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2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
A paradigm shift for a successful launch of a locally-
based start-up in the food supply chain
Michael Handrinos1, Kostas Rotsios2, Gerasimos Moshonas3 and
Dimitris Folinas4
1, 2, 3Perrotis College, American Farm School, Thessaloniki, Greece
4Department of Logistics, ATEI of Thessaloniki, Greece
1 michael@handrinos.eu, 2 krotsi@afs.edu.gr, 3 gmosho@afs.edu.gr, 4 dfolinas@gmail.com
Abstract
The American Farm School (AFS) is a non-profit academic institution that operates in
the area of Thessaloniki, Greece. Perrotis College operates under the AFS umbrella
since 1996 and it is an affiliate institution of the Cardiff Metropolitan University. AFS
has established a new business model, involving products of its alumni/graduates, of
setting up a store that commercializes its products and the ones of its graduates, to
the retail partners of the national food supply chain. The effectiveness of this model
depends on a coherent theoretical framework that identifies its potentials and
challenges. The purpose of this paper is to design a friendly-user framework for an
SME cooperative store, based on empirical and secondary evidence collected from
the American Farm School’s campus store. The store is operated by the college
students in the context of their entrepreneurship, business and marketing classes.
This framework will deal with managerial as well as technological aspects that will act
as a road map for an effective start-up development.
Keywords: food supply chain, start-up, co-operatives, case study, American Farm
School.
1. Introduction
In today’s competitive environment, where size is of extreme importance, it
has become even more essential for SMEs to be able to compete based on
the essence of loyalty. According to Ruben et al (2004) Reputation, trust and
loyalty have become critical to guarantee effective governance.
As the European Commission (2005) suggests, SMEs frequently have
difficulties in obtaining capital or credit, particularly in the early start-up phase.
Their restricted resources may also reduce access to new technologies or
innovation.
The purpose of this paper is to design a friendly-user framework for an
SME cooperative store, based on empirical and secondary evidence collected
from the American Farm School’s campus store. The store is operated by the
college students in the context of their entrepreneurship, business and
marketing classes. This framework will deal with managerial as well as
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
technological aspects that will act as a road map for an effective start-up
development.
The paper is organized as follows. The next section presents two
generic models for the loyalty-based start-up. Section 3 presents a framework
for an SME cooperative in the agri-business sector. The findings of a research
about the success of the proposed model are presented in section 4. Finally,
at the conclusions’ part the findings of that research are presented along with
suggestions for future research.
2. Loyalty-based start-up models
This section summarises the literature review for the management of the
loyalty-based start-up companies and discusses two models; one developed
by developed by Reichheld (2001) and one suggested by Lazzarini et al.
(2001).
There are many research initiatiatives about the establishment of start-
up companies in many industries and business sectors but one could strongly
suggest that this is not focused in the area of the agribusiness sector.
Therefore, two generic frameworks are presented and analyzed and a brief
literature review is presented.
At first, as Reichheld argues (2001) when customers do trust an online
vendor, they are much more likely to share personal information. This
information, he believes, enables the company to form a more intimate
relationship with customers and to offer products and services tailored to their
individual preferences, which, in turn, further increases the level of trust and
strengthens the bonds of loyalty. Such a virtuous circle can quickly translate
into a durable advantage over competitors.
One could also suggest that the story is much the same for integrated
supply-chain relationships. Unless firms are comfortable engaging in highly
transparent relationships and sharing internal information, including costs and
profit budgets, with their partners, little benefit can be achieved through
reduced inventory levels, coordinated scheduling, or joint planning. Open,
transparent relationships work only when both sides are committed to mutual
success (Reichheld, 2001).
However, as Reichheld believes (2001), loyalty is dead, and the
statistics seem to bear them out. As statistics suggest, on average, U.S.
corporations now lose half their customers in five years, half their employees
in four, and half their investors in less than one. We seem to face a future in
which the only business relationships will be opportunistic transactions
between virtual strangers.
