Supply chains in 2021 have seen dramatic changes due to challenges caused by COVID-19. Yet, some of those changes were nothing new. Shifting trends of value chains have been transforming supply chains for years now. This pandemic only sped up these changes as supply chains needed to adapt.
Let us see how these trends have been actualized in supply chain management these days.
What is a value chain?
Before analyzing the shifting trends of value chains, let us first look at what a value chain is. This is important as many confuse a value chain with a supply chain. Although frequently, they are interlinked, they are not the same. A value chain is the series of required activities for the creation of a good or service.
The primary activities of a value chain are:
- The inbound logistics,
- operations,
- outbound logistics,
- marketing and sales,
- service.
Essentially, what companies need to do is add value to each of these processes. Maximizing the value will help them gain a competitive advantage.
The shifting trends of value chains
The world is changing at a rapid pace, and so is the global business environment. With these changes happening all around us, new opportunities arise. As a result, companies need to always be on alert when these changes happen to change their overall strategy. All they want is to deliver maximum value for the least possible cost.
The most significant changes that value chains have gone through in the past years are the following:
1. Rising consumer demand in developing countries
In the past, the majority of global demand for goods could be located in the developed world. But, this seems not to be the norm anymore. McKinsey expects that by 2025 the 2/3 of manufactured goods will be consumed in the world’s emerging markets. Countries like China and India are some of those leading the way.
A shifting demand towards developing nations affects value chains and supply chains alike. As it seems, firms will produce and sell goods in closer proximity instead of shipping them all over the world. Strong demand in China will increase domestic consumption instead of exports.
2. Reduction of global trade intensity
China’s importance in global trade is undisputed. In all goods-producing global value chains, China has had an increasingly significant role. This overdependence of the world on China became apparent during the pandemic.
Asia has played the role of the world’s manufacturer for so long. This led China to accumulate expertise, a trained workforce, and capable production lines. As a result, it has moved beyond assembling intermediate inputs into final products.
China has invested a lot in R&D in the past years. The aim was to become less reliant on imported goods and manufacture high-tech products that can now sell in its domestic market.
China’s self-reliance has decreased the amount of inputs being traded worldwide. However, this doesn’t mean that globalization is over. Despite the decline in manufactured goods, there is an increase in traded services helped by digital technologies.
3. Changing costs due to the integration of new technologies
Another shifting trend of value chains in supply chain management is the broader integration of new technologies. These novel technologies helped businesses reduce the devastating effects of the supply chain disruptions during the pandemic.
The integration of new technologies in global supply chains means instant and low-cost communication. Lowering costs and improving overall communication can increase global trade flows.
In value chains of manufactured goods, logistics costs can be substantial. The integration of new technologies can help companies reduce their costs and speed up shipping times from one place to the other. Making it easier and faster to send goods from one place to another at a lower price could significantly boost trade.
Conclusion
Value chains are integral in the manufacturing process of goods or services. Companies pay extra attention to the value chain analysis to spot further opportunities to gain a competitive advantage.
The above shifting trends of value chains severely affect supply chain management too. Companies worldwide need to always be up to date with all changes in global trade. For starters, supply chain managers can start with these trends in value chains. Together with all the disruptions caused by the pandemic, they constitute a dynamic environment that you need to be prepared for.