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Value added analysis involves classifying activities as value added or non-value added. This concept is adopted to identify which activities to keep and which to eliminate. Porter proposes that firm's value chain is composed of nine categories of interrelated activities.
Value added analysis involves classifying activities as value added or non-value added. This concept is adopted to identify which activities to keep and which to eliminate. Porter proposes that firm's value chain is composed of nine categories of interrelated activities.
Value added analysis involves classifying activities as value added or non-value added. This concept is adopted to identify which activities to keep and which to eliminate. Porter proposes that firm's value chain is composed of nine categories of interrelated activities.
Value-chain concept: What Is it and what does it offer?
Michael porte 91980, 1985) has develop this value-chain concept as a tool to help business analyse their cost structures and identify competitive strategies. Value added analysis and value-chain analysis: how do they differ. Value added analysis involves classifying activities as value added or non-value added. This concept is adopted to identify which activities to keep and which to eliminate. The following activities in organizations and not to add value to the core activities: preparation time; waiting time; unnecessary process steps; overproduction; rejects; set-up times; transportation/distribution; process waste; material waste; communications; administration/decision-making untidiness; bottlenecks; and timing (Morgan and Murgatroyd, 1994). Porters value-chain framework: applying it to the business for excellence Porter proposes to extend value-chain analysis beyond the value chain of the business to consider a linkage with suppliers and customers, as well the value chain of competitors. Porter proposes that firms value chain is composed of nine categories of interrelated activities. These activities are in part as following 1. Primary Activities, includes: a. Inbound logistics activities Involve managing inbound items such as raw materials handling and warehousing b. Operations activities Involve the information of inbound items into products suitable for resale. c. Outbound logistics activities Involve carrying the product from the point of manufacturing to the buyer as warehousing and distribution. d. Marketing and sales activities Involve in informing buyers about products and services with a reason to purchase, such as distribution strategy and promotional activities, including advertising. e. Service includes all activities Required to keep the product or service working effectively for the buyer, after it is sold and delivered.
2. Support Activities In Support of the above primary activity of the value chain, porter proposes for support activities: a. Procurement (Purchasing) b. Human resource management (HRM) c. Technology development (R&D) d. The firms infrastructure (accounting, finance, strategic planning, etc)
Corporate value chain: what is it and how does it differ from an individual products value chain? Wheelen and Hunger (1998) propose the following steps in a corporate value-chain analysis: 1. Examine each product lines value chain and consider its strengths and weaknesses. 2. Examine the linkage within each product lines value chain. Linkages are connections between the way one value added activity. 3. Examine the potential synergies among the value chains of different product lines or business units. Each value element has an inherent economy of scale in which activities are conducted at the lowest possible cost per unit of output. MANAGEMENT ACCOUNTING SYSTEMS IN THE VALUE-CHAIN FRAMEWORK Traditional management accounting systems have been critised for a greater internal focus within which a key theme is to maximise the defference between purchase and sales. There is the view tthat traditional management accounting does not give adequate information on non financial and external factors crucial to the long term survival of the firm. The challenge, therefore, involves management accounting moving way from a traditional managerial cost analysis to a forward thinking strategy cost analysis or strategy management accounting (shank and Govindarajan, 1992a, 1992b, 1993, hoque, 2001). According to porter (19850, a value-chain cost management methodology involves the following steps: 1. Identify the value chain, then assign cost, revenues and assets to value activities 2. Diagnose that cost drivers regulating each activity 3. Develop sustainable competitive advantage, either trough controlling cost drivers betters that competitors, or by reconfiguring the value chain.
Five strategy choice that a firm must make about its underlying economic structure: 1. Scale The size of the investment in manufacturing, R&D and marketin resource 2. Scope the degree of vertical integration 3. Experience How many item in the past has the firm already created and what is it doing again? 4. Technology What process technologies are used in each step of the firms value chain? 5. Complexity How wide a line of products or service is being offered to customers?
The cost drivers may includes: 1. Workforce involvement 2. Total quality management 3. Capacity utilization 4. Plant layout efficiency 5. Product configuration 6. Linkage with suppliers and customers
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