Industry Sectors

1
Introduction to product circuits

• Develop an understanding of production chains,
  circuits and networks and the differences between
  them
• Auto industry case study

2
Production 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

Primary processing
Secondary processing
Raw materials
Etc.
Economies seek to capture and retain as much
value as possible
3
Production chain
Distribution chain
Supply chain
Dicken p.14
Product, commodity or value circuit (vs. chain)
Illustrates economic relationships and flows
(material and non-material)
4

• 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)

5
a. Basic product/ production chain
Complexi ty
b. Product circuits with ongoing service and
technology inputs

• c. Product networks
• multiple levels and actors
• beyond the firm and single production process

6
Recognizing the environment
7
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
8
Life-cycle analysis
9
(No Transcript)
10
Product Chains/Circuits

• Co-ordination through
• Types of business organization
• a)Vertical integration forward/backward
  linkages internalized transactions
• Example Petro-Canada oil gas exploration
  development refining retailing
• Example FPI fish harvesting processing
  retailing

11
Product 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

12
Auto industry production circuit
13
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

14
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)

15
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

16
Class Activity 1 Draw a production circuit
for something you ate for breakfast(auto
example p. 279)