農用化學品之供應鏈規劃問題研究 - 政大學術集成

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(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 碩士論文. Master’s Thesis. 學. ‧ 國. 立. 政治大. ‧ sit. y. Nat. er. io. 農用化學品之供應鏈規劃問題研究 n. al Supply Chain Planning Problems ini vthe Agrochemical n Ch U Industry engchi Student: Chih-Chun Wen Advisor: Professor Ming-Shiow Lo. 中華民國一○九年六月 June 2020. DOI:10.6814/NCCU202000755.

(2) 農用化學品之供應鏈規劃問題研究 Supply Chain Planning Problems in the Agrochemical Industry. 研究生：温智鈞. Student: Chih-Chun Wen. 指導教授：羅明琇. Advisor: Ming-Shiow Lo. 立. 政治大. ‧ 國. 學. 國立政治大學. 商學院國際經營管理英語碩士學位學程. ‧. 碩士論文. y. Nat. io. sit. A Thesis. n. al. er. Submitted to International MBA Program. v. National ni C Chengchi University. hengchi U. in partial fulfilment of the Requirements for the degree of Master in Business Administration. 中華民國一○九年六月 June 2020. DOI:10.6814/NCCU202000755.

(3) Abstract Supply Chain Planning Problems in the Agrochemical Industry By Chih-Chun Wen Agrochemical supply chains of multi-national corporations are complex entities that operate in a highly-regulated business environment and are characterized by large product portfolios,. 政治大 distributed facility and customer locations. The market for agrochemicals is known for frequent 立. multi-stage manufacturing and distribution processes, long production lead times, and globally-. ‧ 國. 學. new product launches, variable and seasonal demands, and a large number of substitutes. Also, at the operational level, individual manufacturing sites are often subject to potential delays,. ‧. bottlenecks, and downtimes due to stringent quality control checks, constrained capacity, and. sit. y. Nat. limited working time flexibility. These unique features of the supply chain lead to a large. al. er. io. number of opportunities for improvement and call for tailored optimization models to solve the. v. n. planning problems. This master thesis is aimed to present and analyze key characteristics of. Ch. engchi. i Un. agrochemical supply chains, pointing out whether the identified features are shared by supply chains in a similar industry or are unique to the agrochemical sector. Then, according to the classification of planning problems into long, medium, and short terms, planning-related challenges faced by a generic, global agrochemical company are discussed. Finally, existing literature on the corresponding problems is reviewed, and essential works of optimization models for each of the planning levels are highlighted to foster interest in further research.. Keywords: Agrochemicals, Supply Chain Typology, Hierarchical Planning, Optimization i DOI:10.6814/NCCU202000755.

(4) TABLE OF CONTENTS 1. Introduction .......................................................................................................................... 1 1.1. Principles of Supply Chain Management ........................................................................ 2 1.2. Problem Background ....................................................................................................... 4 1.3. Motivation ..................................................................................................................... 11. 立. 政治大. 1.4. Research Objectives ...................................................................................................... 14. ‧ 國. 學. 1.5. Outline of the Paper ....................................................................................................... 15. ‧. 2. Introduction to the Agrochemical Industry, Products, and Supply Chains .................. 16. sit. y. Nat. er. io. 2.1. The As-is Situation of the Industry ................................................................................ 16. al. n. iv n C 2.2. Pesticides and the Respective Production ........................................................ 22 h e n g cProcess hi U 2.3. Description of a Typical Agrochemical Supply Chain .................................................. 26 2.3.1. Functional Attributes ............................................................................................ 26 2.3.2. Structural Attributes .............................................................................................. 31. 3. Advanced Planning for Agrochemical Supply Chains .................................................... 36 3.1. The Concept of Hierarchical Planning .......................................................................... 36. ii DOI:10.6814/NCCU202000755.

(5) 3.2. The Planning Tasks along the Agrochemical Supply Chains ........................................ 38 3.2.1. Long-term strategic planning ............................................................................... 40 3.2.2. Mid-term tactical and short-term operational planning ........................................ 42 3.2.3. Integration and coordination of planning modules ............................................... 47. 4. Review of Relevant Literature and Optimization Models .............................................. 51. 政治大. 4.1. Relevant Literature ........................................................................................................ 52. 立. ‧ 國. 學. 4.2. Optimization Models ..................................................................................................... 53. ‧. 5. Conclusion ........................................................................................................................... 65. y. Nat. n. al. er. io. sit. 5.1. Summary of Topics Addressed ...................................................................................... 65. i Un. v. 5.2. Areas for Further Research ............................................................................................ 67. Ch. engchi. 6. Reference ............................................................................................................................. 70. iii DOI:10.6814/NCCU202000755.

(6) List of Figures and Tables Figure 1 - The House of Supply Chain Management (Stadtler, 2015) ....................................... 3 Figure 2 - Supply Network for Crop Production and Processed Food Products (Fritz and Hausen, 2009) ..................................................................................................................... 4 Figure 3 - Transactional and Analytical ICTs (Tayur et al., 1999 cited in Grossmann, 2005) . 12 Figure 4 - Annual Pesticide Sales by Geographic Regions (Zhang, Zeiss and Geng, 2015) ... 17 Figure 5 - Cost of Agrochemical Development versus Screening Success (Sparks and. 政治大. Lorsbach, 2017) ................................................................................................................ 19. 立. Figure 6 - A Typical Agrochemical Supply Chain (Bassett, 2018)........................................... 24. ‧ 國. 學. Figure 7 - Supply Chain Planning Matrix (Fleischmann, Meyr and Wagner, 2015) ................ 37 Figure 8 - Hierarchical Planning Concept for Agrochemical Manufacturing Supply Chains .. 47. ‧. Figure 9 - Illustration of Pooling and Un-pooling of Inventory (Bassett and Gardner, 2010) . 55. y. Nat. io. sit. Figure 10 - Directed Graph of Four Echelons (adopted from Bassett and Gardner (2010)) .... 56. n. al. er. Figure 11 - Supply Chain Structure for Mid-term Planning (adopted from Sousa, Shah and. Ch. i Un. v. Papageorgiou (2008)) ....................................................................................................... 57. engchi. Figure 12 - Examples of Possible Sub-tours (Guimarães, Klabjanhi and Almada-Lobo, 2014) .......................................................................................................................................... 62 Figure 13 - Closed-loop Supply Chain for Agrochemicals (Mello and Scapini, 2016) ........... 69. Table 1 - Supply Chain Typology for the Agrochemical Industry – Functional Attributes ...... 33 Table 2 - Supply Chain Typology for the Agrochemical Industry – Structural Attributes ....... 35 Table 3 - Specific Planning Tasks of Agrochemical Supply Chains ........................................ 38. iv DOI:10.6814/NCCU202000755.

(7) List of Abbreviations AI. Active Ingredient. BOM. Bill of Materials. ERP. Enterprise Resource Planning. FAO. The Food and Agriculture Organization of United Nations. FI. Formulation Ingredient. ICT. Information and Communications Technology. M&A. Mergers and Acquisitions. MILP. Mixed-integer Linear Programming. PM. Package Material. R&D. Research and Development. SCM. Supply Chain Management. SKU. Stock Keeping Unit. SLS. Simultaneous Lot-sizing and Scheduling. 立. 政治大. ‧. ‧ 國. 學. n. engchi. er. io. Ch. sit. y. Nat. al. i Un. v. v DOI:10.6814/NCCU202000755.

