Let's say some of your customers got together and said, "Give us your best price.
By the way, this us how we want the product to look when it is delivered. If you can do
that, we'll guarantee to buy your product and give you a price you can live with.
"what would you say?
- You might say, "No, I have enough customers for my product. I'll produce for them
and take my chances on the market price. I'll make my profits by keeping costs low, being
more efficient and having a higher volume of production."
- You might say, "OK, let's make a deal." There may be a little room for
negotiating price and product specification - but not much. You trust the people and hope
that the relationship will give you a stable price and dependable income.
- You might say, 1'Yes, I represent a producer group that will give you what you are
desire in the quality and quantities you like. Since you are asking for a premium product
and we are reliable, we want a better price. You won't have to deal with a lot of
producers - just the people who are connected to us and accept the standards you
require."
Today the customer rules. They gain clout by banding together. That is the emerging
reality.
Managed care in the health industry. Big blocks of customers are forming under the
umbrella of large organizations and insurance companies. They are looking for health
professionals who will accept their prices and the standards of care they impose.
If you are an independent health care provider, many of your patients will be diverted
to a contract provider group. You have a choice. You can join the panel of approved
providers if you accept their terms about price and managed care requirements. If you are
in the group you are assured of a steady flow of referred patients. Or you can go it alone
with part of your market disappearing.
Another recourse is to band with other health care professionals of varied specialties
and negotiate your best deal. Managed care organizations like the simplicity of dealing
with a reliable group of providers who offer a range of services and can deal with the
numbers of clients they need to refer.
The hue and cry you hear are from the health care professionals who are adjusting to a
loss of independence and this new way of doing business.
Agriculture producer trends. Mike Boehlje, professor of agricultural economics at
Purdue University, thinks agriculture of the 21st century will be increasingly divided
between two groups of producers.
- Producers who adopt a manufacturing mentality. They will produce high volumes of
undifferentiated commodities for the open market.
The key to success is being a competitive low cost producer. High tech applications and
computer technologies help improve yields and lower input cost in crop and livestock
production. Management success depends on large scale farming, application of cost saving
technologies, and continued pressure to reduce cost. Farmers will retain their
independence but at the expense of assuming price risk in increasingly competitive
markets.
- Producers who are horizontally and/or vertically integrated. They will provide a
value-added specialty product for a specific customer.
Boehlje sees an upsurge in the production of specialty crops or products in contractual
arrangements with a food processor. Farmers will band together m a horizontal fashion with
other farmers to form cooperatives, marketing networks and alliances. They will market
their specialty product with sufficient volume, quality and timing to meet processor and
consumer needs.
The other form of integration will be vertical. Farmers will contract directly with the
processor and produce a specialty product that meets predetermined requirements.
Farmers need to have skills in negotiating contracts. They also have to have
sufficient position or power to negotiate an acceptable deal. Arrangements have to be
"I win/you win" for contract relationships to last. Farmers will trade their
independence for financial gain.
Manufacturers conserve time, energy, and effort by negotiating with fewer suppliers.
Besides specifying quality, they want to identify the source of the raw materials and
trace back any problems that may be related to food safety. The processor and the farmer
are tuned in to consumer needs and are ready to make modifications as necessary.
The emphasis on integrating the farmer into the food production system will take away
independence while giving the benefit of reducing price risk. Instead the risks are
relational. Farmers access markets by being inside the loop. The continuity of the
relationship is crucial. If your buyer closes or chooses to do business elsewhere you lose
your market. Farming will be on a smaller scale and will be less cost sensitive. Farmers
will use information technologies to keep on top of the innovation m their field and will
network with other producers. Farming will be increasingly sensitive to consumer and
retailer demands.
Can you make it outside the loop? Are you big enough to handle the price risk of
the open marketplace? Do you have a specialty product? Are you linked with other producers
and with a buyer?
The hue and cry you hear are Great Plains and Midwestern farmers who are adjusting to a
loss of independence and this new way of doing business.