supply chain management ...
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4_porter_value_chain.pptxWhat is Value?
Value =
Performance
Cost
Performance = f (Quality, Speed, Flexibility)
Productivity =
Output
Input
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Value is not just performance or cost of a product/service, but a combination of both. Nordstrom offers good value to their customers and so does 99 Cent Store. Performance is a function of quality, speed, and flexibility. It’s organizations’ goal to offer value to their customers and it’s managers’ job to ensure performance matches customer expectations while keeping productivity high within the supply chain.
The Value Chain
$, info
Materialsinfo
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The value chain concept illustrates the value adding processes inside an organization, from purchasing raw materials and getting them in all the way to selling finished products to customers and supporting them with after sales support and warranty services. There are supporting activities inside an organization that add value indirectly by supporting other primary activities. In the end, the organization is able to make a profit for the value they provide to the customer. Generally speaking, materials flow from left to right, from the supplier to the customer. Money, on the other hand, flows from right to left, from the customer to the supplier. And more importantly, information about the materials, products, quality, prices, and other information flows both directions so that every entity in the value chain is fully informed of what’s happening.
Primary and Support Activities
Support activities: corporate functions that add values in an indirect manner.
Primary activities: corporate functions that add values directly to final products or services.
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Everything an organization does should add value to the final product or service it offers. There are activities that add value directly (primary activities) and there are activities that support primary activities and add value indirectly. Customers come to stores to buy things that are designed and built well to suit their needs and items that are on the shelve. They could care less about the brand of the cash register or the underlying SAP software the store uses, even though these back room operations are important.
Manage Supply AND Demand Chains
Supply side:
raw materials, inbound logistics and production processes
Demand side: outbound logistics, marketing and sales.
suppliers
customers
Managers usually work on their own supply chains but sometimes they also need to control the customer demand chain so that they can achieve optimal performance. The Bull Whip effect is one of the examples of how demand chain, when left unattended, can disrupt even the most efficient supply chain. Companies often use pricing incentives or disincentives to stimulate or postpone demand. Costco’s periodic coupon books are a great example of how demand can be manipulated. The utilities we talk about earlier, can also be used to manage demand. When one offers 10% seniors discounts on Tuesdays, guess what, senior customers show up! Early bird dinners are exactly the same thing. Do you have other examples of demand chain management?
Ancillary to Porter’s Value Chain
Local optimization yields to global optimization
Coordination, speed, information and resource sharing are important
Each activity must add value to the final product or service
Each member of the supply chain has its own value chain
If it doesn’t add value, don’t do it!
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Local optimization means that a department may achieve the lowest price but the overall value chain may suffer from it. For example, the purchasing manager may save 10% buying from another lower cost vendor far away but the lower quality materials that generally come with lower prices and higher transportation costs may cause a big problem for the company down the road. Another example is to save transportation costs, one may wait until there is a large quantity to get a discount to use the trailer fully. However, customers may be kept waiting therefore deciding not to buy again. The savings in transportation may be real but the value of lost customers is hard to calculate.
When many suppliers and customers all have their value chains, the result may be a network of value chains or a constellation of such value adding activities.
Broken Oreos…
Everyone wants to buy Oreos in perfect shapes. Who wants to buy broken Oreos during manufacturing or shipping?
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So, what do you do with these broken Oreos in the factory?