(8) 1. Introduction According to The Food and Agriculture Organization of the United Nations (FAO), by 2050, the demand for food and cash crops is expected to increase by 70% due to growing global population, increasing use of grains for livestock feed, changing dietary patterns towards highquality food, and increasing needs for bio-energy and other bio-based commodities. To synchronize the growing demand, participants of the crop production network will have to raise their output extensively. However, the available arable land is limited, and further expansion of. 政治大. cropland will endanger forests and natural habitat. Furthermore, the task of increasing yields. 立. will be taken in an era of less predictable climate and shrinking resources. Hence, given these. ‧ 國. 學. limitations, improving the productivity and sustainability of the existing land is of broad and current interest (Popp, Petö and Nagy, 2013).. ‧ sit. y. Nat. Since the 1950s, agrochemicals have served as an essential tool that makes agriculture more. al. er. io. productive and profitable for farmers. It is believed that without crop protection, about 40% of. v. n. the world’s food would not exist due to damage caused by pre-harvest pests. Today,. Ch. engchi. i Un. agrochemicals continue to be an integral part of the diverse range of crop protection technologies that help farmers lose less of their yields and thereby contribute to food security and standards of living around the globe (Syngenta Crop Protection AG, 2016). In a successful supply network for crop production, purveyors of agrochemicals certainly have to play a vital role in providing farmers with affordable, efficacious, and timely goods and services. Nevertheless, the business involves a large number of factors and operational challenges that could enormously impact the sales and profitability of agrochemical companies. This master thesis discusses supply chain planning problems in the agrochemical industry. It. 1 DOI:10.6814/NCCU202000755.

(9) aims to identify key characteristics of agrochemical supply chains and analyze planning-related tasks faced by a generic global manufacturer operating in this field. Subsequently, for each of the long-term, mid-term, and short-term planning levels, literature that addresses specific, practically relevant problems and works of the corresponding optimization models are presented and discussed. In the following of this chapter, principles of supply chain management (SCM), problem background, motivation, research objectives, and the outline of this master thesis are introduced.. 政治大. 1.1. Principles of Supply Chain Management. 立. The concept of SCM has emerged as a source of achieving competitive advantage in many. ‧ 國. 學. industries. Building on the concept of logistics, it regards a set of approaches employed to fulfill. ‧. customer demands by supplying products at the optimal quantities, to the right destinations, and at the exact time (Simchi-Levi D., Kaminsky and Simchi-Levi P., 2008). The goal is to improve. y. Nat. io. sit. the overall competitiveness of goods and services from the standpoint of the ultimate customers.. n. al. er. With disciplines such as logistics and operations research forming the foundations of SCM, the. Ch. i Un. v. competitiveness of a supply chain as a whole can be enhanced by integrating organizational. engchi. units along the entire value chain and by coordinating material, information, and financial flows across organizational entities. Figure 1 on the next page illustrates this concept. The two essential keys to SCM success, namely a closer integration of the business entities involved and better coordination of activities across organizations, are broken down into their corresponding building blocks. Firstly, a dynamic selection of suitable partners is essential for forming a competitive supply chain. Secondly, an adequate supply chain is viewed as a network organization, which requires all members of the entire value chain to practice cross-functional and cross-enterprise collaboration. Thirdly, leadership that aligns strategies among 2 DOI:10.6814/NCCU202000755.

(10) organizational units is necessary for an integrated supply chain. All of the above are the necessities of integration in SCM (Stadtler, 2015).. 立. 政治大. ‧. ‧ 國. 學 sit. y. Nat. Figure 1 - The House of Supply Chain Management (Stadtler, 2015). n. al. er. io. Furthermore, better coordination of material, information, and financial flows can be achieved. i Un. v. by using information and communications technologies (ICTs). With the latest ICTs, not only. Ch. engchi. processes that are formerly executed manually can now be performed automatically, but also information can be exchanged more rapidly and at small cost among members of a supply chain. The second building block, process orientation that aims to align actions of all supply chain partners, is also crucial. When activities are coordinated, duplicate work can be avoided, efficiency can be improved, and costs can be reduced. Last but not least, advanced planning should be executed that integrates and coordinates decision-making across different business domains of a company (e.g., procurement, manufacturing and distribution), organizational entities of a value chain (e.g., suppliers, production plants and customers) and planning levels. 3 DOI:10.6814/NCCU202000755.

(11) (e.g., long-term, mid-term and short-term) (Grossmann, 2005). All in all, successful supply chain management requires all six notions that make up the two constitutional pillars for the competitiveness of a supply chain be practiced interactively (Stadtler, 2015). In the next section, problems encountered by global agrochemical companies will be discussed.. 1.2. Problem Background Figure 2 shows the entire food production network, starting from the process industry, through agrochemical manufacturers and traders, to the agricultural production sector, and ending with. 政治大. food producers and retailers. Agrochemical producers are situated between the process industry,. 立. which turns petrochemicals into raw materials needed for the production of agrochemicals, and. ‧ 國. 學. the wholesalers and retailers, who distribute and market manufactured agrochemical products. Nat. n. al. er. io. sit. y. ‧. to the agricultural production sector (Fritz and Hausen, 2009).. Ch. engchi. i Un. v. Figure 2 - Supply Network for Crop Production and Processed Food Products (Fritz and Hausen, 2009). 4 DOI:10.6814/NCCU202000755.

(12) The FAO defines an agrochemical product as any chemical compound or biological ingredient used in agriculture that repels, destroys or controls any pest, or regulates plant growth for higher yields, better quality produces, and more reliable harvest. The definition is broad, and correspondingly, there exists a wide range of agrochemical products in the market, such as liming and acidifying agents, soil conditioners, hormones and other chemical growth agents, fertilizers, and pesticides. The purveyors of agrochemicals are categorized into sectors of seeds and crop protection, and crop nutrient. As providers of the former sector have more than. 政治大 pesticides, such as herbicides,立 insecticides, and fungicides (Amez-Droz, 2017). Thus, most of threefold the revenue streams than the latter one, in most cases, agrochemicals refer to. ‧ 國. 學. the material in this paper is relevant to the seeds and crop protection sector, and the terms, agrochemicals and pesticides are used interchangeably throughout the paper.. ‧. From the manufacturing point of view, the global agrochemical industry can be categorized into. y. Nat. io. al. er. The massive research and development (R&D) based multinationals with a strong presence. n. i.. sit. a few types of key players, including:. Ch. i Un. v. in branded products, collectively controlling 75% of the pesticide market, 63% of the seed. engchi. market and over 75% of the R&D expenses spent in the sector (ETC Group & Heinrich Böll Stiftung, 2015); ii.. The generics companies, which manufacture off-patent products and make up about 30% of the overall sales in the industry (McDougall, 2011 in Popp, Petö and Nagy, 2013);. iii.. Local manufacturing firms producing both branded and generic products under permission (Sahney and Shrivastava, 2009; Hamad and Gualda, 2014);. 5 DOI:10.6814/NCCU202000755.

(13) Contract manufacturers, such as formulators, blenders, and packagers, who provide. iv.. outsourcing services of producing key immediate or final products for other companies (Bassett, 2018); Pure R&D-based companies, mostly from developed countries and without significant. v.. production capacities (Sparks and Lorsbach, 2017; Society of Chemical Industry, 2017). This paper mainly deals with the first group, which dominates the marketplace and tends to be involved in the entire line of business activities to discover, develop, manufacture, and. 政治大. distribute seeds and crop protection products to the agricultural production sector. These. 立. multinationals are characterized by not only their operations on a global scale but also their. ‧ 國. 學. complex internal networks. Thus, Figure 2 refers to a much broader geographical scope and. ‧. network complexity throughout the value chain. As production and customer markets can span in many countries, there exist differences in regional capital and operational costs, duty and. y. Nat. io. sit. taxation, currency exchange, supply chain infrastructures, and sale prices (Sousa, Shah and. n. al. er. Papageorgiou, 2008). Indeed, taxes, duties, and tariffs vary widely between countries and can. Ch. i Un. v. account for up to 10% of the revenues received by selling certain products (Bassett and Gardner,. engchi. 2010). The ultimate consumers of pesticides are farmers, who apply the products to fields to produce crops. Some large farmers may have direct access to the manufacturers, but generally, manufactured products are distributed and marketed through wholesalers, retailers, and cooperatives, who are small and medium-sized or micro enterprises (Syngenta Crop Protection AG, 2016). This high degree of complexity and market fragmentation on the distribution level entails differences in corporate structures and behaviors (e.g., market power, culture, strategy, and infrastructure) among various business entities of a multinational agrochemical supply chain. Hence, high coordination efforts for material, information, and financial flows are. 6 DOI:10.6814/NCCU202000755.

