The value of a chain
It is difficult to argue against strategies that reduce costs while improving the performance of supply chains. However, assessing the value of such improvements is challenging. While ‘beauty is in the eye of the beholder’, value is relative to the stakeholder. For instance, a port terminal operator has its own criteria to consider since the value of its capital intensive assets can be derived from the rate of return. Strategies improving this rate of return are therefore judged to be of high value. For a port authority, the concept of value may be more complex and include social welfare objectives such as employment and environmental mitigation. Wherever one looks, it is important to realise that value is a relative concept. The positive point is that a growing emphasis on the logistics chain favours the convergence of respective value systems.
From an operational standpoint, three value systems are widely recognised. The monetary value focuses on costs and the return for each unit of input (eg. capital or labour). The time value refers to the duration that a shipment is within the custody of an element of the transport chain with turnaround time a common focus. The reliability value considers a more comprehensive set of criteria related to the operational stability of the transport chain. Consistent costs and time tends to be preferred. While cost and time have always been of importance, supply chain management has increasingly focused on the value of reliability. Thus, the reliability criteria are where logistics chains impose the management of this value system with criteria such as asset management, responsiveness and customer satisfaction.
The term supply chain integration has often been used, and abused, to reflect the alignment of supply-chain goals and objectives along with the related information and physical linkages. The alignment illustrates the shared goals among the elements of the supply chain, often aimed at reducing their costs and improving their performance. Alignment insures a consistency in the strategy pursued by the actors involved; how their value systems correspond. Information and physical flows can be operationalised through the management of orders, tracking, as well as the modes and terminals involved. Although the concept of supply chain integration is an old one since any business relation involves a form of integration (supplier/ customer), containerisation, information and communication technologies and changes in port governance (eg. the landlord model) have enabled expanded forms of integration.
Ports and value generation
Ports are locations competing to attract, expand and retain economic activities since they provide employment and generate value for an economy. The generation of value in a supply chain is a process that mainly takes three major forms (see Figure 1).
Value creation or capture
Value creation concerns the formation of new activities within a supply chain, such as manufacturing, distribution and transport. It is often linked with a paradigm shift such as a new terminal, lower distribution costs, a new technology, or new market opportunities. Value capture attracts activities from another location, a process which can be incited through various costs and infrastructure advantages that may include improved intermodal facilities or logistics zones.
The growth of existing strengths, mainly in relation to the growth of traffic along a supply chain. Therefore, growing port traffic is generally contingent to more value generated for the local economy.
This involves keeping desirable addedvalue activities which, under existing circumstances, would have ceased or relocated elsewhere (value capture by another location). It is a difficult process to mitigate since it is linked with competitiveness changes and shifting regional competitive advantages. However, value capture and expansion can have a significant impact on value retention since it creates local clusters of interdependent activities.
The structure of transport chains underlines how ports are able to capture, expand and retain value-added activities for their hinterland. It is in this context that policies, regulations and investments are articulated for the expected multiplying effects related to value capture. Since many supply chains are globally oriented, added value is performed at a wide array of locations, which is the outcome of decisions made by multinational corporations to maximise their revenue. For many sectors, added value activities have moved downward in the supply chain as a strategy to lower production (input) costs. In other cases, added value activities have moved upward to expand market potential, mainly through better freight distribution strategies. In almost all cases, improving the efficiency of freight distribution is a salient factor of added value.