livelihood of farmers - To build capacity in particular of cooperatives. • Characteristics of the FDP: Price guaranty before planting, buying commitment of all produced soybeans, provision of farm services. • Women primary role in the value chain are in sorting of soybeans, although they also participate in planting activities.
4.
© 2014 ir.
A.R. Sjauw-Koen-Fa Collaboration model of Black Soybean Farmers Development Program Cooperatives G o v e r n m e n t UGM & NGO for community development Buying commitment Unilever Indonesia Foundation Advisory •Training / Skills Development •Encouragement •Community Development Unilever Indonesia. Farmers groups • The potential area selection • Extension officer on field • Cooperative development •Operational support •Capacity building •Financial access 4
5.
1109135 © 2014
ir. A.R. Sjauw-Koen-Fa FDP performance indicators 2007-2012
6.
1109135 © 2014
ir. A.R. Sjauw-Koen-Fa Characteristics of relationship with regional commodity traders • Traders are selected: they have to comply to Unilever’s business principles. • ULI Procurement visits farming area and meet their farmers to ensure they have dedicated, competent and reliable farmers or farmers group. • Formalized in Purchase order Document: Volume, fixed prices, harvest time, quality, delivery condition and commitments. • Drivers of the relationship are not only price and buying commitments, but also to be partner of ULI network. • Traders use mostly informal verbal ‘contracts’, based on long standing mutual trust. • Could provide fertilizers, seeds or credit to farmers.
7.
© 2014 ir.
A.R. Sjauw-Koen-Fa Critical success factors (1) • Strong value proposition due to large potential market for Kecap Bango. By using local produced black soybean the brand has a clear connection to the rural economy and local communities. • Proactive sustainability program within Unilever accompanied by clear ambitions regarding challenge of food security and small-scale agriculture in developing and emerging economies • Provision of price guarantee before planting. • Open and transparent pricing system, based on a standard cost price calculation, provides space to cooperatives (and farmers) for negotiation about the price and delivery conditions. 7
8.
© 2014 ir.
A.R. Sjauw-Koen-Fa Critical success factors (2) • A multi-stakeholder collaborative approach to bring public and private resources and short and long term interests together. • Focus of ULI Procurement and UIF on a common strategic goal: Development of a sustainable smallholders supply chain for the business. • Clear division but compatible tasks, resources/funds and competences, and open communication between ULI Procurement and UIF are critical conditions for smallholder supplier development. • Existence of collaborative and committed cooperatives and traders as intermediaries for facilitating smallholder supply on a long term win-win and trust-base. 8
9.
© 2014 ir.
A.R. Sjauw-Koen-Fa Critical leverage points • Pricing system and buying conditions • Improvement of the relatively low yield per hectare of black soybean: further intensification • Deepening of cooperation with regional traders • Review of curerend Collaboration model for the FDP 9
10.
© 2014 ir.
A.R. Sjauw-Koen-Fa Challenges to scale • Further improvement FDP • Transformational of the Collaboration model to facilitate doubling/tripling of the supply • Broader assessment of other constrains of producing KB sauce • Implementing SAC (from FDP as well as Traders) • Review of the sourcing model of the traders • Review of internal organizational barriers to scale (Procurement and Foundation) 10
11.
© 2014 ir.
A.R. Sjauw-Koen-Fa Inputs for procurement/supplier guide • Define a concrete value proposition and an appropriated sourcing strategy from a supplier development perspective. • Transactional relationship with suppliers must turn into cooperative relationship. • Empower producers organization/suppliers to organize smallholder supply effectively and efficiently. • Collaborate with government and NGOs to help improve smallholder farming system (a case of public-private investment and benefits) • Smallholder supply must be link to the market as reference to determine the price and buying conditions. • Create an accurate registration, monitoring and reporting system of the planting process and build flexibility of contract prices to minimize supply disruption. 11
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