DESIGN OF A GENERIC VALUE

CHAINSijo john

S2 MBA

ROLL NO.23

The idea of a value chain was first suggested by

Michael Porter (1985) to depict how customer

value accumulates along a chain of activities

that lead to an end product or service.

Porter describes the value chain as the internal

processes or activities a company performs “to

design, produce, market, deliver and support its

product.”

He further states that “a firm’s value

chain and the way it performs individual activities

are a reflection of its history, its strategy, its

approach to implementing its strategy, and the

underlying economics of the activities themselves.”

Porter describes two major categories of business activities: primary activities and support activities.

Primary activities are directly involved in transforming inputs into outputs and in delivery and after-sales support. These are generally also the line activities of the organization.

Primary activities include: inbound logistics—material handling and

warehousing. operations—transforming inputs into the final

product. outbound logistics—order processing and

distribution. marketing and sales—communication, pricing

and channel management. service—installation, repair and parts.

Support activities support primary activities and other support activities. They are handled by the organization’s staff functions and include:

procurement—purchasing of raw materials,

supplies and other consumable items as well as

assets; technology development-know-how,

procedures and technological inputs needed in every

value chain activity;

human resource management—selection, promotion and placement; appraisal; rewards; management development; and labor/employee Relations.

firm infrastructure—general management , planning, finance, accounting, legal, government affairs and quality management.

STEPS IN VALUE CHAIN DESIGN Value Chain Selection

Value Chain Analysis

Identification of Constraints and Opportunities

Identification of Market-Based Solutions

Selection of Market-Based Solutions

Assessment of Solutions

Identification of Interventions

Selection of Interventions

Value chain analysis of a motor cycle manufacturer(Hero Honda)

It is fairly clear that Hero Honda enjoys some competitive advantage over the competition, and for 7th year in a row make them largest two wheeler manufacturer in the world.

By analyzing its value chain we make an effort to ascertain competitive advantage it has.

Primary activitiesInbound logistics

Material components make 73% of production cost, so Honda always tried to have close integration with suppliers. Hence, when procuring components it is very important to control tightly and reduce the logistical cost. Moreover, diminution of inventory will be an added benefit so that working capital requirements will be less.

JIT manufacturing philosophy is being adopted by the company, and it demands close coordination among manufacturing units, vendors and ancillary units. Efforts are going on to broaden JIT ahead of shop floor in the operational & strategic decisions of the vendors as well like production planning, capacity expansion etc.

Online real time connectivity between the operations and that of 72% of its 300 plus strong vendor base has been established and it’s a success of the company. All this has resulted in the reduction of logistical & transactional cost.

Operations

Only Indian company that has mastered the art of JIT is Hero Honda. To ensure the high efficiency and low inventory production, Hero Honda uses high degree of automation and pursues lean manufacturing, with the usual benefits of increased cash flow, reduced cash & operating cycles and hence improved working capital conditions. The unique tangible assets that Hero Honda Ltd. has are these fully equipped plants where manufacturing concepts are applied.

With annual production capacity of 4.5 million units the company has three manufacturing facilities at Haridwar, Dharuhera and Gurgaon. With workforce in range of 4320 productivity/employee is high. To make Haridwar plant efficient the concepts of lean manufacturing, JIT & integrated supply chain have been applied from very start.

Technological know-how, improving designs etc. for two -wheelers are offered by Honda after the initial design requirements as promoted by customers and market trends put in structured appearance by Hero Honda R&D team of India.

Outbound logistics Through its well established delivery channels

from three plants, Hero Honda is fulfilling the demand in India is exporting approximately 95000 bikes. The effort is to provide for minimum waiting period or rather filling regions as per demand forecasts and market trends.

Marketing & Sales Years ago “ Fill it, Shut it, Forget it” campaign was started by

marketing department of Hero Honda to pitch for better fuel efficiency and hence lower owning cost. To attract new customers, retain previous customers and reliability of its products the marketing department of Hero Honda strived constantly. It came up with Honda passport program to ensure the loyalty of customers.

