Question

Supply Chain Value

Have you ever heard someone say (or maybe you’ve said it) that if you could just cut out the “middleman” the product would be so much cheaper?

When is this true for the consumer?

When is this not true for the consumer?

How does a supply chain provide value for the consumer?

Thinking about a product that you recently have purchased:

What is the product?

What "route" did it take through the supply chain - in other words, describe (to the best of your ability... you might have to do some critical thinking here) how the item went from manufacturer to you. Please use terms associated with supply chain found in the text or the lecture to detail this path.

Answer 1

here your solution:

Supply chain is an integral part of an economy and more so in present global economy in which global value chain has made products more cheaper.

Industrialisation happened because of advent of steam engine and refrigeration which enabled movement of goods easily.

But at the same time too many middleman increases cost.

a) When there are too many middleman, for example in case of agricultural products, then cost increases. There is no valu addition in between.

So a trader buy from farmer and then this trader sell it to another trader and he sell it to another and finally it is sold to consumer. There has been no value addition by these traders but cost of farm produce has escalated in between. Hence if these middleman are removed from this chain then cost will decrease.

b) If producer and consumer are very far and product is not accesible then it makes sense to have middleman in between. He can go and buy this product in bulk and then sell it to consumer. So this will save transportation cost and search cost of individual consumer.

c) For example I am living in India and I want to buy a mobile. Then instead of going shop to shop, I shop on eCommerce website like Amazon. Product will be delivered at my home and I could lot of choices from which I could choose.

This has greatly added to my utility. It be highly costly to but from producer of this product who may be sitting in US or China.

Here my marginal utility increases and marginal cost decreases because of middleman

d) Let us take the example of iPhone. In global value chain (GVC), it was first concepetualised and designed in USA by Apple. Due to globalisation, Apple could use comparative advantage of cheaper wage cost in China and get component of iPhone manufactured there. China has comparative advantage in labor.

Now Apple could assemble these components in China itself or can assemble it in India to take advantage of differential in tariff. It can also price its component such that to take advantage of transfer pricing.

Lets assume that Apple ship iPhone component in knocked down unit and assemble in India. Here in India, Apple could give license to its distributor to sell.

These distributor could either sell online or through brick and mortar shop.If i purchase online then one of these distributor would ship iPhone to my home

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