Develop Value Chain For Marketing Orintation

ARDAITA ATVET College
Cooperative marketing
NTQF Level IV
Learning Guide #39
Unit of Competence: Develop Value Chain for Market

Oriented Products
Module Title: Developing Value Chain for Market Oriented
Products
LG Code: AGR CMT4 11 LO1-39

TTLM Code: AGR CMT4 TTLM 0920v1
LO 1. IDENTIFY VALUE CHAIN MEMBERS
Instruction Sheet-1 Learning Guide #39
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This learning guide is developed to provide you the necessary information regarding the following
content coverage and topics –
 Defining the nature and the concept of value chain products and members
 Developing the position of own organization with regard to value chain concept
 Discussing Areas of interest with relevant value stream personnel
 Developing position of own organization with regard to any issues raised
 Developing, validating and progressing an agreed list of areas for action
This guide will also assist you to attain the learning outcome stated in the cover page. Specifically, upon
completion of this Learning Guide, you will be able to
 Concept and nature of value chain product and members are defined.
 Position of own organisation with regard to these areas is developed.
 Areas of interest (within relevant regulatory framework) are discussed with relevant
value stream personnel and position of own organisation with regard to any issues
raised developed.
 An agreed list of areas for action is developed.
 List is validated with own management.
 A framework for progressing agreed list is agreed on.
Learning Instructions:
1. Read the specific objectives of this Learning Guide.

2. Follow the instructions described in number 2 to 3 .
3. Read the information written in the “Information Sheets 1”. Try to understand what are being
discussed. Ask your teacher for assistance if you have hard time understanding them.
4. Accomplish the “Self-check 1” in page 6.
5. Ask from your teacher the key to correction (key answers) or you can request your teacher to
correct your work. (You are to get the key answer only after you finished answering the Self-check 1).
6. If you earned a satisfactory evaluation proceed to “Information Sheet 2”. However, if your rating
is unsatisfactory, see your teacher for further instructions or go back to Learning Activity #1.
7. Submit your accomplished Self-check. This will form part of your training portfolio.
8. Read the information written in the “Information Sheet 2”. Try to understand what are being
10. Ask from your teacher the key to correction (key answers) or you can request your teacher to
correct your work. (You are to get the key answer only after you finished answering the Self-check 2).
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11. Read the information written in the “Information Sheets 3 . Try to understand what are being
13. Read the information written in the “Information Sheets 4”. Try to understand what are being
Information Sheet-1
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IDENTIFY VALUE CHAIN MEMBERS
1. Introduction to identify the value chain members

A value chain is the full range of activities required to bring a product from conception, through
the different phases of production and transformation. Flow of seed to farmers and grain or
tubers to the market occurs along the chains. These can be referred to as value chains because as
the product moves from chain actor to chain actor e.g. from producer to intermediary to
consumer it gains value. So, the starting point of the value chains is market intelligence and they
are demand driven. Such issues come to view by asking questions like what are the needs in the
market (consumer, export market, major clients like retailer or food industry).
1.1. Defining the concept and nature of value chain products and members
Value chain approaches have been used to analyze the dynamics of markets and to investigate
the interactions and relationships between the chain actors. A value chain is made up of a series
of actors (or stakeholders) from input (e.g. seed) suppliers, producers and processors, to
exporters and buyers engaged in the activities required to bring product from its conception to its
end use. Value chain stage defines the various chain actors and their roles for the functioning of
the entire chain.
Actor is a corporate person, a natural person or other entity, that is able to influence its direct
surroundings. Actors are usually defined trough their input-output transformations and inter-
actor transactions. The concept can be nested, i.e. a chain or network can also be considered as
an actor within a larger network. The various actors in the value chain can be grouped under
three levels or stages based on the roles they play. They are:
1 Value chain main actors: The chain of actors who directly deal with the products. Activities
of value chain main actors regarding a specific product or group of products involves
producing, processing, trade and owning the produces. Actors in a value chain may include
input suppliers, producers, itinerant collectors (small and mobile traders who visit villages
and rural markets), assembly traders (also called primary wholesalers who normally buy
from farmers and other itinerant collectors and sell to wholesalers), wholesalers (who deal
with larger volumes than collectors and assemblers and often perform important storage
functions), retailers (who distribute products to consumers), and processors (firms and
individuals involved in the transformation of a product).
2 Value chain supporters: The services provided by various actors who never directly deal with
the product, but whose services add value to the product. Closely related to the concept of
value chains is the concept of business development services or value chain supporters.
These are services that play supporting role to enhance the operation of the different stages of
the value chain and the chain as a whole. In order for farmers to engage effectively in
markets, they need to develop marketing skills and receive support from service providers
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who have better understanding of the markets, whether domestic or international. Local
business support services are, therefore, essential for the development and efficient
performance of value chains. The business development services can be grouped into
infrastructural services; production and storage services; marketing and business services;
and financial services.
Basic infrastructural services include market place development, roads and transportation,
communications, energy supply, and water supply.
Production and storage services in value chain include input supply, genetic and production
material from research, farm machinery services and supply, extension services, weather
forecast and storage infrastructure.
Marketing and business support services include market information services, market
intelligence which tells a company about its environment in the market (Supply and demand
for its products, Drivers that influence demand, Who the buyers and suppliers are, Overall
economic outlook for the product), technical and business training services, facilitation of
linkages of producers with buyers, organization and support for collective marketing.
Financial services include credit and saving services, banking services, risk insurance
services, and futures markets.
Nevertheless, roles of the business development services have mostly been neglected. The
neglect was a result of the mistaken assumption that profitable business development services
will emerge as value chains develop or that the public will provide business development
services where they are needed and when markets are insufficient to provide profitable
niches for competitive services to develop.
3 Value chain influencers: These are the third group of chain actors. These include the
regulatory framework, policies, etc. Specific policy and regulatory service elements
influencing value chain performance include land tenure security, market and trade
regulations, investment incentives, legal services, and taxation.
Value chain approach on the products
The Value Chain Approach is a means for examining the development of competitive advantage
which is achieved when an organization links its activities in its value chain more cheaply or
more expertly than its competitors. The chain consists of a series of activities that create and
build value.
1.2. Origin and Evolution of the Value Chain Approach
Origin and Evolution of the value chain approach
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Michael Porter of the Harvard Business School established the concept of value chain in 1980.
This was during an era of intense competition where strategic management became important for
the survival of businesses. Porter saw the entire production system as a series of activities with
value addition to each activity resulting in the improvement of quality and the reduction of cost.
The value chain was originally defined as how a business receives raw materials as input, adds
value to the raw materials through various processes in the middle of the chain and sells the
finished products to consumers. Example is coffee that finds its way as raw beans from the field,
through brokers who add value by finding buyers, past warehouse that add value by preventing
spoilage, into processing plants that add flavorings and packaging, and on to the wholesalers who
also add value by reducing distribution costs, and finally to the grocery store, which adds value
through the presentation of the product on the shelf. Throughout the chain, value is added.
Mid 1980s 1990s 2002/2003 Mid-2005s

