VALUE CHAIN ANALYSIS :

VALUE THE VALUE IS THE TOTAL AMOUNT (i.e. TOTAL

REVENUE) THAT BUYERS ARE WILLING TO PAY FOR A FIRM’S PRODUCTS.

THE DIFFERENCE BETWEEN THE TOTAL VALUE (OR REVENUE) AND THE TOTAL COST OF PERFORMING ALL OF THE FIRM’S ACTIVITIES PROVIDES THE MARGIN .

THE VALUE CHAIN IS A TOOL DEVELOPED BY DR. MICHAEL PORTER(HARVARD BUSINESS SCHOOL)

What is the value chain?

Porter’s definition includes all activities to design, produce, market, deliver, and support the product/service.

The value chain is concentrating on the activities starting with raw materials till the conversion into final goods or services.

Two categories:Primary Activities (operations, distribution, sales)Support Activities (R&D, Human Resources)

TYPES OF VALUE CHAIN:

• Value Chain is categorized into types based on the type of organizations.

• Manufacturing based.• Service based.• Both manufacturing and service based.

What is value chain analysis?

• Used to identify sources of competitive advantage • Specifically:– Opportunities to secure cost advantages– Opportunities to create product/service

differentiation• Includes the value-creating activities of all industry

participants

Value Chain Model(FISH BONE DIAGRAM)

Firm Infrastructure (General Management)Human Resource Management

Technology Development

Procurement

Inbound Logistics

Ops. Outbound Logistics

Sales & Marketing

Service and Support

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Custom

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Value

Cust

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Valu

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Margin

Mar

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TYPES OF FIRM ACTIVITIES

• Primary activities:Those that are involved in the creation, sale and transfer of products (including after-sales service) Inbound logistics Operations Outbound logistics Sales and marketing Service and support

• Support Activities:Those that merely support the primary activities Human resources (general and admin.) Tech. development Procurement

PRIMARY ACTIVITIES

Value Chain Modelfrom Michael E. Porter’s Competitive Advantage

Firm Infrastructure (General Management)Human Resource Management

Technology Development

Procurement

Inbound Logistics

Operations

Outbound Logistics

Sales & Marketing

Service and Support

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Custom

er

Value

Cust

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Valu

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Margin

Mar

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PRIMARY ACTIVITIES1.INBOUND LOGISTICS

- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (e.g. HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY CONTROL)

2. OPERATIONS - COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING)

3. OUTBOUND LOGISTICS-INVOLVE THE COLLECTING, STORING, AND DISTRI BUTING THE PRODUCT TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF FINISHED GOODS, AND DELIVERY)

PRIMARY ACTIVITIES4. MARKETING AND SALES

-Identification of customer needs and generation of sales. (e.g. ADVERTISING, PROMOTION, DISTRIBUTION)

5. SERVICE -INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCTAFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,MAINTENANCE, AND TRAINING)

SUPPORT ACTIVITIES

Value Chain Modelfrom Michael E. Porter’s Competitive Advantage

Firm Infrastructure (General Management)Human Resource Management

Technology Development

Procurement

Inbound Logistics

Ops. Outbound Logistics

Sales & Marketing

Service and Support

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Custom

er

Value

Cust

omer

Valu

e

Margin

Mar

gin

SUPPORT ACTIVITIES1.FIRM INFRASTRUCTURE

The activities such as Organization structure, control system, company culture are categorized under firm infrastructure.

2.HUMAN RESOURCE MANAGEMENT Involved in recruiting, hiring, training, development and compensation.

3.TECHNOLOGY DEVELOPMENT These activities are intended to improve the product and the process, can occur in many parts of the firm.

4.PROCUREMENT Concerned with the tasks of purchasing inputs such as raw materials,

equipment, and even labor.

USES OF VALUE CHAIN ANALYSIS:

• The sources of the competitive advantage of a firm can be seen from its discrete activities and how they interact with one one another.

• The value chain is a tool for systematically examining the activities of a firm and how they interact with one another and affect each other’s cost and performance.

• A firm gains a competitive advantage by performing these activities better or at lower cost than competitors.

• Helps you to stay out of the “No Profit Zone”• Presents opportunities for integration• Aligns spending with value processes

VERTICAL LINKAGES:

• LINKAGES CAN ALSO EXIST OUTSIDE THE FIRM; FOR INSTANCE THERE IS A LINKAGE BETWEEN A FIRM’S CHAIN AND THE VALUE CHAIN OF ITS SUPPLIERS AND CHANNELS.

e.g. THE ACTIVITIES OF THE RAW MATERIALS SUPPLIERS AFFECT THE ACTIVITIES OF THE FIRM. SIMILARLY, THE ACTIVITIES OF THE DISTRIBUTOR ALSO AFFECT THE FIRM.

