1. Value Chain and Value System
By group :- 2
Sandeep Lunked 130/08
Mahendra Pratap Singh
Sudeep Tyagi
Ashish
2. Value Chain framework is a model
that views firms by sets of activities
that firms use to create value and
competitive advantage.
3. Value Chain
• Models the firm as a chain of value-creating
activities.
• Its ultimate goal is to maximize value creation
while minimizing costs.
• The value chain framework is a powerful
analysis tool for strategic planning.
The concept of Value Chain popularized by Michael Porter (Harvard University)
4. Value Chain
Inbound Outbound
Operations
Logistics Logistics
Marketing
and sales
Service
5. The value chain categorizes the generic value-adding activities of an
organization.
– It describes the activities within and around an organization.
– Relates them to an analysis of the competitive strength of
the organization.
– It evaluates which value each particular activity adds to the
organizations products or services
– Only systematic things and activities will make customers
willing to a pay a price for the product.
– Operational Effectiveness as a tool for Competitive
Advantage.
6. Porter’s View
The term ‚Margin’ implies that organizations realize a profit margin that
depends on their ability to manage the linkages between all activities in the
value chain.
7. The "primary activities" : The “support activities"
– Inbound logistics • Procurement (Purchasing,
– operations sourcing, etc.)
(production), • Technology Development
– outbound logistics, (Information systems, etc.)
– marketing and sales, • Human Resource
and Management (employee
benefits, compensation, etc.)
– services (maintenance).
• Infrastructure Management
(finance, legal, etc.)
8. Value System
A value system includes the value chains of a firm's
supplier (and their suppliers all the way back), the
firm itself, the firm distribution channels, and the
firm's buyers (and presumably extended to the
buyers of their products, and so on).
Value System can extend beyond the boundaries of an
enterprise -- Value Systems according to M. Porter.
9. Value System - Example
Source: Value chain resource planning: Adding value with systems beyond the enterprise;
Business Horizons 47/2 March-April 2004 (79-86)
10. ERP
• Enterprise systems are designed to plan and integrate
processes, enforce data integrity, and better manage
resources.
• The best known are Enterprise Resource Planning (ERP)
systems, which are predominantly intra-firm focused and
provide, at least in theory, seamless integration of processes
across functional areas with improved work flow,
standardization of various business practices, improved order
management, accurate accounting of inventory, and up-to-
date operational data.
11. Supply chain management (SCM) applications developed by
such firms as i2, Manugistics, and ORTEC, have provided
capabilities for firms to manage their fleet resources more
efficiently and develop more appropriate production
schedules, ordering protocols, and postponement
strategies.
Contract monitoring programs, available through CRM and
supplier relationship management (SRM) vendors such as
Oracle, Siebel, RiverOne, and Supplyworks, continuously
monitor the fulfillment of contracts to ensure quality and
long-term reliability.
12. The Internal - Business - Process Perspective
• Each business has a unique set of processes for creating value for
customers and producing financial results.
• The internal-business-process value Chain encompasses three principal
business processes:
– Innovation
– Operations
– Postsale service
13. The Internal - Business - Process Perspective
Innovation is a critical internal process.
So is Postsale Service
14. Processes
• Innovation process
– the business unit researches the emerging or latent needs of
customers, and then creates the products or services that will meet
these needs.
• Operations process,
– the generic internal value chain, is where existing products and
services are produced and delivered to customers.
• Postsale process
– includes warranty and repair activities, treatment of defects and
returns, and the processing of payments, such as credit card
administration
15. Metrics - Innovation Process
MEASURES FOR PRODUCT DEVELOPMENT
1. The percentage of products for which the first design
of a device fully met the customer’s functional
specification
2. The number of times the design needed to be
modified, even slightly, before it was released for
production.
16. Metrics - Innovation Process
Illustration
Hewlett-Packard engineers developed a
metric called break-even time (BET) to
measure the effectiveness of its product
development cycle
BET measures the time from the beginning of product
development work until the product has been introduced and
has generated enough profit to pay back the investment
originally made in its development
17. Metrics - Postsale Process
• Cycle times from customer request to ultimate resolution of the
problem
– measure the speed of response to failures.
• Cost metrics can evaluate the efficiency
– the cost of resources used for postsale service processes
• Yield
– Percentage of customer requests handled with a single service
call, rather than requiring multiple calls to resolve the problem.
• Defects
– They recorded the percentage of items that could not be
offered to customers because of quality-related defects.