Porter Develops Policies/ Programs Concept Development for Implementation of Value
“cluster Approach” for SMEs Clusters Value Chain for Value chain Development
in DCs Chain Development in DCs Programs in DCs
Figure 1: Evolution of Value Chain
Self-Check 1 Written Test
Instructions: Answer all the questions listed below. Illustrations may be necessary to
aid some explanations/answers. Write your answers in the sheet
provided in the next page.
1. Explain the concept of value and value chain?

2. Discuss the origin and the relevance of the value chain approach.
3. Mention the value chain members.
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Note: Satisfactory rating - 25 points Unsatisfactory - below 25 points
You can ask you teacher for the copy of the correct answers.
Answer Sheet Score = ___________
Rating: ____________
Name: _________________________ Date: _______________
Short Answer Questions
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
3. ________________________________________________________________
______________________________________________________________
Developing the Position of own organization with regard to

Information Sheet-2
value chain
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Value chain analysis describes the activities within and around an organization, and relates them
to the analysis of the competitive strength of the organization. Therefore, it evaluates which
value each particular activity adds to the organization’s products or services. This idea was built
upon the insight that an organization is more than a random compilation of machinery,
equipment, people and money. Only if these things are arranged into systems and systematic
activities it will become possible to produce something for which customers are willing to pay a
price. Porter argues that the ability to perform particular activities and to manage the linkages
between these activities is a source of competitive advantage.
Value chain analysis facilitates an improved understanding of competitive challenges, helps in
the identification of relationships and coordination mechanisms, and assists in understanding
how chain actors deal with powers and who governs or influences the chain. Developing value
chains is often about improving access to markets and ensuring a more efficient product flow
while ensuring that all actors in that chain benefit out of it. Changing agricultural contexts, rural
to urban migration, and resulting changes for rural employment, the need for pro-poor
development, as well as a changing international scene (not least the increase in oil prices) all
indicate the importance of value-chain analysis.
Value chain analysis plays a key role in understanding the need and scope for systemic
competitiveness. The analysis and identification of core competences will lead the firm to
outsource those functions where it has no distinctive competences.
Value chain analysis is useful for identifying constraints and opportunities for the provision of
financial services. Its helps to identify demand for financial services within value chains;
recognizes that optimal levels of investment require a range of services from a range of
providers, including financial institutions and value chain actors; and prioritizes needs for donor
intervention in financial services and limits of Value Chain Finance are tied to the quality of
cooperation between actors.
In summary, the concept of value chain provides a useful framework to understand the
production, transformation and distribution of a commodity or group of commodities. With its
emphasis on the coordination of the various stages of a value chain, value chain analysis attempts
to unravel the organization and performance of a commodity system.
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Information Sheet-3
Discussing the regular framework of relevant value stream
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personnel and position of own organization
1.3. Value stream

A value stream is an end-to-end collection of activities that creates a result for a "customer," who
may be the ultimate customer or an internal "end user" of the value stream. The value stream has
a clear goal: to satisfy (or, better, to delight) the customer.
The term value stream refers to an end-to-end set of activities. Order fulfillment, for example, is
a value stream: the input is the order, and the results are the delivery of ordered goods. Order
entry is one activity in the collection of activities that constitute the order fulfillment value
stream.
A value stream is a collection of activities that function together. The value stream customer has
certain desires, and the value stream consists of work activities dedicated to serving that
customer. Value streams and their customers cannot be separated: The focus on customer gives
the value stream its purpose.
Value Stream: An end-to-end collection of activities that create a result for a customer, who may
be the ultimate customer or who may be an internal “end user” of the value stream. The value
stream has a clear goal: to satisfy or to delight the customer. Value streams differ from functions
in that a value stream is a cycle of activity that begins with a specified event and ends when a
specified output is produced.
The customer is sometimes the ultimate customer of the enterprise; sometimes the "customer"
exists within the enterprise.
A value stream is an end-to-end set of activities that is collectively valuable to a customer. The
customer may be the ultimate, external customer or an internal user of the value stream.
 An enterprise is a collection of value streams.
 In most enterprises all of the value streams need reinventing.
 Value stream reinvention usually involves total redesign of a system.
A value stream is all the actions required to bring a product through the main flows essential to
nearly every product. A value stream map (AKA end-to-end system map) takes into account not
only the activity of the product, but also the management and information systems that support
the basic process as well.
Value Stream solutions should focus in three areas:
1. People - Focus on developing this human capital to create a foundational culture of trust,
teamwork, and collaboration, and to counter the unintended consequences of change. Human
Capital programs develop effective people skills (interpersonal communication, teamwork, and
empowerment, etc). This area must be addressed throughout change efforts since it has such an
impact on shifting attitudes that sustain new behaviors.
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2. Process - Everything that happens within an organization comes from a process, whether
formal or informal. The only way to be successful in the long run is to create new processes that
allow people to be more flexible, make change, and adapt to the new way quickly, even if that
way will be changed again soon. Value Stream solutions should provide training and
development opportunities for clients in core-activity skills, leadership, management and
supervisory skills, as well as Problem Solving and other decision making tools that allow clients
to effectively work together and fulfill their company’s mission.
3. Product - The product or service provided by companies is what they do to make money or
serve the social sector. The marriage between the company and its products and services
sometimes gets in the way of creating profitable, responsive, and customer driven enterprises,
especially when the company is young and may have been founded on a single product or
service. Value Stream mapping can help identify problems and opportunities in the client’s
product or service offerings. Alignment of People, Process, and Products are essential for long-
term success.
Value Stream solutions should suit needs for improving quality, increasing productivity, growing
profit, and eliminating waste. This focus creates capabilities to better compete in the current
world economy.
Value Streams versus Value Chains
The concept of a value stream differs from that of a value chain, which is described by Michael
Porter in his book, Competitive Advantage:"The value chain disaggregates a firm into its
strategically relevant activities in order to understand the behavior of costs and the existing and
potential sources of (competitive) differentiation."1 This analysis focuses on activity costs and
margins as a strategic-analysis activity.
A value stream is much simpler than Porter's value chain. Porter's value chain relates to the
enterprise as a whole, whereas value streams relate to a set of activities that satisfy a particular
type of customer (internal or external).
The value chain perspective is driven by a functional business view, evaluating costs and
margins as a basis for competitive comparisons.
The value stream perspective is based on streams of work activities in every enterprise that
deliver a particular result for a particular type of customer or user. These streams of work are
clumsy and slow because they pass through multiple departments and functional areas. In most
corporations, scrapping and replacing the awkward value streams with well-organized teams
using powerful information systems can achieve dramatic improvements.
Redesigning the value streams can be a relatively straightforward way to improve
competitiveness (although implementing the redesign is a major management challenge).
Representing an enterprise as a collection of value streams is a useful way of understanding an
enterprise. Reinventing each value stream to make it serve its customer in the most direct,
focused way will give a corporation a major competitive advantage.
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The list of value streams differs somewhat from one enterprise to another. An insurance
company may have a separate value stream for claims processing. A telecommunications
company needs a value stream for managing its network. An airline needs a value stream for
maintenance of aircraft internationally.
In the top three value streams of James Martin book [7], the corporate customer is the value-
stream customer. In the other value streams the customer is internal. Each value stream has clear
customers, however, and its goal should be to satisfy those customers in the simplest, most direct
way.
Although a value stream has many work steps, these should be tightly coordinated and
compressed into the minimum time needed to maximize response to the customer. Work steps
should be done simultaneously, where practical, to increase speed. Unnecessary work should be
eliminated. Handovers from one group to another, which tend to cause errors or things "slipping
through the cracks," should be avoided where possible.
Figure 2 VRM Framework
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Value Streams modeled in VRM will help define value opportunity:
 Prospect to Customer  Forecast to Plan
 Order to Cash  Relationship to Partnership
 Manufacturing to Distribution  Requisition to Payables
 Request to Service  Resource Availability to Consumption
 Insight to Strategy  Acquisition to Obsolescence
 Awareness to Prevention  Financial Close to Reporting
 Concept to Development  Recruitment to Retirement
 Initiative to Results  Vision to E- Business Enterprise
Figure 3 Value Net Schemes - Bovet
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1. What the difference between value chain and value stream?

