Business cases for Value Chain Mapping

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?

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)

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 )

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?

Definitions…

“To make better products tomorrow, we must know where they come from today.”

• How soon is tomorrow?• What timescales are realistic?

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?

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”?

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?

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.

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?

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…

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?

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?

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

Value chains…

• Chains…

– (a) = raw material– (c)+(b)+(d) = repeating transactional unit– (e) = final customer / consumer

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

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

What are the problems and opportunities that arise from trying

to know/knowing more about value chains?

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

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”

The futureIncome

CostsRetained income

Next monthIncome

CostsRetained income

TomorrowIncome

CostsRetained income

Sources of value…

Organisation AIncome

CostsRetained income

INCR

EASE D

ECREASECONTROL

Income Costs

Risk management

Business case analysis…

“sweet spot”

Blue pill / red pill…

The matrix? 1. Financial 2. Social 3. Environmental

(a) Increase income

(b) Decrease costs

(c) Manage risk

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)

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.)

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)

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…

Our task…

Invest this, here…

To get this benefit here…

From risk to strategic sourcing…

String 3…

Thank you!