Value Creation Throughout the Supply Chain
Selecting a manufacturer based entirely on price ignores the concept of value. You may have negotiated the lowest price for a part or assembly, but does the part or assembly show up on time? Do you have issues with disconnects in the understanding of requirements? Is the quality inconsistent? These illustrate missed opportunities to provide peak value to your purchase. Every lost opportunity in value represents a hidden cost that may not be easy to quantify.
That same missed opportunity propagates through to your end users as well. If you try to shortcut value for price, your customer is more likely to suffer from a missed critical delivery or a quality problem with your products. Ignoring value can cost you more than just money—it can cost you business as well.
Value vs. Value-Added
How do you create value with a supply chain? The first question is defining what value means to your organization. Specific definitions of value are different among industries and even among competitors within an industry.
Using Merriam-Webster, the broader definition that fits industry best is, “a fair return or equivalent in goods, services, or money for something exchanged.” Merriam-Webster’s definition of value-added gets more to the industrial point. Value-added is defined as, “of, relating to, or being a product whose value has been increased especially by special manufacturing, marketing, or processing.”
Certainly a reasonable and fair price is an important part of value, but a sole focus on price misses the services aspect of the definition. What other services would you value as a customer?
Value Is Embedded in Core Requirements
Quality to specifications and on-time deliveries are givens, but value-added services also apply in these categories by decreasing your risk and increasing the latitude under which you can operate.
For example, a customized local direct supply arrangement with your contract manufacturer can enable you to operate on a just-in-time (JIT) basis. A competing vendor that’s identical in every way except for the customized supply arrangement may be fine for a business that does not operate on JIT principles—but for the same price, why would you not take advantage? Your operational latitude is increased with more predictable delivery.
As for quality, consider two vendors that produce identical quality at the beginning of a contract with one vendor also offering a continuous improvement program. The vendor without the improvement program may be able to produce parts to the same quality every time without incident. However, a continuous improvement program will help to reach that same goal while providing further value-added benefits.
For example, through continuous improvement you may be able to narrow specifications and open latitude for other areas of the process—or potentially acquire new business in a field where tighter collective tolerances are required. Again, the benefits are lower risk and increased latitude, which can lead directly to improvements in the bottom line.
Auxiliary Value-Added Services
Some value-added services are less useful across the board, but have great value to certain customers. If you are shopping for a home in Florida, air conditioning is a high-value added feature, but in the far north of Canada or Alaska it would be an unused curiosity at best and an unnecessary consumer of energy at worst. (Kudos to any northern real estate agents who can turn air conditioning into an advantage.)
Similarly, auxiliary services such as design and prototyping services may have no value to those with experienced and cost-effective internal groups to handle those tasks. However, they are of great value to those who need the services but can’t afford to maintain their own staff. Even businesses with design groups can benefit from assistance when a contract manufacturer can provide specific expertise in a complementary field.
Partnership Enhances Supply-Chain Value
Many effective supply chain managers think through the definitions of value as it relates to their company’s needs, rank the aspects in some fashion, and quantify them as much as possible. This allows for intelligent decisions on any tradeoffs, and helps them to select the best vendor with which to establish a partnership.
When a supply chain relationship is more of a partnership, it’s easier to identify and implement all the value-added possibilities. A closer working relationship may lead to opportunities that are not obvious to either party in a traditional hands-off relationship.
The partnership aspect also provides greater transparency. Allowing customers to inspect manufacturing facilities and make upstream connections improves trust and gives customers the confidence that the supply chain is effective and will stay that way. Transparency and communication spread value throughout the supply chain to the benefit of all parties.
Make a Value-Added Choice
Smartrend Manufacturing Group offers a variety of value-added services to complement our fine products. We believe in the concept of partnership with our customers and the ability to work together on continuous improvement, customized delivery, prototyping capabilities, and whatever services are highest on your list of added value.
Browse our website and look over our value-added services to see if we are a right fit for your outsourced manufacturing needs. Don’t be the company who bogs down a supply chain with poor value decisions that impact your products. If you are that company, you won’t be in that supply chain for long.