Commodity chains are structured processes that increase the efficiency of converting raw materials into finished goods or commodities that a company can sell at a profit. In a sense, this chain can be viewed as a systematic road map that allows a business to create an series of steps that help to keep inventories small, eliminate waste, and control operational costs in a manner that maximizes the potential to generate the greatest amount of income possible. Companies of all sizes operate with a commodity chain, with the nature of that chain varying based on the actual business model.
The essential elements of a commodity chain are very straightforward, beginning with the selection of the resources necessary to drive the production process. This will include the purchase of raw materials that are ultimately reworked into the goods and services offered. In addition, these resources will also include parts, software, and other components that help to keep equipment running at peak efficiency.
With the raw materials and supporting components in hand, the commodity chain moves on to address the actual creation of the company’s products. Here the focus is on the steps used to move the materials through a production process and ultimately result in the manufacture of goods that are ready for sale to customers. Attention is often paid to streamlining these steps so that waste of materials during production is kept to a minimum while quality standards are maintained, a combination that helps to increase the chances of turning a profit.
A third component of the commodity chain has to do with the distribution of the final products to the consumer market. In this sequence of steps, the focus is on filling customer orders in a timely manner. This may mean arranging transport of the goods to retailers who then sell to consumers, or arranging for the fulfillment of orders that are received directly from the individual client. The idea is to use whatever shipping and transportation methods will most efficiently result in the delivery of those goods in a time frame that the customer considers equitable. In some cases, a combination of shipping methods may be used, such as arranging to begin the journey using roadway shipping, switching to rail travel at some point in the process, and reverting to road travel as the final link in the delivery process.
The complexity of a commodity chain will vary, depending on the type of products offered, the range and variety of the consumer base, and the steps necessary to provide a viable delivery strategy. This means that the specifics of the commodity chain used by a local lumberyard will be different from the strategies utilized by an electronics firm with a worldwide client base. These very different business models will share a chain that includes a logical sequence for acquiring and using raw materials to best advantage, a manufacturing process that is cost and time-efficient, and a delivery strategy that gets the finished products to customers in an acceptable time frame.
