Design of a generic value chain
- 1. DESIGN OF A GENERIC VALUE CHAIN Sijo john S2 MBA ROLL NO.23
- 2. The idea of a value chain was first suggested by Michael Porter (1985) to depict how customer value accumulates along a chain of activities that lead to an end product or service. Porter describes the value chain as the internal processes or activities a company performs “to design, produce, market, deliver and support its product.”
- 3. He further states that “a firm’s value chain and the way it performs individual activities are a reflection of its history, its strategy, its approach to implementing its strategy, and the underlying economics of the activities themselves.”
- 4. Porter describes two major categories of business activities: primary activities and support activities. Primary activities are directly involved in transforming inputs into outputs and in delivery and after-sales support. These are generally also the line activities of the organization.
- 5. Primary activities include: inbound logistics—material handling and warehousing. operations—transforming inputs into the final product. outbound logistics—order processing and distribution. marketing and sales—communication, pricing and channel management. service—installation, repair and parts.
- 6. Support activities support primary activities and other support activities. They are handled by the organization’s staff functions and include: procurement—purchasing of raw materials, supplies and other consumable items as well as assets; technology development-know-how, procedures and technological inputs needed in every value chain activity;
- 7. human resource management—selection, promotion and placement; appraisal; rewards; management development; and labor/employee Relations. firm infrastructure—general management , planning, finance, accounting, legal, government affairs and quality management.
- 8. STEPS IN VALUE CHAIN DESIGN Value Chain Selection Value Chain Analysis Identification of Constraints and Opportunities Identification of Market-Based Solutions Selection of Market-Based Solutions Assessment of Solutions Identification of Interventions Selection of Interventions
- 9. Value chain analysis of a motor cycle manufacturer(Hero Honda) It is fairly clear that Hero Honda enjoys some competitive advantage over the competition, and for 7th year in a row make them largest two wheeler manufacturer in the world. By analyzing its value chain we make an effort to ascertain competitive advantage it has.
- 10. Primary activities Inbound logistics Material components make 73% of production cost, so Honda always tried to have close integration with suppliers. Hence, when procuring components it is very important to control tightly and reduce the logistical cost. Moreover, diminution of inventory will be an added benefit so that working capital requirements will be less. JIT manufacturing philosophy is being adopted by the company, and it demands close coordination among manufacturing units, vendors and ancillary units. Efforts are going on to broaden JIT ahead of shop floor in the operational & strategic decisions of the vendors as well like production planning, capacity expansion etc.
- 11. Online real time connectivity between the operations and that of 72% of its 300 plus strong vendor base has been established and it’s a success of the company. All this has resulted in the reduction of logistical & transactional cost.
- 12. Operations Only Indian company that has mastered the art of JIT is Hero Honda. To ensure the high efficiency and low inventory production, Hero Honda uses high degree of automation and pursues lean manufacturing, with the usual benefits of increased cash flow, reduced cash & operating cycles and hence improved working capital conditions. The unique tangible assets that Hero Honda Ltd. has are these fully equipped plants where manufacturing concepts are applied.
- 13. With annual production capacity of 4.5 million units the company has three manufacturing facilities at Haridwar, Dharuhera and Gurgaon. With workforce in range of 4320 productivity/employee is high. To make Haridwar plant efficient the concepts of lean manufacturing, JIT & integrated supply chain have been applied from very start. Technological know-how, improving designs etc. for two -wheelers are offered by Honda after the initial design requirements as promoted by customers and market trends put in structured appearance by Hero Honda R&D team of India.
- 14. Outbound logistics Through its well established delivery channels from three plants, Hero Honda is fulfilling the demand in India is exporting approximately 95000 bikes. The effort is to provide for minimum waiting period or rather filling regions as per demand forecasts and market trends.
- 15. Marketing & Sales Years ago “ Fill it, Shut it, Forget it” campaign was started by marketing department of Hero Honda to pitch for better fuel efficiency and hence lower owning cost. To attract new customers, retain previous customers and reliability of its products the marketing department of Hero Honda strived constantly. It came up with Honda passport program to ensure the loyalty of customers. Company has also faced complaints of the customers like company don’t present powerful bikes like competitor Bajaj is doing, there is no product differentiation to justify price differences etc. To make its offerings well accepted Hero Honda improved its 4Ps and paid attention to customers’ needs. Dealers, authorized representatives, stockers etc together form distribution network of Hero Honda and use conscious strategies to penetrate new markets and unrepresented territories.
- 16. The distribution network of Hero Honda is wide & deep rooted; it is based on mutual trust and relationship between company and its distributors and its philosophy to ensure growth of partners with its own growth. It has unique intangible resources in the form of strengthened supply chain and distribution networks. And the outcomes of it are its superior brand image and reliability of its brand.
- 17. Services Hero Honda comprised one of the best after-sales services network in the industry. In addition to providing better quality service and trouble-free availability of spare parts, company also paid attention to tidiness and other aesthetics of service stations and added facilities like air conditioned waiting rooms, coffee shops etc. To provide service stations at every nook and corner of the country is almost impossible for the company, so it introduced mobile service stations to ensure the customers in rural areas. In this way increased loyalty of customers is ensured
- 18. Airline Industry Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE -Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs Pilot Training Safety Training Agent Training In-flight Training Baggage Tracking System •Promotion •Advertising •Advantage Program •Travel Agent Programs •Group Sales •Ticket Counter Operations •Gate Operations •Aircraft Operations •On-board Service •Baggage Handling •Ticket Offices •Route Selection •Passenger Service System •Yield Management System (Pricing) •Fuel •Flight Scheduling •Crew Scheduling •Facilities Planning •Aircraft Acquisition Information Technology Communications Product Development Market Research •Lost Baggage Service •Complaint Follow-up •Baggage System •Flight Connections •Rental Car and Hotel Reservation System Computer Reservation System, In-flight System Flight Scheduling System, Yield Management System Baggage Handling Training Flight, route and yield analyst training
- 19. Computer Maker (DELL) Value chain Primary Activities Purchased Supplies and Inbound Logistics Suppliers Long-term partnerships Brand name components Suppliers part of Dell’s Design team valuechain.dell.com Logistics Just-in-Time delivery Low inventory ratio – 6 days vs. Gateway at 14 days, Compaq with 23 days
- 20. Operations Customized Assembly Cell Manufacturing with Groups vs. Traditional Individuals at a single station (75% reduction in assembly time and 100% increase in productivity) Quality Control Programs Distribution and Outbound Logistics Direct Sales Simultaneous shipping of PC and monitors
- 21. Sales and Marketing Direct sales provided immediate feedback about customer preferences 8 Market Segments Sales representatives for large corporate and institutional accounts Internet, phone, and fax sales
- 22. Service Repairs through local contractors Customer and technical support via a toll free number, fax, or e-mail Customer Software added at the factory Premier Pages for corporate accounts On-site Service On-site Support Customer Forums Online order Inquiries
- 23. Dell’s Value Chain – Support Activities General Administration Strategic partnerships with Microsoft and Intel Human Resource Management Training for Sales-account managers Profit-sharing for Compensation 360-degree performance appraisal Research and Development Product Development - 1% of sales annually to improve customers’ experience with product Efforts to improve users’ experience
- 24. Research and Development Direct sales provided immediate feedback about customer preferences 8 Market Segments Sales representatives for large corporate and institutional accounts Internet, phone, and fax sales
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