Supply Chain vs Value Chain

INTRODUCTION:

It is important to be able to distinguish between the concepts of a Value Chain and a Supply Chain. Supply Chains describe the chain of Intermediate Input purchases, or backward linkages, that are included in an Industry’s Spending Pattern and the Spending Patterns of its supplier, and so on. These purchases are incorporated into a new product that is then sold either to another Industry or to final demand. 

A simplified Supply Chain of a t-shirt may look like:

On the other hand, Value Chains describe how a good changes in value, after its produced, through the process of selling the good via a wholesaler or retailer. Throughout the Value Chain, Commodities increase in value, but unlike through a Supply Chain, do not change physically from the factory door to the final sale. A Value Chain provides a breakdown of the Purchaser Price of a good into the Producer Price of each Value Chain component (which sum to Purchaser Price).

The Value Chain of the t-shirt includes each element of value of the t-shirt at time of purchase at the retailer: 

DETAILED INFORMATION:

Where to Find an Industry’s Supply Chain

 In IMPLAN, you can explore an Industry’s Supply Chain from Region Details in 

Social Accounts > 

            Balance Sheets > 

               Industry Balance Sheet > 

                           Commodity Demand, Filtering by the Industry of interest

Here you will find a list of all of the Industry’s Intermediate Inputs. Gross Absorption and Gross Inputs reflect all demand. Regional Absorption and Regional Inputs reflect local demand. Filtering by the Industries that produce the Regional Inputs allows you to explore the next round of the Supply Chain. Exploring the Supply Chain will exponentially widen in each round of suppliers purchasing from their suppliers. 

Where to Find a Product’s Value Chain

The Value Chain of a good cannot be found in Region Details in IMPLAN. Instead you’ll need to explore the Excel file of the IMPLAN 2019 Margins. The full value of good is available in the Commodity tab of this excel file. These Margins are not regionally specific. 

For example, let’s look at the Value Chain for Men's and boys' cut and sew apparel, which includes T-shirts:

The chart below displays all non-zero values in the Value Chain:

This shows that 37% of the value of a t-shirt sold at a retailer is the Producer Price of the t-shirt. 12.3% of the Purchaser Price of a retail t-shirt is the Producer Price for the merchant wholesaler and 47.7% is the Producer Price for the retailer, and so on. 

Analyzing a Supply Chain vs. Impacting a Value Chain

The Supply Chain of the affected Industries are being analyzed In every IMPLAN analysis. This is the foundation of Input-Output analysis and is how IMPLAN calculates backward linkages. 

The full Value Chain of a good is only analyzed when Purchaser Price has been entered into a Commodity Event. 

Only the retail portion of Purchaser Price is analyzed when Purchaser Price has been entered into an Industry Event with a retailer or wholesaler specified.

Supply Chain Leakages

Remember, Supply Chains describe the chain of Intermediate Input purchases, or backward linkages, that are included in an Industry’s Spending Pattern and the Spending Patterns of its supplier, and so on. When Intermediate Input purchases are bought from Industries in the Selected Region this supports an economic effect in that Region.  In the case of the Direct Industry’s Supply Chain, local industry purchases of Intermediate Inputs specifically support Indirect Effects.  All of an Industry’s purchases cannot be sourced from Industries within the Region even at the U.S. level. The purchases of imports and institutional production (other than srap produced by households) are exogenous to a Region’s multipliers in IMPLAN. This simply means these purchases are leakages and do not generate effects.

IMPLAN calculates the Supply Chain leakages for you by setting the Local Purchase Percentage (LPP) on Commodity purchases in an Industry’s Supply Chain to the Regional Purchasing Coefficient (RPC) for the given Commodity unless you specify otherwise. The only time IMPLAN will default the LPP of a Commodity purchase to 100% is in a Commodity Event. 

IMPLAN determines the industry and institution producers of a Commodity in a Region based on the Market Share for the Commodity. 

Value Chain Leakages

As mentioned, only the retail portion of Purchaser Price is analyzed when Purchaser Price has been entered into an Industry Event with a retailer or wholesaler specified. The other portions of Purchaser Price are leakages because without knowing what was purchased at the retailer or wholesaler, the full Value Chain cannot be identified. 

Because the components of a Value Chain for a good are made up of Commodities, some portion of the Commodities in the Value Chain may be produced by institutions in the Region, in which case these portions are leakages. 

When LPP is set to a value less than 100% in a Commodity Event evaluating a Value Chain there will also be leakages. When LPP to is set to “SAM” in this situation, the leakage of each Commodity in the Value Chain is based on the RPC for each Commodity. 

Written February 26, 2020

Updated September 22, 2021