Local Food Supply Chain Networks: The Case for Business Development and Job Creation

Unemployment and its part played in our current economic stagnation is a huge Gordian knot for those who have to work on policy and programs to address this crisis. Certainly the Local Food Movement is no all-encompassing Silver Bullet to be fired at the heart of a sagging economy. However, we do believe that a creatively imagined and energetically supported local food supply chain agenda can stimulate new business and job creation.

The USDA Researchers' Call to Arms: Opportunities Identified

Timlynn recently gave a 'must read' recommendation for research report ERR-99, Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains, recently published by the USDA Economic Research Service. This multi-case study is a detailed comparison of so-called "mainstream" food supply chains (AKA globalized, industrial scale) and local food supply chains. It is must reading for all of us in the local food movement.

Of particular interest – and a clarion call for innovators within the local food movement – is the final section of the report, "Priorities for Future Research." This section identifies three issues requiring immediate attention:

1. The need to understand the impact on local food market expansion relative to product availability and pricing sensitivity.
2. The need to introduce transparency and accountability into the "food miles" and "carbon footprint" aspects of food systems to assess the true total cost of mainstream versus local food.

 But perhaps most subtly provocative and most pregnant with opportunity is the researchers' third area requiring research:

3. "...relative to mainstream chains, the local supply chains studied in this report appear to retain a greater share of wages, income, and farm revenues within local areas… Of particular interest is the role of supply chain structure in determining the number and types of jobs that local supply chains may create relative to mainstream chains."

Pages 69-70, Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains,
ERR-99, Economic Research Service, USDA, 2010 – Our emphasis added

This third priority is an area that Sohodojo Business Services is working on today.  We explicitly recognize and support new business development and job/income creation in the local food supply chains we are developing. We describe this in more detail in the sections below.

Creating Opportunities for More than Just the Usual Suspects

It is no surprise to hear how increased consumer demand for local food can lead to more farmers and on-farm work opportunities, and to more opportunities for processor/packagers, etc.  But, with a prevailing assumption that the supply chain is mostly limited to sales through farmers markets, institutions, and traditional retail or buyer co-ops, we miss the opportunity to envision and support new roles and associated business/income opportunities in the entire supply chain involved in the local food system. Even if we envision such opportunities, there is little we can do to tap this expanded potential if the supply chain business information systems used are inflexible and cannot accommodate an expanded, network-based business vision.

Small business information systems tend to be largely business entity-centric; a cloistered environment with limited connections to external systems. Information systems for small business supply chains tend to be based on strict buyer-seller exchange and interaction; they do not envision nor support active network-based chains.

Such myopic one-to-another exchange systems will work to create, in effect, "chain reactions" of hand-off relations. But such insular systems do not have the capacity to be "self-aware," in the sense of either a managed or self-organizing system at the whole system level. This limits growth and diversity and a potential network supply chain of various types of participants.

Further, small business systems tend to be tuned to business-to-business levels of granularity. Within a business, processes may accommodate workflows at the person-based role level. However, we rarely see networked-based systems that are fine-grained and flexible enough to handle hybrid systems composed of businesses and individuals (free agents, proactive customers, etc.).

The Sohodojo Business Systems local food supply chain platform is intentionally envisioned to overcome the limitations of small business systems. It is network-centric, fine-grained, and flexible enough to support self-organizing and self-managing business models.

Our current best example is the Local Food Club network we developed for Kalona Organics. (www.KalonaLocal.com - Note: The site is currently on-line but dormant due to a redirection of effort and resources by Kalona Organics to its rebranding and mainstream food supply chain agenda. The Metro Food Club is no longer in operation. The information presented here reflects our experience report of this prior project.)

Basic Building Blocks of a Local Food Supply Chain

Kalona Organics and its affiliated Farmer's All Natural Creamery are located in the Kalona area in southeast Iowa. This region has a special resource in its cultural heritage of Amish and Mennonite farmers who settled this rich agricultural area. Kalona Organics and its creamery play a vital role in processing the dairy products from dozens of these area family-based farms. Kalona Organics also works with Farmers' Hen House, a successful Amish-based egg aggregator and producer. Kalona Organics, Farmers' Hen House, Farmer's All Natural Creamery and the individuals who lead them are, in system/role terms, known as network enablers.

