Strategic Information Management CE003463

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Strategic Information Management CE00346-3

• IS Strategy Supporting Information Management.
• Lecture 6 (The Value Chain)

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Situation Analysis- Analytical tools

• We are going to use a different tool to re-visit
  the beginning of the strategy process (situation
  analysis) to identify activities and information
  needs.
• Why? To understand how to redesign internal and
  external processes in order to improve efficiency
  and effectiveness adding value.
• Also need to identify core competencies

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The Value Chain (Porter, M. 1980)

• A model that considers how supply chain
  activities can add value to products and services
  delivered to our customer.
• (Chaffey,D and Wood, S. 2005, p.304).
• Value chain
• Value System or Network
• Information links the elements of the value chain
• and adds value or reduces costs.

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The Value Chain Traditional Model

• Why is value chain analysis important?
• Provides a picture of the process of creating
  value.
• Improves understanding of the trade
  relationships.
• Understand problems and identify weak links.
• Identifies core competencies
• Primary activities
• Secondary activities
• See value chain handout (ref Ward and Peppard
  from your directed reading in weeks 1-3).

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The Value Chain

• A framework for identifying core competencies
• Inside the firm
• In the supply chain
• Can be used to
• Identify strengths and weaknesses
• Identify sources of competitive advantage
• Identify market opportunities

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The Value Chain
Firm Infrastructure
Human Resource Management
MARGIN
Supporting Activities
Technological Development
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Service
Operations
Primary Activities
MARGIN
Relationship with Suppliers
Relationship with Buyers
Elapsed Time - Value added time cost
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Primary Activities in the Value Chain

• Inbound Logistics
• Materials handling, warehousing, inventory
  control used to receive, store and disseminate
  inputs to a product
• Fertilizer and chemical storage, delivery of
  inputs, application of inputs
• Operations
• Take inputs from inbound logistics and convert to
  final products
• Plowing, planting, spraying, harvesting, feeding,
  medicating, weighing,etc.
• Outbound Logistics
• Collecting, Storing, and physical distribution of
  the final product.
• Crop storage, finished hog handling, Processing
  and determining delivery dates, delivery to the
  packer or elevator etc.

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Primary Activities in the Value Chain

• Marketing and Sales
• Provide means through which customers can
  purchase products and to induce them to do so
• Advertising, communicating with buyers,
  developing customer relationships, pricing
  products (futures, hedging, forward contracting,
  etc.), delivery scheduling
• Service
• Activities designed to enhance or maintain a
  products value
• Timely delivery, identity preservation, ISO9000,
  certifying as organic, etc.

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Supporting Activities in the Value Chain

• Procurement
• Activities to purchase the inputs needed to
  produce products
• Negotiating with suppliers, standard timing of
  replenishing parts and tools, setting up buying
  groups, etc.
• Technological Development
• Activities that improve the firms products
  and/or processes
• Volunteering for test plots, being a part of
  feeding trials, attending technology
  seminars/field days, designing equipment to make
  specific production tasks more efficient, etc.
• Human Resources
• Recruiting, hiring, training, developing, and
  compensating all personnel

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Supporting Activities in the Value Chain

• Firm Infrastructure
• General Management, planning, finance,
  accounting, legal support, governmental
  relations, etc.
• Establishment of accounting practices, management
  information systems, compliance with
  environmental regulations, tracking and reporting
  for government programs, etc.
• Where strategy development takes place
  identifying opportunities and threats, resources
  and capabilities, and support of core competencies

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The Result of the Value Chain

• Margins
• Capture the value from performing value-creating
  activities as cheaply as possible
• The basic idea is that the consumer is willing to
  pay a certain amount for the value you create.
  This is depicted as the size of the overall
  pentagon.
• The size of the individual activity boxes
  represents the cost of performing those
  particular activities.
• Thus, the smaller the size of the individual
  activity boxes relative to the value the consumer
  is willing to pay, the greater the MARGIN will be
  for the firm.

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The Value Chain Grains Farm
Firm Infrastructure
Human Resource Management
MARGIN
Supporting Activities
Technological Development
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Service
Operations
Primary Activities
MARGIN
Relationship with Suppliers
Relationship with Buyers
Elapsed Time - Value added time cost
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Primary Activities for a Grain Farm
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Supporting Activities for a Grain Farm
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Value Chain Analysis

• A firms value chain must be compared to
  competitors value chains to determine where
  competitive advantages exist.
• To be a source of competitive advantage a
  resource or capability must allow a firm to
• Perform an activity in a manner that is superior
  to competitors performances
• Perform a value-creating activity that
  competitors cannot complete

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Linkages within the Value Chain

• Optimization and coordination of activities in
  the value chain
• Linkages exist between support activities and
  primary activities and between separate primary
  activities
• Generic causes for linkages
• Same function can be performed in different ways
• Efforts in indirect activities
• Activities performed inside the firm reduce the
  need for activities in the field
• Quality Assurance can be performed in different
  ways

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Value web external value chain
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Value Chain Linkages in the Supply Chain
Buyer Chain
Supplier Chain
Buyer Chain
Firm Chain
Supplier Chain
Buyer Chain
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Linkages with Supplier Value Chain

• Linkages between suppliers value chains and a
  firms chain provide opportunities for the firm to
  enhance competitive advantage.
• Division of benefits between firm and its
  suppliers is a function of suppliers bargaining
  power and reflecting in suppliers margins.
• Both coordination with suppliers and hard
  bargaining are important to competitive advantage.

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The Buyers Value Chain

• A firms differentiation stems from how its value
  chain relates to its buyers chain.
• Differentiation derives fundamentally from
  creating value for the buyer through a firms
  impact on the buyers value chain.
• Value is created when a firm creates a
  competitive advantage for its buyer.
• The buyer must perceive the value to pay a
  premium price.

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