Friday 23rd Feb 2018 - Logistics Manager

The value matrix

Your company’s value proposition is its promise to customers that it will deliver a particular set of values. This is no empty promise. Customers have become more discerning, and expect the enterprises they do business with to be uniquely appealing. Companies that fail to meet these expectations tend to alienate buyers and risk declining profits.

Crucial to achieving this is a supply chain that is aligned with your core value proposition. Your trading partners should support a supply chain that delivers the value proposition that defines you in the marketplace.

Such a supply chain can be created by mixing and matching the value propositions of suppliers to establish the combination that best serves your business objectives. To do this you must have an intimate knowledge of the promises your suppliers make to their customers – including you. Armed with this information, you can map your supply chain according to the set of value propositions upon which it is based, and the one you ultimately want to present to your customers.

Choosing the right value proposition is not just about buyers’ perceptions. The selection implicitly affects organisations’ strategies and operations: from the choice of markets and financial priorities to the selection of logistics and outsourcing strategies, internal processes, product development, services delivery and customer relationships.

Given its importance to your market identity and strategy, you need to be able to generate a detailed profile of your value proposition by first creating a Value Matrix.

The value matrix is a practical tool used to: Identify and focus the proposition of value that organisations make to their customers; provide general guidelines on how an organisation could align, direct, and manage its resources and competencies with the value proposition that the organisation wants to achieve to create value; detect misalignments and incongruence of resources, and suggest some general alternatives for value creation; and provide direction to business strategies.

The descriptive terms often used by companies to construct a value proposition profile such as ‘product leader’, ‘operational excellence’ and ‘customer intimacy’ are not regular enough and oversimplify the strategic options available. Here are six value dimensions that create a value matrix that companies use to build their value propositions.

Innovators: Typical innovators focus on building strong design skills, work within short product lifecycles and make their own products obsolete. Their strategic objective is to provide continuous breakthroughs through new designs and product generations within a technological field. Their customers get new products with unique and special characteristics. The classic examples are 3M, Nokia and Sony.

Brand Managers: This group proposes a mix of physical attributes of the product, brand, service and even price – because sometimes the price is considered as an attribute of the product. Their strategic objective is to expand the market, reinforcing the solid brand image of the product and/or company. Their customers gain status through the product acquisition to feed some individual identity need, such as superiority, ego and social acceptance. Typical examples are Prada, Morgan Motor Company and Harley Davidson.

Price Minimisers focus on the development of strong capabilities to reduce lead times, costs and waste and to optimise process performance. Their strategic objective is focused on making their core processes efficient and driving down operational costs. Their customers get good quality, reliable and relatively low price products. Classic price minimisers include Toyota, Wal-Mart and Casio.

Simplifiers have a strong focus on and automation of both order generation and order fulfillment processes to remove the hassle for customers. Their strategic objective is focused on building streamlined processes to make life simple and uncomplicated for customers in a creative, novel and profitable way. Their customers get easy availability and convenient reach to products. Typical examples are Amazon, eBay and Dell.

Technological Integrators focus on identifying and providing new and tailored solutions to their customers. Hence, personalised attention, such as product delivery, pre- and post-purchasing service, installation and maintenance, are some of the attributes of their product/service offering. Their strategic objective is to customise specific and continuous solutions for carefully selected customers on the basis of long-term relationships. Their customers get total solutions. Typical examples are IBM Global Services and ICI Explosives.

Socialisors focus on building capabilities of strong service delivery and long relationships with customers. Their strategic objective is focused on building confidence and trust through the service provided. Their products and, especially, their customer service delivery experience, build a feeling of confidence and comfort in dealing with them. Their customers get flexible and reliable services. An example is Home Depot.

A clearer definition
By assigning these dimensions to each of your suppliers, you can construct a value proposition map of your supply chain. Such a mapping will help you to define the relationships you have with these trading partners, and determine the extent to which the combination is aligned behind your value proposition.

British apparel company Daks has a very distinctive market identity that is a function of the collaborative network of enterprises that supply the company. It designs, manufactures and sells apparel under the Daks label. Daks’ products, which are linked to a classic and elegant British heritage, are tailored and produced to high specifications in limited quantities. Usually a men’s suit may sell at €600 – €900 in one of Daks’ stores or through one of their retailers such as Harrods in the UK and Nordstrom in the US. These products compete with prestigious fashion houses, such as Chanel, Armani, and Prada.

