Innovating your value chain - working with suppliers to increase total value
Your value chain
A value chain is akin to your supply chain, in that you plot the path of your product from the time you receive its raw materials, to the time it becomes a product (or service) and then to the time it gets into the hands of your customers. But there is more. After that, it also plots the way your product is handled post-purchase. How a value-chain is different from a supply chain is that while the supply chain is concerned with the physical movement of the product from inception to consumption, the value chain plots how much value each service has on the total product and service. It also identifies who and what activities accord the greatest value to your customers and where we should focus on in terms of improving the system. If you are unable to plot the value each position in the chain adds to your customer, you might at best have a lagging system and at worse, an unprofitable one.
So, if you have not done any value-chain innovation, perhaps it is time to check out the following points:
1. Plot your supply chain
I suppose if you have not plotted your supply chain, you would not know what your value chain would look like. Many of us assume that since we are able to get product to market, we are doing okay. Yet, at certain elements along the chain, we are not making money; instead we are losing it. In this case, we need to relook who is supplying us that element on the chain, if we need to change our supplier, or even if we need to change our process.
2. Identify the value in each point of the chain
As already mentioned, it is important to know how much each part of the chain adds value to our customer. Some of the value is not tangible; like speed to market, brand equity or service quality. Yet these have to take on a certain value so that we can see how well we are doing in packaging the total value to our customers.
3. Look for ways to increase the value without increasing cost
This is where your innovation comes in. Of course we can always increase value by paying more (although the proportion is not always linear; and that can work both for us and against us) but we are looking for ways where we can do it without a cost increase. This will require that you work with your value partners closely. Treat each supplier as a partner and give them a stake in the business of the chain. By doing that, they can be counted on to go the extra mile without a concomitant increase in costs.
4. Optimise your value chain
Here is where you need to be ruthless. It means that if someone else can do the job for much less, then that someone should, even if your brother-in-law is now the incumbent. And if you can totally eradicate a step, do it! The chain has to be totally optimized so that we can assure that each step has positive value added to the final outcome.
5. Constantly look for ways to improve
This is the crux of innovation, isn’t it? But it is even more so important when embarking on value chain innovation because there are so many third-party components and if we want to make sure that the chain adds value to all parties, we must also constantly look for ways to improve it. But the improvements cannot simply work for you; all members in the value chain need to benefit. This will ensure that there’s sustainability in your innovations.
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