Vertical Profile of Cotton - Research Paper Example

Vertical Profile of Cotton A vertical organization of supply chain composes of players such as vendors and producers who offer goods and services specific to an industry or a group of customers with certain specific needs. This report will look at the supply chain of cotton. The supply chain of cotton passes through different stages, including the production of raw cotton, spinning it into yarn, then the weaving into cloth and may sometimes go further into processing into garments and fabrics (Kersten 87). As shown in the figure 1 below, the producer does the work of producing the cotton. The producer may decide to sell directly to the end user or the cotton may undergo some refining process through domestic and private ginneries. The ginneries may also sell directly to the customer or may decide to sell through an intermediary who is a merchant. (Figure 1) In the supply chain, the different players charge different prices and in the end, this affects the final price of cotton. When the producer sells directly to the consumer, the consumer pays less for the cotton as compared to when the product passes from the producer to the ginnery, to the broker agent, merchant, and then to another agent before then another agent before reaching the final user as demonstrated in the figure 2 below. As the cotton moved from the producer to the ginnery, some value was added to the cotton. This addition in value leads to increase in price. The agent broker will purchase the cotton at an increased price from the ginnery. The broker will want to make some profits; therefore he will also sell the cotton at an increased price to the merchant (Lee and Chang 109). The merchant will sell the product at a higher price to an agent who will eventually increase the price and sell it to the final user. Even if the prices have increased by only one percent, by the time the product will get to the final user, it will have increased by about 5%. This therefore means that it is the final consumer who bears all the impact of the players in the supply chain. (Figure 2) The cotton after production has to get to the final user in the best form and condition as possible. The users have to be informed about the availability of the product and it is the work of the marketers to inform them. The marketing may take different channel depending on the target user. The central marketing company may purchase the cotton, then carry out the marketing and finally sell to the users. The central marketing company may also form links with the central buying organization that will buy the cotton in bulk and finally sell it to the user (Coyle and John 216). The central marketing company can also decide to sell to agents who will make the final marketing to before selling to the user. Another marketing channel is when the producer sells the cotton to an agent who will do the marketing, then sell the cotton to the user. (Figure 3) Vertical market chains of cotton have undertaken different changes over the years. This can be seen in light of The Bureau of Labor statistics report of 2015.The changes include the inclusion of agents in the marketing chain (Kersten 103). This has propelled a 0.9 % increase of multifactor productivity annually from 1987 to 2013.this reflects a 2.9 % growth in output and a 2.0% growth in combined inputs. These can be illustrated in the char below: Compound annual growth rates for productivity, output, and inputs in the private nonfarm sectors for selected periods, 1987-2013. These changes have had some positive impacts to both the producer and the consumer. The producer gains in that there are many players and marketing work has been taken over by different groups such as central marketing company and other agents. The producer can therefore produce in bulk and sell to a wider group of people (Kersten 40). The producer does not also incur transportation costs that they used to incur when transporting the good to the user. Most of this work is done by the marketing groups and other agents. The users also gain in that the cotton has been brought to their disposal. They do not have to travel long distances to buy the cotton. The cotton is also in different packages and sizes that suits the users’ needs. The inclusion of the intermediaries and other players in the chain of supply is called vertical expansion. According to Lee and Chung (316) vertical expansion is beneficial because it enables the production of intermediate cotton products that customers want and also help in the distribution of the products. The intermediaries also help in the gaining of market power and increase the scale of economies in the cotton business. The prices of cotton differ at different stages of the supply chain. According to figure 1, if the producer of the cotton decides to sell the cotton directly to the user, the user will buy the cotton at a lower price as compared to when the cotton passed through other intermediaries. Take for instance the initial price of the cotton is S$50. The user will pay S$50 if he buys directly from the producer. After passing through the ginnery, the value increases by 10% and becomes S$55. The merchant will take the cotton and do some marketing on it and then increase the price by 2%. This comes to S$56.10. Therefore, it is clear that the user will have to pay S$6.10 more on the cotton when buying the cotton through intermediaries (Coyle and John 116). In conclusion, it is clear that the vertical chain of supply is comprised of producers of similar a product and sell it to similar users who want the same product. In cotton supply chain, the producer can sell the cotton directly to the user or the user can purchase the product after passing through intermediaries. However, it is cheaper to purchase the product from the producer directly Work cited Coyle, John J, and John J. Coyle. Supply Chain Management: A Logistics Perspective. Mason, OH: South-Western Cengage Learning, 2009. Print. Kersten, Wolfgang. Managing the Future Supply Chain: Current Concepts and Solutions for Reliability and Robustness.Lohmar: Eul, 2012. Print. Lee, Hau L, and Chung-Yee Lee. Building Supply Chain Excellence in Emerging Economies. New York: Springer, 2007. Internet resource. Read More