Analysing Value Chains
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The document provides an overview of concepts and tools for value chain mapping and analysis. It discusses approaches to mapping value chains at the micro, meso, and macro levels. Specific tools and templates are presented for mapping actors, functions, product flows, costs, margins and other economic indicators within and across different levels of a value chain. Case examples from the Lokta paper industry in Nepal are used to illustrate chain mapping and analysis.
Analysing Value Chains
- 1. 22.10.2008 Seite 1 Analysing Value Chains Presentation Concepts and toolbox for chain mapping and analysis GB BanjaraValue Chain Development TrainingJakarta, Indonesia, 20-22 October, 2008
- 2. 22.10.2008 Seeiittee 22 Introduction to chain mapping and analysis –an overview Chain mapping The Concepts and toolbox for Chain mapping and Analysis 2 1 Contents 3 Detailed chain analyses including economic analyses and benchmarking
- 3. 22.10.2008 Seeiittee 33 Textiles & Clothing Manufacturing Agriculture e.g. Metal casting - Bronze casting - Iron casting - Brass casting - … e.g. Soya bean -Soya milk - Tofu - Soya sauce e.g. Clothing: -denim - Knitwear - … according to marketing and retail system -e.g. brand jeans sold in fashion stores according to end product / marketing system -e.g. Bronze statues sold to the government offices according to marketing system -Branded tofu sold in supermarkets Soya bean Rice ........ ........ Clothing Textiles Carpets … Metal casting Car manufacturing ... ... … Sector Sub Sector Chain Channel 1 Sector Subsectors chains and channels
- 4. 22.10.2008 Seeiittee 44 1 Every production system functions like a chain. We can not improve the functioning of a chain unless we have understood its element and how they are linked with each other. Why analyse a chain? “Strength of a chain is measured by its weakest link”
- 5. 22.10.2008 Seeiittee 55 1 Why analyse a chain? ƒ To understand the current situation of a VC ƒ Design and prepare a VC upgrading strategy ƒ Create benchmarks for monitoring ƒ Start a process of change Analysis of a value chain helps us to:
- 6. 22.10.2008 Seeiittee 66 Approaches to chain and subsector analysis –an overview Chain mapping The Toolbox for Chain Analysis 2 1 Contents 3 Detailed chain analyses including economic analysis and benchmarking
- 7. 22.10.2008 Seeiittee 77 - Chain mapping at micro level - Chain mapping at meso and macro level Components of chain mapping 2
- 8. 22.10.2008 Seeiittee 88 Contents of basic value chain map Basic value chain map visualises following 2 •The sequence of production, processing and marketing functions performed • The value chain operators taking these functions • Vertical business links between the operators • Chain supporters at the meso level • Macro level institutions and players
- 9. 22.10.2008 Seeiittee 99 Concept: Generic scheme of value chain functions (micro level) Specific Inputs Provide -equipment -inputs Production Produce Harvest Dry etc. Trans- formation Classify Process Pack Trade Transport Distribute Sell Con- sumption Prepare Consume Basic functions in a value chain 2
- 10. 22.10.2008 Seeiittee 1100 Necessary general public functions required by businesses Infrastructure: Roads, electricity, water Legal framework: Food laws, taxes Political framework Sector support Concept: micro –meso –macro levels Functions directly related to the product in question including operational services delivered to operators Specific inputs Production Trans- formation Trade Consump- tion Functions benefitting all operators alike Information Public Research Colla- boration Promotion projects Advocacy /common interests Fairs, joint marketing 2
- 11. 22.10.2008 Seeiittee 1111 Process in pictures: input to final product (Lokta paper)