(14) required to address the large variety of processes and interfaces in the supply chain network (Fritz and Hausen, 2009). Besides, agrochemical producers operate in a highly regulated business environment. Farmers use seeds and crop protection chemicals to cultivate crops, which are the sources of food and essential nutrients for people. The food that is eaten can influence human health and quality of life. When overly used, agrochemicals can adversely affect the wellbeing of both people and the environment. Therefore, all aspects of sourcing, manufacturing, distribution, storing, and application are regulated by strict approval and. 政治大 ingredients used in producing立 pesticides can determine where the final products are permitted. licensing policies (Popp, Petö and Nagy, 2013). Indeed, the source countries of chemical. ‧ 國. 學. to be sold and how much taxes and duties are to be charged to the merchandise (Bassett and Gardner, 2010). The considerations are crucial for global agrochemical companies in designing. ‧. their supply chain networks and product programs in various markets as the profitability of the. io. sit. y. Nat. firms can be significantly affected by these factors in the long run.. n. al. er. The product life cycle of an agrochemical is different from that of the products of many. Ch. i Un. v. industries but is somewhat similar to the life cycle of a medical drug (Shah, 2004; Fritz and. engchi. Hausen; Bassett and Gardner, 2010). In both the pharmaceutical and agrochemical industries, the new product development phase is prolonged, cost-intensive, and subject to risks and uncertainty, but in the meantime, product differentiation and time-to-market are essential drivers. Product launches are frequent and are usually designed according to the conditions in the receiving environment. Once commercialized, new products have to compete with substitutes from the same companies or competitors regarding price and performance. New products are protected from direct competitors by patents for about ten years. However, vicious competition from the generic version of products usually occurs after the protection expires.. 7 DOI:10.6814/NCCU202000755.

(15) Moreover, some products even have a short, limited shelf life or may require special handling for warehousing and transport, thus making working capital and operating challenges intensive for companies (Joly and Lemarié, 2002; Sparks and Lorsbach, 2017; Carroll, 2016). The production of both agrochemicals and medical drugs involves multi-step processes and requires long lead time, making it challenging to ensure the agility and responsiveness in fulfilling customer demands. In the manufacturing processes, several critical chemicals are mixed with other formulants to be processed to final formulations that are packaged in various. 政治大. forms. Thorough cleaning and special handling of machinery are required to prevent products. 立. from contamination when different jobs are performed on the same machinery and other. ‧ 國. 學. equipment during production, storage, or transport. As a result, changeovers between different. ‧. items can cause high setup costs and times, and the sequence of jobs performed on the same resource can alter the degree of these costs and time (Sousa, Shah and Papageorgiou, 2008;. y. Nat. n. er. io. al. sit. Fritz and Hausen, 2009; Bassett, 2018).. v. However, it appears as if the market for agrochemicals is more complicated than that of. Ch. engchi. i Un. pharmaceutical products. Whereas the demand is either seasonal for some medicines linked to winter illness or static for other drugs, the application of agrochemicals on cropland is not only seasonal but also highly variable and discontinuous. For instance, the commodity price of crops can alter farmers’ preferences for which varieties of crops to be cultivated and to supply. This convention affects the types and amount of the operating input supplies that are demanded by the farmers and in turn influences the sales of pesticides. Similarly, the consumption level by the general public at the end of the food supply network can also have an indirect impact. For example, the types of food needed by people can change the demand for various types of agrochemicals in the upstream stage. Moreover, adverse weather conditions, such as droughts 8 DOI:10.6814/NCCU202000755.

(16) and flooding, and the infestation levels of pests in regional markets can affect the demand for seeds and crop protection products. As a result, forecasting demands for agrochemicals is a formidable task as it requires one to update unforeseeable demand changes frequently while considering the low responsiveness in the production processes. Also, the demand is seasonal due to growing seasons of crops and the legislation or subsidies that entice farmers to maximize their output at once, store unsold crops, and stop farming for a while until the inventory becomes low again. Therefore, there are breaks in the demand chain, which discontinue the supply of. 政治大 sector is characterized by demand 立 variability and supply inflexibility in fulfilling the demand seeds and crop protection products at some point year-round. On the whole, the agrochemical. ‧. ‧ 國. Bassett, 2018).. 學. owing to a mix of factors (Fritz and Hausen, 2009; Caillet, 2015; Informa UK Ltd., 2017;. The processes for the discovery, development, manufacturing, and distribution of seeds and. y. Nat. io. sit. crop protection products to the agricultural production sector can be influenced by the four. n. al. er. dimensions discussed above: the supply network structure, and demand, product and production. Ch. i Un. v. characteristics of agrochemicals. Indeed, the operational challenges for global agrochemical. engchi. companies have intensified in the recent past. First of all, the effect on seasons of a changing climate is being observed worldwide. The frequency and severity of extreme weather conditions have increased and varied region to region. The length of growing seasons has become longer and shifting, having substantial effects on agricultural activities (U.S. Department of Agriculture, 2013). Thus, the pressure and difficulties in forecasting and fulfilling the demand for agrochemical products have intensified. Secondly, the downturn in the general agricultural economy has resulted in shrinking sales and rising costs of operations for agrochemical companies, whose profit margins traditionally are high. The industry, in general, has. 9 DOI:10.6814/NCCU202000755.

(17) experienced lower sales because farmers have less to spend on the input supplies for farming due to the falling commodity price of major crops. In recent years, the price of crude oil, which is needed for the production of active ingredients in agrochemicals, not only has risen, but also has been very volatile, thus intensifying the difficulties and costs of operations for agrochemical firms (Society of Chemical Industry, 2017; The African Centre for Biodiversity (ACBIO), 2017). Also, due to the availability of substitutes in the market, customers have become more elastic to price and more demanding for logistic flexibility and service levels in their supply. 政治大 efficiency has been declining立 in the sense that the cost of each new product development has. with agrochemicals, especially in high seasons (Fritz and Hausen, 2009). Thirdly, the R&D. ‧ 國. 學. been increasing while the probability of successful product discovery and development has been decreasing (Sparks and Lorsbach, 2017). This phenomenon also has been amplified by the. ‧. increasingly stringent regulatory requirements on the use of crop seeds and pesticides (Informa. sit. y. Nat. UK Ltd., 2017). Lastly, the significant growth of demands in the emerging markets and the need. n. al. er. io. to move into the big data sector of agriculture have pushed agrochemical companies to extend. i Un. v. their reach further to new geographical markets and gain access to complementary. Ch. engchi. technological know-how in order to remain competitive (ACBIO, 2017). From all of the above points, it is perceived that the market and the business circumstances for agrochemical companies are changing. Vying for competitive advantages in the global marketplace, the companies need to take actions and adapt their supply chain networks and operations to not only the existing but also new challenges. The importance of SCM certainly has heightened for all companies operating in the business. Therefore, it is crucial to understanding what characteristics of the industry are, how they relate to supply chain planning tasks faced by a generic firm, and how these tasks can be executed successfully in the long run.. 10 DOI:10.6814/NCCU202000755.

