2 Valuechain Note

7/31/2019 2 Valuechain Note

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LECTURE 2

VALUE CHAINS IN

GLOBAL OPERATIONS

JMP 5023 OPERATIONS & TECHNOLOGY

MANAGEMENT


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Discussion

What is your opinion of companies that move

operations to other countries with cheaper

labor rates? In the long run, do you think that such

decisions help or hurt business

competitiveness and national economies?

Should government influence or legislate

such decisions?


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VALUE & SUPPLY CHAINS

The underlying purpose of every

organization is to provide value to its

customer and stakeholders.

Value is the perception of the benefitsassociated with a good, service, or bundle

of goods and services (i.e., the customerbenefit package) in relation to what buyers

are willing to pay for them.


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Value and Supply Chains

The decision to purchase a good or service or

a customer benefit package is based on an

assessment by the customer of the perceivedbenefits in relation to its price.

The customer's cumulative judgment of the

perceived benefits leads to either

satisfaction or dissatisfaction.


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One of the simplest functional forms of value is:Value = Perceived benefits/Price (cost) to

the customer

If the value ratio is high, the good or service is perceivedfavorably by customers, and the organization providing it ismore likely to be successful.

To increase value, an organization must(a) increase perceived benefits while holding price or costconstant,

(b) increase perceived benefits while reducing price or cost, or(c) decrease price or cost while holding perceived benefits

constant.


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VALUE CHAINS

A value chain is a network of facilities andprocesses that describes the flow of goods,

services, information, and financialtransactions from suppliers through the

facilities and processes that create goods

and services and deliver them to customer.

A value chainis a cradle-to-grave modelof the operations function


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Values?

Tesco, Giant, Carrefour

Dell, HP, Acer

Yahoo, Google, TM net

CIMB, Bank Islam, Maybank

Hilton, Seri Malaysia, Berjaya


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VALUE CHAINS

The value chain begins with suppliers.Suppliers might be distributors, employment

agencies, dealers, financing and leasingagents, information and Internet companies,

field maintenance and repair services,

architectural and engineering design firms,

and contractors, as well as manufacturers ofmaterials and components.


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VALUE CHAINS


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VALUE CHAINS

Inputs are transformed into value-added

goods and services through processes or

networks of work activities, which aresupported by such resources as land, labor,

money, and information.

The value chain outputs goods and services

are delivered or provided to customers and

targeted market segments.


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Pre- and Post service View of the Value Chain


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Who is This Guy?


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The History of Value Chain

Value Chain is populated by Michael

Porter, in his book Competitive

Advantage: Creating and SustainingSuperior Performance in 1985.


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The Book


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What is Value Chain


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SUPPLY CHAINS

A supply chain is the portion of thevalue chain that focuses primarily on

the physical movement of goods andmaterials, and supporting flows of

information and financial transactions

through the supply, production, anddistribution processes.


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VALUE vs SUPPLY CHAINS

A value chain is broader in scope than asupply chain, and encompasses all pre- andpost- production services to create anddeliver the entire customer benefit package.

A value chain views an organization from

the customer's perspective the integrationof goods and services to create value whilea supply chain is more internally-focused onthe creation of physical goods.


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Value Chain Design and

Management Vertical integration refers to the process of

acquiring and consolidating elements of a

value chain to achieve more control.

Outsourcing is the process of having

suppliers provide goods and services that

were previously provided internally.


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Value Chain Design and

Management Outsourcing is the opposite of vertical

integration in the sense that theorganization is shedding (not acquiring) apart of its organization.

Offshoring is the building, acquiring, or

moving of process capabilities from adomestic location to another countrylocation while maintaining ownership andcontrol.


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Value Chain Design and Management

Backward integration refers to acquiringcapabilities at the front-end of the supplychain (for instance, suppliers), whileforward integration refers to acquiring

capabilities toward the back-end of thesupply chain (for instance, distribution oreven customers).

Companies must decide whether to integratebackward (acquiring suppliers) or forward(acquiring distributors), or both.


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Value chain integration is the

process of managing information,

physical goods, and services to ensure

their availability at the right place, at

the right time, at the right cost, at the

right quantity, and with the highest

attention to quality.


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Example Issues to Consider

When Making Offshore Decisions


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Example Advantages and Disadvantages of

Global Offshoring and Outsourcing


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Value Chains in Global

Operations Complex global value chains are more difficult to

manage than small domestic value chains. Some

of the many issues include the following:

Global supply chains face higher levels of risk anduncertainty, requiring more inventory and day-to-day monitoring to prevent product shortages.

Workforce disruptions such as labor strikes andgovernment turmoil in foreign countries can createinventory shortages and disrupting surges in orders.


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Some of the many issues include the following:

Transportation is more complex in global value

chains. For example, tracing global shipmentsnormally involves more than one mode oftransportation and foreign company.

The transportation infrastructure may vary

considerably in foreign countries. The coast ofChina, for example, enjoys much bettertransportation, distribution, and retailinfrastructures than the vast interior of the country.


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Value Chains in Global Operations

Global purchasing can be a difficult process tomanage when sources of supply, regionaleconomies, and even governments change. Dailychanges in international currencies necessitatecareful planning and in the case of commodities,consideration of futures contracts.

International purchasing can lead to disputes andlegal challenges relating to such things as price

fixing and quality defects.

Privatizing companies and property is another formof major changes in global trade and regulatoryissues.

Documents

2 Valuechain Note