1. Submitted To:Prof.Rutvi Sarang Submitted By:Dharmishtha Baria Roll.No.1

2. Value chain Analysis Definition: Value chain- consists of the major activities that have been added to the product during its creation, development or sale. A company’s value chain consists of a linked set of value-creating activities performed internally The value chain contains two types of activities Primary activities – where most of the value for customers is created Support activities – facilitate performance of the primary activities

3. Value chain Analysis

4. Primary activities : the creation of product or service ◦ inbound logistics - order entry data collection, obtain raw materials, subassemblies ◦ Operations - order processing, MRP; transformation of inputs to finished goods ◦ Outbound logistics - distribution & sales data; storing products, ◦ Marketing sales - promotions, discounting; establishing a customer need ◦ Service activities - calls, returns, product rotation and maintenance

5. Support activities: The required infrastructure ◦ Org's infrastructure ◦ Human resources ◦ Technology ◦ Procurement

6. Value Chains of Rivals Differ Several factors can cause differences in value chains of rival companies ◦ Internal operations ◦ Strategy ◦ Approaches used in execution of the strategy ◦ Underlying economics of the activities ◦ Differences complicate task of assessing rivals’ relative cost positions

7. The Value Chain System for an Entire Industry Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain Suppliers’ value chains are relevant because ◦ Costs, performance features, and quality of inputs provided by suppliers influence a firm’s own costs and product performance Forward channel allies’ value chains are relevant because ◦ Costs and margins are part of price paid by ultimate end-user ◦ Activities performed affect end-user satisfaction

8. Representative Value Chain for an Entire Industry

9. Developing Data to Measure a Company’s Cost Competitiveness After identifying key value chain activities, the next step involves breaking down departmental cost accounting data into costs of performing specific activities Appropriate degree of disaggregation depends on ◦ Economics of activities ◦ Value of comparing narrowly defined versus broadly defined activities Guideline – Develop separate cost estimates for activities ◦ Having different economics ◦ Representing a significant or growing proportion of costs

10. Activity-Based Costing: A Key Tool in Analyzing Costs Determining whether a company’s costs are in line with those of rivals requires ◦ Measuring how a company’s costs compare with those of rivals activity-by-activity Requires having accounting data to measure cost of each value chain activity Activity-based costing entails ◦ Defining expense categories according to specific activities performed and ◦ Assigning costs to the activity responsible for creating the cost

11. Benchmarking Costs of Key Value Chain Activities Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activities ◦ Purchase of materials ◦ Payment of suppliers ◦ Management of inventories ◦ Getting new products to market ◦ Performance of quality control ◦ Filling and shipping of customer orders ◦ Training of employees ◦ Processing of payrolls

12. Objectives of Benchmarking Identify best practices in performing an activity Understand the best practices in performing an activity – learn what is the “best” way to do a particular activity from those demonstrating they are “best-in-world” Learn how other firms achieve lower costs Take action to improve company’s cost competitiveness

13. What Determines if a Company Is Cost Competitive? Cost competitiveness depends on how well a company manages its value chain relative to how well competitors manage their value chains When costs are out-of-line, high-cost activities can exist in any of three areas in the industry value chain 1. Suppliers’ activities 2. Company’s own internal activities 3. Forward channel activities

14. Options to Correct Internal Cost Disadvantages Implement use of best practices throughout company Eliminate some cost-producing activities altogether by revamping value chain system Relocate high-cost activities to lower-cost geographic areas See if high-cost activities can be performed cheaper by outside vendors/suppliers Invest in cost-saving technology Innovate around troublesome cost components Simplify product design Make up difference by achieving savings in backward or forward portions of value chain system

15. Translating Performance of Value Chain Activities to Competitive Advantage A company can create competitive advantage by managing its value chain to ◦ Integrate knowledge and skills of employees in competitively valuable ways ◦ Leverage economies of learning / experience ◦ Coordinate related activities in ways that build valuable capabilities ◦ Build dominating expertise in a value chain activity critical to customer satisfaction or market success

16. Translating Performance of Value Chain Activities into Competitive Advantage

17. Examples: Merck and Glaxo: world’s most competitively capable Pharmaceutical companies. Competitively crucial activities:extensive R&D to achieve first discovery of new drugs,carefully consructed approach to patenting,rapid and thorough clinicaly clearance through ragulatory Bodies,strong distribution and sales force. FedEx

18. Value Chain Analysis is a useful way of thinking through the ways in which you deliver value to your customers, and reviewing all of the things you can do to maximize that value. It takes place as a three stage process: Activity Analysis, where you identify the activities that contribute to the delivery of your product or service. Value Analysis, where you identify the things that your customers value in the way you conduct each activity, and then work out the changes that are needed. Evaluation and Planning, where you decide what changes to make and plan how you will make them.

19. Example: Lakshmi is a software development manager for a software house. She and her team handle short software enhancements for many clients. As part of a team development day, she and her team use Value Chain Analysis to think about how they can deliver excellent service to their clients.

20. Activity Analysis: Order taking Enhancement specification Scheduling Software development Programmer testing Secondary testing Delivery Support Lakshmi also identifies the following non-client- facing activities as being important: Recruitment: Choosing people who will work well with the team Training: Helping new team members become effective as quickly as possible, and helping team members learn about new software, techniques and technologies as they are developed.

21. She focus on Order taking process to deliver more value to customers She identify the following Value Factors: Giving a quick answer to incoming phone calls; Having a good knowledge of the customer's business, situation and system, so that they do not waste the customer's time with unnecessary explanation. Asking all the right questions, and getting a full and accurate understanding of the customer's needs. Explaining the development process to the customer and managing his or her expectations as to the likely timetable for delivery.

22. THANK YOU