The commodity chain is the core of every operation. Every finished product has been transformed from a raw form, then processed and turned into the product sold in the market. This process, where the raw material is converted into usable goods, is what the commodity chain is.
Let’s say you wake up in the morning, make coffee, and do some work on your laptop as you sit on the couch; every product you are using here, from the coffee and laptop to the couch you sit on, everything goes through a chain of various processes before it’s on the market. Let’s break down the commodity chain and how the process goes.
What Is a Commodity Chain?
A commodity chain includes the entire process of how a product is sourced, converted, distributed, and then sold on the market. It explains how a raw material is processed and converted into a finished product, distributed on the market, and how it ends up in the hands of the customer before consumption. It covers the entire process from extraction to manufacturing logistics, distribution, and retail.
Let’s take a blanket for an example. The commodity chain of a cotton blanket begins with cotton farming; it’s converted into fabric and, finally, assembled in factories, usually in low-cost labour nations. Blankets that have been finished are shipped worldwide to retailers and then used by the consumer. Later, they are thrown away, donated or recycled, indicating the interconnectedness and global nature.
Understanding the commodity chain also explains how global trade operates. It describes the economic, social, and environmental factors related to all the products we consume daily. It also helps us to discover issues such as labour practices, reduced scarcity, and why sustainability is important.
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The Stages of a Commodity Chain Explained
The commodity chain can be explained in 5 stages. Let’s walk through them step by step:
Extraction/Production
The first stage of the chain is the extraction or sourcing of raw materials. The procurement varies per product and industry; for example, in the agriculture industry, the raw material would be cultivating crops or raising livestock. Minerals, oils, and forests are the raw materials for manufacturing firms.
For instance, If the end product is wood-made furniture, this stage would include sources of a place to grow and extract wood, usually from an artificial forest or natural abandoned forests.
Processing
After the manufacturing company acquires the raw material, they use the raw material to convert it into the end product. For example, the wood acquired from the forest will be cut, trimmed, shaped, and polished to make proper and usable furniture.
Distribution
With the product processed and turned into finished goods, it’s time to send the product to the warehouse, where the products will be distributed to other distribution centres. This stage involves processes like shipping, warehousing, and freight management.
Consumption
Once the products reach all the retail outlets and are updated on the store’s website, they are ready to be sold on the market. After the customer purchases the product, it is delivered to their house for use. For example, if someone orders a set of couches and tables, the product’s end location would be at the customer’s house.
Disposal/Recycling
Once the product is used or reaches the end of its lifecycle, the product is usually disposed of, where the product gets picked up and collected in landfills or recycling facilities. After reading these points, the products are recycled or reused to ensure sustainable practices.
Real-World Examples of Commodity Chains
Smartphone Commodity Chain
Smartphones are one of the largest produced products in the market. The material for this product has to be acquired from various countries as it requires a variety of products such as cobalt, lithium, and tantalum. These materials are usually sourced from Australia, Chile, South America, and Africa. Once these products are acquired, they are transported further to Asia, typically to China, where the raw material is converted into smartphone components like wires, circuit boards, and battery materials.
Other components like microchips, screens, batteries, cameras, semiconductors and OLED displays are produced in countries like South Korea, Taiwan, and Japan. Once all the material is gathered, it is shipped to Asia to assemble the devices. Countries like India, China, and Vietnam are the biggest assembly centres. Finally, finished smartphones are packaged and distributed globally.
Fashion Commodity Chain
The cotton from India, the fabric work from Bangladesh, and the swing from Vietnam complete the entire clothing process. Once the clothes are completed, the product is shipped internationally and sold in retail stores across Europe and America. This chain shows the interconnectedness of the global fashion market.
The Difference Between Commodity Chains and Supply Chains
Commodity and supply chains may sound similar, and the basic operations have a similar type of work, but the scope of their operation is very different.
A commodity chain is the process of sourcing and extracting a product from raw materials. It is then transformed and processed from raw materials into final products, then delivered to various distribution centres where the product is shipped to multiple retail outlets for sale and finally to the consumer. After the product is used, the product is disposed of and reused.
On the other hand, a supply chain is more on a company level. It explains the details about how a company moves its products. It’s all about logistics, efficiency, and moving goods and services management.
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Frequently Asked Questions (FAQs)
What is commodity chain AP Human Geography?
A commodity chain is a set of activities companies follow to convert raw materials into commodities or goods and then distribute them to consumers.
What is a commodity chain in anthropology?
Anthropologists study chains of commodities to understand the social and cultural aspects involved in the creation and use of goods.
What is the order of the commodity chain?
The typical order is production, processing, distribution, consumption, and disposal/recycling.
What is the difference between a supply chain and a commodity chain?
A commodity chain is all about how raw material is converted into finished goods and then sold and recycled, reflecting the entire life cycle of a product. On the other hand, a supply chain is more concerned with how products are moved on a company level.