16 December 2018

Working Together for Value Creation

For any ambitious company or individual, it’s never a bad idea to touch base on the latest developments and thinking in your sector. This is especially true of a fast-growing company like MAG45 that aspires to be a pioneer within its industry. So with this in mind, we brought together a select group of supply chain professionals in October for a Round Table to discuss ‘Value Creation in the Supply Chain and Service Logistics’.

Edwin Dekker (NEVAT and FME), our Chairman for the day, reminded us of some of the uncertainties facing our industry right now. These range from geopolitics and climate change to human resources issues and new technologies. Some of these affect us directly, and even if they don’t, they may impact our customers and suppliers. Innovation is always key to creating value (however you define ‘value’) but it isn’t easy. You can’t buy ‘Innovation 2.0’ as a piece of shrink-wrapped software!

Can current supply chain models cope?
We heard a couple of academic perspectives. I think it’s fairly well agreed that for the most effective value-creating innovations you have to look beyond individual companies (and the silos inside them). According to Professor Koen Vandenbempt of Antwerp Management School this is particularly true now that customers see ‘value’ not just as a matter of meeting their technical needs and price points, but in finding a good fit with their business processes and strategies. So that is inevitably about creating some sort of partnership. He talked about firms climbing a ‘staircase’ together towards a shared destination of creating value.

I suppose there are lots of companies that create value for their customers, but don’t see too much of it for themselves. The question of who is in control, and who captures the value, worries Professor Henk Akkermans of Tilburg University and FME. Trying to balance the needs of customers and suppliers as well as the company’s various internal stakeholders isn’t easy, and then there are all the other interest groups that think they are entitled to a say, from government regulators to social media forums. His big point was that the supply chain models we have grown up with may not be ‘fit for purpose’ in the modern world.

Everyone agreed on the need for innovation to create value, but it isn’t simple – it takes people, time and money and those are in short supply. Innovation involves staff at all levels over a long time. Older, more senior people can ‘make it happen’, but it may be younger and more junior staff that are more receptive to change. Unfortunately they are also more likely to move on, and if, as someone said, a third of their personnel are on board for less than two years, that isn’t very helpful when a project with an external partner can take 18 months or more to come to fruition.

New times require new attitudes
We need new attitudes to working with suppliers. For all the talk about managing supplier relationships, I know there are still a lot of buyers and their companies who think the ‘proper’ way to manage suppliers is to beat them up on price, deal by deal.

And typically, of course, we deal with suppliers in isolation – to keep the market ‘competitive’ and prices keen it’s vital that suppliers don’t know what their competitors are doing. But here is a disruptive thought from the meeting – how would it be if suppliers were given real insights into each other’s performance – price, service and the rest? That could be quite beneficial – suppliers would discuss where they need to change or improve. They might understand more about what ‘value’ means to the customer (it isn’t necessarily just price). Equally, some suppliers may see that they can’t compete on the business and walk away, saving effort for everyone. It’s a thought.

We need strategies that look to the future, not just the current business. What can a buyer do to encourage or enable suppliers to make the sorts of innovations (in products or in business methods) that will come back to benefit the buyer, not perhaps now but some way down the line? Suppliers need to be involved early, and enabled to act fast. And of course it isn’t just suppliers that need to change – probably the customer needs to change and innovate as well. Communication (with suppliers, customers, end-users) is vital and the level of transparency can determine the success of a partnership. Should communication, even collaboration, extend even to competitors?

There are big question marks about how to select the right partners for collaboration, given that you can’t really have a deep partnership with everyone and that innovations are processes that may run for years, but many organisations aren’t well set up to work on innovation with external companies at all.

Edwin Dekker summarised the meeting like this: ‘conventional models are fast becoming obsolete, and there is a need for innovative, smart collaboration, even between competitors if we are going to continue to create value for everyone in a complex world.’

Keeping innovation front-of-mind
Obviously, any forward-thinking business is searching for ways to achieve value-creating innovation, and a day like this one is a great opportunity to hear how others are thinking and addressing the challenges our sector faces.

As one attendee said, “all the problems we face, someone else has already faced in a different way” or in other words, we may not need to re-invent the wheel. We heard lots of best practices and innovative supply chain concepts but the danger with sessions like these is that we get a snapshot update on current developments, and an all-too-brief opportunity for reflection and discussion… before then gradually forgetting the issues and insights as we plunge back into our hectic daily lives!