Determinants of coordination and supply chain performance The case of fresh milk supply chains in Kenya

The study uses Transaction Costs Economics Theory and Supply Chain Management frameworks to investigate determinants of coordination and supply chain performance in the Kenyan milk supply chains. The transactions investigated are between milk producers and buyer customers, between milk retailers and their milk suppliers and, between the retailer outlets and their buyers. Coordination is defined by the kind of contracts used in transactions between the sellers and the buyers of milk. On the other hand, supply chain performance is defined by the extent to which the supply chain partners are satisfied with key aspects of their transactions with their partners and is measured on likert type scales. The data used was collected in two districts in Kenya between May 2005 and September 2005. Multinomial logit models and ordered probit models were used to analyze data on determinants of coordination mechanisms supply chain performance, respectively. The results of the study provide a framework for characterizing coordination mechanisms, and factors influencing coordination modes or arrangements in the Kenyan fresh milk supply chain. Three main coordination mechanisms were identified in the milk supply chains: spot market contracts, verbal contracts, and written contracts. The results show that the coordination and performance are significantly influenced by location and socioeconomic characteristics of the agents, firm specific and, transaction cost characteristics. The study shows that certain state interventions may be necessary for the commercial development of the dairy industry especially with regard to reduction of key transaction costs, among them road transport infrastructure, farmer cooperative organizations, information and market search and contractual support institutions. Key words: New Institutional Economics, Transaction Costs, Coordination Mechanisms, Supply Chain Management, Supply Chain Performance, Milk Supply chain, Household Model, Multinomial Logistic Regression, Ordered Logistic Regression, Kenya.



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