Value Chains: Your Roadmap
chains are today being perceived as the next logical
step for enterprises in order to cut costs and increase
ROI. What are value chains all about and how do they
differ from supply chains?
are down. Demand is up (if the price is right). So how
do you deliver? For most products, selling price is
rarely determined by the firm. It's usually determined
by the market. What is determined and managed by the
firm is the cost of the product leading to all the interesting
financial measurements of profit, EPS and growth. The
management of the supply chain is a critical concept
of cost reduction. A value chain is a high level model
of how businesses receive raw materials as input, add
value to the raw materials through processes and sell
finished products to customers. So how is it different
from a supply chain?
A supply chain (SC) is the network that includes planning
design, producing and delivering products and services.
The extended supply chain includes processes from the
suppliers' suppliers to the customers' customers. Supply
Chain Management (SCM) is the visualization and the
control of the movement of products and services from
the point of origin to fulfillment while meeting the
organizations market objectives.
The Value Chain (VC) is the expansion of the Supply
Chain to include Demand Planning which includes the
process of defining markets and customers' requirements,
as well as defining, and capturing customer demand.
The Global Value Chain (GVC) is the future stage seen
in an integrated value chain where the aim is to optimize
the businesses ability to move its business assets,
including product transactions and information from
their source of origin to their delivery. It is envisaged
that in a GVC the end-to-end flow of those assets is
made more efficient and customer responsive. The cost
of inventory management, business process management,
time management and money management is reduced.
Value Chains are today being seen as a major differentiating
factor in a company. According to a research by Gartner
Group, enterprises that implement value chain planning
applications with a continuous improvement program are
likely to increase ROI by 40 percent over a five-year
lifecycle. Corporations need to continuously ask themselves
questions about the organization, designing and management
of efficient processes keeping in mind issues as shareholder
value and returns, competition and margin pressures,
mergers and acquisitions, shifts in cost and service
structures, new markets and new products, customer requirements
and demands, capacity constraints and sourcing and supplier
Traditional supply chains typically include individual
business units, separate product lines and little communication
or connectivity among individual parts of the business,
much less with customers or suppliers, except via EDI
or other limited processes. True connectivity is about
being networked, which is about being at the point where
your customer, your enterprise, your supplier and your
employees are all linked. When a customer clicks in
and conducts a transaction, its about the supplier knowing
that there is an inventory to fill, the employee knowing
that there is a customer relation to manage and the
fulfillment center knowing that there is a delivery
The Technology Roadmap to Nirvana
Integrating disparate applications on the process and
the data level is one of the greatest challenges in
value chain integration. Usually various application
categories exist within the enterprise. Enterprise Resource
Planning exists for the processes like manufacturing,
finance and distribution. On the shop floor applications
exist in the category of Manufacturing Execution Systems,
Control Systems and Manufacturing Operations Systems.
Engineering applications exist such as Product Data
Management and Component Management systems. Apart from
these one might have Customer Relationship Management
(CRM) and Knowledge Management (KM) applications. Usually
the selection in each of these applications is purchased
using the "best-of-breed" approach. However,
these independent purchase decisions boomerang as the
need to integrate and smoothen flow information increases.
Integration is then carried out through one of the three
ways, or a combination of the three. Using the 'Point-to-Point'
integration technique, specific applications can integrate
with specific other applications when the vendor recognizes
a demand for the integration. These are usually single
integration between two applications of two vendors.
As the number of applications to be integrated multiplies,
the number of these integration multiplies geometrically.
'Data Transfer and Conversion' is the most common form
of integration, the applications share common data by
simple transfer of large amounts of common information.
This information may share a common structure, or the
integrating organization may create small bridging functions
to force data compatibility. 'Third party translation
tools' involves purchasing mapping and translation software
that can map between the various native file formats.
Even more challenging is the concept of sharing data
across enterprises. Issues of security, technology incompatibility,
and trust abound. This problem is addressed by seeking
cross industry or universal standards. Many industries
have developed standards for data interchange, which
suit the particular needs of the industry.
The macro perspective is all fine, but most CEOs still
look for a true pathway to Value Chain Integration.
Should a company look at Value Chain Integration if
its basic supply chain structure is not in place? How
can it influence partners, suppliers or customers who
are either technologically illiterate or do not want
to make the investment? There are other issues as well.
If we knew the architectures, design standards, coding
standards, and implementation processes of just one
of our suppliers (customers or trading partners) we
might be able to build an interface to them. However,
that is heaven. Hell is when we have multiple points
to connect, at different times, with different structures,
coding and architectures and a veil of secrecy.
One way out of this quagmire is to have a strategic
implementation guide for oneself. For instance have
the complete picture drawn out with timelines of when
to go into implementation. Paint this picture using
assessments of mission critical logistics processes,
customer requirements, costs, deployment issues, supplier
capabilities, outsourcing opportunities, operation costs
and competitor strategies.
