November 2021 Volume 3

OPERATIONS & MANAGEMENT

Maximizing Your Value Proposition By Drew Locher

Organizations in all industries continue to seek opportunities to increase the value they deliver to their existing and prospective customers. There is the obvious potential impact on ‘top line’ revenues (depending on the nature of the good or service provided). However, there is an even more compelling reason to do so - creating stronger, more enduring relationships between a supplier and its customers. The concept of ‘supplier partnering’ is not a new one, though few organizations have truly grasped or taken advantage of the opportunities that exist. By increasing the value a supplier delivers to a customer, a stronger bond can be formed that goes beyond the traditional purchasing strategy mainly based on piece price that is still so prevalent today. Most companies will periodically review existing sources of goods and services for possible changes. Such changes will be more difficult to make with suppliers that have increased the value provided and demonstrated the ability to consistently deliver it. So, how might a company approach this strategy? First, let’s discuss the concept of value.

efficiency and more can be identified with a simple walk-through. And be sure to walk the entire value stream, including pre-and post-production processes. Opportunities may reveal themselves away from the production floor, in-office processes, warehouse and distribution operations, and the like. Once problems have been identified, the discussion moves to how the supplier can be part of the solution or solutions. Of course, the opposite can occur as well. A customer may take the initiative in this effort and identify different and creative ways to possibly work together with a supplier in the future. Regardless of who the initiator is the focus must be on mutually beneficial solutions. Here is where things can get touchy. In true partnering, there must be benefits to both parties. Open and honest dialogue is required. The sharing of information is often necessary so that both parties can agree on the benefits and how they might be shared. The details of this will depend on the solutions themselves. And so, our discussion turns to possible solutions. Expanding Your Value Proposition The most straightforward of opportunities is to add more value to existing products. By seeing what the customer does with a product, a supplier may offer to perform additional value-adding operations. Secondary operations such as machining and assembly are common approaches. The investment required will certainly be much less than that for new forging equipment. The benefit of shifting such operations to a supplier go beyond labor savings for the customer: inventory, space, material handling, and administrative benefits are all additional and very real benefits. For example, it is difficult to argue with the fact that purchasing one completed sub-assembly is easier for a customer than procuring 5 or 6 component parts. Further, the customer will no longer have to plan and schedule the sub-assembly operation. The same holds true for other types of value-add processes such as machining. In some cases, a customer may welcome such an approach. They may want a supplier to perform a particular process that they have had problems with in the past, so that the customer can focus on what ‘they are good at’. In all cases, suppliers must be sure to arrive at a price point that is acceptable to them and cover whatever investment will be required in a timely manner. Identifying all the potential benefits to the customer will really help here. Another common opportunity involves new products to existing customers. By seeing the customer’s operation and its finished products, such opportunities may present themselves. However, don’t just stop at the new product itself. For example, perhaps a similar product provided from another supplier is used in conjunction with a product you offer. They are used at the same assembly workstation. You can maximize your value proposition

Defining Value Value really must be defined by the customer. It has often been said that value is what the customer is willing to pay for. I have learned over the years that there can be value that is not always translatable to the pure economic term of revenue, at least not directly. In any case, it behooves any company to begin this conversation with its customers. What problem is a customer struggling with?The answer to this question might not be so apparent to a customer. Many will oversimplify the matter (“Margins, I need lower prices from my suppliers”). Others might not see the problems (and opportunities) that exist. To help a customer ‘see’, a supplier should walk the ‘value stream’ with the customer. Ideally, a value stream map is created with data annotating the map that can open peoples’ eyes to the opportunities that exist, but often a walk through is sufficient for this purpose. Problems with inventory, space, quality, staffing,

FIA MAGAZINE | NOVEMBER 2021 44