Value Nets

About the Author

David Bovet and Joseph Martha are vice presidents with Mercer Management Consulting's Supply Chain Strategy Team. David Bovet is a renowned speaker on the subject of supply and value nets, while Joseph Martha leads the Supply Chain Strategy Team, building Mercer's supply chain practice into a market leader. Both authors bring extensive experience and expertise in strategic consulting, particularly in the realms of supply chain management and value net design.

Main Idea

The core idea of "Value Nets: Breaking the Supply Chain to Unlock Hidden Profits" revolves around transforming traditional supply chain models into dynamic, customer-driven value nets. Bovet and Martha argue that significant profits are hidden within supply chain activities, and by adopting a value net design, companies can unlock these profits. The value net model is characterized by customer alignment, collaboration, agility, speed, and digital integration, which collectively enhance the company's ability to meet stringent customer demands while driving efficiency and profitability.

Table of Contents

1. The Power of Value Nets
2. Value Nets and Business Design
3. Value Proposition: Crafting the Offer
4. Scope: Deciding Where and How to Play
5. Profit Capture: Casting the Net
6. Strategic Control: Staying in the Game
7. Designing for Execution: Realizing the Net
8. Lessons from the Innovators

The Power of Value Nets

A new business model is emerging, replacing the traditional supply chain design. If you've ordered a computer over the Internet, you have experienced this model, which links increasingly stringent customer requirements to flexible and cost-effective manufacturing. This model is the value net. A value net is a dynamic, high-performance network of customer and supplier partnerships and information flows. It begins with customers and builds to satisfy actual demand, unlike the old supply chain, which relied on manufacturing products and pushing them through distribution channels.

Value nets have five distinct characteristics that give them an edge:

• Customer-aligned: Customer choices trigger sourcing, building, and delivery.
• Collaborative and systemic: Each activity is assigned to the partner best able to perform it, with many operational activities delegated to specialists.
• Agile and scalable: Value nets are responsive to changes in demand, new product launches, and rapid growth.
• Fast-flow: Order-to-delivery cycles are fast and compressed, with low inventories.
• Digital: E-commerce and new digital information pathways link and coordinate the activities of the company, its customers, and its providers.

An example of a company using a value net design is Miller SQA, a unit of Herman Miller. Their operation allows customers to configure orders using a digital interface, ensuring just-in-time delivery and rapid order-to-delivery times measured in days, not months.

Value Nets and Business Design

Profound changes are occurring in the marketplace due to demanding customers, the digitization of the economy, high competition, and globalization. These factors drive value migration, where profits and value flow from outmoded business designs to those better designed to maximize utility for customers and profits for companies.

For example, the computer industry has shifted from traditional manufacturing and distribution to a build-to-order model. Dell and Gateway, by adopting this model, significantly increased their market value compared to traditional manufacturers like Digital Equipment and Compaq.

Mercer Management Consulting's business design model for value nets involves five key elements: