What are value streams?

Streams

Man was born free, but everywhere he is in chains - Jean-Jacques Rousseau

The words “value streams” can be considered, in the farthest stretch of the imagination, a sort of biomimicry---the emulation of natural phenomenon (models, systems, and elements) to solve complex human problems. We consider the word “stream” to reflect the steady rate of water being dispersed through the forest, as it nurtures all that is within and outside of it. The value is inherent in the stream, it produces value without it ever producing effort.

A thriving forest is usually accompanied, and supported, by the presence of a stream. The health of the stream is vital for the survival of the forest, and there’s a precarious balance that must be sustained. The health of the literal stream is based on a number of conditions in order for it to sustain forest biodiversity:

Water quality,
Stream flow,
Physical habitat (channel shape, rock/soil makeup and vegetation in and around a stream),
Stream
System connectivity (how the watershed interacts with the surface and groundwater),
Biotic interactions (the way different species interact). source

‍As the stream moves along the path undisturbed, it nurtures all things that it comes in contact with. The stream goes only one way, it never goes backwards. There is forward momentum, no matter what obstacles it encounters--the stream will always prevail.

The business architecture perspective serves a a valuable, if not refreshing, undertaking in driving that steady, continuous stream of progress and value throughout the networked interface of complex and complicated systems of business domains.

Let’s explore those chains and see how streams can help us move towards our goals towards business freedom.

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Exploring chain paradigms

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Supply chains

Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behavior you could lose a lot. It would be like pouring cement down one of your oil wells. - Thomas Friedman, Journalist

Here, Friedman described the sensitivity of the supply chain. They require certainty, routine, structure, and order. Everything has to line up or else supply will not meet demand in time. In 1905, a newspaper called the “Independent” wrote about the concept of a network of suppliers, producers, manufacturers and consumers. Only until the 1980s did the term “supply chain management” resonate with the relatively young fields currently being developed, like procurement, logistics, manufacturing, each of which play a key role in supply chain management.

The introduction of mass production brought with it the need to have a coordinated effort in manufacturing, assembling, and distributing the end product to customers. Henry Ford first implemented the supply chain on a large scale. In doing so, he was able to increase efficiency, manufacture enormously, and distribute skilfully.

Supply chain management witnessed 3 seismic shifts:

Mass production (like in the example of Henry Ford)
Containerisation: the ability of shipping enormous quantities with greater space for goods and the improved speed of freight movement across the seas. Increased efficiencies in warehousing processes improved overall transport terminal efficiency. Loading and unloading goods became easier and more efficient, which improved overall ability of the supply chain.
Barcode technologies made it easier to standardise the delivery of goods. It became easier to monitor the location of goods, especially useful for international supply chains. It became easier to sell and track profits on finished goods.

One of the most highly respected, and carefully observed supply chains is the coffee supply chain. Throughout this magnificent chain are underlying organisational, structural, cross-border regulations that need to be observed and respected in order for you to have your cup of coffee. The following is an example of a company in Seattle Washington, who uses the supply chain in order to sell their coffees to local Seattle coffee lovers:

Farmers hand-pick coffee “cherries” from organically grown trees on the eastern Andean foothills in northern Peru
The growers extract the beans from the cherries and lay the beans out to dry naturally in the sun.
The beans are trucked to a nearby dry mill for hulling
Then they are packed green into burlap bags and trucked to Peru’s largest port, Callao.
The bags of beans are transported by ship to Seattle
The product is trucked to Grounds fo Change in nearby Poulsbo, Washington 7. Grounds for Change roasts, packages and sells the coffee beans.
The customer gets their favourite coffee.

The supply chain varies from business to business, but there are certain processes that remain the same. In this case, for coffee it is the following chain that must be observed:

Farming
Harvesting
Drying
Sorting
Transiting
Tasting
Storing
Roasting
Sales
Barista

Did you know:

A single cup of starbucks coffee can depend upon as many as 19 different countries. Between the coffee beans, the milk, the sugar, and the paper cup, Starbucks acts as a worldwide supply chain that links some of the wealthiest with some of the poorest countries in the world, just so you could have your cup of coffee.

Supply chains are a way for businesses to manage internal and external dependencies whose typical result is customer satisfaction, but they do it in different ways. Supply chains take their origin, and perspectives, from operations management. The concept of the supply chain management first appeared in Financial Times in 1982, written by Oliver and Weber, describing an interconnected set of supply chains that are performed by an “extended” organisation whose activities involved procurement, manufacturing, and distribution. Much of the full- fledged development of supply chains we know today was born in the 1990s. The interconnected chains weren’t really “chains”, they were “networks” of various organisations orchestrated by the “focal company”.

