Slide 1

VALUE CHAIN ANALYSIS :VALUETHE 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 advantagesOpportunities to create product/service differentiation

Value Chain Model(FISH BONE DIAGRAM) Firm Infrastructure (General Management)Human Resource ManagementTechnology DevelopmentProcurementInbound LogisticsOps.Outbound LogisticsSales & MarketingService and SupportPRIMARY ACTIVITIESSUPPORT ACTIVITIESCustomer ValueCustomer ValueMarginMarginTYPES OF FIRM ACTIVITIESPrimary activities:Those that are involved in the creation, sale and transfer of products (including after-sales service)Inbound logisticsOperationsOutbound logisticsSales and marketingService and supportSupport Activities:Those that merely support the primary activitiesHuman resources (general and admin.)Tech. developmentProcurementMARGINThe 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 chainPRIMARY ACTIVITIESValue Chain Modelfrom Michael E. Porters Competitive Advantage Firm Infrastructure (General Management)Human Resource ManagementTechnology DevelopmentProcurementInbound LogisticsOperationsOutbound LogisticsSales & MarketingService and SupportPRIMARY ACTIVITIESSUPPORT ACTIVITIESCustomer ValueCustomer ValueMarginMarginPRIMARY ACTIVITIES1.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 DISTRIBUTING THE PRODUCT TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF FINISHED GOODS, AND DELIVERY)

PRIMARY ACTIVITIES4. 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 PRODUCTAFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,MAINTENANCE, AND TRAINING)

SUPPORT ACTIVITIESValue Chain Modelfrom Michael E. Porters Competitive Advantage Firm Infrastructure (General Management)Human Resource ManagementTechnology DevelopmentProcurementInbound LogisticsOps.Outbound LogisticsSales & MarketingService and SupportPRIMARY ACTIVITIESSUPPORT ACTIVITIESCustomer ValueCustomer ValueMarginMarginSUPPORT ACTIVITIES1.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 ZonePresents opportunities for integrationAligns spending with value processes

APPLYING THE VALUE CHAIN TO AN INDUSTRYTHE 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 motorsInbound

LogisticsOperationsMarketingServiceOutbound

LogisticsSuppliers , ContractorsSAP , VCMSAP , CRM - DMSStrategic AlliancesTransporters, Convoy Drivers AssociationDealer Network, Marketing Research Firms, Vehicle FinancingRegional Warehouses, Dealer Workshops, Distributors, TASSPRIMARY ACTIVITIESInbound 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 ACTIVITIESProcurement 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 inventory levels.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 portfolioWALLMART(A Service Based Company)WALLMARTS VALUE CHAIN