An Overview On Value Chain Analysis English Language Essay

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Organizations are spending millions in finding ways to optimized supply chain activities, but this is not easily done without a proper methodology. This was the initial problem when Michael Porter asked companies to implement his five forces frame work that described the things that needed to be added to a company's supply chain in order to give it more of a competitive edge. Therefore Porter introduced the value chain analysis which describes the activities within and around an organization. The implementation of the five forces frame work and value chain is graphically presented in figure 1. For this reason it has become an anthem for many modern business setups. Companies such as Dell have used the value chain analysis to reduce their overall cost and increased their customer base as well as profits. The value chain analysis begins “by disseminating an organization's activities into two categories, primary activities and support activities (Strategic Management Journal, 19).” In order for a company to run efficiently the value obtained should exceed the costs of running. For example, the customers should return to the organization and transact freely and willingly. Michael Porter for that reason felt that the primary and support activities needed to be broken up and analyzed for each company.

The primary activities are directly involved in creating and bringing value to the customer. Primary activities are broken down into: inbound logistics, operations, outbound logistics, marketing and service. Each aspect of the primary activity plays a role in making the supply chain more effective. In order to get a better understanding of this we'll be taking a look at the different aspects of the primary activities stage.

The inbound logistics stage refers to the goods that are being obtained from the organization's suppliers that will be ready to use for producing the final product. In the operations stage, the goods and raw materials are manufactured into the final product therefore adding value to the product at this stage as it moves along the production line. After the product has been manufactured it will be ready to be distributed to the distribution centers, wholesalers, retailers or customers and this is known as the outbound logistics stage. Once that is completed it's important that the marketing and sales stage direct their efforts to the correct targeted markets and customers. Once the target market is acquired a good follow through with the service stage is implemented. In the services stage it is important for a company to determine what support will be provided for the customer. With all these activities any combination of them may help in developing a competitive edge for a company.

Porter second category is more of a support to his primary activity; possibly the reason why he called it the support activities. The support activities include procurement, technology development, firm infrastructure, and human resource management. In order for value chain to work efficiently and effectively both the primary and supportive activity must work together and for that reason we will need to take a detail look at the supportive activities.

During the procurement stage the department sources the raw materials, obtains the best price, and the price must also be for the best possible quality for the organization. One of the biggest growing concerns for organization is keeping up with technology. For that reason the technology state is very important; it gives the organization the ability to have a competitive advantage and in some case just compete with other organizations. The use of technology in: production, research and development (development of new product), or even find other innovative ways of using technology to reach more clients. With technology also comes the human resource management stage. During the human resource management stage the organization will have to train, develop, and recruit the right people for position. Employees will need to be motivated and paid atleast the market rate if they are to stay with the company for a long time. This will help in increasing productivity and add value throughout each sector of the organization. Lastly, it is imperative that a firm has a strong infrastructure. The infrastructure needs to ensure that the finances, legal and management structures are all working efficiently and seamlessly throughout the organization.

Using these two activities many organizations have not only been profitable but able to penetrate the market successfully. In 1985 Michael Dell designed and built the first computer system of its own design. Hewlett Packard, Compaq, and Macintosh dominated the market. By using a value chain analysis dell was able to overcome his competitors. Mr. Dell knew that the only way he would be able to compete in the market would be to find a better and more efficient way to build computers. Similar to Henry Ford, Mr. Dell decided to have customized systems that would be built for each customer, while the competitors were making pre-made machines. In 1996 Dell was able to technologically advance; went online allowing customers to customize their systems on their own time as well as have 24/7 E-Support. By 2001 Dell was ranked number 1 in the global market share.

In order to get to the top, Dell had to implement the primary activities. In the primary activities Dell improved their operations to help reduce the cost of inventory, during the inbound stage, Dell was able to build closer relationships with their customers and suppliers. They were also able to gather information directly from the customer, which insured the credibility of the data. Proper marketing techniques allowed Dell to cater to their initial market and get their foot into the door. During the support activities, Dell was able to keep customer satisfaction up, continuously work on research and development to improve their product, have highly trained individuals answering technical questions, providing different means for customers to order and get support, as well as consolidate their cost for technology by using selected group of suppliers.