2. What are the involvements or interactions in effective value chain?
3. Mention the three solutions of value streams focuses.
Rating: ____________
Name: _________________________ Date: _______________
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
3. ________________________________________________________________
________________________________________________________________
Information Sheet-4
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Developing Value Chain Analysis for action
Value Chain Analysis or Value Stream Mapping is useful tools for working out how you can
create the greatest possible value for your customers, as well as your best route to profit
maximization. Dealing with restructuring value chains has changed considerably due to the
decades of growth in electronic commerce leveraging the internet.
The value chain is a concept from business management that was first described and popularized
by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining
Superior Performance. [1] Porter termed the larger interconnected system of value chains the
"value system." [2] A value system includes the value chains of a firm's supplier (and their
suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers
(and presumably extends to the buyers of their products, and so on).
2.1 Steps in Value Chain Analysis

As noted above value chain analysis is a useful tool for working out how you can create the
greatest possible value for your customers. In business, we are paid to take raw inputs, and to add
value to them by turning in to something of worth to other people.
Value chain analysis is a process that requires four interconnected actions: data collection and
research, value chain mapping, analysis of opportunities and constraints, and vetting of findings
with stakeholders and recommendations for future actions. These four actions are not necessarily
sequential and can be carried out simultaneously.
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The value chain team collects data and information through secondary and primary sources by
way of research and interviews. Mapping helps to organize the data, and highlights the market
segments, participants/actors, their functions and linkages. The collected data is analyzed using
the value chain framework to reveal constraints within the chain that prevent or limit the
exploitation of end market opportunities. The resulting analysis of opportunities and constraints
should be vetted with stakeholders through events such as workshops, focus groups or
“reporting-out” days. The steps are explained below.
Step One: Data Collection
Good value chain analysis begins with good data collection, from the initial desk research to the
targeted interviews. The value chain framework—that is, the structural and dynamic factors
affecting the chain—provides an effective way to organize the data, prioritize opportunities and
plan interventions.
The desk research consists of a rapid examination of readily available material. The aim is to
familiarize the team with the industry, its market and the business environment in which it
operates, as well as to identify sources for additional information. Information such as statistics
on exports/imports, consumption reports, global trade figures, etc., can be obtained through the
Internet, phone calls and documents from trade, commerce and industry ministries, specialized
industry journals, and professional and trade association newsletters. Once the desk research is
conducted, an initial value chain map can be drafted for refinement during the primary research
phase.
Interviews are conducted with 1) firms and individuals from all functional levels of the chain,
and 2) individuals outside the value chain such as writers, journalists or economists. In addition
to providing information about the movement of product and the distribution of benefits, the
interviews should inform on value chain actors’ current capacity to learn; how information is
exchanged among participants; from where they learn about new production techniques, new
markets and market trends; and the extent of trust that exists among actors. Interviews can help
to identify where chain participants see opportunities for and constraints to upgrading. Missing
or inadequate provision of services necessary to move the value chain to the next level of
competitiveness can be identified locally, regionally or nationally.
In addition to individual interviews, focus group discussions are a useful way to explore
concepts, generate ideas, determine differences in opinion between stakeholder groups and
triangulate with other data collection methods. The group may consist of 7-10 people who
perform the same or a similar function in the value chain. Guided discussion better captures the
social interaction and spontaneous processes that inform decision making, which is often lost in
structured interviews.
The qualitative data gathered by these methods will reveal dynamic factors of the value chain
such as trends, incentives and relationships. To complement this, quantitative analysis of the
chain is necessary to provide a picture of the current situation in terms of the distribution of
value-added, profitability, productivity, production capacity and benchmarking against
competitors. Analyzing these factors highlights inefficiencies and areas for reducing cost.
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Step Two: Value Chain Mapping
Value chain mapping is the process of developing a visual depiction of the basic structure of the
value chain. A value chain map illustrates the way the product flows from raw material to end
markets and presents how the industry functions. It is a compressed visual diagram of the data
collected at different stages of the value chain analysis and supports the narrative description of
the chain.
Porter distinguished two important elements of modern value chain analysis: The various
activities which were performed in particular links in the chain. Here he drew the distinction
between different stages of the process of supply (inbound logistics, operations, outbound
logistics, marketing and sales, and after sales service), the transformation of these inputs into
outputs (production, logistics, quality and continuous improvement processes), and the support
services the firm marshal to accomplish this task (strategic planning, human resource
management, technology development and procurement).
The importance of separating out these various functions is that it draws attention away from an
exclusive focus on physical transformation.
Porter distinguishes between primary activities and support activities. Primary activities are
directly concerned with the creation or delivery of a product or service. They can be grouped into
five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and
service. Each of these primary activities is linked to support activities which help to improve
their effectiveness or efficiency. There are four main areas of support activities: procurement,
technology development (including R&D), human resource management, and infrastructure
(systems for planning, finance, quality, information management etc.).
Some thought about the linkages between activities: These linkages are crucial for corporate
success. The linkages manifested through flows of information, goods and services, as well as
systems and processes for adjusting activities. A certain commodity value chain can be mapped
as:
Figure 2: A comprehensive value chain map
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The purpose of a visual tool in the analysis process is to develop a shared understanding among
value chain stakeholders of the current situation of the industry. The mapping exercise provides
an opportunity for multi-stakeholder discussions to reveal opportunities and bottlenecks to be
addressed in subsequent stages of the chain development. Maps are also used to identify
information gaps that require further research.
Step Three: Analysis of Opportunities and Constraints Using the Value Chain Framework
Step three uses the value chain framework as a lens through which the gathered data is analyzed.
The framework is a useful tool to identify systemic chain-level issues rather than focus on firm-
level problems. While interviews give the value chain team the chance to gather information
from individual firms, the value chain framework helps to organize this information in such a
way that the analysis moves from a firm-level to a chain-level perspective. If the chain cannot be
competitive, the success of individual firms is compromised. Therefore, taking a systemic
approach is key to sustaining the competitiveness of the chain and the micro and small
enterprises (MSEs) operating within it.
The factors affecting performance of the chain are further analyzed to characterize opportunities
and constraints to competitiveness. These factors are classified under structure and dynamic
components. The structure of the value chain influences the dynamics of firm behavior and these
dynamics influence how well the value chain performs in terms of two critical outcomes: value
chain competitiveness and MSE benefits.
Structure
The structure of a value chain includes all the firms in the chain and can be characterized in
terms of five elements:
1. End market opportunities at the local, national, regional and global levels—the
framework prioritizes this element because demand in end markets defines the
characteristics of a successful product or service.
2. Business and enabling environment at the local, national and international levels—this
includes laws, regulations, policies, international trade agreements and public
infrastructure (roads, electricity, etc.) that enable the product or service to move through
the value chain.
3. Vertical linkages between firms at different levels of the value chain—these are critical
for moving a product or service to the end market and for transferring benefits, learning
and embedded services between firms up and down the chain.
4. Horizontal linkages between firms at the same level of the value chain—these can reduce
transaction costs, enable economies of scale, increase bargaining power, and facilitate the
creation of industry standards and marketing campaigns. E.g. cooperatives.
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5. Supporting markets—these include financial services, cross-cutting services (e.g.,
business consulting, legal advice and telecommunications) and sector-specific services
(e.g., irrigation equipment, design services for handicrafts).
Dynamics
The participants in a value chain create the dynamic elements through the choices they make in
response to the value chain structure. These dynamic elements include:
1. Upgrading—increasing competitiveness at the firm level through product development
and improvements in production and marketing techniques or processes
2. Inter-firm cooperation—the extent to which firms work together to achieve increased
industry competitiveness
3. Transfer of information and learning between firms—this is key to competitiveness since
upgrading is dependent on knowledge of what the market requires and the potential
returns on investments in upgrading.
4. Power exercised by firms in their relationships with each other—this shapes the
incentives that drive behavior and determines which firms benefit from participation in an
industry and by how much
Each plays a role in influencing value chain competitiveness. Using a table format, these factors
of the value chain framework can be evaluated in terms of offering opportunities for upgrading
and the constraints to taking advantage of these opportunities.
Value chain Framework
What arrangements? What is the level of integration of processes?

Network structure
What is their role/s? Who performs which process?
Who are the members?
Chain objectives Chain performance

