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Outside Inside Thinking - Blog 4
February 15, 2007
Is the Supply Chain a viable method for moving products in the twenty first century? It was developed so long ago, I am not sure anyone can pin point the exact beginning. The chain represents a linear process that moves raw materials and resources from extraction through a manufacturing capability through logistics and warehouses to an end user.
The traditional supply chain is like an old fashioned audio or video tape. You have to start at the beginning and move to the end in a prescribed way. There are no short cuts, although you can speed up the process.
Then we went from tape to discs to CDs and DVDs and finally to MP3 players. Now you can get to any point of the recording at anytime. Why can’t we figure out how to do the same with our supply process?
One reason is that it scares many people in the industry. The word “disintermediation” jumps to mind. What if we could go around distribution? Could it be eliminated? Can we buy direct?
Of course the answer is yes. In some industries, where distribution added no value other than sending an invoice, it has been eliminated. The new world will no longer tolerate actions that add cost but not value.
Distributors that expect to survive will need to have a value proposition that can be justified by the customer. It may be supporting a “Just In Time” operation by keeping stock close at hand and delivering it as needed. Some users will pay for a middle man who will purchase product in manufacturer’s quantities, but repack and ship in smaller user quantities. For some customers, the value will be engineering and support. There may be components of training and safety education. Rental, repair and support are other value added capabilities.
In each case, it is important to know how to measure (quantify) the value so it can be justified. Be prepared to break down what you do into measurable functions. It is the only way to survive in a random access world. Then you can run your business to deliver value for a fair price. It is the way of the future.
Posted by Steve Epner on February 15, 2007 | Comments (3)
In response to: Outside Inside Thinking - Blog 4
Vatsan commented:
While I concede that you have made an interesting proposition, I have a few thoughts. Firstly, the analogy to CDs/DVDs etc - while it is possible to reach and stop and play from anywhere, it doesn''t necessarily make sense all the time. Hence, even to make sense from somewhere in-between, there ought to be a starting point, and therefore, an end point too. Secondly, value proposition versus cost-benefit analyses is an old hat, and needs a fresh thought. You merely seem to echo the age old thoughts on this aspect, without any concrete proposal. Finally, with the increasing security regimes impacting almost all aspects of trade, this is bound to have a deleterious effect on mere value addition proposition. The more intrusive these regimes are, the more it will affect the bottom-line without commensurate value addition.
In response to: Outside Inside Thinking - Blog 4
Terry Rainwater commented:
Vatsan said a lot. The company I retired from after 34 years did in fact add value. However, in most cases when quoting contract purchases which made up a large portion of annual sales, the final decisions our largest customers made were mostly based on which distributor offered the lowest price and who made the most friends, not the real value.
In response to: Outside Inside Thinking - Blog 4
Steve commented:
Thanks for the comments. I am glad to know these blogs are being read. I try not to use old thoughts, but also to make the ideas easy enough to have a good discussion. The idea of using CDs and DVDs as an analogy does seem to work. There are proposals out there to eliminate more of the non value added efforts and just like the CDs, we will find that technology will let us do things in ways we never thought possible. Terry is right, too many customers only look at the bottom line. How many of us have ever spent time showing them the true bottom line? Do we withhold services as a way to reduce costs? No, most distributors say “I cannot because of the competition.” When I test many of those claims, I find they are incorrect. The competition is not offering some of the extra services which allow them to charge a lower cost. If you tell a customer a service is free, it is worth exactly what they paid for it. Make sure your customer knows what you are doing for them. Put a price on everything. Give them a discount or rebate to reduce the cost if you must, but do not let the value of your service be zero.