Why Value Networks Are Better Than Traditional Supply Chain Management

Disadvantages of Traditional Supply Chain Management

Since the advent of the production line in the early 1900s, supply chains have undergone continual refinements, but not seismic shifts. While the outsourcing of logistics and parts manufacturing has increased, and has even led to globalization, the basic flow of value generation has not changed.

No matter what we’ve called supply chain over the decades— industrial engineering and operations, transportation management, physical distribution management, or logistics— it’s still describing the same fundamental thing.

This diagram of a traditional high-level supply chain shows the flow of value from left to right during the development of a product or service. At every stage, value is added, and is considered a link in the chain. Give or take a link or two, this could describe almost any kind of business:

But there are problems with this model, especially in the post-COVID-19 era. Traditional supply chains are:

• Siloed, due to lack of communication between any players that aren’t “the next step in the chain”
• Inefficient, as communications have to be passed from hand to hand down the line
• Slow to respond to demand signals
• Characterized by poor data integrity from the use of multiple standards and systems
• Non-wholistic, providing little visibility into overall market conditions because of lack of data sharing

Attempts to solve these issues have led to the creation of value networks by forward-thinking companies.

What is a Value Network?

There are many definitions of the term. One of the most helpful was coined by Verna Allee, value network pioneer. She defines value networks as any web of relationships that generates both tangible and intangible value through complex dynamic exchanges between two or more individuals, groups or organizations.

Like a supply chain, a value network (or value web) can describe the flow of value from business function to business function.

The differences between supply chains and value networks arise from the fact that digital systems have fostered easy and instant communication amongst multiple parties.

This interplay of communications between business actors can take many forms in a value network. For example, demand signals from customers can trigger customized responses for their needs.

While digital interconnectivity has encouraged increasing physical decentralization between players, they can still act as one in near-real time. In many cases, the types of interactions between suppliers, manufacturers, customers and distribution channels have multiplied. In some ways they have become more collaborative, in others, more competitive.

Either way, having multiple manufacturers and suppliers is an incredible advantage, as it enables rapid response in case of disruption.

Value networks can also contain circular economy eddies. For example, a customer may sell a product once it’s no longer needed. Resale to additional end users can happen multiple times, and some manufacturers, like Caterpillar, have started buying back their used products to reduce raw materials costs. Their refurbishment division, Cat Reman, refurbishes these products or reuses the raw materials, and sells the products once again.

Value networks are a whole different way of doing business, and provide:

• Cost reductions
• Faster response to change
• Equilibrium between supply and demand
• Opportunities for players to collaborate and innovate
• Overall market insights from data sharing between players

As Lora Cecere has pointed out, data sharing in particular changes win-lose propositions between suppliers and central manufacturers into win-win situations for everyone.

Here’s a diagram of a sample value network. To simplify things, we’ve reduced the elements of value generation to four simple components, but really all the same elements you find in a supply chain are available in a value network:

 

Note that value and information flow both ways in the network: each spoke between the nodes in the diagram above is bi-directional.

Another way to look at this network is to view it as an ecosystem. In nature, energy is captured and distributed with maximum efficiency. With businesses, it’s all about value.

Requis is the Value Network Platform

The solution to the linear supply chain problem requires a platform that emulates the value network. That platform is Requis.

Requis gives enterprises access to all the simplicity, transparency and efficiency of consumer platforms, combined with the security, compliance and scale required by the enterprise supply chain.

Requis increases ROI for enterprises:

• Reduce costs
• Reduce timelines
• Reduce risk
• Gain data integrity
• Improve compliance

Requis empowers supply chain professionals:

• Intuitive workflows
• Concierge service
• Task automation
• Accessible anywhere
• Global contacts network

Benefits for global supply chains:

• More robust and responsive
• More sustainable

Requis is an end-to-end supply chain management platform in the cloud, designed by supply chain professionals for supply chain professionals.

Find Out More About Requis >

 

Footnotes

¹ Reverse logistics and disposition are both important parts of the circular economy, and are instrumental in driving down costs and fostering sustainability. They are both important parts of the value network.