APPLYING THE VALUE CHAIN TO AN INDUSTRY

• THE VALUE CHAINS OF THE DIFFERENT FIRMS WITHIN AN INDUSTRY VARY FROM ONE ANOTHER.

• IN FACT, THE DIFFERENCES IN THE VALUE CHAINS AMONG THE DIFFERENT INDUSTRY PLAYERS PROVIDE THE SOURCE OF COMPETITIVE ADVANTAGES BETWEEN THESE PLAYERS.

TATA MOTORS(A Manufacturing Based Company)

Value Chain & Value System of TATA motors

Inbound

Logistics

Operations Marketing ServiceOutbound

Logistics

Suppliers , Contractors

SAP , VCM

SAP , CRM - DMS

Strategic Alliances

Transporters, Convoy Drivers Association

Dealer Network, Marketing Research Firms, Vehicle

Financing

Regional Warehouses, Dealer Workshops, Distributors, TASS

PRIMARY ACTIVITIES

Inbound Logistics Long term contract with service provider’s – transporters and agents. Personnel at regional offices for over seeing the smooth transit of goods. Transparency and monitoring through deployment of IT – all transactions through SAP. DTL (daily transport logistics) supplies for critical high value items. Efficient storage facilities – easy storage and retrieval.

Operations Capital Equipment Manufacturing division – tooling development capabilities

of global standard.

Apprentice Trainee Course – ensuring stable source of skilled manpower.

Kaizen & TPM(total productive management) team – continuous drive to

improve efficiencies.

Automated manufacturing processes.

Distributed manufacturing – Assembly units at South Africa, Thailand,

Bangladesh, Brazil etc.

Maintenance – technical competence.

Capacity Utilization – Mercedes Benz cars make use of Tata Motors paint shop

facilities.

Outbound Logistics Stockyards, all across the country.

Long term contracts with transporter’s – higher volume of

business to transporters ensures competitive price.

Regional Sales Office and Vehicle Dispatch Section linked through

SAP.

Efficient security system for prevention of any kind of pilferage.

Marketing & Sales Structured approach to understanding the requirements of individual customers – QFD’s conducted at regular intervals. Clear identification of product requirements, leading to development of innovative products – Tata 207 DI, Tata Ace Pan India presence and global footprint. Independent teams for addressing the requirements of institutional customers – Defense, State Transport Units Helping to augment the scarce resources – Fiat selling vehicles through Tata dealerships, in return Tata has access to Fiat’s technology and unutilized capacity. Quick assessment of the changing market dynamics and consumer preferences – Tata 407 LCV Large network of dealers – use of technology (CRM-DMS).

Service Easy availability of spare parts.

Efficient collection of data from field and communication to the

respective plants.

Pan India presence, as well as global presence.

Large network of workshops – Dealer workshops and TASS.

Training facilities – for dealer end and TASS personnel.

SUPPORT ACTIVITIES

Procurement E procurement initiative. Global Sourcing Team – China , a key destination for sourcing essential items like tires, power steering units etc., Steel procured from Belarus Long term relationships with a stable and loyal pool of suppliers. Technology driven procurement – SAP and VCM. Strategic subsidiaries & JV’s – TACO group of companies , Tata Cummins Centralized Strategic Sourcing for key components – FIP’s, Steel etc. Group resources – Tata Steel and Tata International . Localized supplier base at mfg. locations – low inventory levels.

Technology Development Approximately 2% of the annual profits of the company invested

in research and development.

Knowledge portal – helps employees keep abreast with the latest

technologies.

Extensive prototype building and testing facilities.

Strategic partnerships – MDI (France), Fiat etc.

Formal benchmarking process.

“Technology Day” organized across all plant locations.

Human Resource Vast pool of technically competent engineers and managers.

Focus on development of technical capabilities – Technical

Training Center’s, Alliance with technical Institutes

Focus on development of managerial capabilities – MTC’s , TMTC,

executive training programs at premier business schools

Career advancement schemes – ESS, FTSS

Firm Infrastructure Multi – Location facilities

Strong leadership – under the aegis of Tata Sons

Best in class prototype building facilities

Technology – SAP

Large product portfolio

WALLMART(A Service Based Company)

WALLMART’S VALUE CHAIN