Creating Profit Through Alliances - business models for collaboration E-book

4. The value chain diverges and converges Supplier Supplier Consumer Client The value chain is not straight. Each product is made of components, and in order to run a business you need various investments and services. Apart from staff, a hairdresser also needs premises, chairs, wash basins, trimmers and hair care products. The services of the interior designer and the coffee machine also contribute to the value added by the hair dresser. Figure 4. A possible value network around a business Naturally, a purchaser's attention is mainly drawn to the largest expense items. For a steel plant, they will be the iron ore and coals. So you can be sure that the negotiations on the delivery contracts in this respect will be fierce. But what about security services? The steel plant may not be interested in this, but the security company is. The next step is to quantify the identified streams. What percentage of your turnover can be found in each buyer group and what percentage of purchasing do your buyers spend? What are the most important end products that your activities contribute to and how important is your share in this? Are there any costs up the chain that you can easily prevent? Not only does the value chain operate as a funnel, it also branches out. First, because a plant can manufacture different products for different buyer groups. But residual streams also have their value or price. Energy companies supply CO2 to market gardeners who use it to improve crop growth. By separating waste, some residual streams can be recycled and processed or even sold at a lower price. Packaging costs are a good example of costs that can often be reduced. A semi-finished product is packaged in a certain way because that is standard in the industry. This often is packaging that is cut open and thrown away. Why is that packaging not returned? At one point, the cable and plastic pipes trade replaced the wooden reels with removable steel reels. This substantially reduced the freight volume for the collection of reels. Use these four insights to look at your business activities in a wider context. We are no longer talking about the value chain, but your place in the value network. The value network is in effect the diagram of the complexity within which a business and its activities operate. You can start by drawing the value network around your business by looking at the most important suppliers and buyer groups (see Figure 4). Who else supplies your buyers, and do your buyers sell on your product unmodified, in combination with other products or processed in another product? Supplier Supplier Company Consumer Client Consumer Client Consumer If you take the network of business activities that yields a certain product or service, you can - using the right data - also reconstruct where the biggest profits on this product are made. This will of course not always be completely successful, but if you collect information methodically, you will arrive at a certain insight as shown in Figure 5. 13

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