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VALUE CHAIN ANALYSIS :

VALUE
THE VALUE IS THE TOTAL AMOUNT
(i.e. TOTAL REVENUE) THAT BUYERS
ARE WILLING TO PAY FOR A FIRMS
PRODUCTS.
THE DIFFERENCE BETWEEN THE TOTAL
VALUE (OR REVENUE) AND THE TOTAL
COST OF PERFORMING ALL OF THE
FIRMS ACTIVITIES PROVIDES THE
MARGIN .
THE VALUE CHAIN IS A TOOL
DEVELOPED BY DR. MICHAEL
PORTER(HARVARD BUSINESS SCHOOL)

What is the value chain?


Porters 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

Value Chain Model


(FISH BONE DIAGRAM)
Firm Infrastructure (General Management)

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Human Resource Management

om
st
Cu

SUPPORT
ACTIVITIES

l
Va

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ue

ar
M

Technology Development

Va
r

Service and
Support

to

me

Sales &
Marketing

ar
gin

Outbound
Logistics

Ops.

Cu
s

Inbound
Logistics

lue

Procurement

PRIMARY ACTIVITIES

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

MARGIN
The term Margin implies that
organizations realize a profit margin
that depends on their ability to
manage the linkages between all
activities in the value chain. In other
words, the organization is able to
deliver a product / service for which
the customer is willing to pay more
than the sum of the costs of all
activities in the value chain

PRIMARY ACTIVITIES

Value Chain Model


from Michael E. Porters Competitive Advantage

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Human Resource Management

gi

ue

ar
M

Technology Development

l
Va

SUPPORT
ACTIVITIES

om
st
Cu

Firm Infrastructure (General Management)

Va
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Service and
Support

to

me

Sales &
Marketing

ar
gin

Outbound
Logistics

Operation
s

Cu
s

Inbound
Logistics

lue

Procurement

PRIMARY ACTIVITIES

PRIMARY ACTIVITIES
1.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 ACTIVITIES
4. 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
PRODUCT
AFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,
MAINTENANCE, AND TRAINING)

SUPPORT ACTIVITIES

Value Chain Model


from Michael E. Porters Competitive Advantage

Firm Infrastructure (General Management)

er

Human Resource Management

om
st
Cu

SUPPORT
ACTIVITIES

l
Va

gi

ue

ar
M

Technology Development

Va
r

Service and
Support

to

me

Sales &
Marketing

ar
gin

Outbound
Logistics

Ops.

Cu
s

Inbound
Logistics

lue

Procurement

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES
1.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 others 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

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
Dealer Network,
Transporters, Convoy
Drivers Association

Marketing Research
Firms, Vehicle
Financing

SAP , VCM
Inbou
nd
Logist
ics

Operatio
ns

Outbou
nd

Marketing Servi
ce

Logisti
cs
SAP , CRM - DMS

Suppliers , Contractors

Regional Warehouses,
Dealer Workshops,
Distributors, TASS

Strategic Alliances

PRIMARY ACTIVITIES

Inbound Logistics
Long term contract with service providers
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 transporters 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 QFDs 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 Fiats
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 & JVs TACO group of
companies , Tata Cummins
Centralized Strategic Sourcing for key components
FIPs, Steel etc.
Group resources Tata Steel and Tata International .
Localized supplier base at mfg. locations low

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 Centers, Alliance with technical
Institutes
Focus on development of managerial capabilities
MTCs , 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)

WALLMARTS VALUE CHAIN