Once the large picture is clear it is imperative to
adopt standards that are open, scalable and accepted
so that future trading partners, customers or suppliers
can easily plug into your infrastructure when the possibility
arises. RosettaNet is a non-profit consortium of major
information technology, electronic components and semiconductor
manufacturing companies working to create and implement
industry-wide, open e-business process standards. These
standards form a common e-business language, aligning
processes between supply chain partners on a global
basis. Late in 2000, RosettaNet formed a cross-industry
working group to define business requirements for the
informational Hub (iHub) multi-PIP scenario. The RosettaNet
iHub Focused Process Team is evaluating existing RosettaNet
standards to determine alignment with iHub requirements
and proposing enhancements where appropriate. Member
companies, including Cisco and its trading partners,
will validate these standards through implementation.
The iHub Focused Process Team includes representatives
from Arrow Electronics, Avnet, Cisco, Manugistics,Motorola,
Pricewaterhouse Coopers, STMicroelectronics, Viacore,
The RosettaNet iHub is a multi-PIP scenario providing
a framework for managing a collaborative and integrated
supply chain. It may be leveraged by a private or public
repository, where data is gathered and distributed for
cross supply chain visibility or decision support. Companies
representing different levels of the supply chain (such
as OEMs, contract electronic manufacturers, component
suppliers, distributors, and so on) may sponsor an individual
iHub. An iHub may be scaled to meet the needs of companies
of varying sizes, and each iHub owner may choose to
use as few or as many PIPs as desired. The iHub framework
supports both informational and transactional processes.
One iHub may process all incoming data to identify demand
and supply disconnects, support decision making, and
generate reports; another may do all of the above as
well as handle the exchange of goods and services. Alerts
may be generated by an iHub owner and sent to relevant
trading partners for action. The type of alert and method
of generation are private processes proprietary to each
iHub and outside the scope of RosettaNet, which focuses
exclusively on public, inter-trading partner processes.
Object Management Group is another organisation helping
organisations with technology specifications for concepts
like the Integrated Value Chain. One of the technology
goals is to remain open and flexible to support the
changing objectives of business. The challenge arises
when we are forced to confront a myriad of past, present
and future technologies. Since we cannot dictate the
architectures of our customers and suppliers, we must
work with existing technologies and business processes.
The specifications that OMG provides and continues to
create cover the entire application integration and
development process, so you can be sure open specifications
are available to you from the time you gather your requirements
until the time you deploy or integrate your applications.
Proven specifications like the Unified Modeling Language
(UML®), Meta Object Facility (MOF), CORBA®,
CORBAservices, and Domain work together ensure the entire
requirement, development and construction processes
are covered instead of a single phase.
When keen on a reliable, scalable and standards based
technology Cisco found its solution in eXtensible Markup
Language or XML, which is gaining credibility in the
business-to-business (B2B) arena for its flexibility.
XML can be used to structure content for databases or
to structure a transaction for file transfer. It also
can be transformed into HTML for presentation on a Web
page. This capability means that large quantities of
supply chain data such as bills of material, MRP output,
forecasts, and other critical files can be stored, forwarded,
and presented using a common data model based on the
XML tagging scheme. Simply put, XML is a way of describing
data in a logical hierarchy using agreed-upon elements
such as "<forecast>" or "<part-number>."
With this approach, however, users must agree on what
"<forecast>" means and how the data
should be structured in this data element. XML standards
bodies such as BizTalk, cXML, and RosettaNet are working
to develop the syntax for XML that will streamline and
enable B2B commerce using a standards-based approach.
Both Cisco and Manugistics are members of RosettaNet
and have been engaged in a number of XML projects to
improve business processes for some time.
As with implementing Enterprise Resource Planning systems
firms who have partnered for these next generation ventures
have learned lessons, critical for successful implementation.
They are quite similar to earlier lessons. Strong executive
sponsorship, having a vision and passion, the right
team and open communication and collaboration are neither
new nor easily remembered. Cisco set a new commandment
of demanding data integrity from people participating
in the program. Given the exponential consequences of
having inaccurate data ricochet through the system,
data integrity in any such system becomes critical.
Results? Take this for an example. Within the first
day of launching eHub's pilot, the system discovered
an exception between a contract manufacturer and a component
supplier. A specific part needed by Jan. 15 was scheduled
to be shipped four months later. eHub alerted the two
companies involved and the situation was addressed immediately.
The product was shipped on time, averting a potential
"line down" situation. Finally, Phase 1 functionality
includes enhanced performance reporting capabilities
that enable Cisco to understand more clearly how the
overall manufacturing supply chain is performing. Imagine
that happening in your firm!
Karnvir Mundrey is a Business Development
Manager with Plexus Technologies and can be contacted