Influencing Value Movement Through the Supply Chain
Industry Week recently ran an interesting article by Daniel Flint, Professor of Marketing at The University of Tennessee about moving value through the supply chain. The article, which starts off by noting that it's not just value that moves through the supply chain, but perception of value, notes that you have to deal with both if you want to influence value movement through the supply chain.
Furthemore, the author is correct when he notes that value management begins with understanding that value is in the eye of the "customer" and not inherent in any product, service, or system. If you don't understand what the customer wants, there's no way that you can provide value. Although a significant amount of research states that all customers value functional benefits, relational benefits, service benefits, and brand reputation and that they evaluate each distinctly, they also evaluate both the monetary and non-monetary sacrifices, which includes the difficulty of doing business with a vendor. Thus, in order to move value, a company must constantly improve the value perceptions immediate and downstream customers perceive they are getting. After all, customers are constantly refining their interpretations about the value of specific products, services, and relationships.
So what can you do to influence value movement throughout the supply chain? According to Daniel Flint, you can:
- Start by operating under the assumption that your competition knows 10% more than you do.
Dig deep and outwork your competition. - Then assume the most critical aspects of the desired value propositions are changing 10% faster than your current nightmare.
And do your best to stay ahead of the game. Be vigilent for opportunities to influence changes in value perceptions anywhere along the supply chain. - Ignore emotional bonding through superior brand management at your own peril.
Quality is critical, but ultimately, it is emotional bonds that solidify customer relationships and facilitate higher margins. - Develop relationships that enable significant and frequent information sharing.
You'll need the help of your supplier chain partners to succeed. - Learn by thinking out of the box.
Don't hire only from within your industry. Top talent from outside can also help you find the way.
Yes - perception of value. I am constantly amazed by CPOs who fixate on the facts (savings, avoidance, spend under management) and ignore what people BELIEVE the value of their procurement organization is. You gotta go out, take the pulse, and sell value.
His last suggestion is one I find most valuable. Remember Kurt Vonnegut's "granfalloons?" Def: "A proud and meaningless association of human beings." Too often I see executives hire people who are just like them - from the same school, the same previous companies, the same old mentality. While they try to surround themselves with images of themselves - they miss the oppportunity to grow with people who have different ideas, values, and - heaven forbid - the nerve to disagree.
By no means am I saying that the facts are not important -- especially where spend under management, savings, and cost avoidance are involved. They are very important, and their constant improvement should be one of the fundamental goals of every procurement organization.
What I am saying is that procurement's value is not limited to simply spend metrics. A good procurement organization can bring value beyond that -- especially in the areas of better operations management and innovation.