What is in this article?:
Companies with mature supply chain and risk management processes have a greater proportion of on-time deliveries than other companies. But they also perform better on every other measure as well, financially as well as operationally.
Do you understand all your customer value propositions, and the risks to each of them in your supply chain? Companies that perform better than their competitors—financially and operationally—know they have not one but many supply chains. In a diverse global market, each supply chain serves a different group of customers, and that’s why it’s necessary to identify, segment and manage risks accordingly. Companies that do this can prioritize their resources to protect the value they offer to their most profitable customers. As a result, they not only survive supply chain disruptions, but stand out from their competitors—even in the harshest of storms.
The Value of Knowing Your Value
This strategy works across industries. Take a technology company that sells high-end smartphones. The value proposition in this case is innovation and the ability to bring out new products before copycat ones appear. It’s difficult to predict what will hook customers, so the forecast risk is high. Price risk is also high, since there’s a great deal of competition in this market—another company might price its innovative new product lower. And finally, supply risk can be high, because overall demand on the supply base may exceed capacity. This creates risk throughout the supply chain; for example, the company’s suppliers could face demand swings and unanticipated competition for essential raw materials.
To protect its value proposition to customers, this company will do well by using flexible risk-sharing contracts with suppliers. If, however, the same company also sells standardized networking equipment to another group of customers, its value proposition to them would be based on cost. With lower forecast risk and price risk, it could manage its supply chain better by focusing on its inventory strategy.
Different Types of Value Proposition
What do your customers value most from you? This table shows different customer value propositions and their link to the supply chain.
Today’s companies have multiple brands and operate in several segments. That means, in effect, you have several different value propositions—and several supply chains. For each proposition, you need to look at the risks in its supply chain that could adversely affect your ability to deliver the value your customers expect.
Many companies, even those with relatively mature supply chain capabilities (for example, more collaborative relationships with their suppliers and flexibility to respond to changes in the value chain), haven’t taken the next steps in assessing the risks to their different value propositions.
Our recent PwC-MIT survey found that more than 40% of companies with mature supply chain capabilities don’t take a risk-segmentation approach. Those that do, however, are rewarded. After a disruption to their supply chain, only 32% of risk-segmenters had a significant fall in sales revenue, compared with 70% of non-segmenters.
The Payoff from Risk Segmentation