The strategic advantage now enjoyed by large companies in the United
States, like Northwestern Mutual, State Farm, MBNA, and John Deere shows
why acquiring the right customers is so critical. It becomes more evident as
capital ratios decline, and their competitors, gasping for breath, trade leftover
customers back and forth in the increasingly vain and frantic hope of
maintaining growth in a mature market. If companies are to prosper into old
age, they must build a foundation of loyal customers (Reichheld, 2001). One
could claim that this is true even in newer industries -perhaps especially in
newer industries- where many competitors can earn respectable profits for a
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
time, but where sooner or later, there will not be enough good customers to
go around. Nevertheless, the smart competitors will find ways to get the best
ones early and the smartest of the smart will then shift their growth strategies
away from new-customer acquisition and toward building and broadening their
relationships with the good customers they have already won. A recent study
by Bello et al (2012) states that the AFS has a small but very loyal customer
pool, based on the AFS image as a safe and ethical food producer.
Customer retention is a subject that simply cannot be confined within
narrow limits. We came to understand that business loyalty has three
dimensions customer loyalty, employee loyalty, and investor loyalty and that
they are far more powerful, far reaching, and interdependent than we had
anticipated or imagined. Loyalty has implications that extend into every corner
of every business system that seeks the benefit of steady customers.
2.1 A proposal for a new business model
The implicit business model behind most present-day strategic plans and
budgeting procedures begins with a profit target and works backward to arrive
at required revenue growth and cost reduction. In a research Reichheld had
undertaken, where it lasted for almost a decade studying loyalty leaders and
their business systems, what one has learned has radically altered the view of
business economics. That research, conducted by Reichheld (2001), led him
to develop a very different model, rendered graphically in Figure 1.
As he has discovered, what drives this new model is not profit but the
creation of value for the customer, a process that lies at the core of all
successful enterprises. Value creation generates the energy that holds these
businesses together, and their very existence depends on it. The physics that
governs the interrelationships and energy states of a business system’s
elementary particles- its customers, employees, and investors- we call the
forces of loyalty. Because of the linkages between loyalty, value, and profits,
these forces are measurable in cash flow terms. Reichheld (2001) believes
that loyalty is inextricably linked to the creation of value as both a cause and
an effect. As an effect, loyalty reliably measures whether or not the company
has delivered superior value: Customers either come back for more or they go
elsewhere. As a cause, loyalty initiates a series of economic effects that
cascade through the business system, as follows:
• Revenues and market share grow as the best customers are swept into
the company’s business, building repeat sales and referrals. Because
the firm’s value proposition is strong, it can afford to be more selective
in new customer acquisition and to concentrate its investment on the
most profitable and potentially loyal prospects, further stimulating
sustainable growth.
• Sustainable growth enables the firm to attract and retain the best
employees. Consistent delivery of superior value to customers
increases employees’ loyalty by giving them pride and satisfaction in
their work. Furthermore, as long-term employees get to know their
long-term customers, they learn how to deliver still more value, which
further reinforces both customer and employee loyalty.
• Loyal long-term employees learn on the job how to reduce costs and
improve quality, which further enriches the customer value proposition
and generates superior productivity. The company can then use this
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productivity surplus to fund superior compensation and better tools and
training, which further reinforce employee productivity, compensation
growth, and loyalty.
• Spiraling productivity coupled with the increased efficiency of dealing
with loyal customers generates the kind of cost advantage that is very
difficult for competitors to match. Sustainable cost advantage coupled
with steady growth in the number of loyal customers generates the kind
of profits that are very appealing to investors, which makes it easier for
the firm to attract and retain the right investors.
• Loyal investors behave like partners. They stabilize the system, lower
the cost of capital, and ensure that appropriate cash is put back into the
business to fund investments that will increase the company’s value-
creation potential.
Reichheld (2001) believes that profits are not central to this new model,
but they are nevertheless critically important, not just for their own sake but
also because they allow the company to improve its value creation, and
because they provide an incentive for employees, customers, and investors to
remain loyal. Still, the source of all cash flow, including profit, is the spiraling
pool of value that springs from the creation of superior value for customers.
