what are the business cases for value chain mapping?
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Business cases for Value Chain Mapping
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Introduction
“To make better products tomorrow, we must know where they come from today.”
• This is our thesis• What does it mean?• To what extent is it accurate?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• What do we mean by ‘make’• Apple’s iPhone is not “made in China” (although it used to say
it was up until v4)
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• What constitutes “better”?• In what terms, and how are they to be measured?
• “The best way to reduce the carbon footprint of your textiles is to turn off the effluent treatment plant in your dyehouse” (Anon )
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Is it about any physical product?• How is an A4 pad of paper different to a piece of jewellery or
a cotton shirt?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• How soon is tomorrow?• What timescales are realistic?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Who is “we” ? (clue – it’s not HF!)• Is it the makers of the product or the buyers…or both?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Must we? Really?• What happens if we don’t? And who cares?• And anyway, what do we mean by “know”?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Is that a region, continent, country, town or factory?• Can it be any of those? • Does it make any difference, and if so, to whom and how?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• What are they?• How specific do we need to be?
– Is the wheat in today’s loaf of bread from the same farms / fields as yesterdays loaf? Milk from same cows in bottle one and two?
– Cotton from same farms in season one and two?– Trees from same forest in writing pads – etc.
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Which bits?• Is it the diamond in the necklace, or the gold in the chain?
What about the other metals that were added to make it ‘14k’?
• What about the cyanide that was used in the refining, but is not in the gold? Where it came from, or where it went?
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Definitions…
“To make better products tomorrow, we must know where they come from today.”
• Today is simply, always, before tomorrow• We’d better get cracking then…
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Why…?
• ‘Climate change’ – accelerating• ‘Water stress’ – accelerating• Biodiversity loss - accelerating• Global wealth distribution gap – widening• etc.
• Overall, in terms of ‘people, planet and profit’ – everything is moving in the wrong direction
• “Up to 80% of these impacts are caused by products”– Are they? Really? Which ones? What should we do?
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The morning…
• What do we mean by a value chain?• What are the problems and opportunities that
arise from knowing more about them?• Can those problems and opportunities be
categorised at all? If so, how?
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Value chains…
• Value…– “the amount buyers are willing to pay for what a
firm provides” [Porter, 1985]– flows from the customer to the supplier– is subjective and context specific– is time sensitive– is complex
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Value chains…
• Chains…
– (a) = raw material– (c)+(b)+(d) = repeating transactional unit– (e) = final customer / consumer
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Value chains…
• Or networks…?– “chain” – implies linear, simplistic– “network” – implies non-linear, complex
– “networks” as “collections of overlapping chains”• allows value and product flow between chains
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The task…
• To collaboratively identify as many sources of “value chain impact” – both positive and negative – as possible– To shout / scream / reflect / whisper / write /
doodle• Whether those “impacts” are:– good / bad / direct / indirect / people / planet– significant / tiny / likely / abstract– measurable / shared / specific
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What are the problems and opportunities that arise from trying
to know/knowing more about value chains?
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Business cases…
• The outcome must be expressed as money– otherwise it’s not a business case
• …doesn’t mean it’s not important!
• Must show a clear ‘pathway to profit’– “If I commit resources I currently have, I can clearly see
how I will get those resources back at a defined point in future, plus something more”
• Must demonstrate an acceptable ROI– “defined point in the future”– “something more” combined
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Triple bottom line…
Social Environment
Financial
What about the animals? Does that include biodiversity?
How to differentiate the non-financial…and yet integrate it?
“sweet spot”
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The futureIncome
CostsRetained income
Next monthIncome
CostsRetained income
TomorrowIncome
CostsRetained income
Sources of value…
Organisation AIncome
CostsRetained income
INCR
EASE D
ECREASECONTROL
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Income Costs
Risk management
Business case analysis…
“sweet spot”
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Blue pill / red pill…
The matrix? 1. Financial 2. Social 3. Environmental
(a) Increase income
(b) Decrease costs
(c) Manage risk
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Increase income
• Sell more products– Grow market
• Product innovation (find new product attributes to add)
– Expand share• Availability / seasonality (get product on shelf more quickly)
• Increase price– Provenance premium
• Trust / assurance + issue connection (tell customer stories)
– Extrinsic quality claim• 3rd party endorsement / label (capture non-financial values)
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Decrease costs
• Reduce input costs– Widen sources (find / add new suppliers)– Consolidate volumes (reduce suppliers)– Deal direct (remove middlemen)
• Manage operating costs– Improve efficiency (get information right / faster)– Reduce taxation (optimise tariffs)
• Drive administrative efficiency– Streamline compliance
• Regulatory (EUTR / Dodd-Frank)• Customer (IWAY / Plan A etc.)
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Control risks
• Reputation– Brand resonance / relevance (ref: Jonah Peretti)
• Compliance– Fines / sanctions (EUTR / REACH etc.)
• Trading– Supply disruption • Thailand - hard drives (disaster recovery)• Egyptian cotton (forecast mitigation)
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Our task…
• Identify the business cases• Specify the change in outcome and the
activation energy required– Ref activation energy diagram and explain
• Identify how we might get started and sustain momentum…– Introduce the coverage concept / chart…
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Our task…
Invest this, here…
To get this benefit here…
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From risk to strategic sourcing…
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String 3…
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Thank you!