(18) 1.3. Motivation Since the 1970s, companies in the seeds and crop protection sector have conducted several rounds of industry consolidations. The increasingly challenging business environment has shaped the way this business competes and operates strategically. Over the last decade, the number of mergers and acquisitions (M&A) has increased, especially in the USA and Europe (Sparks and Lorsbach, 2017). The primary reason for the major industry players to partake in this spree of integration is to improve their R&D capabilities and allow for more expenditures. 政治大 Ltd., 2017; Society of Chemical 立 Industry, 2017). Nonetheless, the pharmaceutical industry in new product development while protecting shareholder values (ACBIO, 2017; Informa UK. ‧ 國. 學. historically has conducted waves of business consolidations. The motives for M&A were also to improve the productivity of new product development and the profitability of the business.. ‧. However, Shah (2004) and Sousa et al. (2011), which deal with global pharmaceutical supply. sit. y. Nat. chain issues and strategies, point out that industry consolidations do not necessarily make firms. n. al. er. io. more profitable or enhance the pipeline value of the merged corporations, and instead, that more. i Un. v. attention should be paid to supply chain optimization as a means to increase profit margins and. Ch. engchi. deliver values to customers and shareholders. The same ideology should apply to the agrochemical multinationals. SCM has received a significant push from the availability of internet-based ICTs. Software products such as enterprise resource planning (ERP) systems that support planning tasks are available for companies to better coordinate the actions of their partners along the value chain. These so-called transactional ICTs improve the coordination of activities and communication by enabling, presenting, processing, and distributing information within a company and across supply chain members. The potentials from SCM through the usage of the software have been. 11 DOI:10.6814/NCCU202000755.

(19) exploited in some companies’ internal networks and even in the supply chain networks of some specific industries, whose value chains are relatively short and business conditions are favorable for realizing chain-wide optimization. For agrochemical companies, however, the structure of their supply chain networks is somewhat complicated, and the operating conditions of the business are severe and can be influenced by many factors that hinder cross-functional and cross-enterprise optimization. Hence, merely from the availability of the transactional ICTs, the companies, which operate in such complex circumstances, still have difficulties to capitalize on. 政治大. the full potential of SCM (Fritz and Hausen, 2009).. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. Figure 3 - Transactional and Analytical ICTs (Tayur et al., 1999 cited in Grossmann, 2005) Advanced planning is a novel concept for SCM. It aims to ensure integrated planning of the entire supply chain and optimize various planning tasks as a whole. As such, business domains or organizational entities that are formerly solitary and restricted in scope can be coordinated. 12 DOI:10.6814/NCCU202000755.

(20) by advanced planning systems (APS). An APS supplements the existing ERP systems in a way that a large volume of databases can be collected by transactional ICTs from day-to-day business activities and subsequently interpreted by analytical ICTs (e.g., forecasting and simulation models or optimization models) for insights that lead to better decisions and plans (Stadtler, 2015). Indeed, APS should be developed to match with the concept of hierarchical planning. A supply chain system hierarchy, shown in Figure 3, illustrates the interconnections among modeling systems and supporting programs and databases. By incorporating the. 政治大 horizons, integration of supply立 chain activities and optimization of various tasks across different. modeling systems in the hierarchical order of strategic, tactical, and operational planning. ‧ 國. 學. business divisions, geographical locations, and timescales can be accomplished (Shapiro, 2007). This hierarchy in supply chain planning, which classifies planning decisions into long-term,. ‧. mid-term, and short-term phases, will be explained in more detail and applied in the analysis of. io. sit. y. Nat. planning tasks for agrochemical producers in Chapter 3.. n. al. er. In fact, companies continuously taking actions, such as acquisitions, divestures, collaborations,. Ch. i Un. v. partnerships and alliances, joint ventures, and mergers entails that they are practicing the. engchi. integration pillar of the House of Supply Chain Management, shown in Figure 1, to remain competitive in the industry. However, coordinating material, information, and financial flows across organizational entities still remains as a delicate challenge for global agrochemical corporations, especially after the recent spree of vertical and horizontal consolidations. It is, therefore, important for these multinational corporations to investigate and uncover the benefits that APS can provide. This master thesis is motivated by the fact that there currently is not much literature particularly targeting global agrochemical supply chains and that more in-depth information and analysis should be consolidated and developed for the key industry players.. 13 DOI:10.6814/NCCU202000755.

(21) Also, the recent conditions of the agrochemical market are similar to the past circumstances of the pharmaceutical industry, and many typical agrochemical supply chains have much in common with those of the pharmaceutical sector. As such, some findings and insights from the existing articles addressing supply chain challenges in the pharmaceutical industry can be employed in analyzing and modeling agrochemical supply chains. Though the market and the business operating conditions for agrochemical companies is more complicated than those of pharmaceutical firms, this opens up an opportunity to enrich the stream of literature and foster. 政治大. interest in further research and development on the relevant supply chain planning problems in. 立. 學. ‧ 國. the agrochemical industry.. 1.4. Research Objectives. ‧. In this paper, key characteristics of agrochemical supply chains and planning tasks will be studied. Then, based on the study, relevant literature and works of optimization model for each. y. Nat. io. sit. of the supply chain planning levels will be highlighted that solve practically relevant problems. n. al. er. faced by a generic global company operating in the business. Specifically, the concept of the. Ch. i Un. v. supply chain typology, introduced in Meyr and Stadtler (2015), will be utilized to describe key. engchi. characteristics of agrochemical supply chains by a set of attributes. In the framework, attributes with a similar focus are categorized into either functional or structural and are further divided into various types. Subsequently, a linkage can be developed between the supply chain typology and the impacts on planning that the respective attributes of the supply chain would have. Together with the hierarchical planning structure, presented in Fleischmann, Meyr and Wagner (2015), essential planning tasks and decision problems for each of the long, medium, and short term levels will be derived. Lastly, a brief overview of articles that deals with real-world planning problems and are relevant to the development of optimization models for. 14 DOI:10.6814/NCCU202000755.

(22) agrochemical supply chains will be presented.. 1.5. Outline of the Paper The rest of this master thesis is structured as follows. Chapter 2 introduces the agrochemical industry, products, and supply chains. In Chapter 3, supply chain planning modules in the long, medium, and short terms are analyzed. Literature review of works that deals with planning challenges and the corresponding optimization models for each of the planning levels are presented in Chapter 4. Finally, Chapter 5 is devoted to final remarks, where a summary of the. 政治大. contents discussed and conclusions from this work, as well as implications for further research. 立. directions are highlighted.. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. 15 DOI:10.6814/NCCU202000755.

(23) 2. Introduction to the Agrochemical Industry, Products, and Supply Chains The reduction of yield losses to pre-harvest pests is an ongoing challenge in agriculture (Zhang, Zeiss and Geng, 2015). Biological methods (e.g., use of natural enemies of pests or genetically modified seeds), mechanical techniques (e.g., improved farm irrigation) or the use of chemical products (e.g., use of soil conditioners, synthetic fertilizers or pesticides) can counteract pests, such as weeds, insects and plant diseases that affect the supply of crops worldwide. In the. 治政 diverse range of crop protection techniques, the use of大 pesticides is an essential part of the 立 modern integrated agronomic system (Joly and Lemarié, 2002; Syngenta Crop Protection AG,. ‧ 國. 學. 2016). This section introduces the seeds and crop protection sector, with a focus on the recent. ‧. circumstances of the industry. Then, key characteristics of a typical pesticide and the respective. n. al. er. io. 2.1. The As-is Situation of the Industry. sit. y. Nat. supply chain are described.. i Un. v. Today, the global agricultural market is worth three trillion US dollars in total. As the worldwide. Ch. engchi. demand for food and cash crops continue to soar, the need for safe, effective agricultural chemicals will also grow. The effectiveness of agrochemicals in farming can be exemplified by the dramatic rise in yield-per-acre of major crops since the increased usage of pesticides in the 1960s (Popp, Petö and Nagy, 2013; Elsevier B.V., 2017). Over the years from 2000 to 2014, the overall sales of pesticides worldwide showed a growing trend, as shown in Figure 4. Concerning individual types of agrochemicals, the most significant product category is herbicides, accounting for more than 50% of the market value. Insecticides, with approximately 33% of the market value, represent the second largest, and fungicides form the smallest segment among. 16 DOI:10.6814/NCCU202000755.