Investopedia defines Supply Chain Management as:

the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.

Due to its relatively complex nature and expansive quality, each member of the chain — from supplier to manufacturer — must be in constant contact in order to meet their efficiency goals, reduce risk, and adapt to change.

Businesses manage two types of flows: information and physical flows. They interlink the “supply” of information between all the parties responsible, in their own way, for the supply, transformation, storage, and distribution. Thus, through a concerted effort, the conductor (aka Supply Chain Manager) is able to skilfully connect and receive via the intricate web of logistics the information, and the physical entities required for delivering customer satisfaction.

Every step of this process, from supplier to customer is closely observed and optimised to ensure efficient and effective delivery. The better the flows are optimised, the cheaper the company can be able to sell the products to the customer. Thus, the cost of materials, assembly of the product, the logistics of the product and service will have to be carefully optimised to reduce internal costs of manufacturing, storing, and distributing those products.

What benefits do organisations seek when implementing supply chain management?

better ability to predict and meet customer demand;
better supply chain visibility, risk management and predictive capabilities;
fewer process inefficiencies and less product waste;
improvements in quality;
increased sustainability, both from a societal and an environmental standpoint;
lower overhead;
improvements in cash flow; and
8. more efficient logistics.

This sounds like the model goal of any organisation, to meet customer demand without costing the organisation.

The primary concern of supply chains is cost reduction at all levels of the supply chain and its corresponding process improvements. When done well, supply chains have the power of reducing inventory costs, simplifying and making delivery of products timely to the customer, and open up new markets.

Supply chains are extraordinarily complex, especially when you have a global context. There are variable challenges that can’t be easily resolved, such as politics, processes, skill-labor, etc. Many things need to go right before the customer receives what they ordered, and in the quality they expected.

The following companies use supply chain management to leverage their internal and external resources. According to Gartner, the top 25 companies for 2021 are:

Cisco Systems
Colgate-Palmolive
Johnson & Johnson
Schneider Electric
Nestle
Intel
PepsiCo
Walmart
L’Oreal
Alibaba

That’s right, you heard it right.

A largely IT-driven company ranks as #1 according to Gartner’s best supply chain.

A long-standing debate has been raging in the field of supply chain management, there are mixed interpretations about exactly what “value” is delivered to the customer, and whether or not the customer even matters in this supply chain perspective. Is the customer part of the supply chain? I believe that the customer isn’t. There are three reasons:

The customer demands the supply, the customer receives the synthesis of that supply, the customer does not take part in the supply of those raw materials that is needed to produce the synthesis. The existence of the supply chain is based on the customer’s demand. Therefore, the customer is treated as an object the supply chain serves.
Value is added by the supply chain, the customer doesn’t add that value. This is because the customer is a consumer of the synthesised product. The customer is not part of the day-to-day processes involved in the creation of value (i.e. the business and its management), but it consumes the end result of these processes. As soon as the consumption is completed, the product has no longer any value. The customer must choose a company who has the best supply chain to meet their demands.
The supply chain is highly specialised, the customer highly general. The customer has no concept or understanding of the supply chain that is required to produce the end-result. Putting the customer as a member of the supply chain will destroy it, since the customer can’t serve itself, only a supply chain can do that. The customer’s inputs will not enhance the value delivered to it via the intricate processes needed to deliver that value in the first place.

Thus, the supply chain takes its existence by customer demand. The supply chain serves evolves on its own based on the demand the customer provides. It must rearrange itself in as flexible manner as possible in order to serve the object (aka the customer).

Based on the customer demographic, needs, wants, and what it can afford, the supply chain manager is able optimise the supply chain in accordance with that particular customer persona. In this way, supply chain management is highly customer oriented.

In the Harvard Business Review article titled, “The Death of Supply Chain Management” (2018), Lyall, Mercier and Gstettner describe the growing reliance on technology to resolve operational complexities inside huge organisations, especially those who push the limits of manufacturing and logistics. The 1% of companies who fill this tiny niche of artificial dependence are going to see a lot of transformations in their supply chain, with the introduction of AI-driven operations-related decision. The other 99% (and those in 3rd world countries) will still rely on old-school supply chain management until they have successfully achieved a sort of demand for tech-driven operations management.

Supply chains are highly complex structures that require astute upfront planning and supervision throughout the life of the organisation.

