Agroindustrial project analysi

THE PROCUREMENT FACTOR 115storage and transport services. The plant will need quality-controlmechanisms to monitor and upgrade its raw material.In addition to obtaining the desired quantity and quality of rawmaterial, the procurement system must also ensure that the rawmaterial is delivered to the plant at the appropriate time. Timing iscomplicated by several factors. The seasonality of production,inherent in the biological nature of the raw material, causes an unevenflow to the factory. This cyclical pattern creates a peak flow,which requires extra processing or storage capacity. The agroindustrialfirm should consider methods to spread the flow of rawmaterial more evenly. The perishability of raw material similarlyemphasizes the timing of the system's movement of produce fromthe farm to the factory. Storage and processing techniques can reducelosses to perishability. Availability-determined by the rawmaterial's growth cycle and the expected duration of supply-alsoaffects procurement timing. Before making the fixed plant investment,a firm should ascertain the certainty of supply and the relativepermanency of the crop.Although the quantity and quality of the raw material and thetiming of its procurement may all be acceptable, the procurementsystem is not economically viable unless the raw material is reasonablypriced. The cost must be low enough to allow the processingplant to generate a profit that yields an acceptable return on investment.The analyst must examine the main factors affecting costs:supply and demand, opportunity costs, structural factors, logisticalservices, and governmental interventions. The mechanisms andalternatives for establishing raw material prices should similarly beevaluated: spot prices, multiple sources, governmental price supports,contracting, joint ventures, ani backward vertical integration.In addition, the analyst should calculate the sensitivity ofprofits and investment returns to changes in raw material prices.The procurement system's overall effectiveness ultimately restson its organization. To achieve this organization, the firm shouldbegin by studying the farm-to-factory structure, which is builtupon the number, size, and location of farmers, middlemen, transporters,storage operators, and other industrial buyers. The analystshould also examine the pattern of farmland ownership, existingdegrees of vertical integration, and the volume and channels ofcommodity flow. This structural analysis leads to an examinationof power within the supply channels, the basis of that power, and