Daks’ supply chain is characterised by its high product variety and low production volumes. Its design flexibility is high, as every six months Daks SC launches a complete new collection. For this reason, it has frequent changes to its operational schedules. Its outsourcing strategy is limited to accessories and a few standard materials.

Daks has close communication and coordination with some suppliers, such as Arthur Bell, B&L and London Badges, on the design of new materials (cloths, buttons and yarns). The development of a new material takes up to four months before it is accepted, and so the material costs are generally high. In contrast, Daks relationship with other suppliers that supply standard materials (such as Botto) is limited to a simple buying and selling transaction.

An analysis of value creation was carried out in Daks’ supply chain. The value propositions within the value matrix were applied to understand and identify the value proposition of each individual supply chain member and the overall supply chain. The value propositions are shown on the right hand side of each supply chain member in figure one.

The value creation process of Daks’ supply chain is complex. It has a mix of value propositions from individual supply chain members. For example, the cloth supply chain follows two different strategies:
 

Strategy one: The B&L-Arthur Bell-Daks chain is focused on the design of new cloths, which are generallypatented. B&L operates in a ‘Brand Manager’ strategy; it spins and dyes yarns following Arthur Bell’s instructions. Thus, Arthur Bell, which is an ‘Innovator’, works in close collaboration with Daks in the design of new cloths, combining yarns to produce innovative cloths (with exclusive colours, styles, textures and finishes). A new cloth design process takes up to four months and its cost is generally high. Then, Daks, following a ‘Brand Manager’ strategy, designs and manufactures a high variety of apparel on a low volume basis. Once the garments are finished, they are distributed to exclusive retailers, which also operate as ‘Brand Managers’.

Strategy two: The Sudwollen-Botto-Daks chain is focused on the acquisition of high standard cloths. Daks supply chain speeds up its design and operations processes by buying pre-designed cloths from Botto, which is an Italian Brand Manager.

The buttons supply chain runs similarly to the cloth one. London Badge, which follows a ‘Technological Integrator’s’ strategy, customises buttons for Daks’ exclusive apparel. The designs of these buttons are developed by Daks with the support and expertise of London Badge. These expensive buttons are used for the external part of the garments. Meanwhile another button supplier, Stern, which follows a ‘Price Minimiser’s’ strategy, provides simple and cheap buttons. These buttons are used for the internal part of the garments. In contrast to London Badge, Stern is not a strategic member of Daks’ supply chain because it does not hold core capabilities or core products within the supply chain.

The overall value proposition of Daks’ supply chain is ‘Brand Manager’. It focuses on the design and development of exclusive products and on the exploitation of its brand name. This supply chain provides an interesting process of value creation because its members follow different value strategies. The core competencies of Daks’ supply chain are held by key strategic suppliers, which each sharing the same value proposition of ‘Brand Managers’ as Daks. Other capabilities are acquired from other non-core members of the supply chain, which have different value propositions. They support the overall supply chain value proposition by optimising costs, delivery times and reducing risks on uncomplicated components.

The combinations of value propositions, strategic competencies and capabilities from different members of its supply chain create a unique value creation process for Daks. Many organisations would benefit from such a strategic analysis of the components of their supply chains using the Value Matrix.
 
Dr Veronica Martinez is a research fellow at the Centre for Business Performance in Cranfield School of Management. She may be contacted at v.martinez@cranfield.ac.uk.

 

BRIEFING POINTS

  •  Strategic/key members of the supply chain are those that hold the core competencies of the supply chain. The value propositions of these strategic members dictate the value proposition of the overall supply chain
  •  The value propositions of strategic members of the supply chain should be aligned to enhance the value creation process of the overall supply chain – particularly, to deliver more integrated value offers with unique service delivery experience to end customers
  •  Other non-strategic members of the supply chain can have different value propositions, but they should support the value proposition of the overall supply chain
  • The value proposition of the overall supply chain is the same as that of the company that is facing the end customer. Further, the alignment of individual valuepropositions within the overall supply chain ensures the alignment of strategic competencies