The Information Driven Value Chain - Part 1
By paul.homchick on Apr 01, 2010
One hundred years ago, there were places on Earth that no man had ever seen. Today, a man standing in one of those places can instantaneously communicate with someone strolling down the street on his way to lunch half way around the globe. Our world is shrinking and becoming virtual. It is a world of incredible bounty and speed where we can get a product delivered to us anywhere on earth within a day or two. However, this world is also one of challenge where volatility, uncertainty, risk and chaos are our daily companions.
To prosper amid the realities of this new world, the enterprise needs a business model. Globalization and instant communications demand greater operational flexibility than ever before. Extended supply chains have elevated the management of risk to a central concern, and regulatory demands from multiple governments place an increasing burden of compliance on companies. Finally, the speed of today's business requires continuous innovation to keep from falling behind the global competition.
20 years ago at Harvard, Dr. Porter developed the concept of Value Chain to help analyze how firms added value, and thus because successful.
Porter observed that manufacturing organizations consist of a set of interrelated processes. Each process adds value to the company's product and each consumes resources. The manner in which a company executes these activities has a direct effect upon the organization's ultimate success. Porter's model grouped a firm's activities as primary or support.
Primary activities are those that are directly involved in the movement, transformation, distribution and service of the company's products. This includes Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Service.
Support activities "enable" these primary activities by providing resources, designs, etc
Traditional Supply Chain and Manufacturing management has focused on a subset of activities - those involved in the movement and transformation of materials. In SCM we generally call these activities Source, Make and Deliver.
Despite all of the administrative and efficiency improvements made in the last 20 years with ERP and planning systems, traditional systems do a poor job of harnessing the enormous amount of data now available to make better decisions that identify potential problems and capture opportunities.
In the twenty years since Porter published his Value Chain work, the world has undergone a remarkable transformation
• The economic environment has become global, requiring firms to manage far flung partners, suppliers, and supply chains
• Complexity has increased as more relationships and inter-relationships have been forged. Today's firms must operate in an interdependent network of suppliers, and sub-contractors spanning multiple continents.
• In the world Porter described, the FAX machine was leading edge communications technology, but today literally everything in business is connected through the internet. There is an avalanche of information available, and firms have expectations of instant response from their suppliers.
• Customers now have greatly expanded choices which increases competition, but firms also now have the ability to interact with their customers to customize their products and delivery services
This has led to innovation moving from a supporting function in yesterday's value chain, to a critical component of today's. Smaller and more nimble firms can gain market leading positions by harnessing innovation; size is no longer a guarantor of success.
To be competitive today's firms must be able to:
• Collect, organize and extract insight from extraordinary amounts of volatile, fast moving data
• Create nimble extended enterprises that will compete as global networks of interconnected firms
• Use innovation to transform their products and processes
Using Information is key to survival. Value creation today, is information-driven.
Next time, I'll discuss the principles and steps to becomimg information-driven, and how Oracle's Supply Chain Management applications can help companies take advantage of these changes to prosper in the 21st century.