Four Phases to Evolve the Value Proposition of Your Supply Chain

By Jim Tompkins

It’s easy to get lost in the “cut, cut, cut” philosophy of supply chain management, especially in the aftermath of the recession. But for the sake of your company’s future, it’s important to realize that there’s an independent cycle of evolution that offers major opportunities for improving value in a supply chain.

I’ve broken this concept down into four phases. The Supply Chain Value Contribution Cycle (SCVCC) includes:

· Phase 1: Reduction
· Phase 2: Redesign
· Phase 3: Drive Growth
· Phase 4: Transformation

Here are the definitions of each phase:

• Phase 1: Reduction: The reduction of supply chain cost, risk and waste. Enhancement of corporate performance by improving the supply chain. The enhancement of corporate performance by doing the same supply chain processes, but doing them more efficiently and effectively.
• Phase 2: Redesign: The redesign of supply chain by redesigning the supply chain processes to do things in a better way. The enhancement of corporate performance by doing different supply chain processes. Redesigning the supply chain processes by doing new processes that are more efficient and effective then the old processes.
• Phase 3: Drive Growth: The growth of the revenue by offering supply chain innovative services. The growth of revenue through supply chain innovation. The enhancement of corporate performance by growing revenue through new, innovative services.
• Phase 4: Transformational: The transformation of one’s business model through supply chain innovation. The growth of market share by enhancing one’s business model through supply chain innovation, and the enhancement of corporate performance by growing revenue through an enhanced  customer value proposition.
  

Applying SCVCC: A Case Study

How does this cycle apply in real life? Consider the following enhancements for a convenience store chain’s supply chain:

• Phase 1: Reduction: The delivery to stores has not been optimized in several years. Moreover, the decision on routes has been based more on truck capacity than on the best travel paths. By optimizing the routes, a 10% reduction in the miles traveled and the reduction of overtime is achieved.
• Phase 2: Redesign: Truck routing has always been done statically, with the same routes being run every day. But on Mondays and Fridays, truck capacity was often a limiting factor and special delivery runs were frequently required to pick up volume that would not fit on the trucks. Therefore, the routing process was redesigned to be a dynamic process through the implementation of a Transportation Management System that optimized the routes on a daily basis to assure maximum utilization of the trucks and drivers.
• Phase 3: Drive Growth: Each store manager has always done their own ordering. Some managers do this well, but many do not. And so stock outs frequently occur in the stores, especially on weekends, resulting in lost sales. A point-of-sale information system is installed, along with a store merchandizing system, to minimize stock outs and to maximize not only revenue, but also margin.
• Phase 4: Transformation: Store deliveries on company trucks have always been done without refrigeration. This has limited the stores offering of fresh produce and refrigerated snacks. By implementing a store delivery cold chain, this limitation has been removed. Thus, this innovation has allowed sales per customer to increase 18%, and even more importantly, store profits to increase 8%.

How SCVCC Can Work for You

There are a few guidelines that will ensure the success of implementing a Supply Chain Value Contribution Cycle in your organization. Consider that:

1. Several phases can be pursued at the same time.
   
2. Different stakeholders tend to focus on different phases. For example, a person focused on Phase 1and 2 will typically not be strong at Phases 3 and 4, and vice versa.
   
3. Managers tend to be better at Phases 1 and 2, and leaders tend to be better at Phases 3 and 4.
   
4. The strongest organizations are the ones that continually cycle through all four phases.
   
5. It is important for leadership to fully understand the four phases so as to be certain they are pursuing all of them and not ignoring opportunities to create value through the supply chain.

In conclusion, I see far too many supply chain organizations stuck in Phase 1 or Phases 1 and 2. To avoid this trap, view the opportunities in the supply chain not only to cut costs through reduction and redesign – but also to increase revenue through driving growth and transformation.