ValueMathicsTHE MAGIC PALLET

©2004 TGVC

Every time a shipment sails to its final destination, seller and buyer have done business because the transaction represents a value for each of them.

The same applies whenever a service is delivered to the buyer

Then again, seller and buyer have different perceptions of “value”. “The Magic Pallet” explains the

different elements of those perceptions.

SELLER

For the seller, value is the sales price

of his goods minus the cost of means

(fixed and variable costs); the net profit on

the transaction

Seller’s sales/buyer’s purchase price

Value

SELLER BUYER

VALUE ADDED

COST OF MEANS

PERC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

SELLER

For the seller, value is the sales price

of his goods minus the cost of means

(fixed and variable costs); the net

profit on the transaction

BUYER For the buyer,

value is the worth in monetary terms of the perceived benefits

in return for the price he pays plus the

additional costs incurred,

called “total cost of ownership”.

This is the “value proposition” of the seller.

Value

SELLER BUYER

VALUE ADDED

COST OF MEANS

PERC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

ValueMagics uses concise concepts

with precise descriptions to

identify the elements that

constitute the value proposition

of a firm

VALUE

ADDED

CO

ST O

F O

WN

ERSH

IP

CUSTOMER VALUES

QUALITY

IMAGE

DESIGN

SPEED

CHANGECHANCE

VALUE CHAIN

The chain of activities

performed by a single firm,

which add value

for its customer

TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT

TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT TECHNOLOGY

PRODUCTION LOGISTICS MARKETING SUPPORT TECHNOLOGY

PRODUCTION LOGISTICS MARKETING SUPPORT

VALUE SET

The set of value chains that come together

including suppliers, manufacturers processors,

distributors, traders, etc.

CUSTOMER VALUE

The sum of perceived benefits – in monetary

terms- in turn for the total cost of ownership

Let us first agree on some definitions….

CO

ST O

F O

WN

ERSH

IP PERC

EIV

ED

BEN

EFIT

SVALUE

The costs of means are the comparative

resources of a firm or sector.

For most, these costs are a given

- hard to improve upon

We now can start loading the pallet……

MINDS = Cost people with a higher education and/or creativity. MONEY = Cost of own financial resources or financing MAN POWER = Cost of skilled, proficient or experienced workers MACHINES = Cost of machines, infrastructure and other means. MATERIALS = Landed cost of raw materials, seeds, ingredients a/o

SELLER BUYER

MIN

DS

MO

NEY

MA

N P

OW

ER

MA

CH

INES

MA

TER

IALS

……..…..contains the value added; the value chain of a firm or

sector, which is the source of competitive advantages.

Not the comparative

“What do you have?”,

but

“What do you do with it?”

The second crate…….

TECHNOLOGY = Creating new, developing or adapting existing products PRODUCTION = Transformation of inputs into a final productLOGISTICS = All in-bound, in-house, out-bound movement of goods MARKETING = Attracting new and retaining existing customers SUPPORT = All pre/after sales support, personalization of processes

SELLER BUYER

MIN

DS

MO

NEY

MA

N P

OW

ER

MA

CH

INES

MA

TER

IALS

TECHNOLOGY PRODUCTION

LOGISTICS MARKETING

SUPPORT

….the seller to the buyer.

For the buyer, that value proposition has two

sides: his total cost of ownership……..

This is the value proposition of ……

COST = Purchasing price on a DDP basisCHRONO = Time involved in purchasing, control and corrective actionsCHANGE = Change and adaptation to new products, processes or suppliers CHANCE = Number of potential suppliers, reliability, barriers, distancesCONFLICT = Disputes on incompetence, unresponsiveness, non-transparancy

SELLER BUYER

MIN

DS

MO

NEY

MA

N P

OW

ER

MA

CH

INES

MA

TER

IALS

TECHNOLOGY PRODUCTION

LOGISTICS MARKETING

SUPPORT COST

CHANGE

CHANCE

CHRONO

CONFLICT

……………..perceived benefits from the

purchase.

