Magazine Article | March 1, 2002

Value Chain Integration

Source: Field Technologies Magazine

The most beneficial integration projects are those that will increase the value of the supply chain as a whole rather than the value of the individual links within the chain.

Integrated Solutions, March 2002

With tight budgets and more project requests than available resources, CIOs and IT managers are faced with difficult decisions regarding allocation of resources and prioritization of projects. Most of the time, there are three types of requirements that influence these decisions: strategic business requirements, functional user requirements, and systems infrastructure requirements. As many IT professionals would admit, it often seems the case that many influencing factors from each of these areas are related to convenience.

Examples of convenience-related requirements include enhancements to provide user-interface shortcuts that remove a couple of mouse clicks from a routine operation, or the installation of systems administration tools to automate systems management tasks. Granted, projects that provide convenience to users and IT personnel can increase efficiency and productivity. While such efforts may provide intangible benefits to an enterprise, it is often hard to directly relate these intangible benefits to increased value for customers.

You Must Adapt To Value Chains
As the level of specialization of various companies increases, it is likely that these companies will become further and further removed from the end consumer who finally realizes the value of these companies' products or services. This is true for every company that participates in a value chain that leads to a product or service delivered to an end consumer. The end consumer, in fact, has direct influence over the success of the value chain as a whole. Similarly, companies within the value chain must maintain awareness that their success truly depends on the success of their customers.

Considering this situation, it is apparent that value chain partnerships are a critical mainstay of today's business environment. Furthermore, we can see why marketing alliances and partnerships alone do not carry the weight and substance of execution-based partnerships. In combination, however, an execution-based partnership together with a marketing alliance can be a powerful growth tool.

Given the dependence of an individual business on the value chains in which it participates and the dependence of a value chain on the value it delivers to its end consumer, we must conclude that the success of a particular business will be dependent on two factors. The first is the ability of the value chains to provide significant value to end consumers. The second factor is the ability of the business to adapt in such a way that it can function within multiple value chains, thereby increasing its base of end consumers.

Sizing Up Projects And Funds
Assuming that a business has already established baseline systems for sustaining its operations (e.g. order entry, fulfillment, receivables, payables, general ledger), questions about the strategic importance of IT-related projects must be made in the context of the value chains within which the business participates. Given the choice between implementing a system that provides localized, intra-company value and a system that receives additional value from suppliers or provides additional value to customers, the choice is clear.

Now, the two choices are not necessarily mutually exclusive: a sales force automation system for a corporate intranet can be extended to allow customers to place and/or query order status directly, thereby increasing customer visibility and contributing to the efficiency of the value chain. An internal WMS deployment can include provisions for pushing inventory availability and shipment status data to customers.

The important consideration is not whether to embark upon a project for "us" or a project for "them." Rather, it is to shift the IT point of view to see the value chain as a single, cooperative entity. The ability of a company to see its partners as extensions of itself, and to build systems that extend appropriate functions and visibility to those partners, is directly related to its ability to contribute to the value chains in which it participates.