June 29, 2016 Leave a comment
Whether you formally create a center of excellence or not, an internal competence in value network strategy is essential. Let’s look at a few of the reasons why.
Weak Network Design Limits Business Success
From an operational perspective, the greatest leverage for revenue, margin, and working capital lies in the structure of the supply chain or value network.*
It’s likely that more than half of the cost and capabilities of your value network remain cemented in its structure, limiting what you can achieve through process improvements or even world-class operating practices.
You can improve the performance of existing value networks through an analysis of their structural costs, constraints, and opportunities to address common maladies like these:
- Overemphasis on a single factor. For example, many companies have minimized manufacturing costs by moving production to China, only to find that the “hidden” cost associated with long lead times has hurt their overall business performance.
- Incidental Growth. Many value networks have never been “designed” in the first place. Instead, their current configuration has resulted from neglect and from the impact from mergers and acquisitions.
- One size fits all. If a value network was not explicitly designed to support the business strategy, then it probably doesn’t. For example, stable products may need to flow through a low-cost supply chain while seasonal and more volatile products, or higher value customers, require a more responsive path.
It’s Never One and Done
At the speed of business today, you must not only choose the structure of your value network and the flow of product through that network, you must continuously evaluate and evolve both.
Your consideration of the following factors and their interaction should be ongoing:
- Number, location and size of factories and distribution centers
- Qualifications, number and locations of suppliers
- Location and size of inventory buffers
- The push/pull boundary
- Fulfillment paths for different types of orders, customers and channels
- Range of potential demand scenarios
- Primary and alternate modes of transportation
- Risk assessment and resiliency planning
The best path through your value network structure for each product, channel and/or customer segment combination can be different. It can also change over the course of the product life-cycle.
In fact, the best value network structure for an individual product may itself be a portfolio of multiple supply chains. For example, manufacturers sometimes combine a low-cost, long lead-time source in Asia with a higher cost, but more responsive, domestic source.
Focus on the Most Crucial Question – “Why?”
The dynamics of the marketplace mandate that your value network cannot be static, and the insights into why a certain network is best will enable you to monitor the business environment and adjust accordingly.
Strategic value network analysis must yield insight on why the proposed solution is optimal. This will always be more important than the “optimal” recommendation.
In other words, the context is more important than the answer.
The Time Is Always Now
For all of these reasons, value network design is more than an ad hoc, one-time, or even periodic project. At today’s speed of competitive global business, you must embrace value network design as an essential competency applied to a continuous process.
You may still want to engage experienced and talented consultants to assist you in this process from time to time, but the need for continuous evaluation and evolution of your value network means that delegating the process entirely to other parties will definitely cost you money and market share.
Competence Requires Capability
Developing your own competence in network design will require that you have access to enabling software. The best solution will be a platform that facilitates flexible modeling with powerful optimization, easy scenario analysis, intuitive visualization, and collaboration.
The right solution will also connect to multiple source systems, while helping you cleanse and prepare data.
Through your analysis, you may find that you need additional “apps” to optimize particular aspects of your value network such as multi-stage inventories, transportation routing, and supply risk. So, apps like these should be available to you on the software platform to use or tailor as required.
The best platform will also accelerate the development of your own additional proprietary apps (with or without help), giving you maximum competitive advantage.
You need all of this in a ubiquitous, scalable and secure environment. That’s why cloud computing has become such a valuable innovation.
If you found some of these thoughts helpful, and you are looking for value network capability to support your internal competence, you may want to have a look at the Opalytics Cloud Platform. Yes, I work for Opalytics, but the Opalytics Cloud Platform has been built from the ground up for do deliver all of this.
A Final Thought
I leave you with this final thought from Socrates: “The shortest and surest way to live with honor in the world is to be in reality what we appear to be.”
*I prefer the term “value network” to “supply chain” because it more accurately describes the dynamic collection of suppliers, plants, outside processors, fulfillment centers, and so on, through which goods, currency and data flow along the path of least resistance (seeking the lowest price, shortest time, etc.) as value is exchanged and added to the product en route to the final customer.