Supply Chains, Transport Chains and Added Value

Supply Chains, Transport Chains and Added Value

Locations are competing to attract, expand, and retain economic activities since they provide employment and generate value for an economy. The generation of value in a value chain is a process that mainly takes three primary forms:

  • Value creation or capture. Value creation concerns the formation of new activities within a supply chain, such as manufacturing, distribution, and transport. It is often linked with a paradigm shift such as a new terminal, lower distribution costs, new technology, new market opportunities, etc. Value capture attracts activities from another location, a process that can be incited through various costs and infrastructure advantages that may include improved intermodal facilities or logistics zones.
  • Value expansion. The growth of existing strengths, mainly concerning the growth of traffic along a supply chain. Therefore, the more traffic, the more value generated for the local economy.
  • Value retention. Involves keeping desirable added-value activities that under existing circumstances would have ceased or relocated elsewhere (value capture by another location). It is a complicated process to mitigate since it is linked with changes in economic fundamentals, such as comparative advantages. However, value capture and expansion can have a significant impact on value retention since it creates local clusters of interdependent activities.

In a supply chain, from suppliers to customers, and through all the intermediary stages, it is a matter of how 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. The structure of transport chains underlines where specific locations (gateways, regions, localities, etc.) can 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, the added value is performed at a wide array of locations, which is the outcome of decisions made by multinational corporations to maximize their revenue.

Regions, such as North America, Japan, and Europe, have seen a “devaluation” of several of the supply chains they are involved with. For the retailing sector, most added value activities related to production have been off-shored, and the added value performed in North America mainly concerns distribution; how to move finished goods to a wide array of markets.