What is a Production Chain
Basically a production chain is the steps that need to be taken in order to transform Raw Materials into goods which can then be used by consumers such as you and me. For instance, a Primary Product might be an apple and some wheat, and the chain of production will turn this into an apple pie for you to enjoy. At each step in the production chain, Value is added to the product so it can be sold for a greater amount when it becomes the Final Product. This value is added through the addition of Labour, Buildings, raw materials and/or Manufacturing and Processing.
A typical production chain would look something like this:
Primary Producers are always the first stage in any chain, and the part they play is to produce the raw materials from which the final product will then be created. The secondary stage of production is when the product itself takes shape in the hands of manufacturing companies. These companies bring together products and other raw materials to create the final product. The last and final stage in each production chain is the actual selling of the product to the consumer. A retailer such as a supermarket will buy a large amount of the final product from the supplier, to then sell on to you, the consumer.
For an example of a production chain in action all we need to do is look at the production of bread:
On wheat farms all around Australia, wheat is grown then harvested by primary producers. The wheat is then sent to the mill where it is turned into flour, which in turn is either sold locally or overseas. This flour is then sent to bakeries, which turn the raw product into dough by adding various ingredients such as yeast, salt and grains. The dough itself is then baked into bread, which can then be sold in either bakeries or supermarkets.
In this way, value is added to the raw product at each step along the way until the final destination is reached, when the consumer is provided with the end product. Another great example of a production chain is that of furniture production. The steps involved in this chain of production are:
- Trees are grown and then harvested.
- The logs are taken to a sawmill and cut into serviceable pieces of timber.
- These pieces are then seasoned to make them useable in the furniture industry.
- The seasoned wood is then used by furniture makers in the construction of pieces of furniture, such as tables and chairs.
- This furniture is then sold on to you the consumer.
In both these examples we see that a raw product harvested by primary industry is then taken through various steps of value adding to make the end product for the consumer. The raw product itself has only a limited value to the consumer. Imagine if you went to the furniture store and all they had to sell were logs, and the tools to make furniture. This is why most raw materials have little value to the consumer until they have been through the production chain. After all these production chain steps, the product then enters the Distribution Chain. This involves adding value to the products by transporting them to wherever the consumer requires them to be. For instance, even after the wood has been turned into a piece of furniture, it is still of little use to your family until it has been brought close enough to your home for you to see it and purchase it. So one of the last stages in the distribution chain is actually getting the furniture to a store near the end consumer.
The classical breakdown of all economic sectors follows:
- Primary: Involves the retrieval and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary sector.)
- Secondary: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary sector.)
- Tertiary: Involves the supplying of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary sector.)
An economy may include several sectors (also called industries), that evolved in successive phases.
- The industrial revolution lessened the role of subsistence farming, converting it to more extensive and monocultural forms of agriculture in the last three centuries. Economic growth took place mostly in mining, construction and manufacturing industries.
- In the economies of modern consumer societies, services, finance, and technology – the knowledge economy – play an increasingly significant role.
By ownership: An economy can also be divided along different lines: