OM Chapter 2

8/11/2019 OM Chapter 2

1/16

1OM, Ch. 2 Value Chains

2009 South-Western, a part of Cengage Learning

VALUE CHAINSCHAPTER 2

DAVID A. COLLIER

AND

JAMES R. EVANS

OM


2/16



Value Chains

The underlying purpose of every organizationis to provide value to its customer andstakeholders.

Valueis the perception of the benefitsassociated with a good, service, or bundle ofgoods and services (i.e., the customer benefitpackage) in relation to what buyers arewilling to pay for them.

Chapter 2 Value Chains


3/16



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 perceived

favorably by customers, and the organization providing it ismore likely to be successful. To increase value, an organizationmust:

(a) increase perceived benefits while holding price or cost

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

constant.



4/16



Value Chains

A value chainis a network of facilities andprocesses that describes the flow of goods,services, information, and financial transactions

from suppliers through the facilities andprocesses that create goods and services anddeliver them to customer.

A value chainis a cradle-to-grave model ofthe operations function (see Exhibit 2.1).



5/16



Exhibit 2.1 The Value Chain


6/16



A Service View of a Business

Nestle once defined its business from a physical goodviewpoint as "selling coffee machines." Using servicemanagement thinking, they redefined their business froma service perspective where the coffee machine is moreof a peripheral good.

They decided to lease coffee machines and provide dailyreplenishment of the coffee and maintenance of the

machine for a contracted service fee. This "primaryleasing service" was offered to organizations that soldmore than 50 cups of coffee per day.



7/167

OM, Ch. 2 Value Chains



A Service View of a Business

The results were greatly increased Nestlecoffee sales, new revenue opportunities, andmuch stronger profits.

Nestle's service vision of their businessrequired a completely new service andlogistical value chain capability.


8/168




Value and Supply Chains

A supply chainis the portion of the value chainthat focuses primarily on the physical movementof goods and materials, and supporting flows of

information and financial transactions through thesupply, production, and distribution processes.

Many organizations use the terms value chainand supply chain interchangeably; however, wedifferentiate these two terms in this book.


9/169




Value and Supply Chains

A value chainis broader in scope than a supplychain, and encompasses all pre- and post-production services (see Exhibit 2.3, p. 25) to

create and deliver the entire customer benefitpackage.

A value chainviews an organization from thecustomer's perspectivethe integration of goodsand services to create valuewhile a supplychainis more internally-focused on the creation

of physical goods.


10/1610



Exhibit 2.3 Pre- and Postservice View of the Value Chain


11/1611



Procter & Gambles Supply Chain Structure

A model of a supply chain developed by Procter &GambleP&Gs Ultimate Supply Systemis shownin Exhibit 2.5.

The supply chain focus is on understanding theimpact of tightly coupling supply chain partners tointegrate information, physical material, product

flow, and financial activities to increase sales,reduce costs, increase cash flow, and provide theright product at the right time at the right price tocustomers.



12/1612



Exhibit 2.5Procter & Gambles Conceptual Model of a Supply Chain

for Paper Products


13/16



Value Chain Design and Management

Outsourcingis the opposite of verticalintegration in the sense that the

organization is shedding (not acquiring) apart of its organization.



14/16




Vertical integrationrefers to the process ofacquiring and consolidating elements of a valuechain to achieve more control.

Outsourcingis the process of having suppliersprovide goods and services that werepreviously provided internally.



15/16




Backward integrationrefers to acquiringcapabilities at the front-end of the supplychain (for instance, suppliers), while forward

integrationrefers to acquiring capabilitiestoward the back-end of the supply chain (forinstance, distribution or even customers).

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



16/16


2009 South Western a part of Cengage Learning


Offshoringis the building, acquiring, or moving ofprocess capabilities from a domestic location to

another country location while maintainingownership and control.


Date post:	03-Jun-2018
Category:	Documents
Upload:	krysscoleencreus
View:	225 times
Download:	0 times

OM Chapter 2

Documents