Supply Chain Analysis

Supply chain analysis describes a relationship among a group of integrated industries that together work to transform a set of raw materials into final products. It facilitates an understanding of industry structure by analyzing linkages between suppliers and customers, the value generated at each step, the degree of vertical integration, and the structures and level of company concentration at each stage in the supply chain.

A supply chain analysis provides:

• an overview of linkages to suppliers and customers
• an assessment of the value generated at each stage at the supply chain
• a determination of the degree of vertical integration
• an analysis of the concentration of players at each step of the supply chain

Methodology

1. Identify supply chain activities. Identify the end-products and the “raw materials” required to produce them. Then determine the intermediate steps required to produce the end product.
2. Develop value-added structure. Take the selling price, less the retail margin, minus the input price (cost of the “raw” input materials) for each step in the supply chain.
3. Identify players at each step. Group players producing equivalent or substitute products together. Determine concentration of players at each step.
4. Identify relationships within/across steps. Analyze specific relationships among players, and asses the degree of vertical integration.

Strengths

• Provides an overview of the company’s supply chain mechanisms, and generates an understanding of the company’s relative strengths and weaknesses

Weaknesses

• Difficult to obtain exact quantifiable data for a cost analysis