Envisioning The Ideal Value Chain

Dec. 21, 2004
Optimal performance requires collaborative planning, focus on shared goals.
The PlanDEVELOPINGEarly Stage: Product development moves from silo structure to collaboration with other functions in the company; i.e., cross-functional teams. Next Step: Increased collaboration between R&D and sales field/marketing function brings "voice of the customer" into product development. Ideal Value Chain: Collaboration on product design and development among all value-chain participants. Enabled by Web-based collaborative modeling that allows manipulation; measured by product-development cycle time. PLANNING AND LOCATINGEarly Stage: Production forecasting and plant location and configuration based on historical market data. Next Step: Use of real-time data by OEM to forecast production. Ideal Value Chain: Real-time data used by all value-chain participants for collaborative planning and replenishment. Enabled by visibility and forecasting software; measured by forecast accuracy. BUYINGEarly Stage: Manual ordering via fax and phone; limited collaboration between buyer and suppliers. Next Step: Introduction of strategic sourcing, use of EDI, initial stages of collaboration. Ideal Value Chain: Supplier contracts based on mutual benefits rather than straight cost; sharing of benefits achieved through collaboration. Enabled by electronic transactions and exchanges; measured by leadtime on class-A purchased materials. MAKINGEarly Stage: Initial efforts made to tie input (materials) and output (finished goods) to actual demand in an effort to reduce customer leadtimes and inventories. Next Step: Full adoption of lean techniques. Highly skilled, empowered workforce continuously identifies and eliminates waste. Ideal Value Chain: Collaboration with other chain members and application of lean techniques to suppliers' operations allows the chain to respond rapidly in a continuously changing market. Enabled by software that allows visibility to all chain members; measured by cycle-time reductions, on-time deliveries, and productivity. MOVINGEarly Stage: Review of inbound and outbound functions; introduction of strategic-material movement. Next Step: Further collaboration with logistics vendor or function based on shared data from suppliers, producers, and sellers in the chain. Ideal Value Chain: Completely collaborative transportation system and concepts such as milk runs and cross-docking. Enabled by transportation-management software; measured by cost reduction. SELLINGEarly Stage: Increased communication and sharing of sales data with corporation's planning and production functions. Next Step: Increased collaboration with value-chain partners in the form of sharing forecast data. Ideal Value Chain: Transparent access to real-time market forecast and sales data among value-chain partners; connection of supply and demand chain by looping customer feedback back to R&D stage. Enabled by customer-relationship software; measured by market-share and sales growth. The GoalsCLARITY OF ROLES Each participant understands how its contribution enables the entire chain to perform at an optimum level. ACCESS TO INFORMATION Information sharing through multiple tiers of the chain gives all participants a clear view of marketplace conditions, including demand levels and inventory status. COOPERATION Companies work in tandem to maximize the overall competitiveness of the value chain -- including joint efforts to improve quality and delivery capability. CRITICA-PATH FOCUS The dominant partner in the chain -- sometimes an OEM -- coordinates efforts to improve the flow of critical-path components (those most likely to impact costs and production schedules). TIME COMPRESSION Participants reduce cycle times at each link in the chain -- from raw-materials processing to the shipment of end products -- significantly reducing cumulative leadtime. SYCHRONIZATION With rapidly cascading information flow and short leadtimes, production is closely synchronized with market demand. Result: low inventory levels throughout the pipeline. SPEED TO MARKET Integrated product-development programs dramatically reduce the launch cycle for new products. Joint efforts are facilitated by the use of standardized or compatible design systems. FLEXIBILITY When a product line -- or component mix -- changes, participants are able to reshape the value chain as required. Use of common IT systems enables quick integration of new partners. WIN/WIN THINKING Competitive initiatives create mutual benefits. If an OEM adopts a vendor-managed inventory strategy, it must involve more than simply shifting inventory-carrying costs to suppliers. OPTIMIZED LOGISTICS Coordination of materials movement is enhanced by up-to-date systems for shipments tracking and visibility of warehouse activity.

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