supply value chain analysis

8/4/2019 Supply Value Chain Analysis

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Category Management Toolkit

Supply Value Chain Analysis


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Supply Value Chain Analysis Summary

What is Supply / Value Chain Analysis?

Supply / value chain analysis is the systematic mapping and analysis of the physical

commercial and cost linkages that exist in supply chains; aiming to identify the value

added components of these inter-relationships that can exist in a supply matrix.

Use of this analysis will assist in identifying leverage points in the supply chain and help to

identify where the areas of risk in the supply chain exist. Addressing these areas will

ensure maximisation of value for mony

Where does it fit in with Category Management? Internal & External Data Gathering

Identification of opportunities and options generation

Strategy development

What is included in this guide? Application of Supply / Value Chain Analysis

How to create a Supply / Value Chain

What is the Purchasing Value Chain?

Which processes does the tool apply to?

Demand Management, SRM and Strategic Sourcing

Which other tools link to this guide? Supply Market Analysis

Value Stream Analysis

Activity Analysis


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Supply Value Chain Analysis

Application of Supply / Value Chain Analysis

Supply and Value Chain Analysis enables you to identify critical points of commercialleverage in a supply chain. From this understanding of these control or influence points,you can then identify opportunities for introducing greater control and management intoboth upstream and downstream supply chains, aiming to introduce strategic purchasingmanagement into supply markets.This is important because the heart of strategicprocurement is the notion of creating competitive advantage for your own organisation byproactively managing suppliers and supply markets.

Supply and Value Chain Analysis is one of the key analysis tools which facilitates a betterunderstanding of the dynamics of supply markets to ensure that you identify opportunitiesto control them.

How to create a Supply / Value Chain

Every team responsible for the creation of a category or commodity strategy and sourceplan should create a Supply and Value Chain Analysis as part of the information gatheringprocess.

Here is a simple process to create such an analysis:

Step 1: Construct a simple linear supply chain

Use your own knowledge of each link in the chain and create a flow diagramConstruct it for a major area of responsibility/product or supplier

Rawmaterialsu

Componentsupplier

Yourorganisation Customer

lier


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Step 2: Create a detailed Value Chain and add costs for each stage.

Grown locally: wild and cultivat

Can it be cultivated elsewh

controlled conditions?

Picked locally, dried, loose baled.

Bought for market and shipped.

Bought as the agent or on betrader.Can this stage in the chain be bLittle value added; tends to speculmarket.Responsible for buying, cleanishipping.

Prime contact: how can he beeffectively, and/or replaced?

Often poor conditions and li

Used as required.

Vulnerability since often restri

available.

Must approve, cost and is

Moves material sporadically.

Steps 7 12 all provide op

improvement.

Takes a percentage for little effort or ad

value.Takes a percentage for littlevalue.

Steps 13 and 14 could be

Traditionally, has only been inStep14.Scope for renegotiation of tranScope for improvement in factor

ed.

ere under more

half of the export

ypassed?ate in the

ng, baling,

managed more

ttle control.

cted sources

sue licences.

portunities for

ded

effort or added

scrapped.

volved from

sport rates?

y utilisation?

1. Natural Cro

4. Local Trader

3. Local Bu er

2. Local Collectors

5. Local Stockist

13. Euro ean Intermediar

7. Sub Contract Stores

8. Sub Contract Trans ort

9. Sub Contract Balin

10. Banks

11. Government De ts

12. Shi in Line

6. Ex ort Trader

14. A ent

15. Bu er

16. Local Trans ort

17. Factor O erations

Components of the Chain Comment and Opportunity


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Step 3: Construct a full matrix of the supply market Answer the question, what is supplied to who throughout the market place and at whatcost/price?

Upstreamsupplier

Supplier

Supplierequity

interest

Customer

Div 1

Channel 1Div 3

Div 2Channel 2

Upstreamsupplier

Supplier

Supplierequity

interest

Customer

Div 1

Channel 1Div 3

Div 2Channel 2

Hints and tips

As you build your analysis, look for control

points (e.g. one supplier with monopoly control

over one part of the chain) or important sources

of competitive advantage within the chain;

Look for evidence of oligopolies or

dependencies;

You should construct a value model charting the

change in value at each stage of the chain; Many suppliers are conglomerates, therefore

look literally for other supply chains to influence;

In what important ways does the matrix change as products or commodities change?

