analysing value chains
TRANSCRIPT
22.10.2008 Seite 1
Analysing Value Chains
Presentation
Concepts and toolbox for chain mapping and analysis
GB BanjaraValue Chain Development Training
Jakarta, Indonesia, 20-22 October, 2008
22.10.2008 Seite 2Seite 2
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
22.10.2008 Seite 3Seite 3
Textiles & ClothingManufacturing 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................
ClothingTextilesCarpets…
Metal castingCar manufacturing......…
Sector
Sub Sector
Chain
Channel
1
Sector Subsectors chains and channels
22.10.2008 Seite 4Seite 4
1Every 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”
22.10.2008 Seite 5Seite 5
1
Why analyse a chain?
To understand the current situation of a VC
Design and prepare a VC upgrading strategy
Create benchmarks for monitoring
Start a process of change
Analysis of a value chain helps us to:
22.10.2008 Seite 6Seite 6
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
22.10.2008 Seite 7Seite 7
- Chain mapping at micro level
-Chain mapping at meso and macro level
Components of chain mapping
2
22.10.2008 Seite 8Seite 8
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
22.10.2008 Seite 9Seite 9
Concept: Generic scheme of value chain functions (micro level)
SpecificInputs
Provide- equipment- inputs
Production
ProduceHarvestDry etc.
Trans-formation
ClassifyProcessPack
Trade
TransportDistributeSell
Con-sumption
PrepareConsume
Basic functions in a value chain
2
22.10.2008 Seite 10Seite 10
Necessary general public functions required by businesses
Infrastructure:Roads, electricity, water
Legal framework:Food laws, taxes
Political frameworkSector support
Concept: micro – meso – macro levels
Functions directly related to the product in question including operational services delivered to operators
Specificinputs Production Trans-
formationTrade Consump-
tion
Functions benefitting all operators alike
InformationPublicResearch
Colla-boration
Promotionprojects
Advocacy /commoninterests
Fairs,joint marketing
2
22.10.2008 Seite 11Seite 11
Process in pictures: input to final product (Lokta paper)
22.10.2008 Seite 12Seite 12
Concept: From functions to a generic actor scheme (micro level)
2
Basic functions in a value chain
LoktaPaper
making Product making Export
Buyers: Export and Local
SpecificInputs
Consumption
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
22.10.2008 Seite 13Seite 13
Lokta Handmade Paper chain in Nepal
2
Lokta collection
Consumption
PaperProduction
Product Mfg.
Large scaleExport
Whole sellingin US Europe
Trade/mfg. Local mkt. Consumption
SM scale exportretailing US, Europe Consumption
Within the country (Nepal)
90 %
10 %
Major chain links in domestic and export channels
22.10.2008 Seite 14Seite 14
Concept: From functions to a generic actor scheme(micro level)
Categories of chain operators in value chains and their relations
SpecificInputproviders
Primaryproducers Traders
Final Con-sumers
Logisticscentres,Industry
SpecificInputs
Provide- equipment- inputs
Production
GrowHarvestDry etc.
Trans-formation
ClassifyProcessPack
Trade
TransportDistributeSell
Con-sumption
PrepareConsume
Basic functions
2
22.10.2008 Seite 15Seite 15
Template: Chain mapping differentiating channels
Different channels / circuits of a chain:
CustomersMarket 2
CustomersMarket 1
(Research Institute)
SpecificInputs Production
Trans-formation Trade Con-
sumption
Retailers A
Retailers BIndustrialSMEs
traders
Primary Producers 2
Large processing companies Primary Producers 1
3
2
1
Criteria: market - type of processing - form of integration
2
22.10.2008 Seite 16Seite 16
Categories of actors
Paper makers
Paper traders
cooperatives P2 (large)
P1
Exporters
Whole-salers
Retailers
Consu-mers
Lokta Handmade Paper production in Nepal
SpecificInputs
Consumption
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
22.10.2008 Seite 17Seite 17
Categories of actors
Paper makers
Paper traders
cooperatives P2 (large)
P1
Retailers
Consumers
Lokta Handmade Paper production in Nepal
SpecificInputs
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
22.10.2008 Seite 18Seite 18
Lokta value chain
2
Paper trading
Product making
Producttrading
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 buyersEurope, USA
Product manuf. (small) N=90
Small shops Europe, USA
Tourists fromEU and US
22.10.2008 Seite 19Seite 19
Lokta value chain
2Large 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 buyersEurope, USA
Product manuf. (small)
N=30
(Spot) Market relationship
Persistent relationship
Vertical integration
Legend of chain relations
Tourists fromEU and US
22.10.2008 Seite 20Seite 20
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& retailtraders
ConsumersProductmakers
Macro: Public institutions
DDC, Department of Forestry, DCSI
Ministry of Industries, Commerce and Supplies
Organisecollectors
Lobbying, services
Services tomembers
Policy Implementationand enforcement
Policy formulation
22.10.2008 Seite 21Seite 21
Summing it up: procedure of overview map
Define the product
List functions and aggregate into chain links
Specify types of operators taking the functions
Check whether to break the VC down into channels
Prepare additional detail maps (thematic maps if needed)
Avoid overloading of information
2
22.10.2008 Seite 22Seite 22
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
22.10.2008 Seite 23Seite 23
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
22.10.2008 Seite 24Seite 24
-Describing level of integration
- Quantifying and analyzing value chains in details
- Zooming in mapping chain elements and segments
-Economic analysis
- Benchmarking
Components of chain analysis
3
22.10.2008 Seite 25Seite 25
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.
