introduction to product circuits develop an understanding of production chains, circuits and...
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Introduction to product circuits
• Develop an understanding of production chains, circuits and networks and the differences between them
• Auto industry case study
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Production or Value ChainsProduction or Value Chains
“a transactionally linked sequence of functions in which each stage adds value to the process of production of goods or services” (Dicken p. 13)
Adding value along the production chain:
Raw materials Primaryprocessing
Secondary processing Etc.
Economies seek to capture and retain as much value as possible
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Supply chain Production chain
Distribution chain
Product, commodity or value circuit (vs. chain)
Illustrates economic relationships and flows (material and non-material)
Dicken p.14
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Commodity: supplied by many (i.e. basic resources and agricultural products), considered to be of uniform quality, prices are determined as a function of their market as a whole – respond quickly to changes in supply/demand, often actively traded in commodity markets
vs. product: may be more differentiated (different brands, varieties, quality, prices)
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a. Basic product/ production chain
b. Product circuits with ongoing service and technology inputs
c. Product networks –multiple levels and actors -beyond the firm and single production process
Complexi ty
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Recognizing the environment
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Product Life Cycle
“Life cycle analysis takes a ‘cradle-to-grave’ approach in helping determine how components are created, used and disposed of…”
Dr. Heather MacLean, U of T
Automotive Life Cycle Assessments
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Life-cycle analysis
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Product Chains/CircuitsProduct Chains/Circuits Co-ordination through:
Types of business organizationa)Vertical integration – forward/backward
linkages – internalized transactions Example: Petro-Canada – oil & gas
exploration; development; refining; retailing Example: FPI – fish harvesting; processing;
retailing
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Product Chains/CircuitsProduct Chains/Circuits Types of business organization
b) Sub-contracting, outsourcing – contracts with other firms – externalized transactions
- Search for inexpensive parts and labour
Example: Nike, Adidas, Reebok shoes – contracting to firms in China, Indonesia, etc.
Auto industry
Choices impact organization and location
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Auto industry production circuit
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Product Chains/Circuits
Producer-driven Example: Traditional auto-industry – Ford,
GM, Toyota etc. – networks more likely to be vertically integrated and centralized (today increasingly buyer driven)
Buyer-driven Example: Major retailers – Wal-Mart
Target, etc. – networks more likely to be decentralized
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The breakdown of vertical integration
Response to competitive and cost pressures (eliminate stocks, reduce delivery time, etc.), Japanese JIT influence
Advances in technology allow lead firms to ask more of their suppliers
Rising competence of suppliers Increasing customer demands (quality,
price, speed, flexibility, standards)
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Cross-border, multi-tier production networks
Trend away from ‘arms length’ market-based transactions toward ‘network linkages’ in the value chain (deep vs. shallow integration, often dispersed, fragmented production processes)
Focus on core competence of enterprise, ‘outsource’ other tasks
Competitiveness a function of overall network efficiency (systemic) not only or even primarily enterprise performance
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Class Activity #1:
Draw a production circuit for something you ate for breakfast
(auto example p. 279)