ValueMagics – amazon.com
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ValueMagics is a methodology to shift management's attention from minimizing the cost of a product or service to maximizing the value created, perceived and captured throughout the entire supply chain – from producer to end user.
The Magic Pallet
The Magic Pallet
The starting point of ValueMagics is the Magic Pallet.
It shows the ValueSpace — the room available to increase the value of a product or service and improve the margin.
It demonstrates how companies can create additional value and subsequently calculate the increase in margin.
By applying ValueMagics to those activities of a company that are the source of competitiveness, management can identify where the company's weak links lie—and where opportunities for additional profits exist.
An example
An example
A pallet of avocados. For each of the "players" in the supply chain, the pallet has a different cost and value.
First, the perspective of the producer.
The producer's cost of means and added value determine the selling price.
For a producer in the agricultural sector, increasing its added value is not easy. Opportunities often lie in taking control of part of the logistics in the supply chain. For most of the growers, creating a brand is a mission impossible: the investments to achieve a better price for your brand are prohibitive.
The more of the value chain the producer can influence, the greater the potential ValueSpace.
The second perspective is that of the intermediary.
The process starts with cost of ownership—the purchase price, time involved, process adjustments and other sacrifices required to acquire and handle the product.
Value is subsequently added through logistics, marketing and branding, and pre- and after-sales service.
The value added by an importer, wholesaler or retailer in the agricultural sector can therefore be considerably greater than the value added by the producer.
The third perspective is that of the consumer or end user.
On one side are the benefits: design, quality, delivery, service and other benefits perceived by the customer.
On the other side are the sacrifices: price, cumbersome purchasing processes, environmental concerns and other sacrifices.
The consumer weighs these benefits against the sacrifices.
If the balance is unfavorable, the customer may buy elsewhere—or postpone the transaction.
Where is the money?
ValueMagics provides a reasonably precise estimate of the added value —the margin— that can be achieved in a specific market. It shows where value is created, where it is captured, and where the
ValueSpace lies.ValueMagics works backwards from the consumer price. It deducts VAT, import duties, distribution costs, intermediary margins and other costs.
This makes it possible to estimate the realistic margin that can be generated within the ValueSpace.
Below an example from the apparel sector:
Shifts in the value chain
ValueMagics distinguishes five major activities within a firm that are the source of competitiveness: development, production, logistics, marketing and service.
The importance of those activities has changed considerably over the last century:
Development
At the start of the Industrial Revolution, technology was still in their infancy. As competition intensified, R&D became one of the most important ways for a company to differentiate itself, alongside branding.
Its importance is increasing rapidly, driven by software development, artificial intelligence and other emerging technologies. At the same time, AI may accelerate the diffusion of know-how, putting pressure on intellectual property rights and, consequently, on the value created by R&D.
Production
In the last century, production was the center of gravity in the value chain, partly because of the large investments involved.
Today, production still matters, but its relative contribution to added value has declined in many industries. Automation, relocation to lower-cost countries and outsourcing have all played a role.
Logistics
Logistics was hardly an issue in the past. Factories were usually located close to sources of raw materials or major markets.
Today, logistics has become a crucial factor in the value chain. Global supply chains have made the movement of goods more complex. Geopolitical developments can disrupt otherwise smooth deliveries. As a result, logistics can create—and destroy—significant value.
Marketing
The world used to be a seller's paradise. “You can buy a T-Ford in any color, as long as it is black.” is a famous quote from Henry Ford to prove this.
Today, branding is almost a necessity, especially for affluent consumers in emerging markets. A strong brand can differentiate a product, create preference and increase the value perceived by the customer.
Service
Service used to be an essential part of the product offering. Products were often of mediocre quality, and relationship management played an important role.
Today, service is increasingly treated as a cost item and is often outsourced. At the same time, good service can still create significant value when it improves the customer's experience and strengthens the relationship. In B2B, the latter is a key factor in business.
Countries, not companies
In the middle of the twentieth century, massive outsourcing made production behave like water: it flowed towards the lowest-cost locations.
Countries—not just companies—begin competing with one another for investment and value-adding activities.
"Governed supply chains" emerge, in which a single company controls much of the chain.
The best example is that of Apple's iPhone:
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