(24) the three (Society of Chemical Industry, 2017).. 立. 政治大. ‧ 國. 學. Figure 4 - Annual Pesticide Sales by Geographic Regions (Zhang, Zeiss and Geng, 2015). ‧. The global market for agrochemical products was valued at about US$ 55.6 billion in 2014.. sit. y. Nat. However, the number dropped by almost 10% in the following year. Indeed, sixteen of the top. n. al. er. io. twenty leading agrochemical companies, including the top six multinationals, reported lower. i Un. v. sales in 2015. The difficult 2014-15 season is an example showing that the seeds and crop. Ch. engchi. protection sector can be affected by a mix of market conditions in the short and medium term. The market in Latin America had a 13% loss in sales compared to the previous year mainly due to the low commodity price of crops and high inventory level at the distributor level. Some traditional agricultural producing nations, such as Argentina and Brazil, even experienced extreme weather and low infestation levels of primary pests. In Asia, a higher price of rice helped the overall amount of seeds and crop protection products sold; however, some regions also had adverse weather and pest infestation irregularities, leading to lower demand for agrochemicals. The business in Europe, in general, improved due to favorable weather conditions, which helped increase the production of crops and thus the demand for pesticides. 17 DOI:10.6814/NCCU202000755.

(25) In North America, the planted area of certain crops declined due to lower prices and thus affected the sales of certain pesticides targeting the crops. Furthermore, it was perceived that the sales and profitability of an agrochemical company operating on a global scale do not depend solely on the various factors and market conditions in major regions, but also on the currency exchange rates. The fluctuations in exchange rates could have positive or negative impacts on the real revenue streams generated from different countries. Therefore, managing the agrochemical business on a global scale involves great complexities of resource allocations. 政治大 trend of 2015, the decline in the 立overall sales continued in 2016 but at a slower pace. However,. and is extremely difficult due to risks and uncertainty in all regional markets. Following the. ‧ 國. 學. a growth in the overall seeds and crop protection market, led by the emerging markets, such as nations in eastern Europe, Australia, and several Asian countries, is expected in the future. ‧. (Informa UK Ltd., 2017).. y. Nat. io. sit. In the long term, agrochemical companies are also vulnerable to global regulatory, social and. n. al. er. environmental changes. Since the 1980s, the concern about the impact of synthetic chemicals. Ch. i Un. v. on human health and the environment has been raised. The regulatory requirements continue to. engchi. evolve towards more favorable environmental and toxicological profiles. Court orders, public attention and the pressure from anti-pesticide activists have been shaping the policies on the use of agrochemicals. As such, many older products have seen their registrations canceled because their attributes no longer meet the more stringent standards, and abrupt reversals of policies on the approval of new products have occurred in many regional markets (Informa UK Ltd., 2017; Elsevier B.V., 2017). The frequent changes in the regulations have brought on greater uncertainty in new product development. The time for bringing a potential new pesticide from discovery to the first sale is very long, as it can take eight to ten years for a successful. 18 DOI:10.6814/NCCU202000755.

(26) product to pass all the safety and efficacy tests, field trials, registration, and tedious approval processes. Moreover, the chance of finding a chemical compound that provides improved efficacy, selectivity, or favorable environmental properties and successfully passes the whole development route to market is about one or two in one hundred and sixteen thousand (Sparks and Lorsbach, 2017). Nowadays, both the development time and the difficulty in inventing a new agrochemical have intensified by the fact that it now requires scientists to identify and develop not only synthetically more complicated but also more toxicological and. 政治大 estimates, the R&D expenses立 for a new product development launch can exceed over US$ 280 environmental-friendly products (Syngenta Crop Protection AG, 2016). According to recent. ‧ 國. 學. million for large corporations, and the cash flows for the product program can remain negative for over ten years following the launch (Sparks and Lorsbach, 2017).. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. Figure 5 - Cost of Agrochemical Development versus Screening Success (Sparks and Lorsbach, 2017). 19 DOI:10.6814/NCCU202000755.

(27) The research efficiency in this sector has been declining as shown in Figure 5. The cost of each new product development has been rising, and meanwhile, the probability of successful product development has been declining. Similar to many mature industries, which have experienced the productivity crisis in R&D, this costly, long-term investment has limited the number of players both willing to and capable of participating in the business. Hence, companies have been consolidating both vertically and horizontally among themselves in order to gain access to complementary technological know-how. In this way, merged companies can improve their. 政治大 protecting shareholder values 立 (Sparks and Lorsbach, 2017; Society of Chemical Industry, 2017). R&D capabilities and allow for more expenditures in new product development while. ‧ 國. 學. There is a tendency for the dominant players to integrate related businesses and cross-sell. ‧. products and services, including seeds, pesticides and consulting solutions in crop protection as well as digital farming. Integrated corporations intend to establish one-stop platforms that allow. y. Nat. io. sit. them to tailor agricultural solutions responding only to their offerings. The idea is to exploit. n. al. er. potential synergies among the related businesses and compel customers to purchase from the. Ch. i Un. v. same providers instead of their competitors. An example of such a product package can be crops. engchi. that are genetically modified to tolerate a particular herbicide. In this way, companies could monopolize a line of businesses in certain regional markets. Also, while complementing their product portfolios, the industry leaders are tempted to adopt big data analytics in the businesses covering traits, seeds, pesticides and digital solutions for farmers (ACBIO, 2017). With the availability of more, better and faster data from all business activities, the resultant companies could potentially enhance the ability to provide prescriptive analytics that optimizes or supports decisions in their processes along the whole value chains. While enriching their product portfolios, the industry players also regard conducting M&A as 20 DOI:10.6814/NCCU202000755.

(28) a way to gain access to and extend their presence in emerging markets, where increasing populations and the growth in middle classes that drive future consumer demands and needs are expected (ACBIO, 2017; Society of Chemical Industry, 2017). As of 2018, the number of mega-corporations in the seeds and crop protection sector has reduced to four. Indeed, the competitions among the first-tier players today is a tight oligopoly. At this point, it appears that these multinationals have reached as large as they are allowed to achieve due to antitrust concerns and the regulatory requirement (Coester and Fröndhoff, 2018; Hofmann, 2018).. 政治大 the next strategic move for the 立seeds and crop protection multinationals could be to integrate. Nevertheless, as companies always strive for the growth in market share and shareholder values,. ‧ 國. 學. vertically in the downstream part of the value chain (Sfiligoj, 2018). The logistic processes for the distribution of agrochemicals to the agricultural production sector involve a high degree of. ‧. complexity and market fragmentation. Often, high coordination efforts and costs are spent to. sit. y. Nat. address a variety of processes and interfaces among wholesalers and retailers (Fritz and Hausen,. n. al. er. io. 2009). Hence, by branching out into the distribution channels and integrating the networks, the. i Un. v. companies can further evolve towards network organizations so that cross-functional and cross-. Ch. engchi. enterprise collaboration along their value chains can be better practiced. As the agrochemical companies are further integrated along their supply chains through the spree of vertical and horizontal consolidations, their business operations become more centrally-managed. Decision-making may be more comfortable because formerly separate business entities are now part of one large organization with a single top management level. However, closer integration of business entities only sets up a structure for optimizing flows within a supply chain. Coordinating material, information and financial flows for such supersized, multinational corporations in an efficient manner is still a formidable task. Post-merger. 21 DOI:10.6814/NCCU202000755.

