VFS Level 3: Create Tomorrow’s Value

Today’s post continues our exploration of the four levels of Value Focussed Supply (VFS) as put forward in a CAPS recent research report on Linking Supply to Competitive Business Strategies and the holistic approach put forward by CAPS to get more value out of your Supply Management Organization.

The next level of VFS, after current value has been maximized, is to create tomorrow’s value to insure that the Supply Management organization continues to deliver value year after year. Again, SI is in full agreement. The Supply Management organization must deliver value year after year, and the best way to do that is to start creating tomorrow’s value today.

So how do you increase current value? According to CAPS, the organization must continue its focus on the four critical components of the balance sheet — revenue, cost, assets, and intangibles — and find ways to take the improvements to the next level. At this level of VFS, this means that a company would:

  • Focus on Obtaining a Strategic Flexibility Advantage
    by leveraging supply base capability for competitive advantage like Comco did to eliminate the need for an entire sub-component
  • Optimize Costs Along the Value Chain and Rationalize Value
    by leveraging supplier knowledge like HiTech did to co-develop a brand new component and bring a product to market a year ahead of the competition, and by improving the value-to-cost ratio via value engineering and analysis
  • Tailor Assets to Markets and Rationalize Assets Along the Value Chain
    by identifying customer needs and creating unique value like Apollo did when it created packaging to unify the adoption of a consistent look-and-feel for a new entertainment product, by eliminating duplicate assets, and by outsourcing or insourcing assets to achieve scale or competitive advantage
  • Support Sustainability and Leverage Intellectual Capital
    to increase the value of the brand for years to come like Healthifood did when it utilized the intellectual capital of the supply base to design equipment for local markets and cut NPI by 25% (while considering full life-cycle costs in new equipment from a sustainability perspective that included water and energy utilization)

SI fully agrees with these recommendations and believes that CAPS is on the right track with these recommendations. The only things it would add are:

  • Strategic Flexibility
    adopt an ongoing focus on component and SKU rationalization — the fewer distinct products there are to manufacture, the easier it is to be flexible with scheduling
  • Optimize Costs
    make utilization of strategic sourcing decision optimization and supply chain optimization solutions part of daily operational life
  • Rationalize Assets
    and rationalize the supply base at the same time — if there are too many suppliers with similar assets that are under-utilized, it might be time to trim a few suppliers or get a few new ones
  • Support Sustainability
    consistently look for new sources of supply that are less harmful to the environment or (more) renewable (than current raw materials)

Now that tomorrow’s value has been created, an organization can focus on moving on to the final level of VFS, which is the subject of the final post of this week.