Dec. 2, 2008
Research suggests lower costs result from streamlining corn seed supply chain
A group of University of Iowa business professors has developed a more efficient seed corn distribution system that would cut costs significantly for the seed industry.
The waste in the conventional system comes from a supply chain that delivers seed from producer to retailer to grower, according to Samuel Burer, associate professor of management sciences and Martha and Dennis Hesse Research Fellow in the Tippie College of Business. The distribution system, in place for decades, inadvertently encourages dealers to over-order seed from the production company, which leads to unnecessary costs all along the supply chain.
While the production companies have taken steps to reduce the amount of over-ordering -- such as granting bonuses to dealers that sell more than 90 percent of their supply, or assessing penalties to dealers who don't sell enough -- Burer said money is still left on the table.
Burer, along with Timothy Lowe, Chester A. Phillips Professor of Operations Management, and Philip C. Jones, Clement T. and Sylvia H. Hanson Chair of Manufacturing Productivity, said the supply chain could become more efficient if retailers made better use of demand forecasts, and production companies could be more open to re-negotiation so they don't ship too much seed.
"The way the system is set up now, it's like driving a car with your foot on the gas and the brake at the same time," said Lowe.
Lowe said that while the corn seed industry had expressed interest in streamlining the supply chain in the past, the recent run-up in corn prices has made seed companies so profitable -- even as they continue to use the inefficient system -- that they are reluctant to change.
Burer, Lowe and Jones published their findings in their paper, "Coordinating the Supply Chain in the Agricultural Seed Industry."
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