The Necessity of Added Value as Prerequisite of International Trade (3)

The venture may be considered successful if value is returned to the paying customer primarily, and to the invested stakeholder second only. Value to customer is achieved by provision of a well differentiated product or service that meets or, ideally, surpasses requirement. Value to stakeholder is achieved by delivery of that product or service at lowest cost/highest profit to the manufacturer. If profit is not achievable by reduction of material costs and manufacturing process leaning, improving supply chain efficiencies may yield cost savings that translate to increased profits. To deliver added value products to foreign markets, supply chains must deliver localised, adapted products. These processes could necessitate the creation of a localisation node, for example – a regional or national distribution hub where products are modified for local market acceptability. At this point in the supply chain, specific, locally-tailored, value adding activities are performed. Such activities could be packaging, insertion of appropriate language documentation, reprogramming, power supply modifications, adaptations to electrical or mechanical components to meet safety regulations, and dispatch via appropriate the channel to the point of customer contact, be that retail or direct delivery to a customer address. The customer requires these activities and, if the research done by marketing proves sufficient and correct, is willing to pay for them. This willingness to pay makes these activities value-adding.

From the stakeholder perspective, a more efficient supply chain generates greater profits. Typically, an efficient supply chain has three features:

1. Agility. The supply chain responds smoothly to short-term changes in customer demand and supplier interruption or quality deviation.
2. Adaptability. The supply chain design responds proportionately and intelligently to structural shifts in markets. The supply chain is able to scale capacity up and down according to demand fluctuation, and can hold inventory to counter disruptions.
3. Alignment. The supply chain motivates its organisational elements so that the chain’s performance can be holistically optimised. The organisations involved in the supply chain work collaboratively, exchanging knowledge and technology to enhance the performance of the chain, as this maximises their own return on investment.

These three features reduce risk of supply failure, which adds value to both stakeholder and consumer: stakeholders are reassured that the supply chain is profitable and robust (which also increases reputation, i.e. maintains or enhances brand image), and the consumer is reassured of prompt delivery and the availability of parts etc. That confidence also has reputational advantages and encourages consumer loyalty.

Complementing the foregoing is the provision of value via specialist/niche services for particular products. An example is cold chain logistics, in which temperature sensitive products, such as fish, are delivered in the required state, i.e. fresh or frozen. In cold chains, product spoiling is prevented by the maintenance of specified storage in transit conditions throughout their journey. Time different services are similarly specialist and performance sensitive. Whereas cold chain logistics provides temperature and local environment consistency over geography, time-based logistics facilitates the buyers’ requirement for cost-effective (minimal) inventory. Minimal inventory is achieved by timing deliveries to arrive at lineside precisely at the moment of requirement. With such a system, stockpiles and unnecessary inventory spending can be avoided. The difficulty of implementing a just-in-time system is matching the time of requirement to the time of delivery. Coordination of transport and obtaining reliable information about order quantities constitute the specific challenges facing logistics providers. However, any logistics provider that can deliver such a service will be highly valuable to a manufacturer.