The Value Chain

The Value Chain

Value chains (also known as commodity chains) are a series a stages conditioned by the location and availability of raw materials, production costs, and the location of main consumption markets. This sequence allows for the provision of goods to markets. Value chains are also integrated by a transport chain routing raw materials, parts, and finished goods from extraction and transformation sites to markets and correspond to a unique geography of flows. Three major stages can be considered within a value chain:

  • First Stage (Raw materials). The availability of raw materials often imposes sourcing at the international level, a process that has accelerated with globalization. It dominantly concerns the procurement of commodities that are stored in large stockpiles. The flows occurring at this stage are mainly supported by international transportation systems relying on bulk shipping, such as bulk carriers and tankers. Distribution tends to involve high volumes (economies of scale) and low frequency. This system is also being impacted by the containerization of several commodity markets.
  • Second Stage (Manufacturing and assembly). Mainly concerns intermediate goods. Globalization has shown impressive flexibility in the sourcing of manufacturing tasks. The output of this stage is commonly stored in warehouses either near the place of production or close to customers. It will be delivered upon the specific synchronism of the concerned value chain. Flows are either containerized or on pallets (unit shipping), with average volumes and rather high frequencies, notably for value chains relying on timely deliveries.
  • Third Stage (Distribution). Distribution of final goods mainly takes place on the national market, although globally oriented distribution implies that a national market is serviced from a major gateway. Depending on the scale of the distribution (international, national, or regional), flows can be coordinated by distribution centers having each their own market areas. Flows are actively managed, often in low volumes (less than truckload; LTL), but with a high frequency since they are related to retailing. Since the final consumption markets are in urban areas, a fair amount of distribution involves city logistics.