- 12. 22.10.2008 Seeiittee 1122 Concept: From functions to a generic actor scheme (micro level) 2 Basic functions in a value chain Lokta Paper making Product making Export Buyers: Export and Local Specific Inputs Con sumption Production Product manuf. Export Wholeseling in Europe - Supply lokta bark -Clean lokta - Cook with caustic - Beat pulp - Make paper -Take to collection centre -Send paper to Kathamndu - collect products - Open L/C to buyers --provide to freight forwarders - Custom clearance -Receive products -Repack and brand them -Sell to the retailers - Use product - Buy paper sheets - Color them - Design products - Make products - Supply to traders
- 13. 22.10.2008 Seeiittee 1133 Lokta Handmade Paper chain in Nepal 2 Lokta collection Con sumption Paper Production Product Mfg. Large scale Export Whole selling in US Europe Trade/mfg. Local mkt. Con sumption SM scale export retailing US, Europe Consumption Within the country (Nepal) 90 % 10 % Major chain links in domestic and export channels
- 14. 22.10.2008 Seeiittee 1144 Concept: From functions to a generic actor scheme (micro level) Categories of chain operators in value chains and their relations Specific Input providers Primary producers Traders Final Con- sumers Logistics centres, Industry Specific Inputs Provide -equipment -inputs Production Grow Harvest Dry etc. Trans- formation Classify Process Pack Trade Transport Distribute Sell Con- sumption Prepare Consume Basic functions 2
- 15. 22.10.2008 Seeiittee 1155 Template: Chain mapping differentiating channels Different channels / circuits of a chain: Customers Market 2 Customers Market 1 (Research Institute) Specific Inputs Production Trans- formation Trade Con- sumption Retailers A Retailers B Industrial SMEs traders Primary Producers 2 Large processing companies Primary Producers 1 3 2 1 Criteria: market -type of processing -form of integration 2
- 16. 22.10.2008 Seeiittee 1166 Categories of actors Paper makers Paper traders cooperatives P2 (large) P1 Exporters Whole- salers Retailers Consu- mers Lokta Handmade Paper production in Nepal Specific Inputs Con sumption Production Product manuf. Export Wholeseling in Europe -collection of lokta bark -Clean lokta - Cook with caustic - Beat pulp - Make paper -Take to collection centre -Send paper to Kathamndu -collect products - Open L/C to buyers --provide to freight forwarders - Custom clearance -Receive products -Repack and brand them -Sell to the retailers -Use product -Buy paper sheets - Color them - Design products - Make products - Supply to traders Export marketing channel 2
- 17. 22.10.2008 Seeiittee 1177 Categories of actors Paper makers Paper traders cooperatives P2 (large) P1 Retailers Consumers Lokta Handmade Paper production in Nepal Specific Inputs Production Product manuf. Retailing Consumption -Supply lokta bark -Clean lokta - Cook with caustic - Beat pulp - Make paper -Take to collection centre -Send paper to Kathamndu -collect products - Display in shops - Sell to consumers -Use product -Buy paper sheets - Color them - Design products - Make products - Supply to traders Local marketing channel 2
- 18. 22.10.2008 Seeiittee 1188 Lokta value chain 2 Paper trading Product making Product trading Retail Export Paper production Lokta transportation Bark collection Large paper product manufacturers and exporters N=15 Cooperatives of paper makers and Lokta bark collectors in villages Lokta bark collectors Small paper makers – (farmers) N=300 Road head traders Small-scale product manufacturers N=90 Local Gift shops Whole sellers/bulk buyers Small expor- ters of crafts Large buyers Europe, USA Product manuf. (small) N=90 Small shops Europe, USA Tourists from EU and US
- 19. 22.10.2008 Seeiittee 1199 Lokta value chain 2 Large paper product manufacturers and exporters N=15 Cooperatives of paper makers and Lokta bark collectors in villages Lokta bark collectors Small paper makers – (farmers) N=300 Road head traders Small-scale product manufacturers N=90 Local Gift shops Whole sellers/bulk buyers Small buyers Europe, USA Small expor- ters of crafts Large buyers Europe, USA Product manuf. (small) N=30 (Spot) Market relationship Persistent relationship Vertical integration Legend of chain relations Tourists from EU and US
