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Value Chain Management
Management is concerned with resource allocation and resource utilisation. When an organisation recognises the merits of value chain thinking and comes to terms with the (resource allocation and utilisation) consequences of embracing the paradigm shift – from supply chains to value chains - the question arises: ‘what should it be doing differently?’
We define Value Chain Management (VCM) as:
the collaborative allocation and utilisation of resources within and between businesses in the value chain, the purpose of which is to improve the competitiveness of the value chain as a whole…through process improvement for existing products/services beyond business and the development of new (value added) propositions for distinct customers and targeted consumer segments.
The key elements of this definition are the focus on:
- collaboration – VCM cannot be done alone
- whole of chain – it is only worth doing if the benefits are shared
- targeting distinct consumer segments – resources are invariably too scarce to be scattered
Enablers
There are four key enablers for value chain management, namely:
- strategic alignment – collaboration is not feasible unless all parties are pulling in the same direction
- supply chain transparency – this relates to the efficient (low cost) and effective (speedy and relevant) flow of information to all parties in the value chain, without which too many decisions will be taken ‘blind’ leading to inappropriate allocation and utilisation of scarce resources
- open relationships – trust, commitment and inter-dependence are key success factors that require fundamental changes in the way organisations and people interact
- customer and consumer insights – the customer is the gatekeeper, whose needs must be met if market access is to be maintained, but consumer insight is the key to sustainable competitive advantage as without it buyers and suppliers fall, sooner or later, blindly into the commodity trap.
The proportion of businesses practising this is small, wherever you look. This is testimony to the scale of the task but also indicates that there are significant first-mover advantages to be captured.
It is important to stress that VCM is a business philosophy that businesses, individually and collectively within a chain choose to do and cannot be imposed from above by industry associations, government agencies or regulators. But all organisations (large or small, public or private) can benefit from the application of value chain thinking – using scarce resources more efficiently and effectively by focusing on the target market, whatever, whoever or wherever that may be.
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