The concept of value creation The idea of being engaged in a business of any kind is a matter of choice whether to engage in producing tangible product directly or indirectly and the other is to render a service with either choice designed to deliver customer expectations.Directly involvement in a product-based business means creating, producing or assembling a product through the use of in-house manpower and other forms of resources and facilities.Partial involvement in a product generation could mean using or employing the concept of outsourcing, subcontracting, purchased services, etc. Either way, this means necessarily processing, converting, providing or adding value to a particular product ( from its original state ) thereby giving more appeal, utility or value to a new product that promises a level of satisfaction to prospective clients or customers. In the case of being in the business of providing a service, the idea is to render a kind of service that promises a certain level of satisfaction to prospective clients or customers. In other words, conduct of a business is not really about creating or selling a tangible product to a client/customer but providing a service of value to a client or customer. The kind of services rendered by the business firm is what is being paid for by the clients. In other words, doing or rending the service itself is a value creation process. The kind and quality of such service determines its price. In either case, raw materials or other forms of inputs are necessary to produce a product or render a service to achieve certain goals of the business. It involves dealing with other business organizations essentially comprising of distributors to be able to generate sales and earn a profit or end up losing.The series of activities and process as well as the supply of raw material or needed inputs involved in producing a product or delivering a service constitutes the premises and essence of the concept of value chain system. FIGURE 1 : THE CONCEPT OF VALUE CHAIN SYSTEM Figure 2: typical value chain for a manufactured product (SOURCE: WHEELEN AND HUNGER (2004), P. 84) THE MEGA PROCESS FIGURE 3: THE CHAIN OF PROCESSES (SOURCE: SUSSLAND (2000), P. 139) As presented in these diagrams, a business enterprise is engage in a business through a series of value creation activities or processes ending up in producing a product that is meant for a particular market segment or set of customers. The customer in this case is either another business organization who may be also a producer or processor of another product and hence another set of value chain. The customer may be also the final or ultimate consumer of the finished product of the business firm. CONCEPT OF SUPPLY CHAIN • It talks about the series of activities involved in the production or processing of a product or rendering of a service. • Consists of a set of activities involve before the creation or production of a product or a kind of services to be rendered by the business firm to the public at large, or the specific market it wants to serve. • Consists of the activities on the supply side that the result to the creation, production or generation of a product and such kind of services serve as part of the core business activity of the organization. • “Supply chain as a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together.” – Chase, Jacob, Aquilano et al. (2004) SUPPLY-CHAIN MANAGEMENT • Total system approach to the entire flow of information, materials, and services from raw-material suppliers through factories and warehouse to the end customer. --Chase, Jacobs and Aquilano (2004) • Strategic management of distribution channels and processes that support the entire business process. • It is to be noted that this concept of supply chain focuses only on the post production aspect of a product or simply the management of the distribution aspects sometimes referred to as outbound logistics. • Hau Lee’s concept of supply chain considers the need for a stable supply process taking into account mature technologies. The other consideration is that supply chain is an evolving supply process, some with rapidly changing technologies. CONCEPT OF DISTRIBUTION CHAIN • Parties involve in moving the products from the confines or perimeters of the business producing the product referred to as downstream activities or classified as distribution chain. • It is not limited only to distribution organization (e.g., trucking firm or delivery organizations, forwarders, messengers and others) but it covers all the other parties with direct and indirect roles in moving or causing the transfer of the product from its origin to various places or countries and all the way to final consumption or user stage. • It plays a major and critical role in determining the price of the product in the market. • Actors in distribution chain: Distributors Dealer Importers Identors Commission agents Pakegers/repakers Cargo forwarders whose services add up to the value and price of the product in the market. CONCEPT OF THE VALUE CHAIN • Processes involved in converting a product from raw material to its finished. Saleable and consumable stage. • Involves a way of organizing the activities of a business so that each activity adds value or productivity to the total operation of the business. • Covers all the area of directly and indirectly involve in doing the business of the value creation from the stage of procuring the basic raw material all the way to delivery of the finished product to the customer (whether the processor or end-user) including the aspect of maintaining a meaningful and continuing relationship between the business organization and its market. • Sum total of the supply and distribution chain. • Set of value-creating activities beginning with the basic raw materials coming from suppliers, moving on to the series of value added activities involved in producing and marketing product or service, and ending with distributors getting the final goods into the hands of the ultimate consumers. – Wheelen and Hunger (2004) Examples of value chain: A CORPORATIONS VALUE CHAIN v SUPPLIER VALUE A COMPANY’ S FORWARD CHANNEL VALUE CHAINS OWN VALUE CHAINS CHAINS FIGURE 6: Value chain system for an entire industry The center of the activity of the business • Component or a process is considered the most important to the company or the activity central to the existence of the business itself.It is that aspect or point where it is the greatest expertise and capabilities lie its core competencies. • It’s the raison d’etre of the business or reason for being so to speak. GENERAL COMPONENTS OF A VALUE CHAIN 2 MAJOR COMPONENTS • PRIMARY ACTIVITIES -Refers to activities in the business organizations where most of the value creation efforts are made. Inbound Logistics – associated with raw materials or inputs pocurement activities covering vendor selection, comparative shopping, negotiating supply contracts, and just-in-time arrivals of goods. They form part of the backward channel or supply side of the business. Operations – involve actual conversation of raw materials into a finished product. This aspect includes fabrication, assembly, testing and packeging the products. Operational activities are the point in the value chain where actual value is added on the account on the processes involve in realizing the finished product in the business. Out bound logistics – it is sequel to the inbound and processing activities particularly such aspects as storage, distributions and shipping of the finished product. Marketing and sales – deals with the interactions with prospective clients including the ultimate customers and end-users. Essentially, it includes advertising, product promotions, sales management, identifying the product’s customer base, and distribution channels. Services – focuses on the after-sales services to the customer whether end-user,a processor or secondary producer. - Monitoring satisfied customers and downstream activities meant to improve the image of the product and the business. • SECONDARY ACTIVITIES – supports the primary activities CORPORATE INFRASTRUCTURE – Support the backbone of the business operation. It includes general management, accounting, finance, planning, and legal services. Human resources- matching the right person to the right job expected. The output of this activity affects virtually every other activity in the company. Research and technology development – it adds value in the way it improves the product and the business processes in the primary activities. BACKWARD CHANNELS Composed of the companies or organization providing raw materials or other forms of inputs for the company to undertake its value creation process. FORWARD CHANNEL Refers to the distribution side of the business or parties involve beyond the production and storage line.
Posted on: Sun, 14 Jul 2013 12:13:30 +0000
Trending Topics
Recently Viewed Topics
© 2015