(29) integration that streamlines various business operations is needed to realize the potential efficiencies and synergies, which can be achieved through advanced planning (Stadtler, 2015).. 2.2. Pesticides and the Respective Production Process Agrochemicals or pesticides are chemical products employed in farming to eliminate pests that inhibit plants from growing or cause injuries or diseases to crops. When properly applied to crops, pesticides reduce the amount of crop loss and thus provide higher yields, better quality produces, and more reliable harvest to farmers. Typically, the products are categorized into three. 政治大. independent segments, namely herbicides, insecticides, and fungicides, depending on the kind. 立. of pests targeted. Herbicides are used to eliminate any undesirable vegetation, such as weeds,. ‧ 國. 學. that compete with crops for light and nutrients. They can be either selective or non-selective.. ‧. Selective herbicides are designed to have biological effects only on a particular type of plants and not another, thus leaving the rest of vegetation unaffected to the chemicals. Non-selective. y. Nat. io. sit. herbicides, on the other hand, kill all vegetation within a sprayed area. Both types can also be. n. al. er. utilized for non-crop applications, such as gardening. Insecticides protect crops from various. Ch. i Un. v. kinds of insects that either chew on plant materials (e.g., leaves, roots or fruits) or suck sap from. engchi. plants. Both chewing and sucking insects could severely damage crops and have a catastrophic impact on the quality and quantity of harvests. Fungicides keep crops healthy from fungal diseases. They are designed to treat a wide range of fungi across the same taxonomical groups or target specific diseases. Also, fungicide products can be made to prevent the establishment of infection, inhibit the development of an established infection, or reduce sporulation (University of Oxford, 2018). All agrochemicals vary in their toxicity and designs according to the plant protection problems in the receiving environment. There exist a large number of pesticide variants in the market, but 22 DOI:10.6814/NCCU202000755.

(30) an agrochemical product can simply be defined as a chemical mixture of one active ingredient (AI) and other formulation ingredients (FI) in one form of packaging. An AI is a critical element that controls or eliminates a range of similar pests across different crops. When a pesticide is used, the AI is not applied directly to the field as it is highly degradable and may be harmful through direct exposure. Hence, FIs are used to combine with the AI and process into final products that can be used efficiently, effectively and safely. As additives, FIs allow the bioavailability of AIs to be transported to where it is needed. They can be surfactants that ease. 政治大 stability of AIs or prolong the立 biological effect of pesticides on pests, or safeners that enhance. the transport, retention, and uptake of AIs into pests, stabilizers that improve the chemical. ‧ 國. 學. the selectivity of pesticides to individual plants (University of Oxford, 2018).. ‧. One common AI can be processed with FIs to make different formulations that enhance the products’ efficacy for a particular crop type, climate, or user need. Thus, final products often. y. Nat. io. sit. are made in various forms, such as liquid, emulsion, powder, tablets, and capsules and kept in. n. al. er. different kinds of packages. Because of all the possible combinations of AIs, formulations, and. Ch. i Un. v. packaging, the product portfolios of agrochemical companies can have a considerable number. engchi. of stock keeping units (SKU). However, although the pesticide market is fragmented, with a series of differentiated products, agrochemical companies often invent and produce the same AIs for a broad range of pesticides that address diverse local conditions through generic solutions. This strategy allows companies to be able to recover their investment in R&D from relatively large markets, extend the size of potential demands, and realize economies of scale, all of which enable a reduction in the cost of services related to the use of the products (Joly and Lemarié, 2002; Sousa, Shah and Papageorgiou, 2008).. 23 DOI:10.6814/NCCU202000755.

(31) Figure 6 shows a typical supply chain of the large R&D-based multinationals operating in the seeds and crop protection sector. It consists of five layers of nodes: i.. The raw material supplier locations, where petrochemicals are processed to raw materials and subsequently synthesized to AIs; The intermediate production sites, where the AIs are combined with other FIs to make bulk. ii.. chemical formulations in various forms; iii.. The final production sites, where the bulk products are stored in suitable packages ready to. 政治大 Shipping terminals, such as 立internal or third-party warehouses that collect and distribute the be distributed and marketed;. iv.. ‧ 國. 學. packaged products in the countries or regions of sale;. Customers, who are wholesalers, retailers, cooperatives or individual farmers.. v.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. Figure 6 - A Typical Agrochemical Supply Chain (Bassett, 2018) The production processes for agrochemicals are very similar to those of medical drugs. Typically, the processes are divided into primary and secondary manufacturing. In the primary manufacturing, chemical plants are responsible for turning various petrochemicals into raw 24 DOI:10.6814/NCCU202000755.

(32) materials necessary for the production of AIs. Then, the raw materials are synthesized to AIs. AIs have a high value-to-weight ratio; therefore, the items are usually produced in centralized, multipurpose plants in order to spread the cost of capital between products. It takes several months to two years before the AIs are ready to be sent to the next manufacturing phase as a few complex synthesis and separation processes are involved in forming the chemical compounds. Hence, tasks are usually divided into multiple shifts, and inventories are held for internal distributing and warehousing. Also, severe delays and long downtimes in the system. 政治大 contamination when different立 jobs are performed on the same machinery and the transport. can occur because thorough cleaning and special handling are required to prevent products from. ‧ 國. 學. between intermediate stages is subject to strict quality control. As a result, long and variable replenishment lead time is expected at this end of the supply chain, which could seriously hinder. ‧. the agility and responsiveness in the overall performance.. y. Nat. io. sit. In the secondary manufacturing, AIs synthesized from the previous production phase are. n. al. er. combined with other FIs along with further chemical processing to make bulk formulations.. Ch. i Un. v. Depending on the complexity of the agrochemical product, the formulation and packaging. engchi. processes can be performed at the same production sites. Thus, the second and third layers in Figure 6 can be reduced to one. Because AIs have a favorable value-to-weight ratio, the costs of shipping AIs from primary sites to secondary ones are not significantly critical. Therefore, the secondary manufacturing sites are often geographically distant from the primary plants. Although the number and locations of the plants are decided based on the outcome of the optimization on many decisions variables, there typically are many more secondary production plants than the primary ones because the costs of outbound transportation to the downstream stages becomes relatively significant as final packaged products weigh more and are larger in. 25 DOI:10.6814/NCCU202000755.

(33) size than the AIs (Joly and Lemarié, 2002; Shah, 2004; Sousa, Shah and Papageorgiou, 2008; Sousa et al., 2011; Fritz and Hausen, 2009; Bassett, 2018).. 2.3. Description of a Typical Agrochemical Supply Chain To capture the key characteristics of agrochemical supply chains needed for identifying the types of planning tasks and selecting appropriate optimization models for decision making, the supply chain typology, introduced in Meyr and Stadtler (2015), adopts a holistic analysis approach. Specifically, the framework allows for studying supply chains from two sets of. 政治大. critical attributes, namely functional attributes and structural attributes. Functional attributes. 立. are categorized into four types, including procurement, production, distribution, and sales, to. ‧ 國. 學. describe the structure of the supply chain. Structural attributes, on the other hand, aim to explain. ‧. the relation among all organizational entities of the value chain and are grouped into categories of the topography of a supply chain, and integration and coordination.. sit. y. Nat. n. al. er. io. This typology is applied for a generalized agrochemical supply chain, in which products are. v. sourced, manufactured, distributed and sold. Functional attributes are presented to focus on the. Ch. engchi. i Un. manufacturing facilities while structural attributes consider the value chain as a whole.. 2.3.1. Functional Attributes Procurement type: Agrochemical producers are supplied by the process industry, in which petrochemicals are processed into raw materials required for the production of AIs and FIs. Because of the sophisticated synthesis and separation processes involved in the primary manufacturing, the lead time for AIs is very long (i.e., between several months to two years), the amount of AIs to be supplied is often fixed and promised arrival dates are, to some degrees, unreliable. Due to. 26 DOI:10.6814/NCCU202000755.