- 20. 22.10.2008 Seeiittee 2200 Meso and Macro players mapping 2 Meso: Support services / subsector organisations Forest User Groups Paper and product assoc'n Federation of handicraft products Lokta Collectors Paper makers Wholesale & retail traders Consumers Product makers Macro: Public institutions DDC, Department of Forestry, DCSI Ministry of Industries, Commerce and Supplies Organise collectors Lobbying, services Services to members Policy Implementation and enforcement Policy formulation
- 21. 22.10.2008 Seeiittee 2211 Summing it up: procedure of overview map ƒDefine the product ƒ List functions and aggregate into chain links ƒ Specify types of operators taking the functions ƒ Check whether to break the VC down into channels ƒ Prepare additional detail maps (thematic maps if needed) ƒ Avoid overloading of information 2
- 22. 22.10.2008 Seeiittee 2222 Criteria for segmenting 1.Type of product 2. Final market/type of buyers 3. Technology in production and processing 4. Level of VC integration 2
- 23. 22.10.2008 Seeiittee 2233 Approaches to chain and subsector analysis –an overview Chain mapping The Toolbox for Chain Analysis 2 1 Contents 3 Detailed chain analyses including economic analyses and benchmarking
- 24. 22.10.2008 Seeiittee 2244 -Describing level of integration - Quantifying and analyzingvalue chains in details - Zooming inmapping chain elements and segments - Economic analysis -Benchmarking Components of chain analysis 3
- 25. 22.10.2008 Seeiittee 2255 Template: Degree of integration Low degree of chain integration carding No Chain Integration spinning dyeing weaving finishing Marketing e.g. Hand knotted carpet sub sector 3 Jamarko carding Co Kathmandu Dyeing Krishna Carpet Co. Lumbini Carding Co.
- 26. 22.10.2008 Seeiittee 2266 High degree of chain integration 3 Vertical integration and ownership: carding Vertically Integrated Value Chain spinning dyeing weaving finishing Marketing Large integrator (e.g. Netib carpet) Exclusive buyer/ Exporters Small integrators (e.g. boudha Designer carpet ) exporters Small integrators e.g. Hand knotted carpet sub sector
- 27. 22.10.2008 Seeiittee 2277 Template/Overlay: Number of Entreprises 3 Customers Local Customers Export lokta collectors Sellers A Sellers B Smaller product makers Traders Large paper products makers Large paper producers 1 Smaller paper producers n = 5 n = 5 n = ? n = ? n = 150 n = 100 n = ? n = ? n = ? N= ? Illustrative chart (Example of Lokta Paper Nepal) Specific Inputs Production Product manuf. Retailing Consumption
- 28. 22.10.2008 Seeiittee 2288 Template/Overlay: Number of Jobs (micro level) 3 Customers local Customers export Lokta collectors Sellers A Sellers B Smaller product makers traders Large processing companies Large paper producers 1 Smaller paper producers 2 n = ? n = 1000 n = ? n = 20000 n = 50 n = 3000 n = ? n = ? Illustrative chart (example of lokta paper Nepal) Specific Inputs Production Product manuf. Retailing Consumption
- 29. 22.10.2008 Seeiittee 2299 Template/Overlay: wages paid at each stage of chain (figures in Rs. Per day) 1 USD= Rs. 68 3 Customers local Customers export Lokta collectors Sellers A Sellers B Smaller product makers traders Large processing companies Large paper producers 1 Smaller paper producers 2 3000 6000 2500 4000 SE 5000 SE SE Illustrative chart (example of lokta paper Nepal) SE= Self employed Specific Inputs Production Product manuf. Retailing Consumption
- 30. 22.10.2008 Seeiittee 3300 Template/Overlay: Share of product flow (% of total) 3 Customers Local (10 %) Customers Exporter (90 %) Lokta collectors Sellers A Sellers B Smaller product makers traders Large processing companies Large paper producers 1 Smaller paper producers 2 30 % 100 % 20 % Illustrative chart (example of lokta paper Nepal) 15 % 10 % 25 % 65 % 25% 5 % 5 % Specific Inputs Production Product manuf. Retailing Consumption