Product Owners can have various roles as members of a supply chain. For example, the product owner can play a role in:

Demand Planning
Supply Chain Planning
Capacity/Production Planning
Distribution Planning
Migrating Legacy Supply Chain Software to newer IT platforms
Integrating Legacy systems with internet of things
Optimise Warehouse Logistics
Improve Operations Management
Develop Supply Chain Data Analytics Platforms
Lead and support Data Science teams

As you can see, many roles require both the knowledge, experience, and comprehension of supply chains. Product Owners are becoming more and more common as members of critical teams who deliver pertinent results for the supply chain. Nowadays, with the growing reliance of more streamlined, fast-paced, and real-time metrics, the supply chain has come face-to-face with the domain of internet of things. This means that now supply chains are going to be greatly dependent on data science, real-time dashboards, improved fact-base decision-making, IT platforms that provide valuable information, tracking and monitoring the supply chain to speed up decision-making, and so on.

The Product Owner will soon become a fixed member of any typical supply chain. Knowing what it is, and how to navigate it, will be your greatest asset.

Knowing that the customer and the product owner are closely connected in the delivery of value and validating that delivery is an integral part of the work, it might be difficult when you’re confronted with this role as a product owner for a supply chain. Your external customer will likely not exist. You will largely be working in an internal operations-heavy position where you and a team will work to improve the overall process of the supply chain.

Supply chains are wickedly impressive and serve to unify, and synchronise service providers (from raw material) to manufacturing and then logistics, in a concerted effort driven by the focal company to deliver value to the customer. The customer is taken for granted, largely, in a supply chain. The customer simply exists to consume the end product. The customer doesn’t take active part in the supply chain, but is a recipient of the goods. It might be a hard sell to attract a product owner to this process-heavy work.

Value chains

From an operational perspective, exports challenge companies to design, develop, manufacture and supply products to discerning customers in global markets. This, in turn, motivates companies to scale up the value chain, which results in higher realisations. - Baba Kalyani, Businessman

Eminent Harvard business strategist, economics, and social causes theoretician and professor, Michael Porter’s seminal 1985 book "Competitive Advantage: Creating and Sustaining Superior Performance” first introduced the idea of the value chain. A value chain is defined as a process by which business acquire raw goods and through a series of value-adding business operations such as production, manufacturing, and other related (or similar processes), businesses are able to create a finished (target) product and eventually sell that product to the customer.

Practitioners of value chain management seek to enhance value at each linking business activity that is intended to produce value to the products they intend to develop. In doing so, they seek to optimise individual activities in order to gain a “competitive advantage”. Value added to each activity is intended to relate to the firm’s competitive strength. In short, value chain managers strive for opportunities where they can add value to the business. For example, what non-value adding activities are being performed, and could be removed, in order to maximise the flow of all activities in the value chain?

Porter distinguishes between support activities and primary activities. Support activities include processes like procurement, technology development, human resource management and infrastructure. Primary activities concern:

Inbound Logistics: Receiving, warehousing, and inventory control.
Operations: Value-creating activities that transform inputs into products, such as assembly and manufacturing.
Outbound Logistics: Activities required to get a finished product to a customer. These include warehousing, inventory management, order fulfillment, and shipping.
Marketing and Sales: Activities associated with getting a buyer to purchase a product.
Service: Activities that maintain and enhance a product’s value, such as customer support and warranty service (source).

The end-goal is to ensure that business activities are fulfilling consumer demand, and by streamlining these activities we can be better able to serve the customer. Optimising these activities is the competitive advantage.

The customer requests a product, enters the value chain, and the output is the customer’s product (according to their specifications).

Value chains have business management origins. The perspective is distinctive in comparison with supply chain management, mostly because of the view of the outside, not inside, that is more prevalent in its practises. Others would argue that the value chain is just another interpretation of the supply chain’s approach, in that one can look at adding value rather than observing information flow to great detail.

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Challenges to chains

Time is the scarcest resource and unless it is managed nothing else can be managed. - Peter Drucker

One of the biggest challenges to chains are their lack of customer involvement throughout the entire value-adding, and process-improving work. Much of the work conducted by these two chains is internally focused. The processes are thought of at a greater level of detail, aligned closely with perceived expectations of delivery, and planned to the most minute detail in order to guarantee (with the least amount of risk) the production of that product for the customer.

Information flow in the chains is not very customer-oriented, or specific to the customer. There are tremendous knowledge silos in these chains that make it difficult to proceed with work. Despite their supposedly “cross-functional” nature, the “network” or chain is able, at best, to deliver at some point to the customer with increasing cost of delay. By the time the customer receives his/her product, it is likely not what they expected--a limiting quality of waterfall methodologies that are closely intertwined with these chain-approaches.