(34) the high degree of specification, unique product and production process know-how is required. Thus a single sourcing strategy is implemented for AIs. The life cycle of raw materials for AIs is relatively long. Therefore, the suppliers of AIs are either owned by the same companies or selected cooperatives to ensure the desired flow of materials. Nevertheless, if there should be any unexpected problems in sourcing AIs, because of the high degree of specification and limited flexibility, it is difficult to react quickly in case of sudden changes. On the other hand, raw materials for FIs and package materials (PM) are standard as long as they are not. 政治大 fall back on alternative suppliers 立 in the short term, and multiple sourcing for the materials. sophisticated. Due to the relatively high degree of standardization, it is secure and reliable to. ‧ 國. ‧. Production type:. 學. needed for FIs and PMs is possible (Fritz and Hausen, 2009; Bassett, 2018).. The production of agrochemicals comprises two manufacturing phases. In the primary phase,. y. Nat. io. sit. multiple stages of synthesis and separation processes are operated to turn raw materials into. n. al. er. AIs. Since long processing time is needed for the production of AIs, tasks are often divided into. Ch. i Un. v. multiple shifts. Therefore, inventories are held for internal distributing and warehousing. engchi. between flow shops, in which chemicals are processed through the same order of production stages until they are finished. Also, a few operational challenges are present in this manufacturing phase. First, since quality control checks are required between the interfaces of the multi-stage processes, delays can occur. Secondly, the machinery and other equipment present potential bottlenecks because the capacity of the production lines is limited and chemicals from different setup families are performed on the same resources. Thirdly, owing to that various chemical ingredients can be allocated to the same resources, thorough cleaning and special handling are required to prevent products from contamination between different jobs.. 27 DOI:10.6814/NCCU202000755.

(35) Hence, changeovers between different items can cause high setup costs and times, and the sequence of jobs worked on the same equipment can affect the degree of these costs and time. Lastly, a short-term expansion of operators and working time usually is not possible because technical knowledge and training are required for handling complex chemical processes. In a primary manufacturing plant, the production of AIs can be either continuous or in batches. If batch production is chosen in a plant, it is not unusual to hold long production campaigns for the entire season in order to prevent seasonal stock-outs and to improve the resource utilization. 政治大 Altogether, the production process 立 in this phase often hinders the agility and responsiveness in. by decreasing the number of long downtimes resulted from changeovers between different jobs.. ‧ 國. 學. the overall supply chain.. ‧. In secondary manufacturing, the AIs synthesized from the previous production phase are combined with other FIs along with further chemical processing to make final formulations.. y. Nat. io. sit. Although potential delays, bottlenecks, and downtimes remain present in the complex. n. al. er. processing systems, the formulation and packaging processes in this phase are less troublesome. Ch. i Un. v. than the processes in the previous phase. Because the procurement of materials required for the. engchi. secondary manufacturing phase is relatively standard, reliable and flexible, all the secondary production processes depend heavily on the long replenishment lead time for the AIs (Shah, 2004; Sousa et al., 2011; Fritz and Hausen, 2009; Bassett, 2018). Distribution type: The ultimate consumers of agrochemicals are farmers, who apply the products to cultivate crops. Some large farmers may have access to obtain their input supplies directly, but generally, the customers of agrochemical producers are wholesalers, retailers, and cooperatives, who can request all kinds of products including AIs and finished agrochemicals in bulk or packaged 28 DOI:10.6814/NCCU202000755.

(36) forms. Manufactured items can be distributed to customers either directly from primary or secondary manufacturing sites or through an extra network of internal or third-party warehouses. Thus, the distribution system of an agrochemical manufacturer comprises one or two stages. The pattern of delivery is often dynamic, in which goods are delivered on demand. In some cases, shipments in bulk for products, such as liquid pesticides, are transported to customers’ tanks by consignments in off-seasons. The distribution between sites can be done either by own transportation fleets or by logistics service providers. Due to demand fluctuations, the. 政治大 (e.g., requirement of full truckload) 立 is not considered as extremely critical because the value of distribution network is reorganized regularly. However, transport costs or loading restrictions. ‧ 國. 學. agrochemicals is relatively high and because the companies are more concerned with offering their customers high service levels (Sousa, Shah and Papageorgiou, 2008; Fritz and Hausen,. ‧. 2009; Syngenta Crop Protection AG, 2016).. io. sit. y. Nat. Sales type:. n. al. er. Pesticides have a structure of a mixture type that contains properties of both convergent and. Ch. i Un. v. divergent bills of materials. In production, the agrochemical product is mixed from several AIs. engchi. and other FIs to form a bulk formulation (i.e., convergent BOM). Since quite often one common AI is used for a broad range of final products that address diverse conditions through generic solutions, the final product can be made and packaged in various forms and under several brand names (i.e., divergent BOM). Thus, a large number of final products offered by a typical agrochemical manufacturer are technically related. Nonetheless, because agrochemicals still vary in their toxicity and designs to address a particular crop type, climate, or consumer needs according to the problems in the receiving environment, mass customization is employed, such that the products are tailored to satisfy the needs of customers in a fairly large market.. 29 DOI:10.6814/NCCU202000755.

(37) Product differentiation is one of the most critical drivers of sales performance over the life cycle of agrochemicals. For a newly invented product, patent protection ensures that the product is free from direct competitions for about ten years. However, after the patent expires, vicious competition from the generic versions of the product may occur. Also, there are substitutes available from competitors in the market, meaning that stock-outs of the product can lead to lost sales for agrochemical producers. Therefore, agrochemical manufacturers are entitled to produce-to-stock, basing their production on demand estimates. Demand forecasting for the. 政治大 of their customers can be made, 立 but also because the demand for agrochemicals is highly producers is highly uncertain not merely because only rough estimates on the inventory levels. ‧ 國. 學. variable, seasonal, and discontinuous. The demand is subject to a mix of factors, including the commodity price of primary crops, the food or crop consumption level by the general public,. ‧. weather conditions and the infestation level of pests. Thus, demand forecasting requires. sit. y. Nat. frequent updates on the dynamically changing demands in various regions. In addition, breaks. n. al. er. io. in the demand chain of a particular market region can occur intermittently because of the. i Un. v. seasonality of crop cultivation and the output maximizing practices by farmers. The seasonal. Ch. engchi. feature of the demand from the agricultural sector discontinues the supply of seeds and crop protection products at some point during the year, thus making demand planning inflexible. Throughout the entire life cycle, agrochemical products are also prone to risks and uncertainty. In recent years, many older products have seen their registration canceled because their attributes no longer meet higher standards of environmental and toxicological requirements, and abrupt reversals of regulatory policies have occurred in many regional markets. Altogether, a competitive and challenging business environment is given. The dominant industry players have been consolidating among themselves to extend their reach in new emerging markets,. 30 DOI:10.6814/NCCU202000755.

(38) integrate related businesses and cross-sell products and services. As the integrated corporations try to establish one-stop platforms that allow them to provide integrated pest management solutions for farmers, the portion of service operations is becoming increasingly important. For instance, since agricultural solutions are tailored to respond only to the offerings of the same companies and customers are enticed to purchase from the same providers, agrochemical firms should attach great importance to consulting services and improve customer experience and operations in individual regional markets. In this way, the companies can remain competitive. 政治大. and grow their businesses (Joly and Lemarié, 2002; Sparks and Lorsbach, 2017; Carroll, 2016;. 立. 學. ‧ 國. Informa UK Ltd., 2017).. 2.3.2. Structural Attributes. ‧. Topography of the supply chain:. The network structure is of a divergent type: several suppliers of AIs are linked with a few. y. Nat. io. sit. formulation and packaging plants, many regional central warehouses, wholesalers and retailers,. n. al. er. and with an extended number of final consumers. The procurement, production and distribution. Ch. i Un. v. networks span in many countries, even in multiple continents. Since the synthesis of AIs. engchi. requires very long processing time, the AIs are made to stock to prevent from having stock-outs. For the formulation and packaging process, either centralization or decentralization of the manufacturing plants can be employed. The decision to centralize or decentralize the secondary manufacturing sites depends on regional market needs. A centralized formulation and packaging site provides efficiency and cost saving, benefitting from the economies of scale. However, decentralization of the secondary manufacturing sites may be necessary due to regulatory requirements in different countries regarding product ingredients, the need to move closer to where demand changes are dynamic, or the optimization of shipping lower volume. 31 DOI:10.6814/NCCU202000755.