Chain management Chain business process
Governance?
What type of contracts?
Chain resources
What management structure used in each link? rces (ICT, human, techno) are used in each process by each member of VC?
Figure 3: Value chain framework
Step Four: Vetting Findings of Chain Analysis through Stakeholder Workshops
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Value chain analysis helps develop a private-sector vision to reflect stakeholders’ interest in
improving the efficiency and competitiveness of the chain. The fourth step, vetting findings, uses
value chain analysis through a structured event (or series of events) like a workshop or reporting-
out day to facilitate discussion with and among selected participants.
The objective of these events is to bring participants together who are responsible for critical
market functions, service provision, and the legal, regulatory and policy environment. The goal
is to have these participants—who have an incentive to drive investments in upgrading—to
develop and assist in implementing a private sector-led competitiveness strategy. To develop this
strategy, the stakeholders will need to prioritize the opportunities and constraints identified
during the value chain analysis. With an open format, such structured events foster buy-in to the
analysis process.
Participants are selected based on the role they play in the value chain, or their responsibility for
critical market functions. There should also be MSE, medium and larger firm and association
representatives who, during the interview phase, exhibited an understanding of the issues related
to the value chain (especially the opportunities), a strong interest in the types of questions posed
during the interview, and leadership skills among peers or the community.
Vetting events can take on several forms from simple one day reporting-out sessions to more
structured workshops that stretch to two or three days. The events are planned to reinforce the
importance of knowing and understanding the end market. In presenting the findings of the value
chain analysis, workshop leaders should stress that to remain competitive, stakeholders and other
participants must continuously learn what end markets demand in terms of product
specifications, quality, and other requirements.
It can be powerful to have a series of buyers present at the workshop. Where not possible, a
phone call or pre-recorded video interview can be an effective means for stakeholders to see and
hear directly from the buyer.
The event should include facilitated discussions, review and adjustments of value chain map and
a review of the analysis table. For this exercise, it is recommended that the completed table be
projected on a screen, and additions and modifications made during discussions inserted with the
computer projecting the table. This assures a participatory process and on-the-spot adjustment
witnessed by attending participants. If changes are made, the updated table can be immediately
printed and distributed to participants before they leave.
In environments characterized by a number of donor partners working with the same group of
firms, burn-out and skepticism particularly among the most important change drivers is likely. In
some instances, the firms most important to driving change may not attend a full-day workshop
even though they may be highly committed to the upgrading process and strategy for making the
industry more competitive. If time allows, the analysis team can meet with these firms in
advance of the workshop to convince them of the value of the competitive planning process. If
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this is not possible, the analysis team should meet with these firms soon after the workshop to vet
findings and secure buy-in or commitment to the industry competitiveness planning process.
In most industries, it is rather unusual that a single company performs all activities from product
design, production of components, and final assembly to delivery to the final user by itself. Most
often, organizations are elements of a value system or supply chain. Hence, value chain analysis
should cover the whole value system in which the organization operates. Within the whole value
system, there is only a certain value of profit margin available. This is the difference of the final
price the customer pays and the sum of all costs incurred with the production and delivery of the
product/service (e.g. raw material, energy etc.). It depends on the structure of the value system,
how this margin spreads across the suppliers, producers, distributors, customers, and other
elements of the value system. Each member of the system will use its market position and
negotiating power to get a higher proportion of this margin. Nevertheless, members of a value
system can cooperate to improve their efficiency and to reduce their costs in order to achieve a
higher total margin to the benefit of all of them (e.g. by reducing stocks in a Just-In-Time
system). For instance hierarchy firms are vertically integrated, so that they can directly control
all or most of the activities of the chain
Some value chains can best be described as balanced networks. Firms form networks and in a
balanced network the power relations among them are fairly equal, no one firm or group of firms
dominates the network. In balanced networks supplier and buyer jointly define the product and
combine complementary competencies. An example might be collaboration between producers
of ‘eco-friendly’ knitted fabric and garment manufacturers who make this fabric into fashion
garments. Since both are involved in high value-added production, they can work together more
or less as equals.
Other value chains are governed by lead firms. We call these directed networks. The lead firms
do not merely buy goods in the market. Rather they specify what is to be produced by whom, and
they monitor the performance of the producing firms. In some cases, the networks are directed,
or “driven”, by large producers such as transnational corporations or other large integrated
industrial enterprises. The automobile industry is a good example of a producer driven value
chain. The large automobile companies dominate the chain by setting the specifications that must
be followed by firms joining their networks of component suppliers.
Other chains are driven by the buyers of the products. In clothing and footwear, many leading
brand-name companies do no production themselves. Instead, they concentrate on design and
marketing. Their strength as buyers enables them to dominate certain value chains. They
determine what fabrics will be used, what styles will be produced, and in what colors.
Finally, some chains are characterized by vertically integrated firms. In these cases, firms, acting
through their own decision-making hierarchy, can directly control chain activities.
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Figure 2. Porter’s Value Chain
Value Streams were introduced in Michael Porter’s book but were explained more clearly by James
Martin in his 1995 book, The Great Transition, which pulls together the many issues, models, and
methods for transforming the traditional old-world organization into a value-creating enterprise. [3]
Martin uses value stream, rather than process, to define the end-to-end stream of activities that deliver
particular results for a given customer (external or internal).
1. List the value chain steps.

