Teaching Tip: Examining Supply Chains

In Chapter 11, Figure 11.1, we present a Supply Chain with costs for beer. This figure provides an opportunity to discuss both the value added and the risks associated with each step in the supply chain. And, because students can often relate to the product, beer, the presentation encourages a discussion of not only the multiple tiers, but also the processing delays, logistics, storage, cooling, and where and how costs might be reduced in the supply chain.    Finding other examples of Supply /  Value Chains can be a challenge, but we found very timely and good examples (and perhaps almost as interesting as beer), by PetroStrategies, Inc. —  supply chains of the oil and gas industries.      

PetroStrategies shows both the Crude Oil Value Chain and the Natural Gas Value Chain. The great thing about their presentation is that in addition to the ‘chains’ being shown, so are estimates of Costs, Value (selling price at each stage), Gross Margins, Net Margins, and Percent of selling price for each component in the chain. 

Given the current interest in oil and gasoline prices, a lively discussion of costs and values in the supply chain from wellhead to gasoline pump should ensue. You might note that although the data is relatively recent (2007), gasoline costs are shown at $2.00 per gallon.

Discussion Questions:  

1.  Where are the risks in these supply chains?

2. What can be done to enhance supply and / or reduce the risks?

3. Have you any suggestions about what could be done to reduce costs in these supply chains?