UK: TECH-KNOW - Survival rules - Rule 7 - Integrate your value chain.

UK: TECH-KNOW - Survival rules - Rule 7 - Integrate your value chain. - The New Economy involves many transformations, of course, but there is one fashionable concept around which everything else revolves: 'The integration of value chains'. This refers t

by HUNTER MADSEN.
Last Updated: 31 Aug 2010

The New Economy involves many transformations, of course, but there is one fashionable concept around which everything else revolves: 'The integration of value chains'. This refers to the three ways in which the new information-networking technologies assist the enterprise: supply-chain optimisation on the back end, interaction with customers on the front end, and the linking up of front-and back-end processes.

Virtual back-scratchers. The first of these will be ominously familiar.

Supply-chain optimisation began, in the early '90s, as an effort in 'enterprise resource planning', or ERP. By means of networked software applications, ERP let the company's diverse and far-flung business units automate internal processes and co-ordinate one another's procurement, consumption, and production to achieve greater efficiencies. The $20-billion market for these services has been led by companies such as SAP, PeopleSoft, Oracle, and Baan. Chances are, your competitors are already talking with them.

Flexible chains. Detractors complain that ERP can be expensive and time-consuming to implement, that it doesn't always yield efficiencies and, worse, has tended to focus more on the inner workings of the enterprise than on its supply-chain relations with the outside world. The second generation of such applications, however, has shifted to a web-based approach that helps each enterprise choose and partner flexibly with the best low-cost suppliers and order precise quantities in a timely manner, thereby eliminating the inefficiencies of standing inventories and delays in time to market.

These emerging inter-company technologies also give players a greater insight into the workings of the entire value chain, allowing them to identify and control positions in the chain that offer the greatest leverage.

Sites for sore eyes. The second component of integrated value chains appears at the front end of the process - the point of contact with the customer. Well-designed web sites let clients customise exactly the products they want by making it easy for them to find, configure and order products and services. Visit the extranets of companies like Cisco, and the friendly consumer interfaces of sites by Dell and eToys, to see this aspect of e-business done well.

Rounding it all off. What is curious at this point is that the emerging back-end supply-chain systems and front-end customer-ordering systems are seldom linked directly to each other by a coherent network. This, then, is the third essential hurdle to value-chain integration and, for most companies, it is still in the making. As the strategists at Boston-based Northeast Consulting Resources have observed, only when front and back are linked up can customers 'purchase a specific product and automatically set off a cascade of just-in-time parts orders, assembly schedules, shipper notifications, and related financial transactions, across several enterprises at once, all in a seamlessly co-ordinated system'.

So now you know. That, in brief, is the vision of a fully integrated value chain. Get into it now, or you'll be swiftly sidelined: no chain tolerates a missing link for long.

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