Global Supply Chain for commodity

Principal of Global Trading as the gate of world

In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of Political Economy and Taxation.

Ricardo used the theory of comparative advantage to argue against Great Britain’s protectionist Corn Laws, which restricted the import of wheat from 1815 to 1846. In arguing for free trade, the political economist stated that countries were better off specializing in what they enjoy a comparative advantage in and importing the goods in which they lack a comparative advantage.

Reason Why Finance is key factor of commodity trading?

Commodify business is similar with normal import/export business, but absolutely has different face on the supply chain.

Per commodity recognized as future trading in finance, the material prices are valuable, but the price required to be stable under annual contract. Also, the materials are normally manufactured and/or refined under preciously plan in the supply-chain management.

For instance, refined oils normally book the purchase of raw materials with the raw-material factory for annual required volume under the contract agreement . Then, the raw materials are transported to a refinery in another country, and delivered/shipped to the destination country. The payment by DLC is finally executed though banking transactions.  During the whole process, for big volumes in commodity, who can be controlled the cash flow? 

We emphasize that the cash-flow management is big differ compared with normal trading business, and someone does not understand such differentiation.

Therefore, the manufacturing plan cannot be stopped easily after starting the contract and supply side owe many risks and required fund for commodity material purchasing, whose amount is not small and normally the manufacturing/refinery factory cannot manage the cash-flow. That is, Fund/Financial is one of the significant roll of the commodity trading to supply sable.

What’s general definition about Value Chain?

Michael E. Porter (Harvard Business School) has introduced the concept of a value chain first. He, who is also well known releasing the Five Forces Model to show businesses where they rank in competition in the current marketplace, discussed the value chain concept in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (Free Press, 1998).

The idea of the value chain is based on the whole of process view of organisations, the idea of seeing a manufacturing / service organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.