To maximize performance and profit an organization should not restrict its focus to the internal organization but also focus on optimizing the value chain. Value chain optimization consists of integrating all volume and value decisions, in order to maximize profits across the entire value chain. An optimized value chain stands for the long-term vision of managing profitability, volume flows and services for all parties in the chain in a future-oriented manner. To get to the point of value chain optimization, the organization has to go through three stages: function optimization, supply chain optimization, and value chain optimization.
In the first stage of the value chain evolutionary model, the focus is on the internal management of primary and secondary functions such as production, logistics, procurement, marketing and sales. In this stage an organization is focused mainly on optimizing effectiveness and efficiency within the boundaries of the organization itself. In the second stage the organization focuses on supply chain management. Supply chain management has the objective to deliver high quality service levels and minimize the supply chain costs, and thereby meeting customer demand. To make the supply chain process more efficient the organization has to implement a decision-making approach in regard to production and distribution volumes which includes the suppliers and customers of the organization. However, without an overall inclusive approach which also includes collaboration in the value chain of the secondary functions, the organization will not be able to produce in the most efficient and effective way. Therefore, in stage three the organization focuses on optimization of the entire value chain which entails collaborating on production and distribution volumes and on the whole scale of primary and secondary functions, to maximize quality and organizational profit.
In order to obtain the full potential of the value chain, it makes sense that each party in the chain strives to become an High Performance Organization (HPO) and that the collaboration between the parties in the chain is also of a high performance nature. A high performance organization is defined as an organization that achieves financial and non-financial results that are better than those of its peer group over a period of time of at least five to ten years (De Waal, 2007). When an organization is transforming into an HPO, at some point the quality of the value chain becomes important. After all, when the partners of the organization, its suppliers and customers, are not HPOs themselves, the potential quality of the end product or service as delivered by the HPO will be partly or completely be annulled by the bad quality of the partners in the chain.
The result is that the end customer (the consumers) will never be serviced optimally. From previous research into the value chain of the diamond industry, De Waal et al. (2009) found that a difference in an organization’s HPO status, compared to its partner organizations, could influence the quality of the value chain. These researchers suggested that having a lower HPO status than the partner could have a negative influence on the effectiveness of the partnership. In other words, the low performance of one partner can work deter on the performance of the other partner. At the same time...
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