The successful competitors are those that can best manage, or even control, the entire virtual demand-supply or value chain to deliver the highest value to customers. They do this by closely evaluating costs, quality, and payback at every step along the way. They know the cost of shipping, marketing, and customer support at very detailed levels. They can enter risk analysis into the equation and optimise for time to market and profitability. In addition, they can manage their partners closely. Service and quality agreements are critical because if one piece of the virtual value chain does not deliver, the whole chain fails.
In a typical value chain, there may be links between different segments of a single, vertical manufacturing enterprise, or the links may be between independent, albeit inter-dependent, enterprises. All the enterprises in this chain work together in a closely-knit fashion to deliver value, in this case, products and services to end customers.
Each link represents a supplier and customer relationship. Each relationship involves the ordering and delivery of goods and services in response to supply and demand. Consequently, each link represents both the flow of physical goods (hard goods), soft goods (e.g. software), services, as well as information (e.g. orders, delivery notes, etc.).
The directional flow of information, goods and services through the various links and how fast they flow is what we term “product velocity”. Each flow may be subjected to “push” or “pull” forces that determine the functional characteristics of the link.
The challenge today is to maintain a visible and functional network of inter-dependent links so as to increase product velocity, thereby delivering value to the customer. This is the purpose and definition of a “Value Chain”.
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