Organizations are increasingly dependent on each other. Rather than working more or less autonomously, they are increasingly entangled and interdependent, both on a strategic and an organizational level. The reason is that, more and more, offering superior customer value requires close collaboration with others in the supply chain. Whether it is downstream with distributors and resellers, upstream with suppliers, or sideways with organizations offering complementary offerings, organizations increasingly collaborate with others.
Along those lines, collaborative forms of business involving supply chain integration, networked business, and business ecosystems are gradually replacing the traditional independent business as organizational forms.
This begs the question as to how to create alignment with others. In earlier posts we saw the crucial role that alignment plays in successful organizations (see here, here and here) and a three-step approach to aligning your organization’s strategy. In collaborative forms of organizing, creating alignment across the supply chain is equally important. After all, if all players in the supply chain, network, or ecosystem are needed to create superior customer value, then all need to be aligned to do so.
As we learned in those earlier posts, creating alignment in your organization starts with understanding the value you create through your offerings and making sure that everything else is aligned with that. I introduced you to the four dimensions of value creation (price, quality, delivery and flexibility) and showed how these form the backbone, or value creation DNA of your organization. Creating alignment in your value chain works in a very similar way. We can identify four key steps:
Step 1: Identify the Key Player in the Supply Chain
The first step is to identify who in the supply chain (or network or ecosystem) is the key player. This is important, because we need to have some starting point to create our alignment from. With ‘key’ player I don’t necessarily mean the most powerful or dominant one. No, the key player is the one whose needs are most important to take into account when shaping the value chain. In other words, this is the primary player that the supply chain is serving. Often this is the end customer. After all, this is the end of the chain towards everything is oriented. But it can also be another player, such as the retailer. This is the case, for example, when it is not the end customer but the retailer who is basically determining what the offerings look like.
Step 2: Define the Desired Value Creation Profile
The next step is to define what the value creation profile of your supply chain should be. This means that you identify the needs of the key player and establish the value creation profile that best fits those needs. To do this, you map out the value creation profile along the four dimensions of price, quality, delivery and flexibility in a qualitative and quantitative way as described here. Extending the DNA metaphor used there, you can see this as the desired DNA for your supply chain.
Step 3: Align Value Propositions Along the Supply Chain
The next step is to align the value propositions of all relevant players in the supply with the value creation profile of the previous step. The key idea of alignment is that all players in the supply chain have a similar value creation profile in their value propositions. This is necessary because only with such alignment can the supply chain be effectively delivering the right kind of value for the key player. So, if the desired value creation profile has for example a strong focus on low price and fast delivery, then we want to make sure that the value propositions of all relevant players in the supply chain is also focused on that. This could mean that some players may need to change their value creation profile or even that they need to be replaced by players that have a better fitting value creation profile.
Step 4: Internally Align All Players in the Supply Chain
The final step is to make sure that all players are also internally aligned with the value creation profile of the supply chain. This works the same as creating alignment in an autonomous organizations. It works through aligning the other nine elements of strategy with the value proposition so that the strategy of all relevant players is internally aligned as well. Thus, you take the value proposition from the previous step as starting point for each player and start aligning the other elements of their strategy accordingly.
As these four steps show, the value creation profile along the four dimensions of value (PQDF) is the linchpin of your supply chain. It is the means to create external alignment between all players, and internal alignment within all players. Of course, creating such alignment is pretty complex and can be a difficult task, especially since we are dealing with different organizations that each have their own leadership and interests. However, these four steps should give you some clear guidance in how such alignment across the supply chain can be achieved. It also gives you a sense of how we work when we would help you with this.