Figure 1: The loyalty-based cycle of growth (Reichheld, 2001: 20)
2.2 The netchain model
Lazzarini et al. (2001) launched the concept of netchains at the interface of
vertical supply chains and horizontal networks. As Lazzarini et al. (2001)
indicate, netchains can be conceptualized as a multi-layer hierarchy between
suppliers, processors and retailers where horizontal coordination between
reciprocal agents is embedded in a framework of vertical deliveries (see Table
1). Horizontal cooperation (e.g., in farmers cooperatives) may be better able
to cope with the stringent quality criteria and changing quantity demands
emerging from chain partners.
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
Figure 2: Example of a netchain structure (source: Lazzarini et al (2001: 8))
Netchains provide linkages between horizontal networks of suppliers and
vertical supply chains. They involve different types of (nested)
interdependencies amongst agents, like:
• reciprocal cooperation based on mutual exchange between suppliers;
• sequential delivery systems based on planning along the supply chain;
and
• Pooled interdependencies at business level to guarantee
standardization and harmonization of processes. (source: Lazzarini et
al.(2001))
Finally, as Ruben et al (2004) argue, contracts play a critical role in the
relationships between chain and networks partners. They define the rules and
obligations for establishing cooperation, both between network partners and
chain agents; in particular, when repeated transactions take place, contracts
represent a cost-reducing device. They also argue that for deliveries that
involve high-quality demands, self-enforcing contracts that involve trust and
loyalty are preferred to reduce monitoring costs. Different options for
integrating (horizontal) networks and (vertical) chain contracts are available
for guaranteeing risk-sharing and ensuring trust relationships. Given the high
risks and the difficulties of monitoring numerous heterogeneous agents,
entire-channel process control is increasingly preferred (Van der Laan, 1993;
Janssen and Van Tilburg, 1997).
3. Framework for an SME cooperative in the agri-business
sector
After presenting the relevant models related to the establishment of
start-ups, in this section a framework focused on the agri-business sector is
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
going to be presented and analyzed. This framework is based in previous
comprehensive study conducted by Awas et al. (2010) who concentrated in
the food-sector. This model has been applied in the AFS campus store as the
basis towards the establishment of its relevant business activities. Authors
argue that this model is sufficient towards the necessities of such a business
initiative because it handles both managerial and technological issues
effectively.
3.1 AFS profile.
The organisation that will be applied upon the afore-mentioned model is the
campus store located within the American Farm School (AFS). The American
Farm School of Thessaloniki, Greece, is an independent, non-profit
educational institution founded in 1904 to serve the rural population of
Greece and the Balkans. AFS has been a leader in the rural development of
Greece throughout the twentieth century with its major educational divisions
as Secondary School, the Dimitris Perrotis College of Agricultural Studies,
and the department of Lifelong Learning. All educational and research
programs at the AFS are supported by the large-scale Educational Farm that
includes a Holstein dairy herd ranked among the top 10% in the world; a
poultry unit using the latest research for Omega 3 eggs, turkey and broiler
production; greenhouses; vegetable gardens; vineyards; fruit and olive trees;
and extensive experimental field crops production at the Zannas Farm.
Since May 2011, and under the wider frameworks of farm to fork and
learn by doing context, a team of five students have upgraded the campus
store’s services and are promoting sales to a larger audience, under the
supervision of academic and administrative staff. The established AFS
products, together with strategically selected AFS graduates’ products,
enhanced the overall attractiveness of the store by contributing to its product
mix. The recent relocation to a bigger and easier accessible site within the
AFS campus and the upgrading of the in store facilities both have contributed
further to the improvement of the shop’s services. The products sold at the
store are produced at the school’s educational farm. Among others customers
can get dairy and pasta products, eggs, wine. In addition products from
strategically selected American Farm School graduates can be found, such as
herbs and spices, pies and a veriety of dairy products.
3.2 Proposed framework for an agri-business start-up
Awas et al., (2010) in their bibliographical review identified and grouped six
managing success factors in entrepreneurial ventures. The scope of this
paper is to analyze and compare the AFS campus store experience with the
findings of the above research and determine their importance in the store’s
success. Furthermore a proposed framework for successful similar
enterprises will be presented.