22.10.2008 Seite 26Seite 26
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 )
exportersSmall integrators
e.g. Hand knotted carpet sub sector
22.10.2008 Seite 27Seite 27
Template/Overlay: Number of Entreprises
3
CustomersLocal
CustomersExport
lokta collectors
Sellers A
Sellers B
Smaller product makers
Traders
Large paper products makersLarge paper producers 1
Smaller paper producers
n = 5 n = 5n = ?
n = ?
n = 150
n = 100
n = ?
n = ?
n = ?
N= ?
Illustrative chart (Example of Lokta Paper Nepal)
SpecificInputs
Production Product manuf. Retailing Consumption
22.10.2008 Seite 28Seite 28
Template/Overlay: Number of Jobs (micro level)
3
Customerslocal
Customersexport
Lokta collectors
Sellers A
Sellers B
Smaller product makers
traders
Large processing companies Large paper producers 1
Smaller paper producers 2
n = ? n = 1000n = ?
n = 20000
n = 50
n = 3000
n = ?
n = ?
Illustrative chart (example of lokta paper Nepal)
SpecificInputs
Production Product manuf. Retailing Consumption
22.10.2008 Seite 29Seite 29
Template/Overlay: wages paid at each stage of chain (figures in Rs. Per day) 1 USD= Rs. 68
3
Customerslocal
Customersexport
Lokta collectors
Sellers A
Sellers B
Smaller product makers
traders
Large processing companies Large paper producers 1
Smaller paper producers 2
3000 60002500
4000
SE
5000
SE
SE
Illustrative chart (example of lokta paper Nepal)
SE= Self employed
SpecificInputs
Production Product manuf. Retailing Consumption
22.10.2008 Seite 30Seite 30
Template/Overlay: Share of product flow (% of total)
3
CustomersLocal (10 %)
CustomersExporter
(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 %
SpecificInputs
Production Product manuf. Retailing Consumption
22.10.2008 Seite 31Seite 31
Template/Overlay: Market growth rates
3
CustomersLocal (10 %)
CustomersExport (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 %
SpecificInputs
Production Product manuf. Retailing Consumption
22.10.2008 Seite 32Seite 32
Concept: Identification of lead companies
CustomersMarket 2
Retailers AIndustrialSMEs
Illustrative table
(Spot) Market relationshipRegular market based relationship subcontracting relationship
Legend of chain relations
CustomersMarket 2
ProcessingCompany XX
Supermarket ZZ Ltd.
