Porters Value Chain

Decision-making models

1. Identify and agree the problem 2. Identify what the ideal solution would be and the criteria by which this would be measured 3. Generate possible alternative solutions 4. Evaluate the alternative solutions according to the criteria 5. Make a decision based on the evaluation 6. Implement the decision 7. Monitor the decision

Outsourcing activities in a value chain

Decision to outsource these activities may: - reduce the total cost of its products or services - improve the efficiency and competitiveness of the organisation - increase capacity - provide access to a greater level of skills and/or knowledge - allow for greater focus on core activities. 4 questions 1. Can the activity be performed or produced at a lower cost, more efficiently, or to a better quality by outside suppliers? 2. Is the activity a part of the organisation's core competencies? 3. Does the activity rely on rapidly changing technology? 4. Will outsourcing the activity result in business process improvements such as reduced lead time, greater flexibility or reduced inventory levels?

Short-term decision-making and supply chain management

Following an analysis of an organisation's value chain, the next step is to identify areas of business opportunity that create value for customers at the most optimal levels. - Embracing any digital disruption impacting upon the industry in which an organisation operates. This can include adopting new technologies and business models to enhance the value of existing products and services. - Outsourcing. - Cost reduction initiatives to reduce or eliminate non-value adding activities. - Strategic alliances with suppliers or customers to improve the supply chain. - Development of new products/services, or enhancing existing products/services. - Introduce total quality management (TQM) or just in time (JIT) methodologies.

Questions when analysing value chain

How much value does the product or service add from the customer's perspective? How can costs that do not add value for the end-customer be stripped from the value chain? How can a value chain provide extra value for customers?

Control and monitoring issues in the supply chain

In order to minimise the risk of failure, key issues to be managed include: - supplier selection and reliability - relationships - location - quality assurance.

Classifying the value chain - primary and support activities

Porter suggested that in order to determine areas of competitive advantage, a company should analyse its generic value chain and split the various activities into primary and support activities. Primary activities are those directly related to the organisation's output. - inbound logistics - operations - outbound logistics - marketing and sales - after sales services Support activities are those enabling the organisation to efficiently complete its primary activities and indirectly related to the organisation's output. - admin and infrastructure - HR management - technology development - procurement

Porters Value chain

Porter's value chain provides a framework for breaking down all the key activities in which an organisation engages. Value chain analysis describes the activities that an organisation performs and the interlinked activities of organisations with which it interfaces. These linkages support the organisation's competitive position. Information from the value chain analysis can be used to create a competitive advantage for the organisation/s and add value for all stakeholders (including, but not limited to, customers, employees and shareholders). Value chain looks at the end-to-end activities that need to come together in order for the product or service to arrive at the customer. Value-added considers what value the product or service brings to the customer.

Supply chain management

Supply chain management involves developing strong relationships and managing interactions across the supply chain from the original suppliers, through the organisation's internal processes, then onto the customers who purchase the final product. Contracts and service level agreements are used to bring formality and structure to supply commitments between the parties involved. Total quality management (TQM) is a technique that aims to deliver operational improvements throughout the value chain in order to provide superior products or services to customers. Quality costs can be divided into four major categories: - prevention - appraisal - internal failure - external failure. Just-in-time (JIT) production - JIT production involves the purchase of raw materials or finished goods just when needed for production or sales. This type of production involves each step in the production process being carried out just in time - that is, just when required for the next step.

Developing new products/services, or enhancing existing products/ services

Where the output of an organisation includes multiple products and/or services, a periodic review of the operating results of each product/product line or service/service line is sensible. The purpose of the review is to determine whether the mix is optimal and represents the best use of the company's resources The decision to abandon a product or service will occur when either: - the total contribution of the product and/or service (sales price less variable costs) does not cover its avoidable fixed cost (fixed costs that are eliminated if the product and/or service line is dropped), or - another organisation offers to buy the rights to the product and/or service at a favourable price.