Data Science for Value Chain Management
Value Chain Management (VCM) refers to organizing activities that add value to the goods or services to achieve a competitive advantage in the marketplace.
This method helps organizations to effectively respond to market trends and improve efficiency to boost profitability.
As a data sciencist and analytics manager, what impact can you have on your company's value chain?
In this article, we quickly delve into the fundamental components of Value Chain Management.
We will then explore four examples of data science applications to ** support strategic primary activities**.
Summary
I. The Pillars of Value Chain Management
1. Activities to create value
Understanding the fundamental components to create value
2. What are the primary activities?
Core functions directly involved in product creation, marketing, and delivery.
3. What are the support activities?
Essential functions that indirectly contribute to value creation
4. Data Science to Support Primary Activities
Discussing how data science tools and techniques can be employed to
optimize primary activities and enhance overall value chain management.
II. Inbound Logistics: Supply of Raw Materials
1. Supplier Mapping with the Graph Theory
Analyze supplier networks for risk assessment and optimization.
2. Sustainable Sourcing Network Optimization
Select suppliers based on economic and sustainable criteria
III. Operations: From Raw Materials to Finished Goods
1. Production Planning Optimization with Wagner-Whitin Algorithm
Optimize production planning, balancing setup costs and inventory management.
2. How to measure the impact of your solution?
IV. Outbound Logistics: Distribute your Final Products
1. Automate a Supply Chain Control Tower
Automate monitoring and improve the efficiency of outbound distribution.
2. How can we improve the performance using these diagnostics?
V. Conclusion
Two Pillars of Value Chain Management
Companies constantly search for methods to gain a competitive edge by enhancing efficiency and maximising profitability.
Customer: Samir, we would like to reduce the logistic costs by 20%. We want you to redesign the whole distribution network.
This is the commonality of most projects I've conducted as a Supply Chain Engineer or Data Scientist.
Therefore, most of the articles published in this blog focus on using data analytics to optimize supply chain processes to reduce costs.
Fashion Retailer: How can we produce and deliver our products at a lowest cost?
Value Chain Management (VCM) is a strategic approach that aims to streamline every stage of the Business process to optimize performance.
This covers everything from production to delivery to create maximum customer value while minimizing costs.
Activities to create value
The value chain framework was originally introduced in Michael Porter's book "Competitive Advantage: Creating and Sustaining Superior Performance".
This revolutionized how businesses perceive their operations by dissecting any business into a series of interconnected activities that contribute to creating and delivering value to customers.
- The Primary activities are directly involved in creating, selling, maintaining and supporting a product or service.
- The Support activities include infrastructure, technological development, human resources management, and procurement.
Let's explore their definitions now using the example of a Fashion retailer producing T-shirts in Asia that are sold in Europe.
What are the primary activities?
Primary activities include inbound logistics, operations, outbound logistics, marketing and service.
These core functions are involved in creating, producing, marketing, and delivering a product or service to the end customer.
For our example of the value chain of a T-shirt:
- Inbound logistics includes sourcing cotton from suppliers and transportation to the manufacturing facilities.
- Operations include transforming cotton into fabric patterns, sewn together to create a T-shirt.
- Outbound Logistics involves all the logistic processes to package, store and deliver the t-shirts to their final destination.
- Marketing and Sales focus on promoting to generate sales.
- Service __ includes after-sales support, customer service, and additional services such as customization.
How do you support and orchestrate these activities?
In addition, support activities play a critical role in ensuring the smooth functioning of these primary activities.
Let's delve into these essential support functions underpinning the entire value chain.
What are the support activities?
The support activities indirectly contribute to the value of a product or service by enhancing the efficiency and effectiveness of primary activities.
Support activities encompass infrastructure, technological development, human resources management and procurement.
As a data scientist in the digital transformation department, you are part of the support functions.
- Firm Infrastructure includes the organizational structure, control systems and administrative tasks that enable the smooth operation of its value chain.
- Technological Development activities relate to the technology and systems that support the value chain.
- Human Resource Management involves recruiting, training and retaining employees who contribute to every value chain stage.
- Procurement involves sourcing and purchasing the inputs needed for the value chain, from raw materials to office equipment.
What impacts can you have as a key actor in the Technological Development activites?
Data Science to Support Primary Activities
As a newly hired Data Science manager, you would like to propose a roadmap for implementing advanced analytics tools to support Primary Activities.
The objective is to support carefully selected value chain activities and make your team a strategic asset for the company.
Inbound Logistics: Supply of Raw Materials
This includes all the processes and activities associated with receiving, storing and distributing the inputs internally before production.
In our example, these inputs could be raw materials like cotton, dye and other supplies needed to manufacture a T-shirt.