There are many more companies like Dell that went over and beyond to continuously build on their value chain analysis. The telecom service providers are now looking at some ways that they can “move up on the value chain, become strategic partners, add value to their services, own the customer, develop vertical markets, provide professional services in addition to transport services-the list could go on (“finding telecom's link in the value chain”, page 1).” In this case the telecom industry uses the primary activities to find more innovative ways to go into different markets and provide more service for their clients. The telecom industry also focuses on how to improve in their own industry by having the next generation networks and architectures. Simon Torrance, the lead analyst and co-founder of STL Partners said, “We think there will be a significant shift toward two-sided market models in telecoms, with the telecom as a facilitating platform for a much broader range of interactions between consumers and businesses (page 14, finding telecom's link in the value chain”). While attempting to this, the telecom industry needs to decide how they will pay to the different parts of the value change. For example, the telecom industry must decide how much to pay the advertisers when they are advertising a common bit of information. The telecom industry is also trying to use what they have and implement it in other markets like health care.

While margining into these different markets, the Telecom industry is also focusing on how to improve their existing services by using supply chain management systems such as SAP. “T-systems, for instance, now offers its SAP implementation as a utility-style-pay-as-you-go service (page 16, “finding telecom's link in the value chain”).” To help spread out the cost of technology in this stage, many of the telecom companies are working together. The telecom companies still have to be independent therefore they will need to improve their supportive activities. Telecom industries are focusing on training of their employees and working hard to retain customers. In order for the industry to have leverage against other telecom companies, they must have a high volume of customers and must have a rock solid infrastructure built. Of course this is even more important during times of economical down turns.

During these bad times, companies are collaborating and strategizing to determine how they can stay afloat; pushing forward the development of the next generation of management. Companies are now looking at value chain analysis as a way to improve the efficiency of their programs. “Organizations often report every week, month or quarterly how their area-of-the business metrics are doing relative to goal variances. This form of goal-set reporting can stimulate much firefighting and even fatal meet-the-number-or else culture like at Enron and other companies (Page 26, “Next-generation management).” This new method allows companies to make better decisions and helps in recovering without being too far in problems. The article uses the phrase, “firefighting,” and companies are more concerned that the “fire” may get too out of control to handle and be in the same situation as Enron or other companies that have fallen. In Figure 2, the value chain is re-analyzed with how company will operate and what the outcomes will be. The rectangles represent what the organization does; the ovals represent what the success performance measure will be. The organization also trains employees to learn that the output of a process is a function of the processes' inputs. For this reason companies are pushing for stricter quality regulations and want few defective parts. For this reason, companies are striving for six sigma or lean implementation in their company.

The implementation of stricter standards of quality forces the focus on employees. The future of supportive activity will include the focus on have more good behavioral models, a focus on individuals as opposed to numbers, a stronger focus on small wins, and forbidding complaining. The human resource teams has to push team building in order to have a better work environment for individuals. It's also important that the company to advertise their warranty. By shifting the focus on individuals as opposed to numbers pushes employees to be happier. When the mood of the employee is good, innovative, energetic, they will increase an organization's success. Having positive attitude and a model leader will set the tone to how the employees will respond and perform at work. Lastly, when a company focuses on small wins it enables employees to work harder and achieve more goals.

All in all, the development of the original value chain analysis has not changed too much in the past 25 years but they way business is done has. Dr. Porter believed that the five forces were best implemented by using the value chain analysis to determine how to give competitive edge against other companies. Now, value chain analysis is being used to just stay afloat during these bad times. The companies that have incorporated the strategy at an earlier age are able to implement more efficient methods. The use of value chain analysis is being used more now than ever. Companies are looking at new innovative ways to find better ways to do support activities as well as primary activities.


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