Business Models, Fizzy Drinks, and the Supply Chain

When you consider all the different forms of commercial activity, there are a huge variety of business models – variations on the theme of who does what, for whom, when, and what they get in return.

You might dig a mineral out of the ground, and send it to somebody who values it. That’s a business model that has existed since the Stone Age, but it’s still a valid strategy today. Alternatively, you might perform a transformative activity that increases the value of an item, like curing a hide or soldering components onto a circuit board. You might do something less tangible, such as cleaning premises or selling insurance. You simply provide a product, a service, or some combination of the two, and you get paid for it – which could be in hard cash, or some other form of exchange.

There is no ‘right answer’ in selecting a business model, and sometimes there are opposites that both work. For example, there are all-you-can-eat buffets, and there are normal restaurants where what you pay depends upon what you choose to eat. Both types of business survive, despite having chosen very different ways to be paid for what they do.

All-you-can-eat buffet

Homer Simpson: misbehaving at the all-you-can-eat buffet

In restaurants, we expect to find the finest foods on the à la carte menu, while an all-you-can-eat buffet offers somewhat lower quality. Conversely, in mobile communications, the premium offering is the unlimited calls and data package: the equivalent of an all-you-can-eat deal is the top of the line product.

Business models are sometimes the opposite of what you might expect at first glance. For example, the business model of most television broadcasters isn’t to deliver television programmes to people: that’s not what they get paid for. They get paid for delivering audiences to advertisers. (That’s a sobering thought: you aren’t the customer… you’re the product. The same is true for the time you spend using free services such as Facebook, or Google.)

When designing or analysing a business model, it’s important to stick to the basics: who does what, for whom, when, and what do they get in return? Anything else is window-dressing.

Let’s use soft drinks vending as an example. If you want to offer a chilled, sparkling drink to thirsty people, without all the infrastructure of actually building a café and staffing it… you design a vending machine. It’s coin-operated, and it dispenses bottles or cans, right?

Well… maybe. But not if you’re a Soviet-era Russian. The capitalist solution to meet the need for fizzy drink vending was to establish facilities where you would mix water, a syrup concentrate and the carbon dioxide that gives it fizz, and package everything up in a bottle or an aluminium can, and then ship the products out, and place them inside refrigerated machines… but if the planned economy of your country is geared towards other purposes (such as funding the construction of an astonishingly large military) you simply can’t afford this solution. The alternative is to establish a machine that mixes syrup, cold water and carbon dioxide in situ, with no packaging required. So far so good… not unlike the mixer hosepipes that bar staff use to dispense soft drinks in many pubs. But here’s the kicker: the Soviet solution used a communal glass.

Soviet era Vending Machine

Soviet era Vending Machine (Hlynsky, 1989)

In the egalitarian paradise of the 1980s USSR, everyone shared. When you’d finished your drink (gulped it down quite quickly if there was a queue, presumably) you would put the glass back into the machine, upside down, and it would be rinsed out with cold water, ready for the next comrade.

In addition to the question of disease, there was another problem: people would absentmindedly wander off with the glass, rendering the machine useless until it was replaced; a later modification saw them chained to the machine.

Nowadays, we look upon the vending machine with a communal glass with a degree of amusement, or horror… but it illustrates an important point about the supply chain, and the business model: if your plan is to provide fizzy drinks in exchange for money, without the intervention of a human server, it’s a mistake to automatically assume that this involves bottles or cans, and that no alternatives exist. There’s more aluminium used to make drinks cans than airliners. Is that a good use of materials? Is it necessary? Do we really need to stock a machine with a finite number of drinks cans, or might we equip it with a water pipe, dispensers for flavoured syrups, and a tank of food-grade carbon dioxide? Add a nested stack of disposable cups (in bioplastic or paper) and you might have a far more capable machine offering drinks at lower cost and/or with a greater profit margin… as long as buyers want the drink for immediate consumption.

It’s not such a silly idea, is it?

We can learn a lot from the fizzy drinks industry. It’s a highly profitable business, and its executives are among the best. In 1983, Apple’s Steve Jobs famously recruited John Sculley, formerly the youngest-ever president at Pepsi. This was his pitch:

“Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?”

Then again, in a 1987 interview, John Sculley predicted that the Soviet Union would land a man on Mars within the next 20 years. By then the Soviet Union and its system of government had only four years left, finally grinding to a halt in 1991.

Perhaps there are some things you can’t learn from the fizzy drinks industry.

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One thought on “Business Models, Fizzy Drinks, and the Supply Chain

  1. Pingback: The Supply Chain, and the Landscape | Capacify

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