Supply chain or commodity chain activities transform raw materials and components into a finished product that is delivered to the customer.
"Some 65,000 multinational enterprises, with around 850,000 foreign affiliates, are the key actors behind these global production systems. They coordinate
global supply chains which link firms across countries."
However, no single company is large enough to control the entire
global supply chain, since no existing company controls every link from raw material extraction to consumption.
(World Commission on the Social Dimension of Globalization,
A Fair Globalization: Creating Opportunities for All, International Labour Organization (ILO), 2004, pp. 33, 85.)
Types of Commodity Chains
In showing how globalization has changed patterns of production, Gereffi differentiates between two types of international networks: "producer-driven" and "buyer-driven"
global commodity chains.
Producer-driven commodity chains are those in which large, usually transnational, manufacturers play the central roles in coordinating production networks. This is characteristic of capital and technology intensive industries such as those dealing in automobiles, aircraft, computers, semiconductors, and heavy machinery.
Buyer-driven commodity chains refer to those industries in which large retailers, marketers, and branded manufacturers play the pivotal roles in setting up decentralized production networks in a variety of exporting countries, typically located in the third world. This pattern of trade-led industrialization has become common in labour intensive, consumer goods industries such as those that deal in garments (Gap), footwear (Nike), toys, handicrafts, and consumer electronics. Tiered networks of third world contractors that make finished goods for foreign buyers carry out production.
Firms that fit the buyer-driven model generally design and/or market—but do not make—the branded products they order. Profits in buyer-driven chains derive not from scale, volume, or technological advances, as in producer-driven chains, but rather from unique combinations of high-value research, design, sales, marketing, and financial services that allow the retailers, designers, and marketers to act as strategic brokers in linking overseas factories and traders with evolving product niches in their main consumer markets.
In producer-driven commodity chains, manufacturers making advanced products, such as aircraft, automobiles, and computers, are the key economic agents not only in terms of their earnings, but also in terms of their ability to exert control over backward linkages with raw material and component suppliers, and forward linkages into distribution and retailing. Buyer-driven commodity chains, by contrast, are characterized by highly competitive and globally decentralized factory systems with low barriers to entry in production. The companies that develop and sell brand-name products exert substantial control over how, when, and where manufacturing will take place, and how much profit accrues at each stage of the chain.
Newly Industrialized Economies and the Global Supply Chain
Japan in the 1950s and 1960s, the East Asian newly industrializing economies (NIEs) during the 1970s and 1980s, and China in the 1990s became world-class exporters primarily by mastering the dynamics of buyer-driven commodity chains. They moved from the mere assembly of imported inputs to a more domestically integrated and higher value-added form of exporting known alternatively as full-package supply or OEM (original equipment manufacturing) production.
Subsequently, Japan and some East Asian countries pushed beyond the OEM export role to original brand name manufacturing (OBM) by joining their production expertise with the design and sale of their own branded merchandise in domestic and overseas markets.
From a
global commodity chains perspective, East Asia's transition from assembly to full-package supply derives from its ability to establish close linkages with a diverse array of lead firms in buyer-driven chains. Lead firms are the primary sources of material inputs, technology transfer, and knowledge in these organizational networks. Retailers and marketers tend to rely on full-package sourcing networks, from which they buy ready-made apparel primarily produced in Asia. As wage levels in those countries have gone up, East Asian manufacturers have tended to develop multilayered global sourcing networks where low-wage assembly can be done in other parts of Asia, Africa, and Latin America, while the NIE manufacturers play a critical coordinating role in the full-package production process.
Branded manufacturers, by contrast, tend to create production networks that focus on apparel assembly using imported inputs. Whereas full-package sourcing networks are generally global, production networks established by branded manufacturers are predominantly regional. U.S. manufacturers go to Mexico and the Caribbean Basin, European Union firms look to North Africa and Eastern Europe, and Japan and the East Asian NIEs look to lower-wage regions within Asia.
(adapted from Gereffi, G.,
Outsourcing and Changing Patterns of International Competition in the Apparel Commodity Chain, 2001, visited 2009-07-28)
Developing Countries Accessing the Global Supply Chain
"The globalization of production has provided important new opportunities for developing countries to accelerate their industrialization. However, [...] restrictions over market access have been a serious obstacle to realizing this. In particular, continuing tariff escalation makes it extremely difficult for most developing countries to graduate to high value-added activity within the
global supply chain."
In developing countries, local business development services should be encouraged. These can provide marketing assistance to local enterprises to ensure that they are not ‘locked in' to a single supply chain.
(World Commission on the Social Dimension of Globalization.
A Fair Globalization: Creating Opportunities for All, ILO, 2004, p. 33; p. 85.)
Developed countries also aim at acquiring a better position in the chain, seen as the whole global economic network, of which some actors fear they will be left out, or in which they will only play a cameo role.
Difference Between a Supply Chain and a Value Chain
Value chain management aims at turning a supply chain into a value chain by applying lean manufacturing principles. By adding value and cutting waste at every point in the supply chain, greater value is created in the end result. Value chain management looks at every step, from raw materials to customers and the eventual end user, right down to disposing of the packaging. The goal is to deliver maximum value to the end user for the least possible total cost. It involves the firm, its suppliers and their suppliers' suppliers.
(adapted from Wisconsin Manufacturing Extension Partnership (WMEP),
Value Chain Management, visited 2007-03-26)