Kalona Organics has been experimenting with expanding its business through development of local food clubs. The first of these has been based at Metro High School in Cedar Rapids for a little over a year. There is a desire to expand its local food clubs throughout Cedar Rapids and Iowa City, but to do so Kalona Organics needs the support of a business information system that is easy to use, accurate and most importantly, one that captures the business elements and processes throughout their supply chain network. Several buyer-seller exchange-based business system candidates were tested and ultimately rejected. Kalona Organics contacted Sohodojo Business Services for help with their business expansion vision.

Sohodojo Business Services brings to the table a fundamental underlying design perspective known as an "executable business model." In brief, this means that all the elements/processes in the business information system we develop are as close as possible to the elements and processes that business folks describe when they talk and think about their business and how their business works. We do not impose an external model on the active system of a business; instead we capture exactly how the business works and develop a business information system that supports, enhances, and expands it.

Details of this perspective are beyond the scope of this paper. If you are interested in going deeper, please click here: this PDF includes a diagram of our meta-model for the Kalona Organic local food network. (Note: the 'meta-model' is the system "roadmap" which helps us to build the various underlying models that together make up the "big picture" of our local food network system.)

We started modeling the Kalona system and determined the basic building blocks of the Kalona Local Food Club network. The most obvious and relatively coarse-grained elements of this model are the groups or organizations that interact with each other within this supply chain.

This simple model shows the various exchanges and interactions that get local food from the Farm field to the Food Club member's table. Some products, such as fresh produce, require no additional processing or packaging, so we see a direct link from Farm to Food Club. In the case of dairy products, like those processed by Kalona Organics' Farmers All Natural Creamery, processing and packaging are required before the finished product makes its way to the Club member's table.

Note the important role that Kalona Organics plays as the Network Enabler. That dotted line around the domain of the Local Food Club Network represents the vital role that Kalona Organics plays in bringing the network supply chain into being. That domain boundary line represents a whole range of requirements, roles, and processes that are the subject of other models within our system. Here we focus only the local food club model within this much larger, more complex system.

Beyond the Basics - Hubs and Informal Groups within the Supply Chain

The simple diagram above generally captures the various exchanges and interactions that occur in the Kalona Organic local food club business supply chain. If we stopped here and developed a business information system to support the above modeled buyer-seller exchanges alone, we would have missed how this network business supports growth and diversification opportunities. More importantly, we would have missed a key element in how to grow and expand local food clubs across the region. 

By careful observation of this business network as it operates, we identified the potential roles and contributions of network hubs and informal groups and their impact for job/income creation, and for local food club replication and expansion.

As members of the Local Food Club based at Metro High School, we have a vested interest in seeing that Kalona Organics local food club program is a success. As we modeled the local food club system, we interviewed fellow club members to find out more about their participation in and motivation to be part of the Metro High School food club.

Two club members described their roles in relation to informal sub-groups within the club. One was an Order Aggregator; developing/submitting a bulk order, paying for, and then picking up and delivering food club items for five families in her neighborhood. The other was a Pick-up Agent; coming to the drop point, picking up all the items ordered by her fellow workmates, and bringing them back to her local small business office.

We also heard very positive feedback for our interest in developing networks of food clubs targeted to particular groups. For example, a Club Hub could develop a handful of individual food clubs that exclusively service senior citizen enclaves in Cedar Rapids or Iowa City.

We added two new elements to our food club model – Club Hub and Pick-up Group – based on our direct participation and study of the first Food Club within the network. Both identified potential sources for business expansion.

The Seeds of Business Development and Job/Income Creation

Club Hubs and Pick-up Groups identified a potential primary source for growth and diversification of the supply chain network, i.e., new business development and job/income creation.

An enterprising entrepreneur could develop a Club Hub business by targeting and marketing to a niche network of food clubs. With a solid information management system that supports a network business model and business processes, the Club Hub business information system could be replicated across different niche networks as they are developed. The potential here is unlimited.