Figure 3: framework for an agri-business start-up
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
Startup planning
Managing Finances
Managing Human
Resources
Networking
Managing Risk
Learning
Critical success factors for
managing an entrepreneurial startup
According to the above model of the critical success factors as well as
incorporating the literature review conducted by Avvas et al., (2010), the
following table where both the main success factors as well as the particular
entrepreneurial success factors are presented. This categorization is the basis
for the research which has been conducted in the AFS campus store.
Table 1: Main success and entrepreneurial success factors
Main success factors Entrepreneurial success factors
Start up planning
• Availability heuristics
• No formal business plan – just a
general strategic idea
• Already existing location
• Already existing clientele
Managing Risk
• Favorable schema of already existing
quality food AFS products
• Enthusiasm
• Academic and administrative support
• Focus on nutritional added value e.g.
whole wheat pasta with saffron, plus
organically and vegetarian certified
sausages
Learning
• Favorable schema regarding learn by
doing approach
• R&D, module material
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
• Processes (AFS)
Networking
• Strong relationship with suppliers for
good credit terms and agreements
• Long lasting tradition with a lot of
exposure and various contacts globally
– little initial effort for networking
Managing Human Resources • Careful selection of eager and able
student team members and
entrepreneur spirited team leader
• Trust of student employees
• Training of employees, through their
modules (accounting, finance,
marketing entrepreneurship) and
seminars (food additives, health
benefits)
Managing Finances • Favorable schema delaying payments
to suppliers initially
• Low budget initially
• Consignment method where the store
is stocked with various quality products
from our suppliers and then pay them
back
4. Lessons learned from the successful launch of a locally-
based start-up in the food supply chain
Based on the model presented in the previous section a research has been
conducted; the lessons learned from this research are presented in this
section.
4.1 Research methodology
The scope of this research is two-fold: first, to investigate the success of the
proposed model in real-life evidence and second, to present the lessons
learned from its application.
In order to achieve the above-mention goals, a qualitative research was
undertaken based on in-depth interview with the manager of the AFS campus
store. The manager was asked to:
• Analyze the critical success factors based on the entrepreneurial
success factors.
• Rate the significance of these factors.
The interview was conducted within the premises of the AFS campus store
during the first week of June 2012.
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
4.2 Findings
With regards to the analysis of the critical success factors, we received the
following information from the AFS campus store manager:
• Start up planning. Since there was an already existing store location within
AFS which provided the initial launch of the new student run store, the
greatest success factor that the manager pointed out was the availability of
existing loyal clientele who new and appreciated the quality of the AFS
products. This quality was the significant factor for the formulation of the
general strategic plan for the product selection and mix instead of a formal
business plan. Moreover, the availability heuristics had a less important
role since there were few changes initially (i.e. shelves, extra freezer).
• Managing Risk. The favorable schema of already existing quality food AFS
products together with the addition of excellent products of AFS graduates
as it was in the strategic plan were of great importance. The enthusiasm of
all (suppliers-graduates, students, old and new customers, plus academic
and administrative supportive staff) was the greatest success factor and
can be attributed to the involvement into something entirely new, the
creation of new expanded market, the focus on nutritional added value e.g.
whole wheat pasta with saffron, plus organically and vegetarian certified
sausages. All these while keeping business small, provided a sound
ground for minimizing/managing risk.
• Learning. The favorable schema regarding learn by doing approach, was a
very important success factor since it allows for adjustments in this
pioneering food service area. The manager argued that the students and
the staff involved had to learn the new procedures, processes and ways of
daily operation, fairly quickly and efficiently. The store offered chances for
students’ modules and research and additionally the development of new
products (traditional yogurt) and the exploration of customer tastes and
preferences, since research theses were produced, benefiting the
students, the suppliers and the store.
• Networking. The strong and close relationship with store suppliers (AFS
former graduates) allowed for good credit terms and agreements, together
with the long lasting AFS tradition, were of greatest importance success
factors. The AFS long extensive network and contact database, the
exposure to local and global media, (i.e an interview about the store was
broadcasted in German and Dutch radio, the great number of guests and
visitors) provided with little initial effort for networking, tremendous
benefits. Days and events throughout the year, distribution of pamphlets,
and electronic media were therefore very effective reaching a much larger
market. Visits from schools and exchanging programs both from the
secondary school, the college and the life long learning programs, were
helpful in networking. Furthermore, the AFS graduates and the AFS
sponsors organised events on and off campus provided other channels for
networking.
