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The value chain

• The production of goods and services is the result of the efforts of many organisations – a complex web of contracts and co-operation known as the supply chain or the value system.

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The supply chain• Manufacturing Inputs:

– Components (e.g. wheels, seats, etc.)– Sub-assemblies (e.g. engine, gearbox, etc.)

• Sales and Distribution:– Wholesale (e.g. import agent)– Retail (e.g. local main dealer)

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Logistics chains• Transport• Storage• Paperwork (Orders, Invoices, etc)

• Each supply chain transaction adds cost without adding intrinsic value.

• e-Commerce can be applied to the supply chain to reduce costs or improve service.

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Porter’s value chain model

• Primary Activities:– Inbound Logistics– Operations (Production)– Outbound Logistics– Marketing and Sales– Service

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management

Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Porter’s value chain model

• Support Activities:– Procurement– Technology Development– Human Resources Management– Firm Infrastructure

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Procurement

Human Resource Management

Technology Development

Firm Infrastructure support activities

Margin

primary activities

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Generic value chain

• Starting point to improve the efficiency and productivity of a company

• Help indentifying the component activities

• Help identifying the various linkages• Performance deficits can be addressed

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Use of value chain model• Analysis tool for defining a company’s core

competencies and the activities in which it can pursue a competitive advantage– Cost advantage– Differentiation

Steps in value chain analysis– Break down activities– Assess the potential for adding value via cost

advantage or differentiation – Determine strategies where competitive advantage

can be sustained

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Key weaknesses of traditional value chain

• Most applicable to manufacturing of physical products as compared to services

• One way chain involved with pushing products

• Does not emphasis on customer needs• E-commerce has implication for whether

activities are achieved internally or externally which is not covered in value chain

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Revised value chain

– MR: Market Research– NPD: New product development– MP: Market product– PM: Procure material– PP: Procure products– MSF: Manage selling and fulfillment

MR

NPD

M P P M P

PM S

F

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e-Commerce in the value chain

• Electronic Value Chain:– Reduced time frame– Changed cost structures

• Re-engineered Value Chain:– Just-in-time manufacture– Quick response supply– Efficient document processing

• Competitive advantage

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Linked value chains

• Inbound Logistics —from Suppliers

• Outbound Logistics —from Customers

Outbound Logistics

Inbound Logistics

Inbound Logistics

Operations

Outbound Logistics

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Porter’s value system

• Overall organisational competitive advantage:– efficiency of the company– quality of its products

• plus– efficiency and quality of suppliers– efficiency of wholesalers (Channel)– efficiency of retailers

(Inter-organisational value chain)

Firm

Value Chains

Supplier

Value Chains

Channel

Value Chains

Buyers Value

Chains

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Automotive assembly value system

• Inbound Logistics:– Large number of suppliers– Vast number of components

• Process:– Just-in-time (JIT) manufacture

• Outbound Logistics:– Limited number of Main Dealers

Internal Supplies

Vehicle

Assembler

Component Suppliers

Dealer

Network

Consumer

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Food supermarkets value system

• Inbound Logistics:– Large number of suppliers– Vast number of products

• Process:– Retail

• Outbound Logistics:– Vast number of Consumers

Regional Whse

Super- market

Food

Processors

Consumer

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Insurance value system

Insurance Company

Agents

Consumer

Insurance

Broker

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Insurance value system• Inbound Logistics:

– No significant suppliers(financial / re-insurance partners)

• Process:– Administrative

• Outbound Logistics:– Sales through agents– Sales through brokers– Direct sales