Transparency in the value chain: success factor for future entrepreneurial success

It is not only the Supply Chain Act that requires companies to increase transparency in the value chain. Innovation potential and, not least, major levers for sustainable development also lie in the value chains and often outside the factory gates of individual companies. This post describes how industrial companies can ensure greater transparency in their value chains – also from a production perspective – and which starting points for developing future competitiveness emerge from this.

According to business management research it seems clear: future entrepreneurial success depends to a large extent on the ability to cooperate beyond one’s own company boundaries. Such ‘networking of business models’ is also seen as having a major impact on the sustainable transformation of industry. In industrial production, too, cooperation between companies can lead, for example, to a reduction in the use of materials, as well as maintenance and energy costs. In this light, service models are increasingly emerging e.g. in mechanical engineering, where machine builders do not simply sell their machines, but offer the performance of the machines as a service and thus also adopt a certain responsibility for the performance of the manufacturing companies. Cross-company warehouse planning is also a common concept for reducing logistics costs and capital commitment.

With these ‘low-hanging fruits’, the business potential associated with cooperation is not yet exhausted. But how can additional cooperation potential be identified and then prioritized? The analysis of the value chain serves as a starting point. It creates transparency regarding efficiency and innovation potential – both from an ecological and an economic perspective. A side effect that should not be underestimated is that such an analysis also provides the basis for meeting future sustainability reporting obligations or complying with legal requirements such as the Supply Chain Act or the EU CSR Directive. Using two examples, we explain how such an analysis can be carried out.

Example 1 (from a production perspective): Value stream mapping

Value stream mapping is the established tool of lean management when it comes to visualizing the material and information flows of production systems in a holistic way. This quickly produces a simple representation that is easy for the entire organization to understand and, with a little methodological support, reveals waste (7 wastes of lean) and potential in a target-oriented manner.  Value stream mapping is also referred to in textbooks as “learning to see”, because it takes place on site in an exchange with employees and records the real state. ERP systems and the knowledge of managers seldom depict the reality of the shopfloor and therefore this is an eye-opener in most cases.

We asked ourselves what potential lies in this methodology if it is expanded to include the perspective of sustainability or the circular economy? If one expands the frame of reference beyond one’s own plant boundaries, not only does new operational efficiency potential become visible through interaction of plants, logistics and partners across the value chain, but opportunities also arise for further development of business models in cooperation. And what discussions will be made possible if, following the analysis, value stream design is carried out with the ambition of the Circular Economy?

A sustainable business approach enables further design principles and opens up an exciting discussion that has implications for the entire supply chain management.

Example 2 (from a product development perspective): Material flow analysis

Circular Economy analysis methods, such as the Circularity Compass, make it possible to visualize and analyze material flows across value chains. The analysis includes all raw materials, production steps and changes of the materials to products as well as the use and finally disposal of the products and individual components of the products. As a result, waste streams as well as strategies for the reduction or value-retaining use of waste streams become clear. Thus, such an analysis not only increases transparency in one’s own value chain, but also reveals potentials that are not recognizable in a narrow view of the value chain. In addition, connecting points to other value chains can even become clear. In practice, a basic analysis with the Circularity Compass is also not particularly complex: a workshop in which different departments of the company come and discuss together often already achieves astonishing results. Here is a brief example from our practice: A company in the FMCG sector discovered potential savings in plastic packaging for its own products during the analysis. It was also possible to replace the raw materials used for the packaging with recycled material. The company participated in a new recycling plant in partnership with the packaging material supplier, which also gave the FMCG company constant access to packaging material at low cost. The latter was a particular bonus, as this recycled material is a scarce commodity on the world market and often difficult to obtain.

Ideally, the two approaches – value stream and material flow analysis – are combined. The connection of perspectives, even across departmental boundaries in companies, enables a comprehensive picture and the uncovering of blind spots in the value chain. The analysis thus serves to identify and prioritize fields of action and opportunities for cooperation. In line with the company’s goals, measures can then be implemented that result in savings in terms of costs, CO₂ emissions and material use. New innovation potentials can also be uncovered which, as in the example of our FMCG company, can only be implemented in cooperation.

Creating transparency in the value chain is therefore not only a necessity in order to meet future reporting obligations, but it is also an essential lever for the future-proof and sustainable development of industrial companies. Cooperation across company boundaries will become increasingly important in leveraging business potential. A comprehensive understanding of the value chain as well as the interfaces to other supply chains is therefore a key to sustainable entrepreneurial success.

What kind of cooperation potentials in your supply chains have you discovered? And what results have new collaborations brought about for your company? Share your experiences with us, we look forward to the exchange!

Image Source: istockphoto.com/Fritz Jorgensen