Assessing Value and Supply Chains
Do you know the value that your organization adds? How are customers’ lives improved by your products or services? Figuring out the answers to these questions is just one part of the bigger picture of how your organization creates value. To get the full picture, you also want to look at your organization’s value chain.
Value chains are sequences of activities through which your organization delivers value to customers. These activities work together to generate value, as well as the resulting demand and cash flow this creates.
In most organizations there are nine value-added activities. Inbound logistics, operations, outbound logistics, marketing and sales, and services are primary activities directly related to the products and services your organization creates.
The other four services — infrastructure, human resources management, technology development, and procurement — are secondary activities. While they don’t provide value directly, your organization wouldn’t be able to function without them.
Assessing a value chain
So…why is it so important to assess a value chain? The main reason is that it lets you see which activities have the most potential to add value, allowing you to prioritize work and help your organization gain a competitive advantage.
Say an online bank identifies one area of activity, its help desk service, as critical to its goal of delivering superior customer support. Management decides to add value to this activity.
So it refocuses operator training to customer satisfaction, making sure that operators can handle all types of customer issues. The company wins awards for its outstanding customer service — also benefitting its Sales and Marketing activities.
As well as looking at the value chain, map out your organization’s supply chain, where a product begins with materials from a supplier, is produced, and then delivered to customers. Approaching production from this perspective enables you to spot ways of improving efficiency and reducing waste.
Once you’ve mapped these two chains you can then integrate them — this will give you a more comprehensive view of what your organization does, as well as the order it does it in. Importantly it also gives you a better understanding of the company’s strategic focus and how it connects to the activities of each department. This makes it easier to align with the organization’s strategy.
The SIPOC diagram
To better understand the connections between the activities that generate value, it helps to create a visual representation. This allows you to see how your own work contributes to creating value for customers and other stakeholders.
One diagram typically used for this purpose is the SIPOC diagram, which stands for Suppliers, Inputs, Process, Outputs, and Customers. It shows in detail the impact of a departmental decision or activity on the other departments, provides a linear description of how different processes — and stakeholders — are connected, and highlights key resources and dependencies within each process.
So be a strategic thinker. Find out how your organization creates value and prioritize the tasks that strengthen your value and supply chains.