Throughout the past two weeks we have learned a lot about many aspects of the supply chain of coffee and bananas. My group focused on how firms in each link of the supply chain make decisions in reference to sourcing. We quickly found out that sourcing is not just limited to where you get the products from at each link, but it also includes where you obtain the money to run your operation, where you will get your labor from, and where you get the equipment you need for daily activities.
Determining the answers to these questions revolving around sourcing is most important at the raw materials end of the supply chain since these firms start the process of putting a finished product in consumers’ hands. Without determining the sources at this level, the product will never get the chance to assembled let alone sold. Though funding can vary from firm to firm, most coffee bean growers get most of their funding from the owners themselves with the possibility of a small portion coming from subsidies from government agencies who promote sustainable practices. Coming up with the money to run a plantation sounds like a tall task, and it is, but since the coffee bean growing industry consists of numerous small players, the farmers aren’t tasked with funding massive plantations like the ones found in the banana industry. Conversely, the banana growing industry consists of a few large players. Also, these large players are usually diversified firms that have their hands in a multitude of industries like pineapples or strawberries. As large firms, they must obtain much more funding, which leads many firms to go public in the USA and have their stocks exchanged via one of the large stock exchanges there. Once they find funding, the companies in both coffee and banana industries must find workers to man their plantations. Since many Ticos prefer to not do this tedious work, the plantations must outsource for much of their labor. The majority of this labor comes from Nicaragua for both industries. After finding labor, the companies must figure out where to get the actual trees they will use to grow the coffee. The answer to this is resoundingly simple, they just plant some of the beans that would have been shipped to the roasters. Banana plantations use a similar method where they take slivers of the banana herb and clone them. After this, the firm must find equipment and machinery for their plants. Based off our research, we found out that most of the machinery used in both industries comes from various companies in Germany.
After the coffee beans leave the plantation they are shipped to a Roaster, the next link the supply chain. One of the interesting things about the coffee supply chain is that most roasters are also vertically integrated to the point that they are also manufacturers. For my topic of sourcing, I can lump these two links together. Unlike the plantations, there are must less players at this level of the supply chain making these firms much larger in size. Due to the shear size of their operations they must come up with much more capital which almost forces each company to go public and sell shares of their company to raise the capital required. Café Britt was an excellent example of this as they went public in 2000 and is currently traded on the New York Stock Exchange. From here the firm must figure out where to source the beans they will be roasting and manufacturing. This all depends on the target market of the company. With Café Britt, they are aiming for the people who will pay the premium prices for top notch Costa Rican coffee so they get purchase the beans that are the cream of the crop. On the other hand, 1820 targets the Tico market which consists of consumers who don’t want to pay the premium prices, so they acquire beans that are lower level and add sugar to them to cover up any flaws with the beans. These companies must then find a workforce to man their plants. Since the work isn’t quite as tedious and pays better, much of their workforce consists of local Ticos. Similar to the plantations the equipment used at these facilities is sources from companies in Germany.
Like the coffee industry, banana produces are also vertically integrated. However, their vertical integration isn’t just between two level of the chain; it is between three. As the guest lecturer explained a few days ago, since there are only a few large players in this industry, most function very similarly in that they are vertically integrated from the raw materials end of the supply chain all the way up to manufacturing. Because of this the challenges and solutions for companies like Dole are no different than those answered in the paragraph above.
Last but not least, the consumers of both bananas and coffee must determine a few very basic things when it comes to sourcing. The biggest one is determining which manufacturer to buy from. With coffee consumers, this is a matter for the target market they wish to reach. For larger retail stores, they may work with multiple manufacturers to cover a wide range of targets. With specialized shops they may just work with a higher end coffee brand like Café Britt, to sell the idea of premium coffee. With banana sellers this is not as big of a problem. Many grocery stores will source based off the value they get for the cost they are paying. Some grocery stores will sell “premium” level bananas, but these types of shops are less common with fruits than they are with coffee. Outside of this, players at this level usually source their labor from the local population and obtain their funding from going public.