- 31. 22.10.2008 Seeiittee 3311 Template/Overlay: Market growth rates 3 Customers Local (10 %) Customers Export (90 %) Lokta collectors Sellers A Sellers B Smaller product makers traders Large processing companies Large paper producers 1 Smaller paper producers 2 Illustrative chart (example of lokta paper Nepal) 10 % -2.5 % 15 % 5 % Specific Inputs Production Product manuf. Retailing Consumption
- 32. 22.10.2008 Seeiittee 3322 Concept: Identification of lead companies Customers Market 2 Retailers A Industrial SMEs Illustrative table (Spot) Market relationship Regular market based relationship subcontracting relationship Legend of chain relations Customers Market 2 Processing Company XX Supermarket ZZ Ltd. SM Primary Producers SM Primary Producers 2 Processing Company YY SM Primary Producers 3
- 33. 22.10.2008 Seeiittee 3333 Concept: Economic analysis of value chains 3 ƒProduction and consumption figures ƒ Export and import figures ƒ Market share of the product from the region against the total sales Size and market shareof VCs in global and domesticmarkets ƒBenchmarking of unit cost of production ƒ Benchmarking of labour and other factor productivities Benchmarkingimportant VC parameters Value-addedalong the value chain ƒContribution of chain segments to total value Profitability ofthe chain operators
- 34. 22.10.2008 Seeiittee 3344 Illustrative table : Typical income statement 3 Revenues………. Less: COGS………. -------------- Gross margin………… Less admin and sells cost………… -------------- Profit Before Interest and Tax (PBIT)……….. Less interest………… Less tax………… -------------- NET PROFIT…………. Profit system of a business (micro level)
- 35. 22.10.2008 Seeiittee 3355 Template/Overlay:Distribution of costs and margins (profit system) 3 Rs 40 Primary processing Secondary processing Final Consumer Illustrative table Specific Input providers Lokta collector Product maker Final Consumer Paper maker Sales Prices / sheet Rs 7 Rs 1 COGS / sheet Rs.1 0 Rs 5 Rs 2 Rs 15 Rs 25 Rs 270 Input supply Sales and admin costs 0 Rs 1 Rs 15 Operating profit 0 Rs 1 Rs 10 Gross margin/sheet
- 36. 22.10.2008 Seeiittee 3366 Concept of value added 3 Net Value Added = Sales value of the output –cost of value of intermediate goods Process Primary Input Output Value (price* units) of the output Secondary Input
- 37. 22.10.2008 Seeiittee 3377 Concept: Distribution of value added along the chain 3 Value Creation: higher sales volume or prices by either giving more features/benefits to customer or by reducing costs Value capturing: Distributive aspect of the value created. i.e. who takes how much of the value which has been created
- 38. 22.10.2008 Seeiittee 3388 Template/Overlay: Distribution of costs and value added at every step 3 Rs 40 Primary Processing Secondary Processing Exporting Illustrative table Lokta collector Product maker Exporter Paper maker Sales Prices / sheet Rs 7 Rs 1 Cost of material 0 Rs 1 Rs 1 Rs 5 Rs 7 Rs 23 Rs 270 Input supply Net value added % value added @ National price level 15 % 85.6 % Rs 40 Rs 130 @ Intl price level 2.5 % 0.4 % 2 % 82.5 % 12 % Other inputs Rs 1 Rs 10 Rs 100 0 Consumer
- 39. 22.10.2008 Seeiittee 3399 Paper maker Rs 1 Inputs (caustic, fuel) Rs 1 Value created by paper maker (Rs 5) Value transferred by paper maker Rs 7 Inputs (color, glue, Electricity, water, fuel, interest on capital, rent) Rs 10 Value created By product maker Rs 23 Value transferred from product maker Rs 40 Input paid to others: Transportation, tax, insurance, advert Rent, Rs 100 Value created by European buyer, wholesaler, retailers Rs 130 Value Story of paper maker Value story of European buyers, wholesaler, retailers Value story of product maker value added stepby step
- 40. 22.10.2008 Seeiittee 4400 Benchmarking ƒComparing the performance with the best player in industry (often a market leader) and trying to either surpass or meet its performance.