Company has also faced complaints of the customers like company don’t present powerful bikes like competitor Bajaj is doing, there is no product differentiation to justify price differences etc. To make its offerings well accepted Hero Honda improved its 4Ps and paid attention to customers’ needs.

Dealers, authorized representatives, stockers etc together form distribution network of Hero Honda and use conscious strategies to penetrate new markets and unrepresented territories.

The distribution network of Hero Honda is wide & deep rooted; it is based on mutual trust and relationship between company and its distributors and its philosophy to ensure growth of partners with its own growth. It has unique intangible resources in the form of strengthened supply chain and distribution networks. And the outcomes of it are its superior brand image and reliability of its brand.

Services

Hero Honda comprised one of the best after-sales services network in the industry. In addition to providing better quality service and trouble-free availability of spare parts, company also paid attention to tidiness and other aesthetics of service stations and added facilities like air conditioned waiting rooms, coffee shops etc.

To provide service stations at every nook and corner of the country is almost impossible for the company, so it introduced mobile service stations to ensure the customers in rural areas. In this way increased loyalty of customers is ensured

Airline Industry Value Chain

INBOUNDLOGISTICS

OPERATIONS OUTBOUNDLOGISTICS

MARKETING AND SALES

SERVICE

PROCUREMENT

TECHNOLOGY DEVELOPMENT

HUMAN RESOURCE

MANAGEMENT

FIRM INFRASTRUCTURE

-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs

Pilot TrainingSafety Training

Agent Training

In-flight Training

Baggage Tracking System

•Promotion•Advertising•Advantage Program•Travel Agent Programs•Group Sales

•Ticket Counter Operations•Gate Operations•Aircraft Operations•On-board Service•Baggage Handling•Ticket Offices

•Route Selection•Passenger Service System•Yield Management System (Pricing)•Fuel •Flight Scheduling•Crew Scheduling•Facilities Planning•Aircraft Acquisition

Information TechnologyCommunications

Product DevelopmentMarket Research

•Lost Baggage Service•Complaint Follow-up

•Baggage System•Flight Connections•Rental Car and Hotel Reservation System

Computer Reservation System, In-flight SystemFlight Scheduling System, Yield Management System

Baggage HandlingTraining

Flight, route andyield analysttraining

Computer Maker (DELL) Value chain

Primary Activities Purchased Supplies and Inbound Logistics

SuppliersLong-term partnershipsBrand name componentsSuppliers part of Dell’s Design teamvaluechain.dell.com

LogisticsJust-in-Time deliveryLow inventory ratio – 6 days vs. Gateway at 14 days,

Compaq with 23 days

Operations Customized Assembly Cell Manufacturing with Groups vs. Traditional

Individuals at a single station (75% reduction in assembly time and 100% increase in productivity)

Quality Control Programs

Distribution and Outbound Logistics Direct Sales

Simultaneous shipping of PC and monitors

Sales and Marketing Direct sales provided immediate feedback

about customer preferences 8 Market Segments Sales representatives for large corporate and

institutional accounts Internet, phone, and fax sales

Service Repairs through local contractors Customer and technical support via a toll free

number, fax, or e-mail Customer Software added at the factory Premier Pages for corporate accounts On-site Service On-site Support Customer Forums Online order Inquiries

Dell’s Value Chain – Support Activities General Administration

Strategic partnerships with Microsoft and Intel

Human Resource Management Training for Sales-account managers Profit-sharing for Compensation 360-degree performance appraisal

Research and Development Product Development - 1% of sales

annually to improve customers’ experience with product

Efforts to improve users’ experience

Research and Development Direct sales provided immediate

feedback about customer preferences

8 Market Segments Sales representatives for large

corporate and institutional accounts

Internet, phone, and fax sales

THANK YOU