SM Primary Producers
SM Primary Producers 2
ProcessingCompany YY
SM Primary Producers
3
22.10.2008 Seite 33Seite 33
Concept: Economic analysis of value chains
3
Production and consumption figuresExport and import figures Market share of the product from the region against the total sales
Size and market share of VCs in global and domestic markets
Benchmarking of unit cost of production Benchmarking of labour and other factor productivities
Benchmarking important VC parameters
Value-added along the value chainContribution of chain segments to total value
Profitability of the chain operators
22.10.2008 Seite 34Seite 34
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)
22.10.2008 Seite 35Seite 35
Template/Overlay:Distribution of costs and margins (profit system)
3Rs 40
Primary processing
Secondary processing
Final Consumer
Illustrative table
SpecificInputproviders
Lokta collector
Product maker FinalConsumerPaper maker
Sales Prices / sheet Rs 7Rs 1
COGS / sheet Rs.10
Rs 5Rs 2
Rs 15Rs 25
Rs 270
Input supply
Sales and admin costs 0 Rs 1 Rs 15
Operating profit 0 Rs 1 Rs 10
Gross margin/sheet
22.10.2008 Seite 36Seite 36
Concept of value added
3
Net Value Added =
Sales value of the output – cost of value of intermediate goods
ProcessPrimary Input
Output
Value (price* units) of the output
Secondary Input
22.10.2008 Seite 37Seite 37
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
22.10.2008 Seite 38Seite 38
Template/Overlay: Distribution of costs and value added at every step
3 Rs 40
Primary Processing
SecondaryProcessing
Exporting
Illustrative table
Lokta collector
Product maker
ExporterPaper maker
Sales Prices / sheet Rs 7Rs 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 level2.5 %
0.4 % 2 %
82.5 %
12 %
Other inputs Rs 1 Rs 10 Rs 1000
Consumer
22.10.2008 Seite 39Seite 39
Paper maker Rs 1Inputs (caustic, fuel) Rs 1
Value created by papermaker (Rs 5)
Value transferred by papermakerRs 7
Inputs (color, glue, Electricity, water,
fuel, interest on capital,rent) Rs 10
Value createdBy product
maker Rs 23
Value transferredfrom 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
22.10.2008 Seite 40Seite 40
Benchmarking
Comparing the performance with the best player in industry (often a market leader) and trying to either surpass or meet its performance.
22.10.2008 Seite 41Seite 41
International benchmarking (Cost comparison between Thailand and Nepal for Handmade Paper)
Cost component
Thailand (Mulberry Paper) Nepal (Lokta Paper)
Cost/sheet
(Nrs)
% ofcosts
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
22.10.2008 Seite 42Seite 42
example of benchmarking of competitiveness
Michael Porter's diamond model
Support IndustriesIndustry Structure
Demand condition
Factor conditions
3
22.10.2008 Seite 43Seite 43
Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from Thailand
0
2
4
6
8
10
Raw materialavailability
Human Resourceavailability
Research capabilityCapital availability
Infrastructure
Saa paper from Thailand Lokta paper from Nepal
Factor conditions
3
benchmarking contd
22.10.2008 Seite 44Seite 44
Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from Thailand
02468
10
Design and productdevelopment
Marketing, marketresearch and advert
Training
Component andmachinery supplier
Produers association
Promotional institutions
Saa paper from Thailand Lokta paper from Nepal
Support Industries
3
benchmarking contd
22.10.2008 Seite 45Seite 45
example Lokta paper from Nepal and Saa paper from Thailand
0
1
2
3
4
5
6
7
8
9
10
Large number of enterprises (nomonopoly)
Efficient size
Domestic rivalryEntry barrier
Congruence betwn sector andfirm goal
Saa paper from Thailand Lokta paper from Nepal
Industry Structure
3
benchmarking contd
22.10.2008 Seite 46Seite 46
Benchmarking competitivenessexample Lokta paper from Nepal and Saa paper from ThailandDemand
condition
3
benchmarking contd
22.10.2008 Seite 47Seite 47
Some considerations while making chain mapping and analysis
Who does the chain mapping and analysis?Facilitator together with stakeholdersExpert's and consultantsVC champion
How to proceed?Participatory workshop with stakeholders is better (enhances ownership of outcome by stakeholder)
22.10.2008 Seite 48Seite 48
contd... Some considerations while making chain mapping and analysis
Where to get the data from?secondary sources (e.g. desk studies, census, internet, local business associations, WTO trade statistics etc.)Primary sources (e.g. stakeholder workshop, survey, market studies, rapid appraisals etc)
What about accuracy of data?It is often difficult to get 100 % reliable data. 'It is always better to be approximately right than precisely wrong'
22.10.2008 Seite 49Seite 49
Contd.....
VC mapping and analysis is a continuous effort rather than one time taskAdopt an iterative process. Update your VC whenever there is new information available
22.10.2008 Seite 50Seite 50
Thank you !
22.10.2008 Seite 51Seite 51
GROUP WORK
Step 1Draw the overview VC map- micro level on the selected subsectors Work out on few analytical aspects of the map such as number of enterprise, employment and value added at each functional stage
Step 2Include meso level institutions in your VC map
Step 3Include important macro level institutions in your VC map
22.10.2008 Seite 52Seite 52
Please follow the symbols and colour coding precisely. It is important !!
22.10.2008 Seite 53Seite 53
VC stage
Value chain operator
Value chain supporter
Value chain enabler
Micro level
Meso & Macro level
Specific function
Constraint
Potential
Card shapes & colourcode used in workshops and training seminars
Shapes for worddocuments in black&white
Text
All levels
Action* *
Text
Chain Mapping Symbols in Workshops and Documents
Links between operators
ValueLinks