In our last post we reviewed some of the key questions for each step of the seven step program designed to get a company on its way to VFS, as described in the CAPS recent report on Linking Supply to Competitive Business Strategies. When these questions are answered, an organization will have identified one or more target markets, primary categories, key products, key suppliers, VFS strategies for the categories, products and markets (w.r.t. the supply base), VFS goals, and VFS levers.

However, before an organization can answer the key questions, it needs to understand the issues involved as this will make the difference between good choices and bad choices. In this post, we will outline some of the key issues for some of the key questions to insure that an organization embarking on a VFS journey as part of their Next Generation Sourcing effort heads in the right direction.

1. Understand Customer & Supplier Markets
   • The VFS team needs to dive deep into each category. For example, knowing that cell phone sales are on the rise isn’t good enough. Burner phones or smartphones? iOS, Android, Windows 7, or Blackberry? The ones that integrate with Facebook, Twitter, or both? When a category is on the rise, it’s usually a small set of products, and, in particular, products with certain feature sets that are causing the surge in demand.
   • Then the team needs to ask if those products are satisfying all of the customer desires or only part of them. Maybe the users want more than a built-in Facebook app. Maybe they want an app that will integrate Twitter feeds, Facebook wall feeds, and other Social Network messaging feeds and group them by contact.
   • Then, once a need has been identified, the team needs to ask if one or more of the organizational suppliers has the capability to assist the organization in the innovation if the organization doesn’t have the skills in-house. If there are no app developers on staff and all of the organizational suppliers are hardware only, then the organization would have to acquire a new set of capabilities or new supplier to either develop the apps the users want or the platform and API to support third party apps.
   • If the organization expects this category to considerably increase sales, does it have access to the raw materials necessary to make more smartphone handsets and the development resources to build and support the software?
2. Identify Directional Changes
   • Look beyond market share to market trends. For example, iOS phones may be commanding a majority market share in the smartphone market, but Android sales are now exceeding iOS sales and Android may be the dominant platform by the time a new smartphone is designed and released.
   • But maybe instead of developing a new phone, the organization should be developing a new pad. Pad sales are expected to skyrocket, and the fact that so many companies are planning to release Android pads indicates no one has figured out what is going to conquer the Android pad market. And maybe the real key to success is a pad that could support Android apps and Win 7 apps through a hardware VM.
   • Apple has locked up over half of the touch screen supply, limiting the potential supply base. Can the organization lock up enough supply to meet expected demand and/or identify a new supplier who could manufacture touch screens, with investment and support, if the organization decided to try and increase its smartphone or pad market share?
3. Link Insights into Directional Changes to the Business Strategy
   • Is the business strategy greater market share or greater profit on existing market share? If it’s the first, the strategy will be to go after the greatest demand at a lowest common denominator. If it is the latter, the strategy will be to dominate a niche market that demands higher prices at current volumes.
   • Once the market share strategy is determined, it will be important to select the categories and products with the best financial outlook that fit into the market share strategy.

Our next post will highlight more of the key issues that an organization must address to insure that it heads down the right VFS path.