Mapping the supply chain
Now that you have decided in what industry you will build your business, you can make the next step. In order to have a complete understanding about the entire industry and to know where to zoom-in, we need to map the supply chain. Mapping the supply chain will help you understand the industry. Also, it can help you find a good entry point.
Table of Contents
What is “mapping the supply chain?”
The supply chain map is a visual representation that will show the flow of information and raw materials in each step of he process, from raw materials to the final customer. In this way you will identify the process, the producers of raw material, suppliers, factory, distribution, retailers and the customers.
At the end, you should have a similar map as the one above. You will use this map to gain the insights for finding an entry point in the market. Further, you will use this map to find a positioning strategy. After that, we need to monitor the supply chain to see how the dynamics inside your industry is changing. Also, you need to keep an open mind for finding new opportunities to develop your business.
Why do we need to map the supply chain?
You need to understand what are the levels of the industry, from which you can chose an entry point, for three main reasons:
- It is important to know what level is the one that brings the most value added, and further, can have the best profit margins.
- It is important to do a closer look in order to find the best entry strategy, where the parity between capital investment required and potential profit is best. Also, you need to find the right level, where you can bring real value added, and the demand is bigger than the supply for that specific product or service. This will help you in the short run.
- You must be able to understand the big picture in order to design a scalable plan. Having the big picture it will help you have the clarity that is required to plan your mile stones. In the same time, will help you build the approach for developing the business, vertically or horizontally.
How to map the supply chain of an industry?
First, I recommend you to create a holistic map, where to put on a white paper all the different products or services that you can find in an industry. After that, try to make a story with them. Look where everything begins. What are the steps through which the raw materials go through, and what are all the steps of transformation?
In order to make a complete map of the process, you can use the following steps:
- First, make general research about the industry. Try to find out what is the main raw materials, how are the suppliers, who are the manufacturers, who are the main distributors. What are the ways of sending the finite product to the customer (online, via retailers)? Who are the customers?
- Find out who are the main players in each category (suppliers, manufacturer, distributors, retailers) and gather all the information you can about them:
- What is the lead time?
- What is the cycle time?
- What technologies do they use?
- Where are they based?
- What transportation methods do they use (cargo plane, railways, ships, etc.)?
- Make a SIPOC diagram. The easiest way would be via EXCEL.
- Use arrows, with different colors, to show the flow of information and the imputes each entity of the supply chain uses and what outputs do they generate.
- Include relevant information like: strategic partnerships, connected companies (financed by the same investors), cost of entry at every level, advance theologies used in the process (or lack of it, if this is the case), inefficiency (if you see any), segments of customers that are not properly served, etc.
- Add any other information you may find relevant, depending on your industry.
- With this in mind, use the information learned in the step number 2, How to do an industry analysis?, and try to:
- Find an entry point for your business.
- What are the entry barriers (we talked about this in How to do an industry analysis?)
- Are the risks balanced against the potential profits.
For better understanding, I will take you through a study case example:
Let’s take the case of Strategic Kingdom and take you through the whole process.
I started this project with the main aim of being the base of a future consulting firm for entrepreneurs that want to build a sustainable business. It started with a need to share the knowledge and experience that I have accumulated in my journey. Also, I want to Help other entrepreneurs build a strategic approach and avoid some mistakes.
To keep myself motivated on writhing. I needed a strategic approach, in order to see the big picture and follow through to the end.
First, I had to see where this industry starts and end. After doing the research, I concluded it starts with educational/R&D specific content for different business needs, and ends with an “impact report”. This would be made by the company (the client in this case), that tries to measure the impact that the consultancy firm had over the project that was hired for.
Mapping the supply chain step-by-step.
Now, let’s try to map the industry/distribution as a process, from the row materials to the final consumer. We will continue using the same example as above, mainly Business Consultancy.
The client:
The small companies that have a particular blocker for which they need external expertise. The adviser should be specialized in a specific matter, and can help the firm overcome the specific barrier. This would be an alternative to internally hire an expert. In my case, the targeted clients would be small businesses, that are at the beginning of their journey. They have less than 50 employees, and encounter one of the following problems (which further will give us 4 customer segment):
- They need a strategy to enter new territories.
- They need an industry analysis for a spinoff that they are preparing.
- They need a positioning strategy, around which to build their brand.
- They need a step-by-step strategic framework to scale up their businesses.
The suppliers – Consultant:
Usually the suppliers will be the small contractors that are specialized in a specific matter, top in their field. The entrepreneurs will choose the consultant that will seem to be better prepared for that specific type of problem. Usually, the entrepreneur will search to find the best solution depending on the problem. He will work with one expert when he will have a marketing dilemma, and with another consultant when it will come to finance or management.
Networking creators:
The ones that are actively organizing networking and industry events. Usually, these are the places where new innovations are presented, new models and new approaches.
Trainers/mentors:
These are the ones that have the knowledge, have the experience, and the willingness to pass it further to the next generation of consultants. They usually summarize the knowledge in a condensed course, and together with a set of tools. They guide and teach a consultant how to approach different problems in order to come to the right conclusion.
Knowledge creators:
These are the independent individuals, or the institution, that create specialties content for all of us to learn. Usually, this content comes as training, courses and printed format – like books, specialized essay, or articles in magazines.
R&D:
Further than that, we have institutions that invest in research and development to always improve the way we are doing business. These institutions can be Academic Institution or private institution. Some time they are companies that are always trying to have a competitive advantage by always trying to find a better way of doing things.
What’s next?
Our next step in mapping the supply chain will be to build a SIPOC Diagram and to create a clear step-by-step process to see how raw materials are becoming finite products.
At this point, you should have a clear image of the industry, the points of entry and the “levels” that bring the most value added. Depending on your resources, knowledge, experience and the results of previous analyses, you can take an inform decision regarding what would be the ideal entry point in that industry. Further, this will be the basis of your “Go to Market Strategy”.
Conclusion
Being objective about the idea of starting a business, and using a step-by-step strategic framework, can help you save a lot of resources in the long term. You may have an idea that seems “out of this word”. Using a Strategic framework may help you understand of you are biased via the potential profits of an industry, or if you are right. To know which is which, and to be clear if the effort you are putting in is worth it, you need to take it step by step and analyze the potential of your initiative in a data driven manner.
Some time you may find some barriers in the industry that are too big to overcome, or to risky, after you already have done 3 or 4 steps in this process. This is perfectly fine. Keep in mind that you are doing this exercise, to find the best industry in which you can leverage your knowledge and your recourses. Even if it may not be the first industry you have eye on, keep looking for opportunities, it will pay off. If you chose the right industry from the first time, you will be in the position in which you have the basis for building a sustainable business. This will allow you to have all the main pillars already taken care of.
Step by step, you are getting there! If something is not clear, let us know. We will be glad to give you a hand to overcome any blockers you may encounter.
