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Highlights
- The shift to an integrated value and supply chain from a linear and traditional one is highly critical in the manufacturing industry.
- New metrices have come up to determine the value of a product or service in the manufacturing sector.
- The traditional methods were made redundant due to the emergence of just-in-time and lean manufacturing approach.
- Value realization would be maximum when the enterprise can run in an autonomous mode leveraging the data it generates at different level.
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How to measure value
Advanced technologies have redefined the way the embedded value of a product or service is measured in the manufacturing sector, and it continues to evolve with dynamic demand.
The traditional metrices to measure the value such as quality standard, on-time delivery, or post-sales services, are no longer enough to show the investment made in the manufacturing of a product or service. Additional metrices are already in place to better estimate the value delivered, value realized, and value articulated from the end-product and services. These include product lifecycle value, ease of usage and adaptability value, value from branding and advocacy, and value realized from the service.
Exploring the benefits of value chain
Value chain, a concept from business management introduced by US economist Michael Porter, shows the way an organization operates through a chain of activities that add cumulative value than the sum of values of independent activities.
Products, semi-finished products, and services pass through all the activities of the chain in a sequence and at each stage, earns a certain designated value meant to be delivered to end customers.
On the other hand, a supply chain is a series of networked functions that are designed to source the raw materials in the context and transform them into finished intended products to be subsequently distributed to different regional warehouses for retailers to sell to market or directly to institutional customers. It is more of the operational tasks to be carried out in order to support the end-to-end manufacturing process cycle.
The below figure represents how value chain and supply chain can complement each other.
Manufacturing: Traditional supply chain vs value chain
The supply chain and its associated functions contribute significantly to the evolution of the manufacturing industry across regions, generating intelligence from the data collected in the plant.
The traditional approach was outdated by the emergence of cognitive principles such as Just-in-time and lean manufacturing to bring cost sensitivity within the process.
The dynamic characteristics of supply chain factors including raw materials sources, shifts in market behavior, diversified business footprints, operational cost and constraints, competition, unskilled workforce, green regulations, and many more play a significant role in configuring the business rules of supply chain application. The success of the outcome from execution is dependent on how diligently these critical changing parameters were factored and weighed throughout the execution stages.
The value chain events and activities put focus on the technology adoption across the series and help to strengthen business excellence, quality of products and services, and customer experience. The key impacts are:
- Business models: Ecosystem-based business model (B2B2C), weightage on partner’s performance in the value chain and build synergy within it.
- Operating models: Connected, cognitive, and autonomous operations through the technology aids deployed at different stages, further strengthened by a high degree of intelligence gathered from data and digital adoption within workforce.
Most organizations raise concerns over increasing production cost and sub-optimal utilization of critical assets. The value chain contributes significantly to build the correlation between the applications and their functional modules through seamless data and information exchange in a boundary-less environment. This integrity measures the degree of success in all the defined key performance indicators (KPIs). Hence the value chain elements are required to be well thought of and aligned with the objectives.
Linear supply chain
Here are some of the major activities in a linear supply chain model.
As described in Figure 1, a value chain deals with adding the characteristics in the manufacturing of the products or services that yields a tangible effect on its operational value. The value is required be quantified in the perspective of different parameters.
Figure 3 shows the various activities in an integrated value chain:
Compliance matters
Manufacturers need to follow adequate measures to comply with regulations.
There are incidents of governance shortfall, manual supervisions, deviation from green laws, compromising employee safety rules, and many others. A well-defined regulatory structure should be at the epicenter of operations to avoid unwanted risks and hazards.
The way ahead
With the emergence of autonomous manufacturing blessed with Industry 4.0 digital capabilities, the traditional linear value chain and supply chain demand certain redesign toward the connected multimodal structure.
Instead of sequential material movement from sourcing to distribution, it needs cross functional integration throughout the manufacturing journey and a multi-dimensional flow can bring the quintessential value to make the differentiation in a highly competitive environment.
