Turning Your Supply Chain into a Value Chain

February 21 , 2006

Last week we discussed Competitive Supply Chains composed of your suppliers, you the producer, and your customers. In order to maximize your competitive advantage you need to strengthen your whole supply chain (the extended supply chain) and turn-it into a value chain.

This week we will look at the steps to creating a value chain out of your extended supply chain.

Who Is On Your Extended Supply Chain?

In basic terms, your supply chain consists of your suppliers, your customers and of course, yourself—the producer. Your extended supply chain adds your supplier’s supplier and your customer’s customers to the SIPOC diagram to create your extended supply chain.

Magic of Extended Supply Chains

Why is your extended supply chain so important? Because by understanding the extended supply chain we increase our overall understanding of value, which in turn leads to proactive measures and preventive action.

A supply chain is a series of links. When we focus on the link in front of us then, at best, we can only take a reactive approach to problem solving. But, if we focus on the links farther down the chain then we can increase our reaction time and become proactive. So, to help your supplier react better to your needs, you need to include your supplier’s supplier and introduce your customer to your supplier.

To help your actions as a producer you need to understand what your customer’s customer is doing with your products and help your suppliers to understand them too. Notice this is not about logistics within your supply chain. It is about creating relationships and understanding in order to become more proactive, preventing waste and increasing your supply chain’s reaction time, as a supply chain. Once this happens you will no longer have just a supply chain but a competitive value chain.

Strong Bonds of Value Chains

Converting supply chains into value chains is a powerful strategy. Supply chains consist of weak bonds and can be broken easily by a new supplier. Value chains are made of strong bonds and are harder to break. Price alone is insufficient to break the supply chain. Every supplier is an investment of time and money to build the relationship and strive for continuous process improvement.

How many times have you gotten a lower price from a potential supplier only to find out later that there were a number of “unknown” factors that influenced that price? Once all of the unknowns are known, is the price really lower?

If the price is lower, then do you cut and run from your old supplier or do you work with your old supplier to improve their process to deliver the lower price? After all, you have invested a lot of time with your suppliers, built a solid relationship and you know each other pretty well by now. Starting over with a new supplier is a whole new learning curve.

Building Value Chains

Leading Value chains or proactively managing your supply chain is the future. How do you get started? Here are a few ideas to building your Value Chain:

Develop a supplier quality manual describing your supply chains requirements.
Hold a supply chain event to introduce the members to each other.
Conduct regular supplier audits to provide feedback on the quality systems.
Meet regularly with your supply chain to discuss preventive actions.
Meet immediately with your supply chain to discuss corrective actions.
Provide regular information to your supply chain on how well you’re doing.

This week we have discussed how Extended Supply Chains – composed of your suppliers, your supplier’s supplier, you the producer, your customers, and your customer’s customer – increase yourproactive capabilities. In order to maximize your competitive advantage you need to strengthen your supply chain and bring your extended supply chain together as a value chain.

To learn more about implementing continuous process improvement within your organization attend the next improvement class How to Align a System of People and Processes for Results . Learn How to Create Well-Defined Processes and to document processes. ISO 9000 Quality Auditor classes are forming now for Internal Auditor or Lead Auditor. Call for information on having your own private in-house classes today.