Executive Briefings

The Value Chain Symphony

Analyst Insight: A perfect performance means playing the right song for the right audience. This even applies to supply chain. When supply chain is one-size-fits-all, the orchestra falls out of tune, compromising quality to try to satisfy everyone. To deliver the best performance consistently, businesses need to prioritize customer demands through segmentation and synchronization. This reassembles supply chain to place customer needs at the core, allowing harmony between the business and customer. - Rodrigo Cambiaghi, Principal; Claudio Menegusso, Senior Manager; and Carolyn Dombrowski, Consultant, all with Advisory Services of Ernst & Young LLP

The Value Chain Symphony

Customers have differing expectations and often don't express their value preferences from a trade-off perspective. To deliver value, it is critical to understand optimal value mix and implied trade-offs. Knowing how they juxtapose reliability against promise, speed of delivery and flexibility to accommodate last-minute changes has a significant impact on how the operation should be configured. Understanding the customer voice across different regions and industries is critical in grasping the complexity of the customer base and what it sees as the real value offered by the supply chain.

Once you know what your customers are willing to pay, you might conclude that current state value proposition - which your supply chain is tuned for - does not match customer needs. This one-size-fits-all offering often results in supply chain not realizing its full potential or delivering mediocre performance relative to the competition. Supply chain segmentation allows for intentional prioritization of value attributes to 1) deliver the best value to the customer and 2) harness the natural capabilities of supply chain based on demand behavior. The key is defining the window of service that minimizes cost to serve while still meeting customer expectations.

Back-end supply chain segmentation, which is the value chain from raw materials procurement to final packaging and delivery, eliminates mixed messaging of conflicting goals, aligns supply chain strategy with demand type and is based on clarity of value proposition. Once a segmented supply chain has been fine-tuned to meet its optimal value mix, market desires are either met, or they aren’t. If met, value is maximized from the end-to-end supply chain without additional investment required. Both the business and customer operate as desired and marginal benefits are maximized.

But if market desires are not met, channel or channel partners can add value, translating between back-end segmentation output and front-end market expectations. Analysis between back-end segmentation and front-end market expectations helps define what value-add services a channel can provide to synchronize the end-to-end value chain.

Once the value proposition is clarified with the true customer value in mind, a full, end-to-end financial picture must be formed to visualize all financial opportunities. Divestment from areas the customer does not value will allow the business to focus on enhancing value-add activities, market growth and differentiation. This end-to-end, cost-to-serve capability - with deep analysis by each segment, channel or market - offers clarity on where you are investing to create value.

One-size-fits-all value chains cannot accommodate the needs of a diverse and evolving market in a cost-effective and efficient manner. Together, segmentation and synchronization enhance operational excellence, pinpoint right servicing and maximize financial benefits tailored to these needs.

The Outlook

In a world of increased customization, instant service and perfect quality, companies are striving to compete by focusing on the services that customers hold most precious. Designing the supply chain to deliver this value allows the business to achieve excellence with an intentional drive, providing maximum benefit not only to your customers and channel partners, but also to your business.

Customers have differing expectations and often don't express their value preferences from a trade-off perspective. To deliver value, it is critical to understand optimal value mix and implied trade-offs. Knowing how they juxtapose reliability against promise, speed of delivery and flexibility to accommodate last-minute changes has a significant impact on how the operation should be configured. Understanding the customer voice across different regions and industries is critical in grasping the complexity of the customer base and what it sees as the real value offered by the supply chain.

Once you know what your customers are willing to pay, you might conclude that current state value proposition - which your supply chain is tuned for - does not match customer needs. This one-size-fits-all offering often results in supply chain not realizing its full potential or delivering mediocre performance relative to the competition. Supply chain segmentation allows for intentional prioritization of value attributes to 1) deliver the best value to the customer and 2) harness the natural capabilities of supply chain based on demand behavior. The key is defining the window of service that minimizes cost to serve while still meeting customer expectations.

Back-end supply chain segmentation, which is the value chain from raw materials procurement to final packaging and delivery, eliminates mixed messaging of conflicting goals, aligns supply chain strategy with demand type and is based on clarity of value proposition. Once a segmented supply chain has been fine-tuned to meet its optimal value mix, market desires are either met, or they aren’t. If met, value is maximized from the end-to-end supply chain without additional investment required. Both the business and customer operate as desired and marginal benefits are maximized.

But if market desires are not met, channel or channel partners can add value, translating between back-end segmentation output and front-end market expectations. Analysis between back-end segmentation and front-end market expectations helps define what value-add services a channel can provide to synchronize the end-to-end value chain.

Once the value proposition is clarified with the true customer value in mind, a full, end-to-end financial picture must be formed to visualize all financial opportunities. Divestment from areas the customer does not value will allow the business to focus on enhancing value-add activities, market growth and differentiation. This end-to-end, cost-to-serve capability - with deep analysis by each segment, channel or market - offers clarity on where you are investing to create value.

One-size-fits-all value chains cannot accommodate the needs of a diverse and evolving market in a cost-effective and efficient manner. Together, segmentation and synchronization enhance operational excellence, pinpoint right servicing and maximize financial benefits tailored to these needs.

The Outlook

In a world of increased customization, instant service and perfect quality, companies are striving to compete by focusing on the services that customers hold most precious. Designing the supply chain to deliver this value allows the business to achieve excellence with an intentional drive, providing maximum benefit not only to your customers and channel partners, but also to your business.

The Value Chain Symphony