1. Strategic Procurement &
Value Chain
CONSTRUCTION SUPPLY CHAIN
MANAGEMENT (MGT60803/QSB 2433)

2. Objectives Today
• Strategic Procurement
• What is Value Chain?
• Porter’s Value Chain
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3. Strategic Procurement
• Procurement is the process of obtaining goods
and services from another while a strategic
procurement objective is to facilitate added-
value.
• Procurement has been seen as a function for
reducing costs instead of adding value.
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4. Strategic Procurement
• Procurement strategies, however, cannot be
developed in isolation, they need to be
integrated with corporate strategy to succeed.
• Hence, a strategic procurement does not only
add values to the procurement process but
the entire value chain.
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5. What is Value Chain?
• A value chain is a set of activities that an
organization carries out to create value for its
customers. (E.g. Paper  Birthday Card)
• Porter proposed a general-purpose value
chain that companies can use to examine all
of their activities, and see how they are
connected.
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6. What is Value Chain?
• The way in which value chain activities are
performed determines costs and affects
profits.
• This tool can help you understand the sources
of value for your organization.
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7. How Value is Created Within Organizations?
• How do you change business inputs into
business outputs in such a way that they have
a greater value than the original cost of
creating those outputs?
• Example, manufacturing companies create
value by acquiring raw materials and using
them to produce something useful.
• Example, a company create value by using the
raw materials to build a hotel.
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8. Value Created
• The value that's created and captured by a
company is the profit margin:
• Value Created and Captured – Cost of Creating
that Value = Margin
Example: Selling Price of a birthday card is RM
4.90 – Cost of creating a card is RM 0.50 =
Profit Margin is RM 4.40.
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9. Value Created
• The more value an organization creates, the
more profitable it is likely to be.
• When you provide more value to your
customers, you build competitive advantage.
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10. Value Chain
• The value chain displays total value, and
consists of value activities and margin.
• Value activities are the physically and
technologically distinct/unique activities a
firm performs to create valuable products to
buyers.
• Example, a company uses IBS to build wall
panel (increase value – T,C,Q) and BIM is a
technology advancement in building
information (increase value – T,C,Q). 10

11. Value Chain
• Margin is the differences between total value
and the collective cost of performing the value
activities.
• Value Created and Captured – Cost of Creating
that Value = Margin
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12. Porter’s Value Chain
• Porter's Value Chain focuses on how inputs
are changed into the outputs purchased by
consumers.
• Porter described a chain of activities common
to all businesses, and he divided them into
primary and support activities.
• Called value activities.
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13. Porter’s Value Chain
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14. Porter’s Value Chain
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Five Primary Activities
Primary activities relate directly to the physical
creation, sale, maintenance and support of a
product or service.
•Inbound logistics: These are all the processes
related to receiving, storing, and distributing
inputs internally. Your supplier relationships are
a key factor in creating value here.

15. Porter’s Value Chain
• Operation: These are the transformation
activities that change inputs into outputs that
are sold to customers. Here, your operational
systems create value.
• Outbound logistics: These activities deliver
your product or service to your customer.
These are things like collection, storage, and
distribution systems, and they may be internal
or external to your organization.
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16. Porter’s Value Chain
• Marketing and sales activities: These are the
processes you use to persuade clients to
purchase from you instead of your
competitors.
• The benefits you offer, and how well you
communicate them, are sources of value here.
• Building customer’s relationships.
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17. Porter’s Value Chain
• Service activities: These are the activities
related to maintaining the value of your
product or service to your customers, once it's
been purchased.
• Such as installation, spare parts delivery,
maintenance and repair, technical assistance,
buyer’s enquires and complaints.
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18. Porter’s Value Chain
Support activities
These activities support the primary functions
above.
•Procurement – This is what the organization
does to get the resources it needs to operate.
This includes finding vendors and negotiating
best prices.
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19. Porter’s Value Chain
• Human resource management (HRM) – This is
how well a company recruits, hires, trains,
motivates, rewards, and retains its workers.
• People are a significant source of value, so
businesses can create a clear advantage with
good HR practices.
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20. Porter’s Value Chain
• Technological development – These activities
relate to managing and processing
information, as well as protecting a company's
knowledge base.
• Minimizing information technology costs,
staying current with technological advances,
and maintaining technical excellence are
sources of value creation.
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21. Porter’s Value Chain
• Infrastructure – These are a company's
support systems, and the functions that allow
it to maintain daily operations.
• Accounting, legal, administrative, and general
management are examples of necessary
infrastructure that businesses can use to their
advantage.
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22. Porter’s Value Chain
• Companies use these primary and support
activities as "building blocks" to create a
valuable product or service.
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23. Porter’s Value Chain
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24. Value Added
What is value?
•In competitive terms, value is the amount
buyers are willing to pay for what a firm
provides them. (worth)
•Value is measured by total revenue, a
reflection of the price a firm’s product
commands and the units it can sell.
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25. Value Added
• A firm is profitable if the value it commands
exceeds the costs involved in creating the
product. (E.g. Taylor’s University)
• Creating value for buyers that exceeds the
cost is the goal of any strategy.
• Value must be used in analyzing competitive
position, instead of cost.
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26. Conclusion
• Firms in the same industry may have similar
chains, but the value chains of competitors
often differ.
• Differences among competitor value chains
are the key source of competitive advantage.
• To diagnose competitive advantage, it is
necessary to define a firm’s value chain for
competing in a particular industry.
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