International Management and Amazon’s Healthcare Products

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ValueChainAnalysis.pptx

Value Chain Analysis

Value chain

Is a term referred to a linked set of value creating activities that begins with basic raw materials from suppliers, and it moves toward a series of value added activities (such as production, marketing, etc.), and it ends with distributors and customers receiving a final good.

Figure 5-1: Typical Value Chain for a Manufactured Product

Lecture Notes:

It’s important to assess a firm’s value stream (also known as value chain) in order to determine whether or not each of firm’s activity is adding the maximum value to help it gain competitive advantage. This assessment is part of “analyzing the firm’s resources” or analyzing the “internal” environment of an organization.

Value chain is not only related to manufacturing. Service organizations, financial and tax corporations, insurance companies, hospitals, shopping malls, schools, and almost every company has a stream of activities from the beginning to the end to produce a service. This stream of activities is called value stream.

Value stream analysis is probably one of the most important technical skills that strategic management could offer using non-mathematical techniques. From lower level managers to high executives, managers become obsessed with value stream analysis once they know how important this topic is. I (personally) get most of my consulting or corporate trainings for this analysis. Due to the importance of this issue, I have added supplementary slides (upcoming) to get you started in performing a value chain analysis. Your textbook and many others don’t actually have a detail process of how to preform this analysis (which is why I get asked for training managers inside various corporations).

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Value Chain Analysis

Value chains of most industries are divided into two segments:

Upstream

Downstream

Center of gravity

Is the point in value chain that is most important to a company. It’s where a company’s core competencies lie.

What do we do if we found an entire activity doesn’t add much value?

Lecture Notes:

Upstream refers to upstream of your specific area or department of analysis. This is to say that you start from where you need to examine the value chain, and move backward toward the suppliers (the beginning).

Downstream refers to downstream of your specific area or department of analysis. This is to say that you start from where you need to examine the value chain, and move forward toward the end customers.

Answer: if the activity is not based on regulations, and if it doesn’t link with other activities, we should cut that activity (we should outsource it).

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Figure 5-2: A Corporate’s Value Chain

Lecture Notes:

Above are some of the areas that managers should examine when analyzing their value chain. We study each area in upcoming slides.

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Value Chain Analysis

Areas of

Primary Activities

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Services

Areas of

Support Activities

Procurement

Technology development

Human resource management

Firm’s infrastructure

Lecture Notes:

When assessing a company’s value chain, managers should know whether examined activities are primary or support. Above slides shows examples of primary and support activities to help guide managers.

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Performing Value Chain Analysis

Examine the product or service line’s value chain: Analyze series of activities involved in producing a product or service. Use VRIO framework to examine each activity.

Examine the linkages between activities. Assess whether improvement of one activity could cause its linked activities any problems. This means whether improving one activity could cause any problems down- or up-stream of value chain.

Examine the potential synergies among value chain activities. Ask: how can an activity become more efficient by its linkages to before and after activities (without improving the activity itself)?

Lecture Notes:

Remember that VIRO framework is referred to a methodology that assesses each resource (see slide 6).

For value chain analysis, managers should use VIRO framework because if the set of questions in VIRO framework reveals that an activity doesn’t add value, managers should take that activity out of the value chain. Such activity is referred to as non-value added activity. Examining a product line is usually for manufacturing. Thus, for service, managers should study the entire chain of activities that produces “one” service (or the service line).

When managers examine an activity within a value chain, they should discover all upstream and downstream activities that are link to it. They should be aware of any harm that could result by improving or changing one of the activities. Some of these activities are so tied together that changing one activity could cause a domino effect.

Managers should study the synergies among activities. Asking: without improving a specific activity, could this activity be improved ‘automatically’ by an activity related to it (its upstream and downstream linkages)?

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Additional Lecture Notes For Value Chain Analysis

Assessing Primary Activities:

1. Inbound logistics – these activities are associated with receiving, storing, distribution, material handling, paperwork related to a service, and more. To add value here managers should:

minimize shipping time (or processing time)

have an excellent material and inventory control system

receive raw material faster (or make upstream activity faster)

design an optimal warehouse or storage room for raw material

Example: Toyota has excellent inbound logistics due to its Just-In-Time practice (JIT).