Chains are largely functional-driven, rather than driven by processes. The functional-driven organisational structures focus on driving progress at the functional unit, this means that those responsible for operations, marketing, and finance will only be responsible for those topics. They rarely see how each of these individual units drive progress across the supply or value chain. So long as they fulfil their functional purpose, the supply chain progresses. The metaphor of a manufacturing plant where each individual unit stands at their designated spot and builds that product as the product approaches them on the conveyor belt is apt to illustrate functional-driven chains.

Functions made sense for a long time--the supply chain relies on people being able to fulfil those functions in order to supply the customer with their demands. The structure depended upon functional competence and hierarchy, in order to assign responsibilities and ensure accountability throughout the supply chain.

The amount of time and energy spent synchronising these individual silos contributed to a great deal of waste, handoffs were never certain, and there was only one person who could do that one thing. This results in tremendous stress for the organisation. There was little communication between silos and the consequence reflected in the quality of the product the customer received.

In addition, bottom-up activities were not traceable to higher-level process models and the poor execution and progress from ineffective handoffs and mismatched collaborations resulted in poor outcomes. Value items were not cleanly linked to value outcomes.

How do we solve our most obvious chain dilemmas? We must create streams, not chains!

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From chains to streams

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What are value streams?

The business architecture perspective serves a valuable orientation when viewing organisational value propositions end-to-end, with the focus of delivering value to customers at the point of service.

Rother and Shook (1999) define the value stream as:

All the actions (both value added and non-value added) currently required to bring a product through the main flows essential to every product.

Value streams are visual in nature, depicting all elements that concern the production, or service process whose goal is to identify waste and systematically increase efficiency.

Additionally, value streams observe all end-to-end collections of activities, or “business capabilities” as expressed by the business architecture community, in order to create something of value for their “customer” (internal or external). The value stream has a single goal: the satisfaction of the customer.

Value streams have cyclical characteristics, it is not concerned with the functions (roles, tasks, and duties). Value streams are triggered by an event, which produces a cycle of activity that begins and ends when the specified output is developed/produced. Value streams bring a product through the main flows important for that product, this involves management and information systems as supportive processes that realise the end-product.

Value streams focus on three key areas:

People - Place emphasis, and focus on developing (quality)human capital who have collaborative characteristics, value teamwork, trust one another, and support the organisation’s endeavours. Organisations must cultivate an environment of solid interpersonal communication, teamwork, and be able to empower its employees to build resilience and service inside the organisation.
Process - All activity that takes place is intertwined closely with organisational processes, whether formal or informal. The most effective way for organisations to run is if they standardise and make explicit a set of processes that encourage flexibility, adaptability in order to support and cultivate their employees to think creatively, focus on solutions, and engineer possibilities.
Product - The product or service is the reason for the organisation’s profitability, and existence. Sometimes it can get in the way, through dependence upon rigid inflexible organisational processes. Business architects deploy value stream mapping as a way for organisations to visualise, and diagnose problems and identify opportunities

Instead of focusing on process steps needed to fulfil a certain goal, the value stream focuses on what business capabilities (and if there aren’t, they will be created) are needed to improve quality, productivity, profit, meanwhile eliminating waste.

Value streams aren’t like value chains, they are simpler in design. Porter’s value chain regards the entire enterprise; that is, the structure of the organisation itself as value-focused. Value streams are different than value chains in that they focus more on a sequential set of activities to fulfil a value proposition.

Value chains are focused on the functional areas of the business, evaluating costs, profit margins, and analyzing the competitive landscape to remain relevant.

Why should organisations use value streams?

Value streams focus organisations around delivering value: outcome rather than output. Distilling a complex organisation into a set of value streams helps synchronise all relevant business capabilities in accordance with the organisations’ singular mission: to fulfil a value proposition who is eventually consumed by a delightful customer.

In doing so, organisations are better able to respond, and adapt to changes in their environment. Value streams evolve as the business does, and new value streams may be created in order to synchronise a set of activities that must be fulfilled.

Value streams make it simpler to understand complex organisations. Reinventing organisations to serve a purpose, such as the customer’s delight, helps to focus the organisation and simplify its efforts to deliver results. Additionally, business capabilities help identify the needed personelle required to create the product, or service. We can then easily identify who belongs to what business capability and what their roles are in fulfilling that service/product.

Value streams are specific to organisations, they cannot be transferred from one organisation to another. The business capabilities are unique to the organisation.