Factors of Production for PCC

We have five factors of production (FP) that in pages 7, 8 and 9 of our book are very well defined; they are: labour, capital, entrepreneurs, natural resources and information resources. 

PCC value chain is an extensive chain; without any doubt, we could identify the intensive the use of each one of the five factors of production on this big chain.

But many processes are part of this chain and more detailed analysis could improve this discussion; if we analyse these PCC value chain sub-processes with one more level of detail, we could divide this big chain in processes with similar intensity in the use of the five FP; in this way we could develop a better analysis of the FP in the PCC value chain. For example, Peel and Slice operations are very similar in the demand of resources; in fact, for operational characteristics, we could find these two processes in the same building and in a very near location. Otherwise, Producers and Apply flavour processes are significantly different in the use of FP; they require different intensity of land, water, labour resources. It is clear at this point that it will be beneficial to divide the PCC value chain to better identify the FP in the process chain.

The first division that we could analyse, taking few assumptions, is based on the physical operation for each part of the chain:

1.      AFP1: Producers: it represents an industry in itself inside PCC value chain.

2.      AFP2: Transport to plant site, Distribution to retailers: idem

3.      AFP3: Purchasing warehouse storing potatoes: idem

4.      AFP4: Wash, peel, slide, fry, apply flavour and package potatoes: usually, they are contented in the same factory/building (process characteristics demand this)

5.      AFP5: Retailers

A brief analysis of the FP use that we could identify shows:

AFP1	Labour	Intensive, big demand, not many skills.
	Capital	Big demand to start, medium to operate
	Entrepreneurs	Narrow opportunities and risks involved in a regulated market
	Natural resources	Huge demand
	Information resources	Low demand

 

AFP2	Labour	Intensive, medium level of many skills.
	Capital	Big demand to start and operate
	Entrepreneurs	Medium opportunities assuming risks for this opportunities
	Natural resources	Low demand
	Information resources	Low/medium demand

 

AFP3	Labour	Non-intensive, medium demand, not many skills.
	Capital	Big demand to start, low to operate
	Entrepreneurs	Few opportunities to assume important risks
	Natural resources	Low/Medium demand
	Information resources	Low demand

 

AFP4	Labour	Intensive, big demand, many skills.
	Capital	Big demand to start and operate
	Entrepreneurs	Important opportunities to assume risks with the goal to improve the business
	Natural resources	High demand
	Information resources	High demand

 

AFP5	Labour	Intensive, big demand, medium level of many skills.
	Capital	Big demand to start, medium to operate
	Entrepreneurs	Medium opportunities to assume important risks with the goal of to improve the business
	Natural resources	Low/Medium demand
	Information resources	High demand

 

This break down shows the relative importance in the FP requirement of the different sub-processes. In addition, if we add the five subdivisions we get the complete PCC value chain (as the maximum between the sub-processes for each FP). The following table summarize this, where * =  low; ** = medium and *** = high level. Last column, Ranking, represent the relative relationship between the FP, obtained as addition of the * for each row. This row try to answer the question about if any factor is more important than others.

 

Essentiality

I think it is important to stress here that the FP do not operate in a parallel scheme where we could substitute one of them in case of failure, problems or simple desire. Also, it is impossible to expand the boundary of each factor of production trying to cover the lack of other. We could support the idea of lower/higher or slower/faster impact of each FP in PCC value chain (see Ranking row in before table), but the lack of one of them, late or sooner will take out of the market to PCC. Also, it will happen with the factor of production Entrepreneurs (lower in the ranking) because the high competitiveness of the market where PCC operates. PCC could lose market share without innovation and improvement (which is associated to risk) in any part of the chain, including processes, package, logistics and so on.

 

Summary:

Each factor of production has different impact (shown as ranking) in the PCC business, but all of them are essential for the PCC production. Natural resources and labour have a basic and very easy understanding of their necessity. Capital is a key factor at the start of the business and an important factor for the day a day operation. An entrepreneur looks with low requirement for a classic industry as potato chips, but essential in a very competitive market such this. Finally, Information resource also is an important factor of production. PCC value chain could produce without information resource in its value chain, but it will last few days in the competitive market. Similar outcome could be developed for each sub-division based on the above tables.