2. What is value chain analysis?
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P a can
g e ask you teacher for the copy of the correct answers.
Rating: ____________
Name: _________________________ Date: _______________
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
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Value Chain governance and Networking
Information Sheet-5
A value chain has to be regulated to enhance performance. Governance refers to ‘the basic rules
of the game that determine behavioral conduct and action for vertical coordination and
cooperation. There are components of governance namely legislative and executive governance,
and the reach and richness of governance mechanisms.
Legislative governance includes negotiations and/or specifications of prices, product quality,
delivery time and other transaction attributes linking the business partners. Executive governance
covers monitoring of the provision of the product and other transaction attributes such as
reliability. Also important under executive governance are incentives, including price bonus and
other embedded services like training. Identify leverage points and designing appropriate
strategies for improvement requires knowledge of linkage between value chain actors and level
of cooperation. Possible interventions in strengthening interventions include: enhancing trade
links by supporting the shift from traditional inefficient and fragmented middlemen/ broker
structures to specialized, dedicated trading systems.
Figure 4: Linkages between Value Chain operators and levels of cooperation
Governance refers to the role of coordination and associated roles of identifying dynamic
profitable opportunities and apportioning roles to key players (Kaplinsky and Morris 2001).
Governance implies that interactions between firms along a value chain reflect organization,
rather than randomness. The various activities in the chain, within firms and between firms, are
influenced by chain governance. Value chains are characterized by repetitiveness of linkage
interactions. The governance of value chains emanate from the requirement to set product,
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process, and logistic standards, which then influence upstream or downstream chain actors and
results in activities, actors, roles and functions. Therefore, power asymmetry is central in value
chain governance. In other words, some key actors in the chain shoulder the responsibility to
allocate roles (inter-firm division of labour) and improve functions.
Power in value chain governance can be categorized into three major areas of responsibilities:
setting basic rules for participation in the chain, monitoring the performance of chain actors in
complying with the basic rules, and assistance to help chain actors adhere to the basic rules
(Kaplinsky and Morris 2001). It must, however, be noted that some value chains may exhibit
very little governance at all, or very thin governance. In most value chains, there may be multiple
points of governance which may involve setting rules, monitoring performance and/ or assisting
producers. The powers of governance may be vested within the chains themselves, in local
communities, or in business associations.
Chain governance should also be viewed in terms of ‘richness’ and ‘reach’, i.e in terms of its
depth and pervasiveness (Evans and Wurster 2000). Richness or depth of value chain governance
refers to the extent to which governance affects the core activities of individual actors in the
chain. Reach or pervasiveness refers to how widely the governance is applied and whether there
are competing bases of power. In the real world, value chains may be subject to multiplicity of
governance structures, often laying down conflicting rules to the poor producers (Kaplinsky and
Morris 2001)
Governance can also be referred to as the inter-firm relationships and institutional mechanisms
through which non-market coordination of activities in the chain is achieved. Within global value
chains, for example, leading supermarkets in European country may exercise control over their
fresh vegetable supply chains. Not only do they specify the type of products they wish to buy
(including varieties, processing and packaging), but also processes such as the quality systems
that need to be in place. These requirements are enforced through a system of auditing and
inspection and, ultimately, through the decision to keep or discard a supplier. Clearly,
governance in value chains has something to do with the exercise of control along the chain. At
any point in the chain, the production process (in its widest sense, including quality, logistics
design, etc.) is defined by a set of parameters. The four key parameters which define what is to
be done are:
a. What is to be produced? We refer to this as product definition.
b. How it is to be produced. This involves the definition of production processes, which can include
elements such as the technology to be used, quality systems, labour standards and environmental
standards.
c. When it is to be produced.
d. How much is to be produced.
To these four basic parameters one might add a fifth parameter, price. Although prices are
usually treated as a variable determined in the market, it is frequently the case that major
customers (particularly those competing more on price than, for example, product quality) insist
that their suppliers design products and processes in order to meet a particular target price. From
the point of view of the analysis of inter-firm linkages in the global economy, the critical
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parameters for value chain governance are the first two: what is to be produced, and how it is to
be produced. These parameters are often set by buyers. In each case, the level of detail at which
the parameters are specified can vary. In the case of product definition, the buyer can provide
