Supply Chain Management of Milk Supply in Kenya (Thesis Sample)

Supply Chain Management of Milk Supply in Kenya

INTRODUCTION
1 Background of the study
The dairy sector is an agricultural sub-sector that aid the global economy through food and nutrition provision with over 800 Billion liters of milk for consumption. Milk contains significant levels of protein and micronutrients. The micronutrients include Magnesium, Zinc, Potassium, Riboflavin, and vitamin B12 and B5. Traditionally, milk was considered a therapeutic food for the sick, elderly, and infants (Gerosa and Skoet, 2012) but nowadays, milk is a basic commodity in most households (Kenya Association of Manufacturers, (KAM), 2019). According to Food Agricultural Organization, (FAO), (2020) milk and milk products are consumed by around 6 billion people globally. In Europe, America and the Middle East, milk is a major component of the peoples’ diet. Developing economies are rapidly growing into colossal milk and milk products consumers (Oliveira, Fox & A ‘Mahony, 2019).
Dairy provides over 470 Million jobs globally. Provision of employment act as a contributor to Gross Domestic Product (GDP) in any country. In Pakistan, dairy contributes 11% of GDP per annum (Shahid, Shafique & Shokat, 2012). In Kenya dairy contributes to over 4% national GDP (The National Treasury and Planning, Kenya, 2019). The contribution of the dairy sector towards the achievement of Sustainable Development Goals (SDGs) cannot go unnoticed. SDGs are achieved through ending poverty, combating climate change and achieving gender equality. Poverty can be ended through provision of highly sustainable and nutritious products. Climate change can be addressed through green procurement practices while gender equality can be through involvement of women in dairy activities (Roux, 2017).
Dairy activities help achieve individual national goals. In Kenya, the Big Four agenda-an economic blueprint and the vision 2030-a development blueprint are both national goals. Industrialization of the dairy sector will help achieve both goals. In return, food security will be achieved in the country (The National Treasury and Planning, Kenya, 2019
Globally, the dairy industry has been growing immensely. However, it is worth noting that there has been a constant decline in the price of milk in the United Kingdom despite the yield doubling (Dairy UK-Defra, 2020). Farmers are selling directly to consumers; bypassing milk processors. Dairy processing and production in Europe have declined by 6.2 % since the consumers are buying directly at the farm (FAO, 2015). Poor relationships between farmers and milk processing firms in the United Kingdom, make farmers opt to sell milk directly to consumers (Dowing, 2016). In India, the formal dairy sector is characterized by low profitability, high overheads, and inadequate investment in technology (Banerjee & Mishra, 2015).
In most African countries’, the dairy sector is domestic and localized. Most milk is delivered in raw form directly to consumers bypassing milk processors (FAO, 2020). ). In Ethiopia, the dairy sector aids economic transformation through growth in income and achieving set governmental goals (Minten, Habte, Tamru & Tesfaye, 2020).
The informal channel in most developing economies, plays a major role in provision of milk for consumption. 80% of the Kenyan milk is delivered in raw form. In Tanzania raw milk is delivered at 90% while in Assam (India) raw milk consumption stands at 95% (Blackmore, Guarin, Alonso, Grace & Vorvey, 2020).
It is evident consumers and producers prefer the informal channel to the formal channel of milk marketing. Preference of the informal channel by milk consumers has been attributed to various reasons; milk quality, pricing and availability. Producers prefer the informal channel as it pays immediately and at higher prices (Blackmore et al, 2020). After liberalization of the dairy sector in Kenya, producers who are mostly farmers, sold their milk to the new formal entrants with an aim of creating more money. Later, some of the milk processors closed down and defaulted payments of farmers. Some farmers were paid in small batches which left them discouraged. Since then most farmers opt to sell directly to consumers (Kibogy, 2020; Lokuruka, 2016).
In a bid to establish a competitive industrialized dairy sector, the Kenyan government has invested in cooling plants and other infrastructural capabilities. Kenya has joined hands with other nations aiming at improving their processing capacities of milk (FAO, 2020). Milk has characteristics that differentiate it from other agricultural products. The differences shape its trade, processing, and production. In raw form, milk is highly nutritious but very bulky and highly perishable (Knips, 2005) and thus requires processing immediately after collection (FAO, 2019).
