Supply Chain market-driven value

While companies attempted to implement best practices over the last 30 years, they are now grappling with the fact that many Y2K projects built an efficient supply chain without resiliency. These investments made the supply chain strong, but not agile. Today, most companies have processes that can respond, but cannot adapt. They are too rigid. They cannot sense and adapt to market shifts. This is the basis of the drive to create market-driven value networks. 

Traditional supply chains are operationally disconnected and reactive to demand. Demand volatility and operational complexity require supply chains to become more resilient. Market-driven value networks begin with conscious choices that integrate and synchronize supply with demand channels and product portfolios. 

The concepts of bricks and supply are inextricably linked. Over the last three decades, the supply chain pioneers have carefully built supply processes from the inside-out. They are honed for efficiency. They are not honed outside-in. The concept of market-driven value networks is a dramatic change. 

Over time, organizations realize that supply excellence needs to be defined by trade-offs in source, make, and deliver. The answer lies in aligning these functions to actualize the business strategy. This realization typically happens in stage 3 of the market-driven value chain maturity model (see Figure 1.3) stimulating the development of S OP processes. 

Each technique is important, but they are not equally important for all supply chains. There needs to be a choice. While all are great concepts to drive manufacturing improvements, the question is. How to put them together And how do they fit within the road map to build a market-driven value network Should companies use these techniques to redefine manufacturing to be more responsive to both buy- and sell-side market demands The answer lies in understanding the rhythms and cycles of the supply chain and using these techniques to design the appropriate supply response. 

In the building of market-driven value networks, an important shift for leadership teams is to move from a focus on inventory levels to look at the form and function of inventory. Today, most companies focus on the level of inventory—how much inventory is the right amount—for their supply chain. The shift to look not only at the amount but also at the type of inventory requires a deepening of processes and technology. These shifts are outlined in Table 4.2. 

Each supply chain leader learned that strong horizontal supply chain processes are a prerequisite to drive success in building market-driven value networks. They need to be built brick by brick. This chapter is about their journey. Let s start with the most pivotal case studies ... 

From 1990 to 1998, in the early phase of supply chain evolution, the supply chain pioneers focus was on the development of vertical processes. It was a zealous focus on optimizing vertical silo processes of make, source, and deliver. As a result, there was little cross-functional overlap and as a consequence, there was no way to orchestrate tradeoffs in supply chain execution. In the last five years, the focus on planning processes has shifted from vertical to horizontal. In addition, from an inside-out (within the organization) to an outside-in (from the external markets in to the organization) focus. Both of these shifts are fundamental to the building of market-driven value networks. 

Supply chain excellence has evolved. The definition has morphed from the efficient supply chain to a market-driven value network. Today, the concept of a market-driven value network is largely aspirational. It is a new goal. As supply risks and costs have grown, companies realize that a demand-driven approach is not sufficient. The focus needs to be about more than the channel, instead, the supply chain needs to be driven through strong horizontal processes bidirectionally from market to market. Accomplishing the goal requires a redefinition of both buy-side and sell-side processes, and the use of new forms of analytics to sense, shape, and orchestrate bidirectionally market to market. 

As companies move forward in the definition of new processes, they will quickly realize that their supply chain systems are obsolete. Existing technology providers will fight this awakening, ft will be uncomfortable. Solving the problem is a revolution that cannot be tackled as an evolution. To build the effective market-driven value network, the supply chain will require a redesign. 

With the introduction of these new manufacturing techniques, co-location will become the norm. Supply chains will shorten, become more intricate, and new forms of networks and relationships will emerge. Market-driven value network will become a business differentiator for leaders and an Achilles heel for laggards. 

Performance-based pricing Basing prices on value to the customer, not necessarily what the product costs. The supply chain can influence value to the customer. Applies specifically to innovative products as opposed to functional ones where prices are cost driven in competitive markets. 

Figure 9.5 A schematic outline of the wine industry s value chain. In a globalised economy in which quality is defined as sustainable customer and consumer satisfaction, it is important to most producers to anticipate market trends and changing consumer preferences. A paradigm shift from a supply-chain approach to a demand-driven one has occurred over the past decade...

Consider a computer manufacturer that makes two types of computers. Assume three customers with willingness to pay (WTP) of 1,500, 1,800, and 1,900. As the total demand of these three customers exceeds supply of two computers, the manufacturer will increase price until the customer with the lowest WTP is driven out of the market. At that point the price of the computer will be set to 1,500. At that price point the value created for the remaining two customers will be 300 and 400, respectively. Assuming the manufacturer procures parts from suppliers at 1,050 for each computer, the manufacturer obtains a value of 900 =2 (1,500 — 1,050). Assuming the suppliers cost of producing the parts equals 500, the suppliers value equals 1,100 =2(1,050 — 500). The total value created in the supply chain is 2,700 (= 1,900 + 1,800 — 2 500). Thus, value is created for all three parties 700 for customers, 900 for the manufacturer, and 1,100 for the supphers. Obviously, if the manufacturer could negotiate a lower... 

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