Production Inputs: Two main groups

Lead Manufacturing Firms have two forms of inputs: A) Factors of Production B) Supply Chain.

In the photo above, can you identify the different elements described below, that are required for producing the meal (a product or service)? See the answers at the end of this section.

A) Factors of Production

The first form of inputs, the ‘left leg’ in the main linear value chains map, are the Factors of Production:

  • Land Space
  • Entrepreneurship & Management
  • Specialised Labour
  • Capital Goods & Technology

These inputs are not consumed within the direct process of manufacturing and delivery of the final good. All businesses need all four of these factors of production to create and run a business to provide products and services. It is often asked "where is 'money' - isn't that a minimum factor for a business?" The answer is no: Money is a means of facilitating trade, it is not in itself a productive resource (like all the rest) - you can't use money to hammer in a nail for example; and it is possible to produce services and products without money (i.e., in the commons), but it is not possible without these four factors of production. See more about this in the blue bar to the upper right entitled 'Factors of Production’ (linear value chains).

Every company and start-up has to be able to bring these four fundamental elements together to deliver a product or service to it’s customers. And just as start-ups often focus on the minimum viable product, that they can get to the market to start making revenues, here the factors of production also highlights a company’s need to also manage a minimum viable space, minimum viable entrepreneur, minimum viable team and or labour, and minimum viable technology (which can also include a process or ‘recipe’).

B) Supply Chain

The second form of inputs, the 'right leg’ in the main linear value chain map, is the Supply Chain, which consists of two main subgroups, Raw Materials and Intermediate Goods:

Raw Materials (shown as the green icon):

  • Biotic Materials (organic, or living/once living)
  • Abiotic Materials (minerals and gases)
  • Air
  • Water

Intermediate Goods (the three black icons):

  • Energy
  • Transformed Materials
  • Components

These inputs are consumed during the production and delivery of the final product. This 'leg' is an organised network of contracted, and sub-contracted suppliers (B-to-B companies).

Answer to question at the top of this section: The Land Space is the kitchen, and more specifically can be the kitchen work-surface area; the Entrepreneur & Management and the Specialised Labour can be both of the people - unless one of them is the boss (a professional environment or a teacher for instance); the Capital Goods & Technology is the frying pan, the oven, the cooking hob, knives… and the recipe; the Raw Materials includes the vegetables (biotic), the salt (abiotic), air to breath and to take away odours and steam, and water for boiling, washing, and drinking; the Intermediate Goods are the electricity or gas used to power the cooking and lighting equipment for instance (Energy), the wine (Transformed Materials), and the Components are not so obvious in the photo, but this could include a pasta sauce for instance.

Value Chains

The value chain concept was first described and popularised by Michael Porter (1985). A value chain is "the sequence of productive (i.e., value-added) activities leading to and supporting end use" (Sturgeon 2001); in other words, each actor in the sequence adds value, often in it's own market, and therefore, obtains profits/rents for their work - including particular types of customers. The linear sequence of events can be broken down into five main stages: inputs (extraction), make (production), outputs (goods/services and distribution), consume (use or buy/rent), and waste (throw-away).

Modern value chains are often complex, global supply and demand networks, that are usually initiated by national, trans-national, or multi-national Lead Manufacturing Firms (e.g. Caterpillar Inc.), or Lead Sales Firms (e.g. retailers in the apparel industry like Zara España S.A., or Decathlon Group), or a hybrid of the two (e.g. Apple Inc.); all of which are predominately based in industrialised countries. There are also firms like Cisco Systems, Inc., for example, which are Lead Firms within their upstream supply chain, but are not a Lead within the downstream of the value chain of the industries they serve. The main focus of the map above is on the Lead Manufacturing Firm, although it can equally be used to describe the other types of Lead Firms.

The word 'chain' in a 'supply or value chain' - creates a mental description (like the photo above) of a linear view of a system.

In ecology, the different predator-prey relationships in an ecosystem can be described as food-chains - a linear view. However, although the concept of food-chains still exists (usually to explain simple interactions, as that one shown above), it has also co-evolved with the more modern concept of 'food-webs,' which describes much better the complex, non-linear, relationships between all the different forms of life in a community. As should become more apparent in the web-pages to follow, value chains are evolving both conceptually and physically from chains to webs (also known as networks and systems).