Despite the infrastructural capabilities and investments and the surge in demand for processed milk products, processing is still done at low levels in many nations. In Tanzania over 65% of processing capacities are underutilized this has resulted to closure of over 12 processing plants. In Kenya only 46% of installed milk capacities is utilized anually. In Rwanda, underutilization of milk processing capacities is by over 57%. In Uganda, milk processing capacity is underutilized by over 40% (Abulsalamad & Gereffi, 2016; Lokuruka, 2016). The underutilization of processing capacities is a clear sign that processing is done but at low levels across Africa. Kenya is a heavy importer of milk powder and ghee from the United Kingdom since local processing cannot satisfy the growing demand (FAO, 2020).
Numerous challenges such as seasonality in milk production, milk quality issues, postharvest losses, inadequate supply of inputs, fragmented supply chains, high cost of processing, and competition from the informal sector specifically face the milk processing firms in Kenya. The challenges heavily contribute to the underutilization of processing capacities (Maina, Njehia & Eric 2020; Kibogy, 2019). Investments made by milk processors in form of milk treatment plants, pasteurizers, refrigerators, pipes, spares and boilers are expensive. When underutilized firms make losses (Abdulsamad & Gereffi, 2016; Lokuruka, 2016).
Milk processors are a useful link between dairy farmers and the market. Milk processors purchase raw milk and help in the delivery of value-added products (yoghurt, ghee, milk powder, cheese) to the end consumers. A competitive dairy processing sector ought to provide affordable products that are easily accessible in the market. Therefore, dairy processing firms must recognize the role of supply chain management (SCM) practices in improving their performance. Despite the critical role of SCM practices in improving performance, literature is scarce specifically in the milk supply chain in Kenya (Maina et al, 2020). Therefore, the study objective is to empirically explore how SCM affect firm performance of milk processors in Kenya. The SCM practices included in the study are strategic sourcing, lean inventory management and green procurement practices.
Supply chains including the dairy supply chain are becoming complex and this calls for effective management of buyer-supplier relationships as this enhances superior performance (Whipple, Wiedme & Boyer, 2015). Patil and Gogte, (2020) recognize that suppliers are a critical aspect that contribute to firm success. This however can only be achieved when supplier selection is done in a strategic manner and better relationships are developed between buyers and sellers. Kim and Chai (2017), define strategic sourcing as the process of supplier and supply network management all in a bid to enhance operational, market and financial objectives of a firm. Formation and management of supplier relationships is the backbone of supply chain as they improve form performance (Dash, Das, Tripathy & Nayak, 2018).
The perishability of milk makes the dairy supply chain unique, thus needs unique treatment from and for the dairy chain players (Onam, Omondi & Battenweck, 2019). Good and lean inventory management practices in a dairy firm translate to efficient transportation of milk, which is a perishable product; thus, the firm will not have excess obsolete stock. This practice brings to better firm performance (Atnafu & Balda, 2018). A lean inventory management practice will ensure effective capacity utilization and enhanced performance (Alshoubul, 2018).
The dairy industry has been receiving considerable attention from environmentalists since it contributes to environmental degradation both from a global and local perspective (Deloitte, 2017). The environmental degradation is through land usage, pollution from industrial waste, and animal pesticides and feeds. Farmers are now using manure in place of commercial fertilizers to reduce pollution. Besides, the disposal and use of plastics have a significant concern in the dairy industry. This attention has led to companies like Fair Cape Dairies to use recyclable milk packaging (Fair Cape Dairies, 2019) and Bio Foods Products which has packaging that has 30% less polyethylene terephthalate thus less environmental impacts (Food Business Africa, 2019).
Green Procurement, therefore, is responsible for better environmental and market performance. Consumers identify with sustainable products (Gorante & Kante, 2015). Environmental factors, when implemented in procurement policy, will lead to the development of green procurement in an organization. Greening the entire chain will focus on eco-friendly packaging and delivery of the final commodity to consumers. A ban on plastic bags in Kenya saw dairy processing firms use the right packaging material while adhering ...