Supply Chains, Transport Chains and Added Value
The generation of value in a supply chain is a process that mainly takes three major forms:
- Value creation or capture. Value creation concerns entirely new activities within a supply chain and is linked with a paradigm shift such as a new terminal, lower distribution costs, a new technology, a new market, etc. Value capture is commonly linked with value creation an implies the accumulation of the related activities at a specific location, which can be nearby a terminal or within a logistics zone. This process involves the higher return in terms of added value since new activities are created.
- Value expansion. The growth of existing strengths, mainly in relation with the growth of traffic along a supply chain.
- Value retention. Keeping desirable added-value activities that under existing trends would have ceased and/or relocated elsewhere (value capture). Difficult process to mitigate since linked with economic fundamentals. However, value capture and expansion could have a significant impact on value retention.
The structure of the transport chains underlines how locations (gateways, regions, localities, etc.) are able to capture, expand and retain value added activities. It is in this context that policies, regulations and investments are articulated for the expected multiplying effects related to value capture. Since many supply chains are globally oriented, added value is performed at a wide array of locations, which is the outcome of decisions made by multinational corporations to maximize their revenue. It is worth underlining that in a complete supply chain (from suppliers to customers and through all the intermediary stages) all the value added activities are performed. It is a matter about where each added value function takes place. For many sectors, added value activities have moved downward the supply chain as a strategy to lower production (input) costs. In other cases, added value activities have moved upward to expand market potential, mainly through better freight distribution strategies. In almost all cases, improving the efficiency of freight distribution is a salient factor of added value for supply chains.
In many ways several regions, such as the North American economy, have seen a "devaluation" of the supply chains they are involved with. For the retailing sector, most added value activities related to production have been off-shored and added value performed in North America mainly concerns distribution; how to move finished goods to a wide array of markets (gateway / hinterland relationship). For the commodity sector (grain, energy, wood products, minerals, etc.) it is again an issue of distribution, this time in the opposite direction (hinterland / gateway relationship).