It is easy to imagine how a motivated Order Aggregator, charging a modest fee for services, could soon develop a new small business and larger income stream.  By working directly with a Club Hub or Kalona Organics itself and expanding the number of families she/he services, the Order Aggregator can move from Pick-up Group service to become an off-shoot, standalone Food Club.  

It is equally easy to imagine how an entrepreneurial Pick-up Agent could morph into an Order Aggregator and then spawn an off-shoot, standalone Food Club.

And, a successful Food Club could grow quite large and subdivide into a several smaller food clubs under the support and general management of the parent food club. While still a Food Club itself, it could in effect become a Club Hub as well.

Food Clubs and Club Hubs, together with the Farms and Suppliers (Producer/Packager), are the obvious sources of new business development in our local food supply chain network. The Clubs and Hubs "own" specific business processes that collectively make the network function.

Farms and Suppliers success in participating in a local food supply chain will result in their becoming a recognized small business (5-500 employees). Clubs, Hubs, and even some Pick-up Groups are more reasonably expected to range in size from the microenterprise (1-5 owner-operator/employees) to very small business (6-25 employees) organizations. Clubs, Hubs and Pick-up Groups are the source of small business creation.

But Organizations don't directly do anything. People as Actors of Roles within the Business Processes are how real work gets done. These Roles are the source of job and income creation.

While a detailed Actors and Roles model is beyond the scope of this article, you can easily envision that the Organizations here have individuals filling such roles as Club Leader, Club Hub Coordinator, Pick-up Group Agent, etc., along with more traditional Roles of Distribution Manager, Delivery Person, Bookkeeper, Shipping Clerk, etc. (For more see the Persons and Roles model in the PDF document cited earlier.)

Sustainability in 21^st Century Rural and Distressed Urban Communities

The skeptical among us might easily wonder if a Pick-up Group's Order Aggregator is truly a sustainable "job" in the traditional sense of even part-time let alone full-time employment. The Optimist (some might say the Pollyanna) within us says, "Maybe" as we don't yet know how vigorous and sustainable a local food supply chain can be when buttressed by such an intentionally-designed small business network information system. The Realist within us says, "Not likely"… but that is why we routinely qualify our discussion about job creation with slash-qualification of 'job/income' creation.

There is an underlying shared belief (perhaps, just hope) that when the current deep economic slump ends, the rebound will be characterized by new and growing businesses creating millions of much-needed "real jobs." We, like you, hope so. But realistically there are systemic problems in our national economy that will not be addressed by a simple bounce in consumer demand and new spendable income. Age-ism and a mushrooming Baby Boomer generation are yet to be dealt with as an expected Golden Years Retirement becomes more myth than reality. Under-employment and frequent or persistent unemployment will mean life-style challenges for many of us who assumed there would be a quality of life that is increasingly difficult to achieve or maintain.

We are not just being pessimistic. A July 2010 Brookings Institute article notes it will take more than eleven years for the US economy to rebound and close the current "job gap" IF job creation from today on matches the job growth (every month) for the best year for job creation in the 2000s – 2005. The likelihood of this occurring looks dismal given the current outlook for our economy in what is now being called the Great Recession.

How will the Baby Boomer generation fare in these tough economic times? The July-August issue of the AARP Bulletin notes that over 50% of the 50+ year olds they recently surveyed say they "rely or will rely" on Social Security more than they ever expected, as unemployment remains high and job opportunities for the 50+ set remain low. With pressure afoot to cut or curtail Social Security benefits, we definitely need to rethink what constitutes job creation and come up with new ways to achieve retirement financial security.

While being a Big Box "greeter" or fast food burger flipper may be the inevitable route for some to supplement their income, we need to create as aggressively as possible, new income generating roles and rewarding opportunities.

