Not every growth answer is a new product. In this management consulting case study, a manufacturer with flat revenue finds its best opportunity hiding inside its own value chain, in a department most companies treat as back office.
Case Scenario
The client has seen stagnant revenues and diminishing earnings for the past three years. The CEO thinks the solution to his issue is high-margin service businesses founded on already-existing core competencies.
Key Questions
How would you analyse whether or not there are prospects to establish sustainable new service businesses from a value chain perspective? Based on your assessment, create some viable business concepts.
Possible Approaches
Examining the value chain and recognising procurement as a critical capability are the two things the candidate must do.
The company's procurement department, with its top-notch employees and procedures, is one of its key competencies. It can also draw on the 2,000 purchasers who work for its parent firm.
Large manufacturers such as Caterpillar and John Deere have a good working relationship with the corporation.
Large manufacturing businesses often purchase several hundred components (from around 500 vendors), but they also develop strategic alliances with their top 20 suppliers, including electronic links. These strategic alliances have resulted in substantial cost reductions, but expanding them past the top 20 suppliers is not financially viable.
Conclusion
Based on the client's procurement capability, Deloitte Consulting suggested a new business model in this case, where the client handles suppliers that aren't in the top 20 for its main strategic customers. In order to cut costs and speed up the procurement process for components obtained from vendors outside the top 20, the client makes use of its web-enabled electronic connections. Planning for the new business is now under way.
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