(39) and weight of AIs in contrast with packaged products. Furthermore, due to the unforeseeable and dynamic changes of demand, as well as the request for high flexibility and high service levels from the agricultural production sector, high inventories and safety stocks are held on all levels of the supply network. Hence, a deliver-to-order decoupling point is given (Fritz and Hausen, 2009; Bassett, 2018). In short, the performance of an agrochemical supply chain is primarily limited by demand variability and inflexibility in the supply chain management to fulfill the demand. Owing to the low responsiveness in the AI synthesis process to catch up with. 政治大 limited availability of AIs, the立 production of which does not allow changes on short notice.. the dynamically changing demands, the main bottleneck of the supply chain as a whole is the. ‧ 國. 學. Integration and coordination:. ‧. Customers tend to have higher market power within the agrochemical supply chains because substitutes are available in the market. Due to the demand variability in the agricultural. y. Nat. io. sit. production sector and the inflexibility in the supply of agrochemicals, there is a strong need for. n. al. er. collaboration between legally independent companies, especially on the distribution level.. Ch. i Un. v. Often, safety stocks are established to help counteract the uneasy demand forecast situation.. engchi. However, the bullwhip effect that amplifies the distortion of order information along the supply chain can exist in the complex multi-stage processes. Therefore, considerable inventories could excessively be held, especially at the front end of the supply chain, resulting in severe operational inefficiencies. The resultant increase in the cost of operations for agrochemical producers is often passed on to the price of final products paid by the ultimate consumers. Because of this practice, agrochemical companies could remain high-profit margins and be passive to exchange information or other data with wholesalers or distributors. Nonetheless, the downturn in the general agricultural economy has resulted in shrinking sales and rising costs of. 32 DOI:10.6814/NCCU202000755.

(40) operations for the manufacturers, making the historically high margins of profit harder to come by. The effect is also compounded with the existence of the external forces relating to customer demands and government regulations. Hence, it is necessary for the firms to exchange information, such as demand forecasts and orders, in order to achieve a global optimum that benefits not only themselves but also all supply chain members within the entire value chain. Moreover, as the industry players are consolidating among themselves to adapt to the changing market circumstances, merged organizational units have to exchange information both. 政治大 duplicate processes or waste立 within the supply chain. Some form of leadership should be. vertically and horizontally in order to streamline the combined operations and eliminate. ‧ 國. 學. executed by a central planning unit of the merged corporation in order to coordinate all business domains by sending directives and gathering feedback (Fritz and Hausen, 2009; Sousa et al.,. Nat. y. ‧. 2011; Stadtler, Kilger and Meyr, 2015; Informa UK Ltd., 2017).. io. sit. Table 1 and Table 2 summarize the categories of functional and structural attributes described. n. al. er. above. The key characteristics of an agrochemical supply chain identified in this section can be. Ch. i Un. v. utilized to derive specific planning requirements for the supply chain, which will be analyzed in the next chapter.. engchi. Table 1 - Supply Chain Typology for the Agrochemical Industry – Functional Attributes FUNCTIONAL ATTRIBUTES Category. Attribute. Content. Number and type of products Few, specific (AI); Few, standard (FI); procured Many, standard (PM) Procurement Type. Sourcing type. Single (AI); Multiple (FI & PM). Flexibility of suppliers. Inflexible (AI); Flexible (FI & PM). Supplier reliability. lead. time. and Long, unreliable (AI); Short, reliable (FI & PM). Materials’ life cycle. Relatively long (AIs, FIs & PM) 33 DOI:10.6814/NCCU202000755.

(41) Organization of the production Two manufacturing phases, flow shop process. Changeover characteristics. Sequence-dependent setup times & costs. Bottlenecks in production. Known, almost stationary. Working time flexibility. Low. Distribution structure. One or two stages. Pattern of delivery. Can be cyclic or dynamic. 政治 products 大 & lost sales. Deployment of transportation Unlimited compared to the sale price of means. 立. Relatively low importance. Relation to customers. Vary from spot market relationships to contracting. Availability of future demands. Forecasted, rough estimates. Demand curve. Variable, seasonal & discontinuous. Products’ life cycle. Long. Number of product types. Many. 學. Loading restrictions. io. Degree of customization. Mass customization. n. al. BOM. Ch. y er. Nat. Sales Type. ‧. ‧ 國. Distribution Type. Can be continuous or batch production (primary); Batch production (secondary). sit. Production Type. Repetition of operations. i Un. v. Mixture of convergent & divergent. i e n g c hMostly. Portion of service operations. tangible goods, Growing importance in service operations. Type of information exchanged. Forecasts & orders. 34 DOI:10.6814/NCCU202000755.

(42) Table 2 - Supply Chain Typology for the Agrochemical Industry – Structural Attributes STRUCTURAL ATTRIBUTES Category. Divergent. Degree of globalization. Multiple countries. Location of decoupling point(s). Assemble-to-stock / deliver-to-order. Major constraints. Limited availability of AIs. Legal position. Inter- and intra-organizational. Balance of power. Customers. Direction of coordination. Mixture. & orders 政治 Forecasts 大. Type of information exchanged. 立. 學 ‧ y. Nat. io. sit. and Coordination. Network structure. n. al. er. Integration. Content. ‧ 國. Topography of the Supply Chain. Attribute. Ch. engchi. i Un. v. 35 DOI:10.6814/NCCU202000755.

(43) 3. Advanced Planning for Agrochemical Supply Chains Planning supports the ongoing decision-making along a supply chain. Depending on the importance of the decisions and the length of planning horizons, planning-related tasks can be organized into long-term strategic, mid-term tactical, and short-term operational phases (Fleischmann, Meyr and Wagner, 2015). This chapter discusses the concept of hierarchical planning in SCM, derives the critical features of agrochemical supply chains to specific planning requirements for the supply chain, and analyzes the planning tasks in the long-term,. 政治大. mid-term, and short-term planning levels.. 立. ‧ 國. 學. 3.1. The Concept of Hierarchical Planning. As discussed in Section 1.1, hierarchical planning in SCM aims to ensure integrated planning. ‧. of the entire supply chain and to optimize decision-making that considers the value chain as a. sit. y. Nat. whole. It decomposes the entire planning task into partial plans or planning modules and. al. er. io. classifies the planning modules into long-term strategic, mid-term tactical, and short-term. v. n. operational levels. Strategic decisions address issues over several years and include long-term. Ch. engchi. i Un. planning for the design and structure of the supply chain. During this planning phase, the supply chain configuration is established and aligned with the strategic goals of companies. Based on the constraints determined at the upper strategic planning level, tactical decisions involve making use of any flexibility to adjust and allocate resources over a time horizon from four to twenty-four months. Ground rules of regular operations for the given supply chain are discovered in this phase. At the operational planning level, the supply chain configuration and resource allocations are already defined. Hence, the goal of this planning level is to sequence the company’s day-to-day activities to the optimum over a short interval of days or weeks. High degree of detail and accuracy is required for short-term planning (Fleischmann, Meyr and 36 DOI:10.6814/NCCU202000755.