Supply Chain Analysis 101

Supply chain analysis can help a region understand how a regionally significant industry is connected to other industries located both inside and outside the region.

What is Supply Chain Analysis?

In an economic development context, supply chain analysis is a tool for identifying growth opportunities related to a given industry within a region. Every industry is part of a greater supply chain—the sequence of industries involved in the production and distribution of a good or service, from raw materials to final products. That industry purchases inputs (raw materials, parts, knowledge) from certain industries, creates an output, and then sells that output on to another industry. Additional value is added to the output as it moves along the supply chain until it reaches its final buyer: the consumer.

Supply chain analysis can help a region understand how a regionally significant industry is connected to other industries located both inside and outside the region. By understanding the way the industry fits into its overall supply chain, the region can begin to make strategic decisions about the types of industries it should seek to attract, retain, and help expand.

Camoin Associates recently completed a supply chain analysis of the forestry and wood products industries for Eastern Maine Development Corporation (EMDC), the economic development organization serving Maine’s four Eastern counties. This case serves as a simple example of the use of supply chain analysis. The region is dealing with the closure of a number of pulp and paper mills that were once a manufacturing mainstay. Since these mills will no longer be purchasing forest products (such as wood) and related services (such as transportation and logistics), the region’s forestry industry will need to find new customers. By conducting a supply chain analysis on the forestry industry, we were able to identify the types of wood-related industries that already exist in the region, as well as those that do not have a strong presence but could potentially be a good fit and further understand needs and opportunities for business expansion and attraction for regional economic growth.

Tools and Techniques

Supply Chain Mapping – One of the first steps in a supply chain analysis is to understand how the study industry fits into its overall supply chain. There is a wealth of information online for practically any industry, so doing an internet search on supply chain diagrams for your study industry is a good place to start.

For certain industries, like forestry and wood products, the way the supply chain fits together is fairly obvious, and the component industries can be identified fairly comprehensively without having a lot of background knowledge. Other supply chains are far less familiar to an industry outsider and would require more research to understand the production processes involved. IBISWorld industry reports are an excellent resource and provide information on the key buying and selling industries (at the 5-digit NAICS level) for any industry of interest.

The goal of supply chain mapping is to identify the specific NAICS codes that comprise the various pieces of the supply chain. In the forestry example, we developed three clusters that form the basis of the industry’s supply chain: Natural Resources, Wood Products, and Logistics. This can then be used for further analysis around employment trends, drivers of growth, and specific companies both within and outside the region.

Example of a supply chain diagram

Gap Analysis – The purpose of supply chain gap analysis is to determine where key supply chain industries source their inputs (within or outside the region). EMSI’s Industry Supply Chain module is a useful tool for conducting this analysis. The tool allows the analyst to input the study industries and geography of interest, and it will tabulate purchases made from other industries as well as the share of those purchases made in-region and out-of-region. Significant supplying industries with a large share of purchases being sourced from out-of-region present potential opportunities for business attraction. Industries providing supply chain inputs from within the region represent companies that will likely need support in identifying markets outside the region in the event of significant changes within the region such as a mill closure.

Sample gap analysis from EMSI

Import–Export Analysis – Another useful tool for supply chain analysis is import–export analysis. This technique involves examining trade data to track the flow of an industry’s products into and out of a region. This provides insight into the types of inputs that need to be imported and could point to the opportunities for attracting businesses within certain industries. This information is available from sources including WISER and DataMyne can also often be accessed from your state international trade office.

Market Research and Interviews – Once potential expansion industries are identified, market research should be conducted to determine whether the industries would be a good fit for the region given existing market conditions as well as the regional, national, and global demand drivers and projections. Interviews with industry representatives are also helpful in determining the requirements necessary for an industry to consider expanding in a region. IBISWorld and Hoovers are good sources for this market research. Check your local and university college libraries for other sources.

 

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Applications

The end goal of a supply chain analysis is to identify a targeted list of companies for attraction and expansion and ultimately convince them to set up shop or expand in the region, or in some cases to identify companies that need access to new markets in order to remain in the region. The tools and techniques mentioned above are a way of narrowing down all the potential industries to just a handful that would be the best fit for the region. A database of business listings, such as ReferenceUSA, can then be used to compile a list of companies that fall within the targeted industries for ongoing marketing, attraction, and business support efforts.

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