Value chains are too complex, really?

Project 7: Mapping Product Group Value Chains

"You only know what you sell if you know what you buy." Today's consumers want to know what they buy, governments increase their fight against IP violations in procured input material, consumers increasingly want to be sure that they do not support business practices that harm people or the environment, and companies fear strategic dependence on unidentified upstream monopolist structures. The request for value chain transparency is often heard and voiced louder each day.

Products (or services) combine a multitude of materials or services, each going through extensive value chains themselves. As Leonard Read explained in his essay "I, Pencil", the creation of products involves countless, often exchangeable organizations such as producers, traders, agents or transporters. Recent mega trends like globalization, focus on core competencies or e-procurement substantially increased the number of value chain members and shortened their duration of membership. Data available today to either governments or companies focuses on direct buyer-supplier transactions. Exercises to draw end-to-end value chains (e.g. life cycle analysis) mainly focus on the sequence of production steps. Considering that suppliers predominantly prefer keeping their suppliers confidential, creating value chain transparency seems to be a mission impossible.

This project proposes a collective approach to generically map value chains on a product group level. These maps base on average bills-of-material and show the sequence of industries based on the buyer-supplier contract relationships, including traders, agents or transporters. For each interface information is gathered upon the quality of the relationship (e.g. dependence, power, duration, trust etc.). For each industry information is gathered upon the dominant business model and the rules of competition. The ultimate deliverable is a large collection of product group-level value chain maps and an organization keeping those up to date. This approach helps companies and regulators to establish value chain transparency at lowest possible efforts.