Chris Olesky04.05.06
Is Your Value Chain a Chain of Value?
Chris Olesky |
The introductory column explained the SCOR model. This column will build on SCOR and show the relationship between the supply chain and two other key chains that make up the value chain.
Many practitioners of value chain theology view the value chain as consisting of the Supply Chain, which includes:
• Plan—Planning the sourcing, manufacture, delivery and return of products
• Source—Sourcing of materials
• Make—Manufacturing of products
• Deliver—Delivery of products
• Return—Return of raw materials or finished goods
The Resource and Development Chain is another component of the value chain consisting of:
• Discovery—New technologies/intellectual properties are discovered, often during the customer relationship management chain (more about this to follow) while working with customers, who actually help invent the products. This practice is very common in the medical industry.
• Specification—Specifications for the new concept are detailed or specified.
• Development—Specifications are further defined. Design for manufacturability is important. The sooner this starts, the better.
• Validation—Proof of concept and validation of the design occurs. When developing medical products, clinical and customer trials occur at this point.
Finally, the Customer Relationship Management (CRM) Chain involves the following:
• Sales—Sales management and processing
• Service—Servicing the customer or, often, the customer’s customer occurs at this point.
Keep in mind that CRM has many attributes. Tasks such as contract management, help desk support, performance management and sales reporting are only a few topics related to CRM.
Overlapping Synchronization of the Chains
Last month’s column (“Planting Your Supply Chain Harvest”) underscored the importance of planning not only the supply chain, but also other critical elements of the value chain. Figure 1, on page 34, helps to visualize why this is so important, as will the following descriptions of the examples highlighted in the figure.
Example (A): Notice the sales and operational planning line (A) depicted in the diagram. It is absolutely critical that the needs of the customer or delivery channel are understood worldwide in order to plan and execute the supply chain. For example, if the customer requires the product within 24 hours, the supply chain must accommodate this with responsiveness or inventory to buffer unresponsive characteristics of the supply chain. A supply chain operating without understanding this key intersection of sales and operations planning is destined for failure!
Example (B): This depiction on the diagram shows the intersection of the specification stage and sourcing. Many times, failures occur here because the sourcing organization is not tied to the development organization. How many times in your organization has rework or obsolescence of product been the result of sourcing materials while the design is still changing? This is a common problem when teams are rushing to meet deadlines and trying to synchronize downstream supplier lead times with a changing design. It is very important to understand this intersection and manage it carefully.
Example (C): This area is yet another cause for concern. Supply chain organizations often jump too quickly to set up a manufacturing location for a product too early in its life cycle. Many horror stories circulate about products that have been manufactured in various countries before a product’s design has stabilized, making it difficult to retrofit the supply chain. Another scenario is when design for manufacturability was not taken into consideration during the development and specification process. New products must generally go through an incubation, stabilization and migration phase to be successful. Ignoring this can result in major consequences.
The synchronization of the elements between chains creates an explosive number of combinations. It is very important that organizations implement business processes encompassing these overlapping combinations. The few examples explained here are meant to highlight the importance of understanding the differences between the supply chain, the research and development chain and the CRM chain. Organizations should avoid “silo thinking” or taking action within one chain that could compromise another one.
Keeping these chains in harmony is a craft that requires skill and leadership, which is why it is so important to have value chain talent within an organization to manage this discipline. A future column will tackle this important topic.
It is also important that the business processes are enabled and supported by information technology that supports the value chain. Enterprise software such as SAP or value chain software such as I2 are often very helpful in keeping these elements in harmony.
Study Figure 1 and evaluate for your organization the multitude of intersections between these key chain elements. Do your business processes encompass these? Do you have the talent within your organization to keep these in harmony? Do you have the information technology to support them? Can you measure all elements of your value chain? If you answered “no” to most of these questions, it is likely that your value chain is not a chain of value…What will you do tomorrow to change this?