This is part 4 of our How to Start, Run, Grow & Fund a Business in South Africa. Please read How to Start, Run, Grow & Fund a Business in South Africa (using what you currently have) before reading this. This is part of the Starting a Business section.
Now you need to study the chosen business’s Supply, Value & Logistics Chain [Supply Value Logistics Chain]. This will help you understand the industry you want to enter (business model, cost to enter, competition and other parts that will go into your business plan) and where you fit into your value chain (the skills, equipment and materials needed to carry out your value proposition). You should also try to find a gap or niche [Prerequisites] that is not very competitive.
Within our context, we are able to merge this all in one because with small business it’s not very difficult.
Supply Value Logistics chain analysis will also allow you to build an abstract representation of your business, helping you to better visualise your business.
Supply Value Logistics chain of Pig Farming (the raising and breeding of domestic pigs):
A supplier of piglets to rear
Skills: Pig farming knowhow
Equipment: Gestation crate, slop bucket
Materials: Piglets, pig food/pellets, medicine, water mud,
Pigs raised to slaughter weight
Transport from supplier to you and from you to your buyer/abattoir.
If we look at the supply chain, starting with the supply of raw materials to the manufacturer all the way the retailer and then to the consumer. Think of each stage as a link, so a simple example Raw Materials > Manufacture > Wholesale > Retail > Consumer, each of these stages or links will have its own value chain which is joined together by logistics (the greater than symbol > we used above). We use the simple definition: supply chains link value chains using logistics. Here is a picture:
Now let’s zoom in on the value chain:
Each value chain has equipment and materials (input), skills/labour (process) to create the products and/or services.
This is all very abstract. So let me give you a practical example:
The biltong Industry
We start with the animals on the farm, that animals are then slaughtered by the abattoir and sold (and transported) to the butchery (the raw materials value chain), the butcher then cuts/processes and sells that meat (and it is transported) to the biltong manufacturer who spices the meat, dries it, weighs it and resells it (and transports it) to the wholesaler in bulk. The wholesaler then sells it (and transports it) to the retailer where I and you can buy it. That is the supply chain from the farm to the consumer. The value chain is each of the steps in between, whether the abattoir slaughtered the animal using a big knife or the farmer shot it with gun and bullets that part is the value chain of the raw materials, in this case, raw meat.
Step by step Overview
Supply of Raw Materials
The raw meat is bought by the manufacturer of the biltong from the farmer or butcher (Supply of Raw Materials). The raw material value chain is explained above.
Logistics to Manufacturer
It is then stored and transported to the manufacturer (Logistics)
Logistics Value chain
Equipment: refrigerated truck
Skills/labour: truck driver (with the appropriate licence)
Manufacture of biltong
The biltong is then manufactured:
Manufacture Value chain
Equipment: Drying cabinets or dehydrators, scale
Materials: Raw, meat, spices, bags for packaging
Skills/labour: The meat drying person
Logistics from Manufacturer to Wholesaler
And sold and transported to a wholesaler in bulk (let’s say 10kg minimum at a time)
Again we need logistics
Stored and transported to the wholesaler (Logistics)
Logistics Value chain
Equipment: A bakkie is fine this time as the meat is dried
Skills/labour: bakkie driver
Wholesaler Value chain
Equipment: Scale, Storage shelves
Materials: Packaging bags (plastic)
Skills/labour: Weighing & Packing
Let’s say the wholesaler sells 1kg minimum at a time, so he will need smaller bags to fit 1kg biltong in. This biltong is then sold to a retailer who then makes smaller bags (let’s say 100g) who sells it to the consumer. Again we need logistics to get it from wholesaler to retailer. But a car is fine this time
Logistics from Wholesaler to Retailer
Logistics Value chain
Skills/labour: licenced driver (code 8 is fine)
Retail Value chain
Equipment: Scale, Label printer, shop fittings
Materials: Packaging bags (brown paper), blank labels
Skills/labour: Weighing, Packing & Sales (shop assistant)
The retailer needs a scale and a label printer, because the consumer needs to see, how much they paying per kilo and how much their biltong weigh. And they need a shop assistant to assist the consumer. These are the shops or kiosks like you will see in a malls: Boesmansland, J&M Famous, Biltong Republic etc.
Now if you are wondering why I mentioned all those steps, then you are not following. The reason here is not only to understand the industry, and your fit in the industry, and to identify gaps in the market but also to see what other opportunities there are if you are unable to start your desired business in the industry. Not only that you need to study the entire chain.
Remember to study the entire supply and value chain from supply of raw materials to the end consumer and then after the consumer all the way to recycling. Here is an example of that whole chain (not all businesses will have all):
Supply of raw materials
Salvage & Surplus
Servicing & Repair
Secondhand & Refurbish
Each part of the above has its own value chain which consists of the equipment and materials (input), the skills/labour (process) to create the products and carry out the services (output) of the value chain business.
And in between all of the above will be the logistics link. The storage and transport, getting it from one point to the next. We use the simple definition: supply chains link value chains using logistics.
This is one of the most important parts of starting a business, understand the whole industry and not just manufacture > wholesale > retail > consumer. This is about our context, it’s about finding a gap and about starting with little and even nothing.
In a nutshell.
You’ll see a lot more of this. To be continued…
Previous was Writing the Business Plan
Next up is Test if Business Idea is right for you