COM333 – IKBS3

Value Chain Analysis

• Porter’s five forces model of a competitive structure

Bargaining Power of Suppliers

Threat of new

Entrance

Bargaining Power of

buyer

Rivalry among existing

competitors

Threat of substitute producs or services

• Value chain analysis– “Every firm is a collection of activities that are

performed to design, produce, market, deliver and support its product. All of these activities can be represented using a value chain”

Michael Porter (1984)

• A decomposition model with major elements:-– Separates the primary and secondary

activities of the business– Concentrates on how the business adds value

to satisfy customer requirements– Follows business unit approach– Is independent of organisational structures

• VCA helps to gain an understanding of the internal nature of the organisation

• Organisation can use this model to allocate the resources efficiently (how well the resources are used) and effectively (how well the resources are allocated)

• Main focus of VCA is on the link between the activities in order to highlight areas of strategic strength or weakness and competitive opportunity threat.

• Value chain enables further analysis of some or all of the following– The information that flow through and how critical it is

to the functioning of the industry– The information that is or could be exchanged with

customers and suppliers to improve performance, or share benefits

– How effectively information flows through the primary processes and is used.

• To optimise performance• To link activities together• To enable support activities to contribute to the value adding

processes

• VCA can be used to analyse– How effectively the information flows through

the primary processes abd is used by them• Within each activity to optimise performance• To link the activities together and avoid

unnecessary costs and missed opportunities• To enable support activities to contribute to the

value-adding process, not hinder them

• IS and value chain– Business performance is dependent on the

process that gather and disseminate information

– The over all performance of the industry is primarily depends on how well the demand and supply information are matched at all stages of the industry

– It is not always the least efficient that suffer, often those with poorest information

• Value System– All businesses form one part of industry’s

value system– By modelling value systems for the entire

industry an organisation is able to assess how significant IS is to the linkages in the system

Their Suppliers

Our Suppliers

Us

Them

Our Distributors

Their Distributors

• Entering a new stage of evolution in terms of how IS/IT affecting the organisation– In the past organisations achieved improved

performance • by integrating its activities and processes • Supplier and customer interactions through IS

– ERP, CRM

• New stage enabling the integration of value chain in an entire industry as an end-to-end applications involving customers, channels and suppliers– Industry resource planning?– Linking every one’s ERP

• Customer resource life cycle analysis– Analyse the relationship with customers– By examining the customer relationship via a model,

companies can determine• When opportunities and threats exists for improved or new

information exchange• Which specific applications should be developed• IS/IT helps gathering the information from customer

– Through online– Much easier, more economic

• Many firms use the e-commerce to help customers to establish and specify their needs by providing more extensive information

• Another technique for generating information systems ideas during value chain analysis is “strategic option generator”– Described by Rackoff explored by Wiseman

• Considers the impact of IS/IT in relation to– Suppliers – any one supplying essential resources– Customers – consumers and direct customers

(distributors) – Competitors – obvious competitors who sell similar

products or services, actual or potential new entrants into market and threats from substitute products

• Suppliers – can we use IS/IT to– Gain leverage over our suppliers (improving

our bargaining power, or reducing theirs)?– Reduce buying costs?– Reduce the suppliers’ costs?– Be a better customer and obtain better

service?– Identify alternative sources of supply?– Improve the quality of products and services

purchased?

• Customers – can we use IS/IT to:– Reduce customer costs and/or increase their

revenue?– Increase our customers switching costs?– Increase our customers knowledge of our

product and services?– Improve the support/service to customers and

their needs?– Identify new potential customers?

• Competitors – can we use IS/IT to:– Raise the entry cost of potential competitors?– Differentiate products/services?– Reduce our costs/Increase their costs?– Alter the channel of distribution?– Identify/Establish new market place?– Form joint ventures to enter new market?

Internet and Value Chain• SUPPORT ACTIVITIES

– Infrastructure• Web-based, distributed financial and ERP systems.• On-line investor relations (for example, information dissemination, broadcast

conference calls).– Human resource management

• Self-service personnel and benefits administration.• Web-based training.• Internet-based sharing and dissemination of company information.• Electronic time and expense reporting.

– Technology development• Collaborative product design across locations and among multiple value-system

participants.• Knowledge directories accessible from all parts of the organisation.• Real-time access by R&D to on-line sales and service information.

– Procurement• Internet-enabled demand planning; real-time available-to-promise/capable-to-promise

and fulfilment.• Other linkage of purchase, inventory, and forecasting systems with suppliers.• Automated “requisition to pay”.• Direct and indirect procurement via marketplaces, exchanges, auctions, and buyer-

seller matching

• PRIMARY ACTIVITIES– Inbound logistics

• Real-time integrated scheduling, shipping, warehouse management, demand management and planning, and advanced planning and scheduling across the company and its suppliers.

• Dissemination throughout the company of real-time inbound and in-progress inventory data.– Operations

• Integrated information exchange, scheduling, and decision-making in in-house plants, contract assemblers, and components suppliers.

• Real-time available-to-promise and capable-to-promise information available to the sales force and channels.

– Outbound logistics• Real-time transaction of orders whether initiated by the end consumer, a sales person, or a channel

partner.• Automated customer-specific agreements and contract terms.• Customer and channel access to product development and delivery status.• Collaborative integration with customer forecasting systems.• Integrated channel management including information exchange, warranty claims, and contract

management (versioning, process control).– Marketing and sales

• Online sales channels including websites and marketplaces.• Real-time inside and outside access to customer information, product catalogues, dynamic pricing,

inventory availability, online submission of quotes, and order entry.• Online product configurators• Customer-tailored marketing via customer profiling.• Push advertising.• tailored online access.• Real-time customer feedback through web surveys, opt-in/opt-out marketing, and promotion response

tracking.– After-sales service

• Online support of customer service representatives through e-mail response management, billing integration, co-browse, chat, “call me now”, voice-over IP, and other uses of video streaming.

• Customer service via websites and intelligent service request processing including updates to billing and shipping profiles.

• Real-time field service access to customer account review, schematic review, parts availability and ordering, work-order update, and service parts management.