• Managing Human Resources. The careful selection of eager and able
student team members and entrepreneur spirited team leader was of
greatest importance to the success of the store. Specifically, the team
leader, coming from family entrepreneurship background, together with his
polite character and hard-over-the-hours work, was the most important
success factor. A great effort was made to the careful selection and
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
training of the rest student-employees, through their modules (accounting,
finance, and marketing entrepreneurship) and on and off the store
seminars (food additives, health benefits, customer service) so their
contribution to the success of the store is equally great. The trust of all the
student employees is neutral to the success of the store but a relationship
we can not do without.
• Managing Finances. Until the store and the processes were at speed, the
favorable schema of occasionally delaying payments to suppliers, gave
breathing room for the low budget at first. The extra work load on staff, the
new policies and procedures and the contract paperwork were overcome
in timely fashion due to this extra time, thus allowing the store student
management to concentrate on the daily transactions and day to day
operations. A Consignment method was used, where the store is stocked
with various quality products from our suppliers, and then pays them back;
further reduce the need for finances. The close relationship with schools
graduates and the mutual trust really facilitated the whole process.
Then, we asked the manager to rate the significance of the above
factors, based on a scale from 0 to 4 (where 0 is the unimportant and 4 the
most important). According to the responses the following table was
developed presenting the range and the mean marks:
Table 2: Significance of the main success and entrepreneurial success factors
Critical
success
factors
Entrepreneurial success factors Importance
Start up
planning • Availability heuristics
• No formal business plan – just a general
strategic idea
• Already existing location
• Already existing clientele
• 1
• 1
• 2
• 4
Overall 2
Managing
Risk • Favorable schema of already existing quality
food AFS products
• Enthusiasm
• Academic and administrative support
• Focus on nutritional added value e.g. whole
wheat pasta with saffron, plus organically
and vegetarian certified sausages.
• 3
• 4
• 4
• 3
Overall 3.50
Learning • Favorable schema regarding learn by doing
approach
• R&D, module material
• Processes (AFS)
• 3
• 2
• 1
Overall 2.00
Networking • Strong relationship with suppliers for good
credit terms and agreements
• Long lasting tradition with a lot of exposure
and various contacts globally – little initial
effort for networking
• 4
• 4
Overall 4.00
Managing
Human • Careful selection of eager and able student
team members and entrepreneur spirited • 4
• 3
2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
Resources team leader
• Trust of student employees
• Training of employees, through their modules
(accounting, finance, marketing
entrepreneurship) and seminars (food
additives, health benefits)
• 4
Overall 3.67
Managing
Finances • Favorable schema delaying payments to
suppliers initially
• Low budget initially
• Consignment method where the store is
stocked with various quality products from
our suppliers and then pays them back.
• 3
• 4
• 2
Overall 3.00
0 =unimportant, 1= less important, 2 = neutral, 3 = very important, 4 = most
important
Although the main emphasis of the “store” project is hands on
education for the students involved, the financial results were also critical for
the school’s senior management. At the end of the fiscal year, the financial
outcome was positive.
5. Conclusions
In this paper, a framework for an SME cooperative store, based on empirical
and secondary evidence collected from the American Farm School’s campus
store was suggested. Moreover, the lessons learned from its application were
presented and discussed.
According to the findings, the two most critical success factors were
Networking and Managing Human Resources. In particular, with regards to
networking it allowed for good credit terms and agreements, together with the
long lasting AFS tradition, were of greatest importance success factors as well
as the exposure to local and global media provided with little initial effort for
networking, tremendous benefits. With regards to managing Human
Resources the careful selection of eager and able student team members and
entrepreneur spirited team leader is of greatest importance to the success of
the store. Therefore, empirical evidence indicated that the careful selection
and training together with trust is critical for the success of such
entrepreneurial venture.
Further research in that area would provide evidence for applicability of
the suggested model to other sectors and especially during financial and
economic turbulence.
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2nd INTERNATIONAL CONFERENCE ON SUPPLY CHAINS
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