different levels of specification. It can set a design problem for the producer, which the producer
then solves by providing its technology and design. The buyer might provide a particular design
for the producer to work on, or the buyer might even provide detailed drawings for the producer.
Buyers can also specify process parameters. This has been most evident through buyer
involvement in their suppliers’ quality systems, but it is also increasingly evident in specification
of process parameters in relation to labour and environmental standards. Once again, these can
be specified at different levels of detail. In some cases, the buyer may merely refer to the process
standards to be attained. In other cases, the buyer will specify precisely how particular standards
should be attained by requiring and perhaps helping to introduce particular production processes,
monitoring procedures, etc. When the buyer plays this role, we refer to it as the ‘lead firm’ in the
chain.
The question of governance arises when some firms in the chain work according to parameters
set by others. When this happens, governance structures may be required to transmit information
about parameters and enforce compliance.
Product and process parameters can also be set by agents external to the chain. Government
agencies and international organisations regulate product design and manufacture, not only with
a view to consumer safety, but also in order to create transparent markets (for example, by
defining standard weights and sizes or technical norms). Examples of such parameter setting by
agents external to the chain include food safety standards, norms with regard to the safety of
products such as children’s toys, electrical equipment and motor vehicles and control of
hazardous substances in a wide range of products. Once again, these norms can refer to the
product (are its physical characteristics and design in conformance with requirements?) or to the
process (is it being produced in ways which conform to particular standards?). In some cases,
process norms are pursued as a means to achieving product standards (for example, hygienic
food preparation systems are designed to produce safe food) and in others because of the
intrinsic value of particular types of processes (for example, animal welfare requirements).
Governments may set standards which are compulsory and have legal force. Standards may also
be set by non-legal agreements (code of conduct, etc.) and by a variety of unofficial agencies,
such as NGOs, which pressure for compliance with labour and environmental standards.
Parameters set from outside the chain lead to chain governance when one agent in the chain
enforces the compliance with parameters of other agents or translates the parameter into a set
of requirements which it then monitors and/or enforces. This situation usually arises when
agents at one point in the chain might be held responsible for actions by agents (or the
consequences of these actions) at other points in the chain.
Governance can be exercised in different ways, and different parts of the same chain can be
governed in different ways. Governance, in the sense of arrangements that make possible the
non-market coordination of activities, is not a necessary feature of value chains. Many goods are
traded in markets through a series of arm’s-length market relationships between firms. The
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parameters are defined solely by each firm at its point in the chain. So, for example, a firm might
make a product according to its own estimations of market demand (‘make to forecast’), using a
design that has no reference to any particular customer (i.e. either a completely standard product,
or a product developed in-house) and using its own processes. The buyer then encounters a
ready-made and ready-to-buy product. There are various ways in which inter-firm relationships
can differ from this pattern. For example, the decisions about ‘when’ and ‘how much’ will be
made jointly by the producer and the buyer when production is scheduled according to ‘make-to-
order’ rather than ‘make-to-forecast’. This is typical when products have many possible variants,
which renders make-to-forecast uneconomic.
Generally speaking, we can identify three governance regimes: Open spot market which is based
on price, quality standards and bargaining and negotiation (every batch); partnership which is
based on trust, network agents or family, quality differentiation, contracts, coordination and co-
operation; and fully vertical integrated based on ownership.
3.1 Why does governance matter?
The issue of governance in value chains is important for the following reasons:
a) Provide market access to small growers or producers in developing countries
b) Fast track to acquisition of production capabilities: lead firms transmit best practices and
provide hands-on advice on how to improve layout, production flows and raise skills.
c) Distribution of gains: Understanding the governance of a chain helps to understand the
distribution of gains along the chain
d) Leverage points for policy initiatives: The fact that some chains are governed by lead
firms from developed countries provides leverage for influencing what happens in
supplier firms in developing countries. This leverage point has been recognised by
government and nongovernmental agencies concerned with raising labour and
environmental standards.
e) Funnel for technical assistance: The central idea is to combine technical assistance with
connectivity. The lead firms of chains become the entry point for reaching out to a
multitude of distant small and medium sized suppliers.
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Instructions: Answer all the questions listed below. Illustrations may be necessary to aid some
explanations/answers. Write your answers in the sheet provided in the next page
1. Write the importance of value chain governance.

