Beyond The Supply Chain

Dec. 21, 2004

How's your value chain doing in the current uncertain economic climate? More importantly, what are you doing to leverage efficiencies within your value chain to help weather economic storms now or later? Congratulations to those readers already familiar with the emerging concept of value-chain management. For those who aren't, take note: It's about to become one of your most pressing strategic concerns, as manufacturing evolves from vertical to virtual integration. In simplest terms, a value chain is the entire production process of a manufactured good from beginning to end, regardless of which firm owns any particular value-adding step. The value chain encompasses not only your suppliers and your suppliers' suppliers, but your customers and your customers' customers as well. Value-chain management, then, is an operating strategy that emphasizes linking your organization with others in the value chain to create extended enterprises far more agile than any one firm could ever be. These linkages go beyond traditional customer-supplier relationships to encompass shared planning, inventory, human resources, information-technology systems, and even corporate cultures. Value-chain management differs from traditional supply-chain management in two important ways:

  • Because value-chain management analyzes the entire production process regardless of ownership, individual firms can better determine what they do best, outsourcing noncore operations or assuming additional production responsibilities previously performed upstream (by suppliers) or downstream (by customers).
  • Because value-chain management includes customers at all levels, it creates additional opportunities for serving them, as once-isolated segments of the production process begin to communicate needs and requirements.
Value-chain management -- and the resulting appointment of value chain officers (VCOs) at firms around the world -- will dramatically change how manufacturing companies operate. The plant floor will feel this transformation first, in three ways:
  • Value-chain partners will insist upon visibility and transparency in each other's plant operations. You cannot run an efficient virtual manufacturing company without direct access to unprecedented levels of data and financial information.
  • The sheer volume of shared data and the pressure of lean-manufacturing practices will drive enterprise integration among value-chain partners via information technology. Manufacturing software increasingly will accommodate upstream and downstream value-chain partners as a routine function.
  • Markets will begin to develop keiretsu-like competition as company-vs-company battles give way to value chain-vs-value chain wars. For individual companies the choice of value-chain partners may become more strategic than the choice of specific products or markets, as the most integrated value chains out-innovate and out-produce their competitors. How's your value chain doing?
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