Becoming a Pick-Up Agent or Order Aggregator may not be a J-O-B with health insurance benefits or a 401K, but it may help to put food on the table as in-kind compensation for the services rendered. A Food Club Leader may generate supplemental retirement income along with the personal satisfaction of knowing that he/she is helping to put good food on the tables of family, friends and neighbors. And everyone involved, as the USDA researchers remind us, may find comfort knowing that an increasing share of our local income stays in our local economy helping to make life more livable in the world we experience every day.

So What Are the Challenges to Local Food Supply Chain Innovation?

By far – and this is not limited to us and our work with the local food supply chain domain – our most significant challenge is seed funding for anything that is, at its core, a network. Banks, government-supported small business policies and services, and even our own fellow entrepreneurs and business owners are oriented to the business-entity as their organizing unit and service constituent, not the vital network – the supply chain – in which such businesses are embedded.

The folks at Kalona Organics have done their best to fund and sustain our collaboration to create an innovative Local Food Club network. But this was certainly a challenge for them.  They had human and financial resource constraints that shifted their attention from one opportunity or crisis to another; and these are tough economic times. Although Kalona Organics has self-selected into the role of Network Enabler in this local food supply chain system, the responsibility of funding supply chain network models to be replicated across Iowa, should not fall solely on them.

Building the kind of microenterprise and small business supply chain infrastructure that is needed for network models like the one we helped develop at www.KalonaLocal.com is an effort that will "float many boats" in our sustainable local economy future. So while we applaud and encourage the efforts of Kalona Organics to move this agenda forward, we all need to be more creative and proactive in finding the means to fund and support such innovation.

A second challenge we face is overcoming the "Doer-Thinker Divide." We often hear clients or prospective clients suggest that they, the private sector business folks, "do" and the public/academic sector folks "talk and study" then leave. This is sometimes true and reflects the built-in constraints of research funding and the non-participant observer role of the professional researcher. But in many cases the problem is that we just haven't identified the project or agenda that lends itself to "shared doing." We believe Sohodojo Business Services' local food supply chain network software infrastructure development project is an ideal candidate for such applied research and innovation.

Our unique skills, experience, and perspective are ideal for serving a bridge role between our clients and the unique resource available through Iowa State University. We hope to evolve a working relationship with the University's Leopold Center for Sustainable Agriculture to bring a collection of the faculty's "best and brightest" to work on this much-needed project. We have already identified our starting "A-Team" of folks with whom we would like to work, including:

• Andy Larson, ISU Extension "guru" for Small Farm Sustainability
• Brian Mennecke, MIS supply chain expert
• Cornelia and Jan Flora, sociologists with expertise in agriculture, economic development, and change management
• Corry Bregendahl, Leopold Center scientist with special focus on CSA and economic/statistical research
• Leigh Tesfatsion, agent-based computational economics, and market coordination and learning
• Rich Pirog, Leopold Center's Marketing and Food Systems Leader
• others, especially in computer science and the business school (volunteers and recommendations welcome)

We are working toward the opportunity to bring these folks together with our current and prospective clients and partners – e.g., Kalona Organics, Farmers Hen House, Local Harvest Supply, the Iowa Food Co-op, etc. – which will so directly benefit from such an applied research and development project.

Next Steps...

Within the time and resource limits of our collaboration with Kalona Organics, we did all in our power to launch and evolve the www.KalonaLocal.com web platform. We are fully aware that its features were merely the first of many needed steps to achieve what we know could be accomplished with a social-network enhanced web services platform supporting local food clubs. We will continue to actively seek opportunities to partner with kindred spirits who want to work with us to enhance and extend our local food club platform.

Concurrently, we are soliciting the interest and advice from our network of prospective supporters and collaborators at the Leopold Center and Iowa State University. We hope that this article will generate further interest and assistance in advancing our applied R&D agenda. We need some funding and organizing support from Leopold Center to host a working group session of the folks listed above.

As always, thank you for your interest and for taking the time to read this article. Even more so, we thank you if you will take the time to think about our challenges and offer your insights and recommendations. We can be reached by our contact page.  

--Jim Salmons and Timlynn Babitsky--
Sohodojo Business Services
www.Sohodojo.biz
Cedar Rapids, Iowa

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