Page 161 - Agri-Business Management Handbook

Logistics and operations
To cope with increased market for JBK
products, it was necessary to address
four main issues namely; the seasonal
nature of the agricultural industry which
led to disruptions in the supply of the
raw materials, coordination of sourcing
of raw materials from farmers with
production, coordination of production
with marketing and competition for
raw materials from other producers.
JBK made contracts with farmers to
produce and sell their produce to him.
The contract provided for a fixed nominal
price and a “bonus” based on the market
performance at the time of delivery.
JBK gave his cell phone number to all
potential suppliers of raw materials
and intentionally kept off from the
middlemen. Additionally, the JBK farmers
club was formed where JBK would
organize education fairs for the farmers
to ensure that the farmers received
the right education on how to handle
their produce from the time they plant
to the time the product reached the
JBK warehouse. Members of the JBK
farmer’s club would get first priority on
their produce when there was glut of the
produce. This practice encouraged more
farmers to venture in to horticultural
farming, increased their yield and also the requirements, JBK sold off a piece of
calorific value of the produce. Farmers
in the JBK farmer’s club would ensure
that they recruited more members and
did not supply their produce to anyone
else. By 2013, the JBK farmers club had
grown to 1,452 farmers distributed in six
counties in Kenya. The presence of the
JBK farmer’s club provided an opportunity
for JBK to organize collection days to
enhance economies in collection of the
produce and farmer competitions in
every region – a competition that would
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pitch different areas to compete on
which area would deliver more produce
of higher quality to JBK. At the end of
the year, JBK would reward the winning
team. JBK also developed a loan scheme
where farmers would get an advance
payment and then pay back by use of the
farm produce the loans were backed up
by group guarantees by other members.
To be able to take up all the produce brought
by the farmers, JBK leased a bigger factory
and invested in plant and equipment
that would maintain the freshness of
the produce for up to eight months.
Financial and administrative policies
In 2010, JBK negotiated with the bank
to convert the Ksh. 3.8 million overdraft
to a 36 month loan, a strategy that fixed
the interest rate charged on the facility
and created a commitment to pay Ksh.
149,084 every month. Additionally, JBK
negotiated with farmers for their payments
to be made 21 days after delivery of the
supplies by use of mobile phone transfer.
Commissions charged by the mobile
phone companies would be taken
up by the customers as they saved
the transport expenses they would
have spent collecting cheques from
JBK. To supplement working capital
land which he had bought in his earlier
years for Ksh. 1.9 million. Additionally,
JBK hired a consulting accountant to
help formulate financial control systems.
The consultant developed the policies
in consultation with the directors and
trained both JBK and Gladys on the
need for segregation of duties, proper
record keeping, and reconciliation of
supplier, production, stores and marketing
records as well as bank reconciliations.