Coordination of the California Winegrape Supply Chain

Abstract

This study investigates factors influencing coordination of the California grape and wine supply chain. Results corroborate prior findings that quality considerations and needs to protect investments in specialized or durable assets significantly increase usage of more formal coordination mechanisms, such as formal contracts and vertical integration or ownership. Consistent with findings for other industries, such investments are associated with greater contract complexity and inclusion of enforcement provisions, while trade partners' prior experience working together decreases contract complexity. Furthermore, our results suggest that quality considerations extend to greater use of formal contracts further downstream. (JEL Classifications: L1, L2, Q13)

Organizational Structure and Operation of the Illinois Wine Industry

“…Both studies found that wineries had more in luence on production practices under contracts for higher-quality grapes; contracts for lower-quality grapes relied more on quality metrics and inancial incentives. Building on this research, Franken (2014) found that perceived dif iculty or uncertainty associated with measuring grape quality decreased the probability of informal verbal agreements and increased reliance on formal written contracts for winegrapes in California. According to the organizational economics literature (Mahoney 1992), when measuring quality is dif icult, uncertain, or costly, contract provisions can stipulate best practices that have proven effective in delivering a desired level of quality if their use is easily veri ied (i.e., the task is programmable).…”

“…The responses ranged from 3 to 5 with an average of 4.30, indicating that Illinois winery operators view grape quality as fairly easy to measure (Table 1). Relevant quality attributes, on the other hand, were perceived as more dif icult to measure by participants in Franken's (2014) study of the winegrape supply chain in California; for a comparable question, the responses ranged from 2 to 5 with an average value of 3.70. The difference may re lect greater attention to quality attributes that are objectively measured (e.g., sugar content in brix and acidity in pH) and less attention paid to attributes that are subjectively measured (i.e., color and lavor) in emerging wine regions.…”

“…Theoretical constructs are operationalized by adapting survey items from previous studies of transaction costs in the wine industry (Goodhue et al 2003, Fernández-Olmos, Rosell-Martínez, and Espitia-Escuer 2009, Franken 2014. Several WIU survey items were designed speci ically to measure theoretical determinants of marketing/procurement decisions.…”

Performance Indicators in the Wine Supply Chain Context: a Framework for Explanation and Action

“…In the WSC, through links previously built between the members, it is possible to identify different types of flows. Of particular importance are the physical flows (raw materials, semifinished products, and finished products) and the information flows that enable monitoring of physical flows (Lam et al, 2013;Franken, 2014;Song et al, 2016). Craighead et al (2007) identify these three types of flows more precisely: (1) "forward" flow corresponds to the movement of materials and products from a WSC member located upstream to a WSC located downstream; (2) "backward" flow refers to the flow of materials from a WSC member located down stream to a WSC member located upstream (e.g.…”

“…Sectors such as the automotive industry, but also the personal computer, convenience goods and retailing industries have attracted attention with regard to the performance of their supply chains. However, in the case of the wine industry, despite Franken's (2014) focus on the use of formal coordination mechanisms in the California wine grape supply chain, qual ity considerations have been paramount to protect investment in special assets. The reasons for the lack of interest in the wine supply chain (WSC) are: (1) the traditional character of the industrial and logistical processes; and (2) a product aimed at a gourmet clientele which, primarily, is searching for thrills in terms of taste.…”