Balancing demand and supply: ‘Lifting the bar higher’
Reflecting on the performance of companies post Global Economic Crisis (GEC) I wondered how some companies had managed to thrive during a period of extreme business certainty.
Much of my work (both as a practitioner and academic) has focused on developing business models that have business alignment at their core. Business models where the product, marketing and supply chain strategy are in unison and ensure superior business performance in terms of growth and profitability. The business models with best alignment tend to be contemporary, with value creation and value delivery closely coupled and self-reinforcing. Good examples of such business models include Uber. Uber acts as a market mediator. They make the demand (for individual journeys) visible and the potential sources of supply (the drivers). In this way demand and supply can be balanced. Uber make their profit by taking a percentage of the value of the service.
Alignment tends to slip away as initial sales begin to plateau and organisations seek new ways to grow. They often do this without considering the impact on the supply chain and the costs associated with growth. Value creation and value delivery become decoupled and businesses destroy both customer and shareholder value. At the moment Uber are growing by replicating their model in different major cities. It will be interesting to see how they pursue growth once their core markets are saturated.
The analogy of lifting the bar higher is an important one. Traditionally organisations conceptualise the apparently conflicting objectives of the supply chain trying to reduce costs and marketing try to grow sales as a set of scales. This suggests tension and that the organisation cannot achieve both simultaneously. I would argue that a more accurate analogy is to consider the organisation as a weight lifter. The goals of minimising costs and maximising sales are the two weights at either end of the bar. A well-aligned business strategy lifts the bar in a level way and the weight lifter (the organisation) stands strong. If sales growth or cost reduction is pursued in isolation the bar becomes unbalanced and the weight lifter struggles to hold the weight of the bar. The business suffers from mis-alignment and performance suffers.
- Can you think of other contemporary business models like Uber that are good at balancing demand and supply?
- Do you think the Uber model could work in more rural locations?
- What would be the challenges?
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