Platt Perspective on Business and Technology

Moving past early stage and the challenge of scalability 9: supply chain-ready business models

Posted in book recommendations, startups by Timothy Platt on September 25, 2012

This is my ninth installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96 and following for Parts 1-8.) In Part 8: web 2.0 business models, I began explicit discussion of business models in a range of new and emerging contexts that all businesses increasingly have to acknowledge and succeed in, going into the 21st century. As noted in Part 8, understanding and connecting into the increasingly global real-time conversation of social media and the interactive online have become essential, and for effective participation in most industries and business sectors and for essentially all marketplaces.

I turn in this installment to consider business models and the optimization of entry into and participation in supply chain systems and similar business to business collaborations. As markets and business systems become more closely and directly interconnected and dependent on each other for long term sustainable success, effective collaborative participation becomes a more and more essential component to the basic business model, and failure to get this right can easily lead to challenges in scalability, and even to significant failure of opportunity on a short time scale.

• By definition, effective supply chain collaborations create collective value and increased competitive strength for all partner members, helping them to more cost-effectively produce and provide value and at competitive cost.
• And effective supply chains help them to do so as rapidly and efficiently as possible in the race to be first and best to their particular target markets.
• So, competition and creation of competitive value can be defined as taking place at both the level of the individual businesses involved in these collaborations, and also at the level of these collaborative networks as a whole too.
• Supply chains compete as single aggregate business entities with other supply chains in the marketplace for offering greater combined value to consumers and end users.

As a working example for the type of business model that these systems demand, I cite a groundbreaking example of supply chain excellence: Li & Fung, as discussed in detail in:

• Fung, VK, Fung, WK and Wind, Y. (2007) Competing In A Flat World: building enterprises for a borderless world. Wharton School Publishing

Li & Fung is quintessentially a supply chain company, and it succeeds by working with partner businesses to create effective, optimized supply chains on the fly in order to capture immediately available short term opportunity in rapidly changing markets such as seasonal and fad-driven fashions and clothing. As needs and opportunities change, Li & Fung works with those partner businesses to re-tune their current supply chain collaborations. Or it moves on, working with new combinations of businesses that it has already formed such relationships with for capturing those next new opportunities through new on-the-fly collaborative networks. And through all of this, Li & Fung has developed a large collection of close trust-based relationships with businesses in production and assembly of a wide variety of types and in numerous locations, and in shipping and distribution and marketing and sales. And its ongoing success and capacity to organize collaborative and mutually beneficial success has made working with them an attractive opportunity for all of these other businesses. Ultimately, Li & Fung succeeds because its partners do, and by tapping into the collective returns on investments it makes possible for all businesses involved.

In this, Li & Fung has created a special niche for itself and can be seen as a perhaps extreme case that few other businesses would seek to precisely follow. But its success highlights the value, opportunity and importance of working in a business to business context and with supply chain partners for many other types of business too – and for businesses that primarily operate business to business but also for business to consumer oriented operations. I note here that many if not most of the business opportunities that Li & Fung explicitly organizes and develops are themselves business to consumer oriented going to market.

And with that, and the first part of this posting and the message of Part 8 of this series in mind, I note a trend that in a fundamental sense first began soon after World War II. The basic business model pre-war in its multiple variations was almost always built around an explicit assumption that expertise and capability needed to create and maintain a business’ competitive edge had to be developed and maintained entirely in-house and that in-house was and had to be the only source of expertise for those areas that went into defining and building its market capturing value propositions.

• Supply chain systems and particularly the types of collaborative systems that arose in response to the war and its materials development and production requirements, were replicated into the more peaceful post-war of consumer production. And businesses increasingly had to work with partners to mutual benefit if they were to remain competitive for what they themselves specifically offered.
• One consequence of the advent of the internet as an increasingly global force, was that the old model of businesses holding all value in-house became fully obsolete and for most businesses, and even when they based much of their value on closely held trade secrets. They still needed to secure raw materials and they still needed to distribute and sell what they produced. And when their marketplaces changed to include online channels that their customers and would-be customers preferred, they had to respond and be there too. So businesses increasingly could not operate and plan as if they were knowledge and resource oases surrounded by deserts. And their basic business models had to change accordingly.
• Web 2.0 and the interactive web have simply taken this to a next step – and for connecting to the marketplace as discussed in Part 8 and for leveraging the value creating potential of business to business as noted here.

And getting all of this right, and from the business model and operational and strategic practices coming from it, is essential for business scalability and growth and for long-term success.

I am going to step back to consider business models and business scalability in the larger context of overall business and marketplace ecologies in my next series installment. Meanwhile, you can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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