Lecture Notes:

This slide through slide number 28 are additional lectures and not included in your textbook. See chapter 1, slide 1, footnote 2.

In here we start assessing company’s value chain to ensure competitive advantage. The question is “how” should managers assess each activity? And, “how” can managers make these activity more efficient (to add value)? Unfortunately, the textbook (among others) neither explains the process of assessing value chain activities, nor does the process of improving them. Therefore, I’ve added this and several forthcoming slides to ensure students know how to examine value chain and add additional value in each area.

In above slide, we begin to examine all activities related to a company’s “Inbound Logistics”. Inbound logistics is listed as one of the first activities under company’s primary activities (see slide 17 and 18). Managers could use above a – d steps to add value to company’s inbound logistics activities. Adding value in business refers to making a process more efficient (by lowering costs) and more effective (by increasing output).

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Assessing Primary Activities:

2. Operations – these are activities associated with transforming input to output. For example, manufacturing, machining, packaging, assembly, testing, paperwork, and more. To add value here, managers should:

make operation and process simple and efficient and cut cost by adding automation

increase quality of product or service to decrease repeated activities and inspections

have efficient layout or design the area in a way to make process or paperwork move faster

Additional Lecture Notes For Value Chain Analysis

Lecture Notes:

Next step is to examine all activities related to company’s “Operations”. Operations is listed as second activity under company’s primary activities (see slide 17 and 18). Manages could add value to their operations using the above steps (a – d).

Paperwork is mentioned here and in previous slide. In previous slide, paperwork is related to inbound logistics (related to raw materials) while here paperwork is related to operations (example: related to loan or insurance claim application).

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Assessing Primary Activities:

3. Outbound logistics – these are activities associated with collecting, storing, and distribution. To add value here managers should:

provide a quick delivery and minimize shipping damage

have efficient finished warehouse (or storage)

minimize transportation cost

implement an excellent material handling and efficient flow of paperwork, information, and products

Additional Lecture Notes For Value Chain Analysis

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Assessing Primary Activities:

4. Marketing and sales – these are activities associated with promoting of products. To add value here, managers should:

have highly motivated and competent sales force

have innovative approaches to marketing and advertising

discover what customers really want

have the right price for product or services

Additional Lecture Notes For Value Chain Analysis

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Assessing Primary Activities:

5. Services – these are activities associated with providing a service such as: installation, repair, training, parts supply, cleaning, and more. To add value here managers should:

receive and analyze customer’s feed back

response to customer’s emergencies quickly

have effective replacement parts

have effective inventory parts

train employees to deal with customer nicely

have warrantee and guarantee

Additional Lecture Notes For Value Chain Analysis

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Assessing Support Activities:

6. Procurement – are activities related to purchasing raw materials or input. To add value here, managers should:

buy good quality raw material that optimizes quality and minimizes cost

develop a win-win situation with suppliers

analyze alternatives for inputs (not to have one supplier)

maybe make decision about whether leasing or buying equipment

Additional Lecture Notes For Value Chain Analysis

Lecture Notes:

Next step for managers is to examine support activities. Procurement is listed as one of the first activities under company’s support activities (see slide 17 and 18).

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Assessing Support Activities:

7. Technology development - Technology is a support activity. To add value here, managers should:

have effective R&D (or have current technology)

have positive relationship between R&D, technology group, and other company’s employees

train employees for new software

hire capable people who like technology and are computer intelligent

make sure all employees are able to meet their deadlines

Additional Lecture Notes For Value Chain Analysis

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Assessing Support Activities:

8. HR management – these are activities associated with hiring, firing, recruiting, training, compensation, and more. To add value here, managers should:

have an effective recruiting and retention program

have good relationship with union

have good quality of life for employees

provide rewards and incentives programs

Additional Lecture Notes For Value Chain Analysis

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Additional Notes For Value Chain Analysis

Assessing Support Activities:

9. General administration – these are activities associated with planning, finance, management, accounting, and legal. To add value here, managers should:

have an effective planning process

anticipate problems and quickly respond to it

have lower capital expenditures

have good relationships with stakeholders

have ability to coordinate activities throughout an organization

have good reputation, culture, and values

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