Date post: | 13-Apr-2017 |
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VALUE CHAIN ANALYSIS
Prepared by:
Ayushi Gupta C013Prasham Jain C015Shreya Khare C018Akshay Khatri C019Apurve Paharia C027
(Group-7)
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WHAT THE BOOK SAYS…First Key to effective cost management.
Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers
Chain of activities adding value at each step In a company.
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VALUE-CHAIN ANALYSIS-essential components
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PRIMARY ACTIVITIES
contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale.
inbound logistics, operations, outbound logistics, marketing and sales, and service
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SUPPORT ACTIVITIES
• activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities
• These activities include procurement, technology development, human resource management, and general administration.
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CASE OF :
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6 STAGES-implementing Strategic Cost Management
1. Identify the value chain activities and disaggregate the firm into separate activities.
2. Establish the relative importance of different activities in the total cost of the product.
3. Compare costs by activity.4. Identify cost drivers.5. Identify linkages and interrelationships in the value chain.6. Identify opportunities for reducing costs and/or improving value.
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WHY VALUE CHAIN ANALYSIS ??
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Cost advantage
This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs. Step 1. Identify the firm’s primary and
support activities. Step 2. Establish the relative importance
of each activity in the total cost of the product.
Step 3. Identify cost drivers for each activity.
Step 4. Identify links between activities. Step 5. Identify opportunities for
reducing costs.
Sourcing coffee from diverse coffee beans producers and maintaining relationship with them.
Company-operated restaurants, foodservice, Licensed stores
Its price per pound of coffee beans, which Starbucks sources from numerous continents
Sourcing beans and transforming them into coffee cup , providing customer a good ambience in locations.
closing unprofitable stores, eliminating corporate jobs, reduce milk wastage.
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Differentiation advantage
The firms that strive to create superior products or services use differentiation advantage approach.
Step 1. Identify the customers’ value-creating activities.
Step 2. Evaluate the differentiation strategies for improving customer value.
Step 3. Identify the best sustainable differentiation.
makes customers feel at home , forming a strong emotional attachment, great ambiance in mind in accessible locations
Starbucks Rewards Card, Finest Coffee Beans
well trained staff, more welcoming decor with friendlier baristas, premium product mix
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A different PERSPECTIVE
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Welcome to the court of Emperor
Jalaluddin Muhammad Akbar
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Noble men! There is a very
important matter before
the court today.
The raw material price is shooting up. The material cost of a sword has gone up by
Rs.10 . And …. We are adding 50,000
soldiers to our army this year.
I want to handle this situation without
increasing the taxes. Please
give your valuable
suggestions as to how we should face
this situation.
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!?!!
??
Why everyone’s quiet?
Birbal! I am surprised that you too have
become silent!!
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!?!!
??
Your Majesty, I have six ideas
which can reduce the cost of a
sword by atleast Rs.20 without
compromising the functional
requirements.
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!?!!
??Brilliant!.
Tell us those ideas.
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Presently, the hilt has 7
parts. The proposed
design will have 4 .
Existing Design
7 parts
New Idea
4 parts
Part Count Reduction
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For the new hilt,instead of
designing exclusive rivets, we can use
the rivets of daggers.
Part Commonisatio
n
x
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When the Shah of Persia was our
Guest last month ,I observed that the
hilt in his sword does not have a
curved portion. We can design similar
hilts for our experienced
soldiers.
Benchmarking
New IdeaExisting Design
Curved portion
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Alternate Material
Blade
Sheath
Copper Steel
The sheath which houses the blade is
made of copper now.
We can switch over to Alloy steel which is
cheaper.
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Weight Reduction
Blade
Sheath
Since alloy steel is stronger than copper, we can
reduce the thickness by 0.5 mm which will save material
2 mm 1.5 mm
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Yield ImprovementThe curved blade
design is yielding only 2 pieces per die. If a straight
blade is designed, we can extract 3 pieces
per die.
2 Blades 3 Blades
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Your majesty. The present design is
being used since the time of Babur
without any failure. We should not risk any design change.
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Saheb, there is no doubt that the present sword
designed by you for my Grandfather’s army is superior.
However, let us test this new design in
our barracks.If they pass the tests, we will deploy them in
the battle field.
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If the ideas pass the test, we can save at least Rs. Ten Lakhs this
year, thus serving the purpose of cost reduction.
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There is an advantage also. I do not have to increase the
tax.
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Birbal! I wonder how you developed
these ideas! Is there a systematic
way by which others can also be trained to generate
such ideas.
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Yes, your Majesty. With the help of Functional
Analysis System Technique(FAST) any body can generate such ideas. FAST is a powerful tool
used in Value Engineering (VE) which is an extremely
effective system to improve products and services for cost and
productivity improvement.
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If six ideas for the sword itself can
save Rs. Ten lakhs , imagine how much
money we can save on other weapons like
spears, arrows and cannons etc.
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Birbal! There are four divisions in my army – Infantry,
Cavalry,Artillery and Elephant brigade. I want you to teach the
engineers in each of these divisions the application of Value Engineering (VE). Each division should release Armoury Change Requests (ACRs) for the worth of
Rs.25 lakh.
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Yes, your Majesty.
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From the textbook…The main aim of value engineering is to achieve a product's target cost, by:
* Identifying improved product designs that reduce the product's cost without sacrificing its functionality
* Eliminating unnecessary functions that increase the cost of product.
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Phases of Value Engineering
Information phase
Function analysis phase
Creative phase
Evaluation phase
Development phase
Presentation phase
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VE: a holistic approach
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