Step 4: Analysis

The key questions to ask are: What are the obvious control points - are they commercial? technical? physical?

Do any suppliers have a dominating position?

What are the value changes - upstream and downstream?

Important Note:

It is impractical to fully

chart all the influences of

a supply chain

However, it is important to

note the nature of the

relationship between key

players especially those

which go beyond theordinary


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If I wanted to change the nature of a relationship with one of the players in the supply

chain, where would I go and what leverage opportunity would I apply?

Are there any lateral linkages to exploit?

Steps which add cost can be assessed for process improvement, elimination, outsourcingetc.

Step 5: Take forward into Purchasing Strategy

From the analysis, take forward targeted opportunity areas into the procurement strategycreation process - for discussion, evaluation and action planning. Where possible,quantify the opportunity.

What is the Purchasing Value Chain?

The purchasing value chain refers to the number of stages or links that can exist in thesupply process from primary manufacture, creation of a service or generation of a creativeconcept, through to its delivery to an organisation.

It is an analytical tool, which examines the number of elements within a value chain. Therationale behind the approach is that since the price we pay and the quality of the productor service we obtain is determined by the number of previous transactions that there havebeen in the chain, the scope for cost and value improvement at each stage can beconsiderable.

Here are some important points to consider: What is the number of individual steps or transactions in the value chain and the value

added, cost and margin for each transaction?

What opportunities are there for reducing or containing costs at each stage of the value

chain?

What scope is there for increasing the value and

benefits for us at each stage:

better quality improved delivery lower stockholding

greater speed of response

more creativity and innovation improved cash flow exclusivity and confidentiality

who owns these values at each stage?

is it possible to enter the chain at a different point, thereby reducing cost and increasing

control?

are there opportunities for examining each stage of the chain with a view to maximising

efficiency and operational effectiveness?

Added Value Steps:

The only steps you need

to keep are those whichadd value i.e. when a

transformation takes

place from one state to

another


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where does risk occur across the chain with a view to maximising efficiency and

operational effectiveness?

what level of technical support and management commitment will we need to secure

the benefits from value chain purchasing?

Step One

Understand the keyissues

Is this a cost reduction exercise?

Or, is it driven by improving quality, reducing vulnerability orsecuring exclusivity?

Step Two

Analyse each linkage inthe value chain

Has this been done in the past?

Is there any understanding of the role, cost or contribution tocost, value or vulnerability of each element in the value chain?

Step Three

Determines a tacticalshort term strategy

What must be achieved in the short term to meet immediateoperational pressures?

How can you build you leverage and influence, both in-house,collaboratively and with suppliers across the chain?

Assess at first hand How will you build understanding of the stages and elements

in the chain?

If there is resistance to this being done on the ground, howwill you determine ways around the blockers?

Begin to change therelationships

How will you meet key people and build the requiredrelationships throughout the supply chain?

Reduce anyvulnerabilities

What organisational policy decisions may be needed tominimise or remove short-term vulnerabilities?

Step Four What options are available for fundamentally impacting orrestructuring the value chain?

Build support for morefundamental change

What additional data, ideas or insight will you need todetermine these options?

Secure internal businesssupport

How will you present the options to achieve the greatestpersuasive effect?

Conduct technicalfeasibility studies

Have you built up the necessary technical support for thepreferred options?

Changing the valuechain

What is the task and timing plan for your key interventions?

Step Five What innovative options are available in the much longer

term?

Consider the longerrange options andpossibilities

How will you allocate time and resources to researching anddeveloping these possibilities?


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Key questions to ask when building your understanding of the chain are:

Do you really understand each link in the value chain, together with its role, costs and

alternatives?

Have you physically followed each stage in the chain to evaluate what is happening in

cost and quality terms?

Have you conducted a Purchase Price Analysis (PPA) across each stage of the chain?

What links in the chain are you buying from, and why? What link in the chain should you be buying from, and why?

What is the performance level at each stage in the chain?

What are the cost and value improvement possibilities?

How can the risks associated with the chain be kept to a minimum?


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