By Debbie Depp
If your company is like most, substantial profits are waiting for you in places you’d least expect. Take, for example, all those everyday activities commonly called the supply chain.
Whether your company is a fledgling dot-com or a seasoned veteran, enormous new value is waiting to be unlocked in the operating end of your business. How you handle orders, source components, build products and get them to customers are all opportunities for you to generate additional income and value for your company. The key, according to David Bovet and Joseph Martha, authors of Value Nets, is to adopt an entirely new business design called the value net.
A value net is a fast, flexible system aligned and driven by customer choice. It is a dynamic, high performance network of customer and supplier partnerships and information flows.
A value net begins with customers and builds to satisfy actual demand. It is nothing like the old supply chain theory, which relied on manufacturing products and pushing them through distribution channels in the hope that someone would buy them.
In fact, a value net is not about supply; it is about creating value for customers, the company and its suppliers. The value net replaces the sequential links of the supply chain with a network of two-way customer/supplier relationships.
Combining strategic thinking and recent advances in supply chain management, the result is a flexible system that is driven by customer choice, not the company. This customer-driven system – with a mindset focused on value creation, not supply – replaces the traditional supply chain business design that fails to deliver the exceptional convenience, speed, reliability and customization that today’s customers demand.
This means companies need to change. Specifically, they need to rethink:
- How they choose among different types of value propositions – service, convenience or customization
- How they define the scope of the business design – which activities need to be performed, and by whom, to deliver the value proposition
- How they capture profit
- How they gain strategic control to keep those profits coming in
- How they execute the transformation from transactional relationships to enterprise relationships
When I ask executives this question, I commonly hear, 'The sales force communicates the value of our offering'. In other words, according to these professionals, the job of the salesperson is to explain the features and use of a product or service. In fact, they do just that! Since over 50% of training budgets are targeted on products, salespeople are automatons of features and function… ‘this is, it does, how many do you want?’
It’s sales as the ultimate talking brochure.
Like the Supreme Court’s ruling in Bush v. Gore, most value propositions are masterpieces of convolution. Companies use circular reasoning around what they think is important, rather than aligning with the customer’s perspective.
To transition relationships from transactional to enterprise, customer interaction must shift from product communication to value creation. No organization can survive if it doesn’t find a way through its products and services to create value for customers. Every function in the organization, from product design to after-sales service, must be focused on giving customers what they want and need.
The first step in value migration is customer-centric analysis. Ask yourself:
- Where does the customer fall in the value equation – transactional, consultative or enterprise?
- What specific selling strategy fits the customer?
- What value do you create with each selling strategy?
- How do you redesign the sales process to accommodate customer-buying patterns?
- What changes do you need to make in your sales force to executive the right selling strategies?
- What sales channels can best accommodate customer needs?
Today, every market is crowded with competitors, each striving to build the ultimate mousetrap. As a result, products and services are becoming commoditized.
So, what must a company do to create value? Since businesses are under tremendous pressure to lower their costs, one way is to reduce the cost of the product. Suppliers must find a way to help.
There are other value-creating opportunities in the business-to-business arena. How easy is the product to acquire? Can it be customized to the customer’s needs? What support comes with the product? Will it help customers reduce lead-time, time-to-market, inventory requirements?
Remember, customers buy for four reasons:
- To minimize their risk
- To increase their revenue and decrease their costs
- To increase their productivity
- To improve their competitive advantage
What’s the reason that customers should buy from you? Different customers want different value. The goal of the sales force is to discover these and other value-creating opportunities that best fit the needs of its customers.
A company can grow if it has a powerful and appealing value proposition. Profitable revenue generation is driven by the ability to provide super service and convenient solutions.
On the cost and asset side, value net designs drive profits through magnitude reductions in inventory, extremely efficient operations processes and the ability grow rapidly with limited cash for working capital or fixed asset investments.
Unless you execute, nothing else you have done to create value will work. You will have to create a breakthrough culture with leadership vision and customer focus. Adopt simple and clear goals to drive successful performance. Take full advantage of digital technology to communicate with customers and suppliers. Then, unlock those hidden profits!
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