2. List the four key parameters which define what is to be done.
3. What are the three regimes of governance in value chain?
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Rating: ____________
Name: _________________________ Date: _______________
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
3. ________________________________________________________________
________________________________________________________________
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NTQF Level IV
Learning Guide #40

Oriented Products
Products
LO-2 Develop value chain stream members
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Information Sheet-1
Changing the required actions with value chain stream members
Change: Change is an alteration of a company’s strategy, organization or culture as a result of

change in its environment, structure, technology or people. A manager’s job would be straight
forward and simple (not to say boring) if changes were not occurring in these areas. Good
managers have competence to manage change in the company’s environment. These change can
be alteration in structure (design of jobs, span of control, authority relationships or coordinating
mechanisms), in technology (equipment, work process or work methods) as well as in people
(behaviors, perceptions, expectations or attitudes).
Reasons for change

A complex structure like an organization is driven by external and internal factors in regard to
the need for change. There are a number of external forces that create the explicit need for
change.
 Market situation or market place
 Technology
 Government laws and regulations
 Economics
Parallel to the external reasons there are different internal forces for change.
 Corporate strategy
 Workforce
 Technology and Equipment
 Employee attitudes
Types of value streams
 Operational value streams

 Development value streams
1. Operational value streams-contains the steps and the people who deliver end-user value
using solutions created by the development value streams.
2. Development value streams- contains the steps and the people who develop solutions
used by operational value streams : define-build-test- release
Why organize people in value streams?
 To accelerate the time to value (market).

 To optimize the flow of value through the system as a whole.
 To clear the picture of an enterprise for what it delivers and how can improve it.
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Defining Development value streams:-once a value stream is identified, additional analysis is
required to define the development value stream boundaries, people and other data.
Understanding the value chain and changing circumstances
The value chain can be a very useful conceptual tool when trying to understand the factors that
impact the long-term profitability of your business and when developing a successful strategic
plan for your business. The value chain can be thought of as a set of activities, services, and
products that lead to a product or service that reaches the final consumer.
The value chain can help you answer questions regarding:
 How the products you produce reach the final consumer.
 The structure (economic relationships) between players in the chain.
 How this structure is likely to change over time.
 The key threats to the entire value chain.
 The key determinants of your share of the profits created by your chain.
Agribusinesses that focus only on the firms nearest to them in the value chain are not likely to
anticipate major structural changes that can dramatically impact their profitability. In order to
understand your value chain, begin by drawing a simple diagram that shows the key processes
and inputs that contribute to the final product. In general, the value chain of most agribusinesses
looks like Figure below . Your job is to replace the generic boxes with more detail where
appropriate.
Input Agricultural First Level

Agricultural Processor Wholesalers Retailer Consu
Production Handling
Production s / s mers
Distributors
Figure. A typical value chain for agricultural products.
The amount of detail that you include in your value chain depends in part upon the final product
that you most identify with. For many producers, this is a difficult question. Just identifying
where the product goes after it leaves your business is an important first step. Ask yourself, how
and in what ways your production finally reaches the consumer. This question can have very
different answers depending where you are located in the value chain. Grain producers will
likely have many different ways in which the product reaches the final consumer and may have
little control over where or how their product reaches the consumer. For these producers, the key
is to identify the major channels or classes of products that reach the consumer. For instance,
grains are often converted to manufactured cereal products, feed, and feed products, ethanol, etc.
On the other hand, fresh fruit or vegetable growers may have a great deal of control over how
their product reaches the consumer. These growers will likely want to be much more explicit
with respect to the final product that they produce, i.e., fresh apples sold at roadside stand, apples
picked by consumers in the orchard, apples put in storage and sold in a retail outlet, and apples
processed for juice.
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The key is to identify the various ways in which your product reaches the consumer. The amount
of detail that you use in constructing the value chain will depend in large part upon the degree of
differentiation that exists between you and your competitors. By simply considering the
alternative ways in which your product reaches the final consumer, you can begin looking for
ways to differentiate yourself from your direct competitors and making your product more
attractive to members of certain value chains. For instance, look for ways to add value not only
to the businesses you directly supply but to their customers as well. Also, you may begin to see
opportunities for end markets that play to your strengths.
The next key factor to consider is the economic relationship between the various parties in your
value chain. The number and size of the competitors at a particular stage of the value chain can
have important consequences for other members of the chain. A dominant player at one stage in
the chain can place many demands on smaller players with many competitors. Often, stages near
the dominant player will react by trying to match the dominators size and influence. Sometimes
this involves consolidation or forming cooperatives.
Another factor to look for at any stage is the importance of economies of scale. These are
typically important in the processing stages. Economies of scale can dictate how processors want
to interact with other players. Often, they will want to insure that product continues to flow
through their plants. Food safety and contamination risk are even more important when a player
has large economies of scale. A contamination can be very costly for any player, but one with
large economies of scale and thus volume is especially at risk. Look for these firms to be very
sensitive to the quality and origin of the product coming into their plants.
Biological production risk and perishability are frequently important characteristics of
agricultural value chains. Biological production uncertainty can have important implications for
the consistency of supply-to-supply chain members. This is especially important when there are
economies of scale present. Perishability can have important impacts on the logistics and
handling of food products. It will also influence the responsiveness of supply and will limit the
amount of substitution that can take place when a weather event reduces production.
You will often want to examine the economic relationships that govern the transactions
taking place at each stage of the value chain. These factors can be especially important because
they can make price discovery difficult and can limit access to a value chain. For instance, many
retailers and branded product manufacturers are moving toward networks of preferred suppliers.
These networks do not operate like traditional agricultural markets that are open to everyone. In
order to participate, the supplier must typically qualify or meet certain production standards. In
many cases, the manufacturers and retailers are looking to reduce rather than expand their
supplier networks.
Finally, you want to be aware of key consumer trends and key technological advances. In
agriculture, the development of biotechnology has the potential to dramatically change value
chains because the technology has important implications at both ends of the value chain.
Consumer attitudes toward biotechnology will create new niche markets for value chains that
either do or do not use biotechnology. Likewise, new products will be developed and potentially
create new value chains. Further, biotechnology will impact the role of food processors in the
food system, as food products are refined at the genetic rather than the plant level.
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Understanding these factors will enable you to understand where the pressures that are likely to
influence your profitability will likely come from. It will also allow you to understand how you
can add additional value to your specific value chain. Ask yourself, what chain are you most
suited to participate in, how can you deliver the most value to that chain, what relationships are
necessary to successfully compete in your chosen value chain, what key factors can destabilize
or adversely affect the value chain.
The structure of the value chain will have a direct impact on you and your direct competitors’
profitability. Remember, to a large extent, the amount of profit that can be obtained by you is
dependent upon the final value that your entire value chain delivers to the consumer. It is also
important to realize that your value chain also competes against other value chains that may be
delivering products and services to the same customers that your chain delivers to.
Value Stream Process
1. What is change?
2. What are the internal and external reasons of change?
3. Mention the typical value chain members in agriculture.
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Rating: ____________
Name: _________________________ Date: _______________
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
___________________________________
3. ________________________________________________________________
__________________________________
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Information Sheet-2
Monitoring the Progress of changes
Identifying Changes Required in Leading Change Agents

