Supply Chain Conversations #2: Supply chains & service value networks


RCSA’s CEO, Charles Cameron, has continued to pose some important questions about supply chains for me. In our series of Supply Chain Conversations, we explore the involvement of recruitment and workforce services firms and auxiliary labour in supply chain operations.

Our second conversation highlights a distinction between supply chains and service (or value) networks and extends to consider how that difference influences the design of industry based supply chain governance initiatives.

CHARLES: You’ve spoken a little about why a ‘service network’ approach may work better than a supply chain approach, when it comes to eliminating unethical labour-hire and contracting.  What is the difference between the two?

ANDREW: We can think of a supply chain as the network for producing, handling and distributing a commodity – horticultural produce or tennis balls, for example, and even news or information.

Adopting that point of view, the Victorian government’s Guide to Understanding the Supply Chain explains that a supply chain comprises the “effort and resources that contribute to the delivery of goods and services from a supplier to an end user”. And goes on to say that this “could include people, organisations, systems, activities, information and resources”.

The emphasis that these definitions place on distribution and delivery reflects the view that supply chains basically move commodities and that they are directional. There are upstream and downstream participants. And, generally, value follows a downstream trajectory to the eventual consumer.
Buffered Sub-contracting

Now, one thing we do have to be clear about when we are discussing supply chains, is that the type of buffered sub-contracting, that was a feature of the arrangements which the Fair Work Ombudsman investigated in its Chicken Processing Inquiry, is not representative of a true supply chain. In that instance, the FWO found that the six principal contractors sub-contracted to at least seven other second-tier entities, some of whom further sub-contracted down a further two or three tiers, involving up to 34 separate entities in total.

Buffered sub-contracting merely served to distance the point of employment from the point in the retailer’s chicken supply chain, where processing labour was used. The buffered sub-contracting arrangement made little or no value contribution. It drew value out of the supply chain, added cost, and created a next-to-impenetrable cloud around exploitative employment practices. In short, it lacked sustainability.

In contrast to genuine supply chains and buffered sub-contracting, “service networks” (as RCSA refers to them) or “value networks” (as they are alternatively described) are a set of roles and interactions that generate a specific kind of business or economic outcome – say harvesting a crop, cleaning a store, or returning shopping trolleys. Verna Allee (2015), one of their leading proponents, describes a value network as a “human-centric, role based, network view of business activity”[1].

So, the focus of a service network isn’t directional, so much as transactional and relational. It accounts for exchanges of tangible and intangible value that can flow in any direction between network participants or “value contributors”. Its architecture reflects those transactions and relationships.

CHARLES: And which, in your opinion, would be more suited to RCSA in our desire to use demand side power of buyers to change supplier behaviour?

ANDREW: Both are important. Although, from a design perspective, I think RCSA can draw a lot from the service network concept, because it allows the recruitment and workforce services sector more precisely to identify the relationships, which they establish to enable business (including supply chain) operations. And once identified, it provides tools that can help them to exercise good stewardship over those relationships.

CHARLES: How would that work?

ANDREW: The service network approach to describing employment service supply arrangements focuses on key roles and relationships that contribute value to the supply chain. It recognises that specialised roles cluster around specific supply chain activities – using the examples I gave before – harvesting a crop, cleaning a store, or returning shopping trolleys.

So far, we’ve identified six roles that are key to the auxiliary workforce enablement of supply chain operations. The six roles and the type of workforce services usually associated with them are:

  • sourcing & selection (e.g. private employment agency);
  • engagement & employment (e.g. labour-hire);
  • performance of work (e.g. workforce contractor);
  • management & supervision (e.g. contract management company; managed services provider, or clerk of works);
  • payment (e.g. payroll) and
  • workforce logistics (e.g. mobilisation, accommodation & catering).

They can be arranged in many different ways and involve different types of employment services supplier – placement agencies, labour-hire firms, contract management companies, workforce contractors and so on.

They can be combined into a single end-to-end operation; be outsourced through specialised Recruitment Process Outsourcing; or co-ordinated through Managed Service Provider and Master Vendor arrangements.

But whatever the network elements may be, the key roles are clustered in support of a specific outcome; and each role contributes significant value to the particular supply chain operation that it supports.

CHARLES: What are the advantages of the service network approach, when it comes to eliminating unethical labour-hire and contracting?

ANDREW: One of the great advantages is that it is quite possible to map these roles for any workforce services supply arrangement and examine what the map reveals.

Service network cluster: e.g. labor hire & adjacent rolesThe diagram opposite depicts a cluster of roles that might support the provision of a labour-hire firm’s to, say, a horticultural producer in a remote area.  We can see that:

  • the relationships are cellular rather than linear;
  • each adjacent role is positioned in direct (or first degree) relationship to the labour hire firm and
  • the labour hire firm has some degree of direct influence over each of the adjacent roles. That is to say, it can select them and choose either to deal with them or not to deal with them.

The network approach allows us to see how the roles are positioned in relation to any particular participant. We can see how the direct benefit of the services that are supplied through the labour-hire firm’s network flows immediately to the supply chain participant, who wants the work done. In other words, the network client – in this case the horticultural producer.

That makes it easier for us to identify those participants, who stand to benefit most directly and to engage their support in changing behaviours, so that we can combat exploitation and promote sustainability together. One such change might be to encourage the network client to acquire labour-hire services from agencies, who can demonstrate – e.g. by certification – that they are reputable and exercise good stewardship of their service networks.

So, this type of “network view” provides us with an architecture that we can use when designing effective governance initiatives that don’t make the mistake of imposing responsibilities beyond a network participant’s direct sphere of influence or control.

We no longer have to say, “Oh! There’s a supermarket at the end of this supply chain. Let’s make them responsible”. We can be much more focused in our approach and we can design specific controls, including responsibility and accountability measures within our service networks and the contractual arrangements which support them, which will help to bring about the outcomes that we are wanting to achieve.

All of that contributes to improved supply chain governance. And it’s simply a matter of recognising that sustainable supply chain governance starts with good stewardship of the service networks in which we participate.

Andrew C. Wood, Hon. FRCSA (Life)

[1] Allee, V (2015) Value Networks and the True Value of Collaboration, Meghan-Kiffer Press, Tampa, Florida, (e_book) locs. 343 to 350 of 3591.

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