These benefits can be of technical, social,

economic or any other nature and are related to

the product and processes

The last crate contains the……….

SELLER BUYER

MIN

DS

MO

NEY

MA

N P

OW

ER

MA

CH

INES

MA

TER

IALS

TECHNOLOGY PRODUCTION

LOGISTICS MARKETING

SUPPORT COST

CHANGE

CHANCE

CHRONO

CONFLICT

PRO

DU

CT

AC

CES

S

SPEE

D

IMA

GE

SER

VIC

E

PRODUCT = Design, shape, color, taste, feel, texture, packing ACCESS = Compliance with product and process standards and norms SPEED = Availability and/or delivery time, convenience of purchasingIMAGE = Contribution to profit by reputation supplier/country or brand SERVICE = Level of pre- and after sales service, customization of processes

Higher cost of means –MMMMM- will cause higher cost of ownership –CCCCC-

without necessary increasing benefits -PASIS

Higher value added –TPLMS- will lead to higher benefits –PASIS. Therefore, higher MMMMM need to be compensated by higher TPLMS.

Competitiveness….

SELLER BUYER

COST OF MEANS PE

RC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

SELLER BUYER

VALUE ADDED

COST OF MEANS

PERC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

If total cost of ownership –CCCCC- is higher than the benefits –PASIS-,

the buyer will not buy, postpone the purchase or look for

other suppliers.

Business or no business ……

SELLER BUYER

COST OF MEANS

VALUE ADDED

PERC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

The value proposition of a seller is composed by his cost of means –comparative advantages-

plus value added –competitive advantages That value proposition should contain more perceived benefits than the

total cost of ownership

for the buyer

Competitive advantages

Comparative advantages

The business equation

SELLER BUYER

VALUE ADDED

COST OF MEANS

PERC

EIV

ED

BEN

EFIT

S

CO

ST O

F O

WN

ERSH

IP

Value addition and profits

Capturing Value in Global Networks: Apple’s iPad and iPhone, Distribution of profits iPhone 2010, Kenneth L. Kraemer, Greg Linden, and Jason Dedrick, University of California, Irvine, University of California, Berkeley and Syracuse University

Though not designed to

be a mathematical

model, The Magic Pallet

serves to give indications of

value to players in

global supply

chains

Behind the buyer are the end users or consumers. They also have a perception of value.

But –other than the buyer- the end user’s perception of benefits and sacrifices is not strictly monetary. Less tangible issues play an –often dominant- role in the

purchasing decision. Like environmental and or social considerations.

And –last but not least- psychological motives to buy or not to buy. These customer values complete The Magic Pallet

From B2B to B2C

BUSINESS BUSINESS CONSUMER

TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT

MIN

DS

M

ON

EY

MA

N

PO

WER

MA

CH

INES

MATER

IALS

CO

ST

CH

RO

NO

C

HA

NG

E

CH

AN

CE

CO

NFL

ICT

PRODUCT

ACCESS

SPEED

IMAGE

SERVICEPER

IL

PEO

PLE

PLA

NET

PR

OFI

T

PR

ICE

PRODUCT

QUALITY

SPEED

IMAGE

SERVICE

TECHNOLOGY

PRODUCTION

LOGISTICS

MARKETING

SUPPORT

ValueMagics applied….

Though not designed to be a mathematical model, The Magic Pallet serves to give

indications of value to players in global

supply chains

In the SWAT analysis, we show how to use The Magic

Pallet to find the most successful road to global

markets.

See www.valuemagics.com

SELLER BUYER

MIN

DS

MO

NEY

MA

N P

OW

ER

MA

CH

INES

MA

TER

IALS

TECHNOLOGY PRODUCTION

LOGISTICS MARKETING

SUPPORT COST

CHANGE

CHANCE

CHRONO

CONFLICT

PRO

DU

CT

AC

CES

S

SPEE

D

IMA

GE

SERV

ICE