VALUE CHAIN

VALUE CREATION

Necessarily processing, converting, improving or adding value to a particular product (from its original state) thereby giving more appeal, utility or value to a new product that promises a level of satisfaction to prospective clients or customers.

Service of value - kind of service rendered by the firm that is being paid for by the clients.

Value creation process – doing or rendering the service itself.

VALUE CHAIN SYSTEM

the series of activities and process as well as the supply of raw materials or needed inputs involved in producing a product or delivering a service.

Backward channel

Forward channel

Business Organizatio

n

Raw

mate

rials

Supply Chain Distribution chain

CUSTOMERS

Value chain system

SUPPLY CHAIN

Series of activities involved in the production or processing of a product or of a service

Set of activities involved before the creation or production of a product or the kind of services to be rendered by the business firm to the public at large, or the specific market it wants to serve.

According to Chase, Jacobs and Aquilano, et al it is how organizations (suppliers, manufacturers, distributors, and customers) are linked together.

Evolving supply process

SUPPLY CHAIN MANAGEMENT

Total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer. (Chase, Jacobs, and Aquilano)

Strategic management of distribution channels and processes that support the entire business process.

DISTRIBUTION CHAIN

Parties involved in moving the products from the confines or perimeters of business producing the product ( downstream activities)

Covers all the other parties with direct and indirect roles in moving or causing the transfer of the product from its origin to various places or countries and all the way to final consumption or user stage

VALUE CHAIN

Process involved in converting a product from raw material to its finished, saleable and consumable stage.

Way of organizing the activities of a business so that each activity adds value (value added activity) or productivity to the total operation of the business.

Sum total of the supply and distribution chain.

VALUE CHAIN

Covers all the areas directly and indirectly involved in doing the business of value creation from the stage of procuring the basic raw material all the way to delivery of the finished product to the customer;

Linked set of value-creating activities beginning with basic raw materials coming from suppliers, moving on to a series of value added activities involved in producing and marketing product or service, and ending with distributors getting the final goods in the hands of the ultimate consumers. (Wheelen and Hunger)

CENTER OF ACTIVITY

Assembling the product or doing a series of activities to come up with a final product will be the opportunity for the firm to do its best.

Core activities The raison d’etre of the business or reason

for being so to speak. The area where trade secrets of the company

lie upon.

GENERAL COMPONENTS OF A VALUE CHAIN

Primary activities – operations in the business organization where most of the value creation efforts are made or done.

Secondary activities- support activities that are undertaken to support the value creation activities both at the level of supply and distribution chain or the entire value chain system.

PRIMARY ACTIVITIES

1. Inbound logistics Activities associated with raw materials or

inputs procurement activities covering vendor selection, comparative shopping, negotiating supply contracts, and just-in-time arrival of goods.

They form part of the backward channel or supply side of the business.

PRIMARY ACTIVITIES

2. Operations activities involve the actual conversion

of raw materials into a finished product.

3. Outbound logistics activity sequel to the inbound and processing

activities particularly such aspects as storage, distribution and shipping of the finished product.

PRIMARY ACTIVITIES

4. Marketing and sales Activity deals with prospective clients including

the ultimate customers or end-users.

5. Services Activity focuses on after-sales services to the

customer whether end-user, a processor or secondary producer.

SECONDARY ACTIVITIES

1. Corporate infrastructure The support backbone activities of the business

operation.

2. Human resources Unique activity of matching the right people to

the job expected.

3. Research and technology development Adds value in a way it improves the product

and the business processes in the primary activities.

IMPORTANCE OF VALUE CHAIN

Backward channel Composed of the companies or organization

providing raw materials or other forms of inputs for the company to undertake its value creation process.

Suppliers of the business concern

Forward channel Distribution side of the business or parties

involved beyond the production and storage line. This group includes organizations acting as

distributors, dealers, agents, indentors, importers, transport/delivery firms and other organizations closing in to the ultimate users

REVAMPING THE VALUE CHAIN

a. Abandon traditional business methods and shift to e-business technologies and use of the Internet;

b. Use direct-to-end-user sales/marketing methods;

c. Simply product design;d. Offer basic, no frills product/service;e. Shift to a simpler, less capital-intensive, or

more flexible technological process;

REVAMPING THE VALUE CHAIN

f. Find ways to bypass use of high-cost raw materials;

g. Relocate facilities closer to supplier or customers;

h. Drop “something for everyone” approach and focus on a limited product/service; and

i. Reengineer core business processes.

INFORMATION SUPPORT SYSTEM

Organization: office automation

Human resource: skills database

Technology: computer-aided design and manufacturing

Purchasing: online link to suppliers

Support activities

Inbound logistics

Automated warehousing system

Operations

Process Controlled

Manufacturing

Outbound

logistics

Online order entry

system

Marketing and sales

Market analysis product

profitability

Services

Remote machine

diagnostic

Primary activities

VALUE CHAIN IN THE E-COMMERCE ERA

Allows the so called seamless chain scenario or one that electronically connects various organization either in the supply or distribution chain side thereby ensuring timely information sharing and efficient logistical operations both at the supply and distribution aspects of the business.

Expediency and efficiency both in the backward and forward channel of the business

INTERNET TECHNOLOGY BENEFITS:

a. Powerful tool for better supply chain management;

b. Critical to internal operationc. Extremely useful for collaborative data

sharing with distribution channel partners – online systems reduce transactions costs.

CUSTOMER-ORIENTED VALUE CHAIN

It takes the form of a circular model to emphasize the philosophy that the customer – and not the business organization itself- is the focus to which all the other activities are directed to.

Central to this kind of value chain model is that there exists an information system directly connecting the various functional unit thereby allowing a scheme somehow assuring that customer’s needs and wants are addressed by all functional units and in a way, competitiveness is assured.

Customer

Information system

Sales and marketing

Serv

ice

Outbound logistics Production

Procurement

Customer – oriented value chain