Over the last year, I have had the opportunity to discuss value chains, products, and challenges with many small & medium businesses. Coupled with my years working in high-tech supply chains and my discussions with MBA students on the need for companies to focus on the value chain these experiences have afforded me the opportunity to think about the key takeaways on managing value chains for small & medium businesses.
Here is a brief guide to the 12 essentials of managing the Value Chain:
1) Understand your customer (aka value chain management): A lot of times value chain professionals will forget about what the customer’s needs are and leave it up to the marketing and sales departments to take care of it. The key part of value chain management is to understand the end customer within the marketing channel. How will the customer want to receive the goods or services? Will special packaging be needed or will the item be displayed on store shelves?
The customer is the key ingredient on ensuring an effective supply chain. This is why “Value Chain Management” is slowly replacing the term supply chain management. If the customer is forgotten in the supply chain you might as well get rid of it.
2) The supply chain matters a lot: Often the supply chain is left to the last possible minute during product designs, marketing programs, and customer meetings. Don’t forget that the product still needs to be designed, built, and shipped or served to the customer if the company is going to make money. If your business is, a service company ensuring employees and inventory to get to the right place at the right time are key. The supply chain matters! Many tools can help in this area. A great project management tool for small and medium business is Zoho Projects that can be integrated into Zoho’s CRM (Customer Relationship Management).
3) Understand your product, service, or technology: One often hears in value chain management that it is really about shipping or selling widgets, and one widget is no different from another. This urban myth is far from the truth. Some items may need to be refrigerated, other products may require special care and handling while some services may be digital. Understanding your product, service, or technology is key to creating a successful value chain.
4) Get out of the office: Don’t just stay at your desk to manage the value chain. Get out and see it. Ask questions. Learn from others who have managed value chains before and visited the marketing channel, factory, and suppliers. If possible, follow the product from raw material, through logistics, to the final customer. You will learn a ton.
5) You need to negotiate: Negotiating is key to value chain management. Cost, quality targets, SLAs, and KPIs all need negotiations around the terms. If you want to be successful in value chain management, you need to become a good negotiator. Some practitioners are naturally gifted at negotiations, but a larger number of value chain professionals need training and constant practice. Leverage is not always about the amount of spend you have with the supplier. It is also measured in predictability, brand value, and the ability for the vendor to diversify in other markets.
6) It is not just about cost savings: Although costs are necessary, it is not just about delivering great cost savings. Other factors include the quality of the product, the value of the business that the supplier, buyer, and end customer derive from the service, product, or technology, and ensuring the right amount of inventory is in the right place at the right time.
7) It is about the People: There is a lot of buzz today about the automation of the value chain. In the end, however, the value chain still comes down to relationships and people. Tools and systems will get better over time but even with the complete automation of the supply chain, people are still needed to make things happen, improve the system, and fix things when they break.
8) Value the relationships for the long-term: Supplier relationships should be treated as long-term relationships. Fair practices, fair dealings, and fair awards will ensure the reputation of your company remains intact. Treat both the buyer and seller with respect and honesty. Don’t overcharge, treat both parties like family.
9) Use the data to make decisions, not your emotions: In the past I have seen many decisions on value chain optimization and strategy made strictly on emotions. This is a large mistake. Always look at the fully burdened and landed costs. Never just assume something is a “great” deal or opportunity because everyone loves the new supplier. Look at the data. Look at the facts. Remove emotions out of the decision-making process.
10) Limit the risk: The “Achilles’ Heel” of the value chain is that it can quickly be disrupted through natural disasters, acts of war, environmental issues, and industry-wide shortages. Prepare for the worst but proactively limit your risk through second sourcing (which is key), auditing environmental and social compliances, and creating inventory plans that ensure continuity. Also, watch out for the second and third tiers of your supply chain, which can quickly bring a value chain to a screeching halt.
11) Keep an eye out for disruptive trends: Value chain management cannot be done in isolation. Industries shift, trends change, media hype comes and goes, and customers go elsewhere. Watch the trends and modify or change or even disrupt your value chains strategy in new directions, so you do not get left behind.
12) Embedded sustainability is the key: There is much talk nowadays on sustainability especially from the PR departments of companies. To make real progress in sustainability (defined as balancing the needs of Plant, People, and Profit) a company both big or small must embed it into its everyday operations and DNA. Otherwise, it becomes only a marketing promotion and is not part of the core of the company. Every worker must embrace sustainability, and it needs to be within every function and operation of your company (from audits to supplier award selection, to product design, to how external stakeholders are treated fairly). The great thing about being a small or medium business is that you can embedded sustainable practice from the start. For helpful information on this see the B Lab guidelines.
Over the last year the below additional key value chain points have come up from colleagues and blog readers:
- Importance of understanding different cultures in international relationships
- Understand the entire business process end to end and how the value chain affects this process
- Monitor the multiple tiers in your value chain
- Watch capacity and constraints so you can handle upsides in customer demands without concern
- A positive attitude is key
- Hard skills and soft skills such as leadership are important
- Get involved and be hands on in solving problems as part of the value chain team
- Ensure your value chain is tied into your communication channel
All, great suggestions and feedback from past readers.
Good luck on managing your value chains! Don’t forget the above 12 essentials and feel free to leave your own in the comments. Also, please reach out at anytime to discuss your value chain and how I can help with your small or medium business. My direct email is firstname.lastname@example.org.
Payson Johnston is the CEO & Co-Founder of Agora Intelligence, Inc., a mobile-first e-commerce company helping sellers, buyers, and the community Come Together to Buy, Sell, Share and Give.
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