- 41. 22.10.2008 Seeiittee 4411 International benchmarking (Cost comparison between Thailand and Nepal for Handmade Paper) Cost component Thailand (Mulberry Paper) Nepal (Lokta Paper) Cost/sheet (Nrs) % of costs Cost/sheet (Nrs) % of costs Raw material (dried bark) 3.6 44% 2.3 52% Fuel 0.2 3% 0.3 7% Chemical (pulp making) 1.6 20% 0.3 7% Labor 2.7 33% 1.5 34% Other costs (local taxes, transportation etc) na na Total variable cost (per 20 gm sheet) 8.1 100% 4.4 100% Sales price: Thai paper: n/a, Lokta Paper: Rs. 7.5 3
- 42. 22.10.2008 Seeiittee 4422 example of benchmarking of competitiveness ƒMichael Porter's diamond model Support Industries Industry Structure Demand condition Factor conditions 3
- 43. 22.10.2008 Seeiittee 4433 Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from Thailand 0246810Raw materialavailabilityHuman ResourceavailabilityResearch capabilityCapital availabilityInfrastructureSaa paper from Thailand Lokta paper from Nepal Factor conditions 3 benchmarking contd
- 44. 22.10.2008 Seeiittee 4444 Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from Thailand 0246810Design and productdevelopmentMarketing, marketresearch and advertTrainingComponent andmachinery supplierProduers associationPromotional institutionsSaa paper from Thailand Lokta paper from Nepal Support Industries 3 benchmarking contd
- 45. 22.10.2008 Seeiittee 4455 example Lokta paper from Nepal and Saa paper from Thailand 012345678910Large number of enterprises (nomonopoly) Efficient sizeDomestic rivalryEntry barrierCongruence betwn sector andfirm goal Saa paper from Thailand Lokta paper from Nepal Industry Structure 3 benchmarking contd
- 46. 22.10.2008 Seeiittee 4466 Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from Thailand Demand condition 3 benchmarking contd
- 47. 22.10.2008 Seeiittee 4477 Some considerations while making chain mapping and analysis ƒWho does the chain mapping and analysis? ƒ Facilitator together with stakeholders ƒ Expert's and consultants ƒ VC champion ƒ How to proceed? ƒ Participatory workshop with stakeholders is better (enhances ownership of outcome by stakeholder)
- 48. 22.10.2008 Seeiittee 4488 contd... Some considerations while making chain mapping and analysis ƒWhere to get the data from? ƒ secondary sources (e.g. desk studies, census, internet, local business associations, WTO trade statistics etc.) ƒ Primary sources (e.g. stakeholder workshop, survey, market studies, rapid appraisals etc) ƒ What about accuracy of data? ƒ It is often difficult to get 100 % reliable data. ƒ 'It is always better to be approximately right than precisely wrong'
- 49. 22.10.2008 Seeiittee 4499 Contd..... ƒVC mapping and analysis is a continuous effort rather than one time task ƒ Adopt an iterative process. Update your VC whenever there is new information available
- 50. 22.10.2008 Seeiittee 5500 Thank you !
- 51. 22.10.2008 Seeiittee 5511 GROUP WORK ƒStep 1 ƒ Draw the overview VC map-micro level on the selected subsectors ƒ Work out on few analytical aspects of the map such as number of enterprise, employment and value added at each functional stage ƒ Step 2 ƒ Include meso level institutions in your VC map ƒ Step 3 ƒ Include important macro level institutions in your VC map
- 52. 22.10.2008 Seeiittee 5522 Please follow the symbols and colour coding precisely. It is important !!
- 53. 22.10.2008 Seeiittee 5533 VC stageValuechainoperatorValuechainsupporterValuechainenablerMicrolevelMeso& MacrolevelSpecificfunctionConstraintPotentialCard shapes& colourcodeusedin workshopsand trainingseminarsShapesforworddocumentsin black&whiteTextAll levelsAction** TextChain MappingSymbols in Workshops and DocumentsLinks betweenoperatorsValueLinks