David Walters

The economic/financial downturn has focussed the minds of corporate management on the basic drivers of their business. Stephen Mills, Chair of the Australian Business Foundation, gave a timely reminder of the somewhat confused perspectives that exist concerning what productivity actually is. Mills (2009) argues that what Australian industry requires is “a greater ability to absorb and to apply the knowledge we already have.” He suggests that productivity does not rely solely upon R&D expenditures; rather it is about finding solutions to problems by using innovative approaches. Mills’ contribution suggests a much needed focus on process innovation in attempt at increasing productivity.

Typically a business has five ‘performance drivers’: revenue growth and market response, cost management, fixed asset effectiveness/productivity, working capital efficiency/productivity and, the effective and efficient use of time. This paper explores the linkages between corporate productivity performance and the role that logistics and supply chain management contributes to corporate productivity.

Slywotzky and Morrison (1997) introduced the term “customer-centric thinking”. Using a “customer-centric” approach to the value network/value chain suggests ‘things that are so important to customers’ are the customers’ value drivers, those adding significant value to customers and to customers’ customers. Within the context of the value chain, value drivers assume two-fold significance. One is clearly that of adding relevant value for customers and its ability to differentiate the value offer such that it creates competitive advantage for both the customer and the supplier organisation. The second is that like their customers, suppliers also have value drivers, and creating value creates costs for supplier organisations, thereby raising questions on the impact on the value and cost drivers of the supply/vendor organisation and the productivity performance of both.

Phelps (2004) considers value drivers (and builders) from the perspective of the organisation. Identifying value drivers begins by asking “What drives value in your business? Who are the competitors? What are the characteristics of the market?” The value drivers in any business depend on the specific setting, competition and the market structure Their time perspective is clearly short-term given they are factors that “drive present value” and as levers of present value. Focus on value drivers results in short-term improvements in performance. Value drivers include characteristics such as; product mix, manufacturing and distribution capacity, employee motivation, supply chain configuration, generating strong positive cash flow, excellence in customer service etc. Phelps argues there are no generic value drivers, they can be as diverse as brand image for one organisation and employee recruitment policies for another: what is common to all organisations is that value drivers create short-term performance improvements.

This raises the issue of the overall impact on productivity and the need to ensure efficacy in the overall approach. In this paper we develop a model linking customer value drivers to the customer organisation’s performance drivers and in turn to those of the supplier organisation in an attempt to establish consistency and continuity of a productivity strategy through efficient logistics and supply chain management.