The days of vertically integrated companies reaping the benefits of their size has all but come to an end. They proved to be too slow, too complicated and too isolated from what the outside world was up to.  

Most historians agree that the development of cheap, centralized power and efficient but costly production machinery tipped the competitive advantage toward large companies that could achieve economies of scale. Today, however, low-cost computing and communication have tipped the competitive advantage back toward partnerships of smaller companies, each of which performs as a key supplier in a value-added supply chain and coordinates its activities with the rest of the chain.  

VALUE-ADDED SUPPLY CHAINS

Value-added supply chains are not, however, necessarily technology driven. They may emerge as the result of computerized links between companies or they may exist before the technical links have been made. In all cases, they depend largely on the attitudes and practices of the participation managers. Computers simply make it easier to communicate, share information, and respond quickly to shifts in demand. They facilitate the value-added supply chain but alone don't create them.   

What makes a value-added supply chain is the understanding that each player in the supply chain has a stake in the others' success. Managers see the entire supply chain not just one part of it --- as one competitive unit. It is this awareness that allows manufacturer's managers to look for opportunities beyond their own corporate boundaries. They looked for ways the resources at one part of the supply chain could be used in another. And their efforts to be competitive went beyond cost cutting. Many companies focus on trimming cost to increase profits, and they consider opportunities only within the unit defined by ownership.   

SUPPLIERS AND CUSTOMERS

This ability to see beyond cooperate boundaries has another important advantage. It permits recognition of serious threats that lie elsewhere along the supply chain. Because successful companies know their own fate depends on that of its suppliers and customers, these companies monitor competitive dynamics throughout the chain and try to fix weaknesses whenever they occur. When all the partners are strong, the entire value-added supply chain can stand up to the toughest of competitors, integrated or not.  

In a value-added supply chain, each supplier focuses on doing just one step of the value-added supply chain. Therefore, each unit can tailor all aspects of the organization to this single task. This sense of focus translates into low overhead, lean staffs, and few middle managers. Decisions are made and executed quickly, so response time is short. Creative ideas are less likely to be suppressed, and more employees are exposed to the demands of the market. The fact that each company in the supply chain is free to be different from the other creates a diversity that can be the seedbed of innovation. And marketing orientation becomes neither an edict nor a difficult task. It follows naturally from the free flow of information throughout the supply chain to so many of the people who actually do the work.  

KEY SUPPLIER MANAGEMENT

What is the most important element of a successful value-added supply chain? In my opinion it is a company's ability to establish and effectively manage a group of key suppliers. Consequently, our forthcoming article "Key Supplier Management" will share with you the answers to questions that determine whether a company will achieve dramatic results from a value-added supply chain.

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