How is value created?

Every business can be thought of as a “money machine.” On one end of this machine you have inputs; in between you have the value-added processes; and you have outputs on the other end. In the framework shown below, we have seven value-added processes – Design, Source, Make, Move, Store, Sell, and Service – which are the core processes that make up the “chain of value.” (This framework was developed by the Center for Intelligent Supply Networks at the University of Texas at Dallas.)

The seven core processes in the “money machine”

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Explaining “structural changes” in the value chain

Today, economists frequently use the phrase “structural changes” to explain major aspects of the multifaceted impact of globalization. It is an umbrella term that captures the macroeconomic view but seldom gets into the details of the structure itself, i.e., the micro view. (And in defense of economists, their focus is the “forest” as opposed to the “trees” of the inner workings of the global supply network with its extreme complexity and processes intertwined among hundreds of businesses spread across multiple economic entities.)

To understand the structure of the network and how it evolved over time, we need to view the world through the “value chain” lens, and wind the clock back to the days of Henry Ford. Continue reading