Every value chain has a vision and the stakeholders must play roles that will ensure the
attainment of this vision. Though each stakeholder is important in the value chain some of them
would have to be classified as active, innovative and leading change agents. These can be
identified using the value analysis where their roles and influencing factors are aligned at micro,
meso, macro and Meta levels in the value chain system. Their competences must also match the
roles that they have to play.
Having identified the prevailing constraints and opportunities, it is possible to identify which
roles of the operators need to be modified to ensure sustenance and effectiveness. Role
modification may call for skill upgrading. New knowledge must be given through training which
may require experts in various fields. Some of the services that may be required and the suppliers
of these services are provided in Table 1
Table 1: Business Development Services (BDS)
Potential BDS required Potential BDS providers
VCD facilitation (intervention strategy Consultants, business associations, large
development, linking operators, networking companies (chain leaders)
service prov. etc)
Advisory services (production, processing & Consultants, business associations, other
handling practices, management, marketing etc.) BDS, large companies, govt. extension
Extension and training services Public/ private specialized institutions,
business associations, other BDS
Organizational development of farmer Consultants, NGOs, public organizations
organizations & MSE associations
Research & development, technology transfer, Public/ private research institutes,
product development consultants, business associations
Certification and laboratory control services (accredited) public/ private laboratories/
certification bodies
input supplies including information on input suppliers; (cooperatives, NGOs)
appropriate use
transport and logistics services “middlemen”, transporters
marketing information, market linkages, export bus. associations, (public)/ private BDS,
promotion Chamber of Commerce, NGOs
exchange of experiences, joint learning, joint producer organizations (farmer groups?
marketing cooperatives)
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consumer awareness campaigning public health services, consumers’
associations, NGOs
lobbying and advocacy business associations, Chamber of
Commerce
Monitoring for Possible Vision Modification

Have you ever changed your mind about something you strongly wanted to buy? Why did you
change your mind? Maybe because the price was too high, or you had to buy another important
item at the time, so you had to make choices. The reasons could be diverse. The important
lesson here is that sometimes you need to change your aim, or vision, or direction. You do so
because you cannot deal with the constraints, so you go round them by modifying your vision.
Sometimes other opportunities make your vision less competitive. Thus we need to regularly
examine our visions and decide whether or not we have to modify them to suit prevailing
conditions. Similarly, the vision of a value chain development must be monitored for possible
reviews.
Need for vision monitoring
Value chain development is always based on a set vision. The vision enables us to know the
direction we want to go and where we finally want to be. The strategies we plan for the value
chain development therefore depends heavily on this vision. The vision must be realistic, visible
and achievable. We need to ensure that these attributes of the vision, rather than the vision itself
is sustained for the sustenance of the value chain system. We can do this by:
 Examining and re-examining the vision regularly
 Agreeing on performance indicators by which the vision will be monitored
 Building consensus on new directions to move.
While analyzing a value chain development, several factors can be identified that impact on the
validity and relevance of the set vision. Broadly, these may include prevailing opportunities and
constraints, socio-cultural environment, emergence of new groups and associations, emergence
of new technologies, changes in government policies at the local and national levels, changes in
international trade policies and conditions, etc. We have to regularly assess how close we are
heading toward the vision in the context of these categories of factors.
Developing performance indicators for monitoring
Value chain development must be seen as adequately addressing two issues: identifying and
addressing critical constraints, and identifying and seizing opportunities. The extent to which the
vision and strategies of the value chain addresses the constraints and utilizes the opportunities
becomes the determining factor for modifying the vision or the strategies, or both. Therefore our
basic performance indicators should be based on:
1. Whether the vision considers and takes advantage of prevailing opportunities
2. Whether the vision can be achieved when critical constraints have been identified and
addressed
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Participatory Revision
Who must decide on revising the vision of the VCD? If one stakeholder decides on revision and
the others say no, what events are likely to follow? People will surely be embittered. So the most
acceptable way to revise or review a vision for value chain development is through participatory
agreement. Dialogue, brainstorming sessions and effective communication channel among the
various stakeholders can be used to agree on which way to go.
Developing monitoring teams and programs
Who monitors the value chain development vision? From which perspective must the vision be
monitored? Should the vision be monitored in isolation from the other aspects of the chain?
Since the value chain system is a participatory linkage of actors and stakeholders, monitoring
must be the responsibility of all stakeholders. However, for monitoring at the various levels must
be facilitated, regularized and harmonized; there is a need for a monitoring team. This team must
comprise stakeholders from all stages of the chain i.e. from input supply through production, up
to the final consumer. Representation from the entire spectrum of the chain will ensure that
standards set for performance have all been achieved.
Monitoring of the vision must be harmonized with the monitoring of other aspects of the VCD so
as to have a holistic, comprehensive overview of the process for the necessary adjustment to be
made.
1. What is monitoring?
2. List the levels in value chain system.
3. What is the importance of vision in value chain?
Rating: ____________
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Name: _________________________ Date: _______________
1. ________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
___________________________________
3. ________________________________________________________________
__________________________________
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Information Sheet-3
The action taken to ensure changes
There has always been the need to manage change and it is easy point in history is greater than
that in the past. The change from an agricultural to an industrial society in Britain, the New Deal
initiative to take America out of recession in the 1930s and the need for reconstruction
throughout Europe after the Second World War were all times of turmoil that required creative
management through the transition period. However, from the 1960s onwards it is true to say
that the periods of stability, when business operations could just be managed, have become
shorter, and the necessity to make changes more frequent. The fundamental reason for this is
competitive pressure: if an organization and its products have no competitors, then it is under no
pressure to change. This increased competitive pressure has come from such sources as:
 technological change, both in manufacturing processes and the possibility of new
products
 globalization, of products, markets and competitors
 cheaper communication and distribution, particularly the revolution in
telecommunications and information technology
 government deregulation, including privatization and
 Legislation to promote competition.
Another major source of change, of which you may have personal experience, is the massive
increase in mergers and acquisitions activity. Managers, on average, currently face the prospect
of going through the process of merging with another organization two or three times during
their working lives. What does all this mean for you as an individual employee? It means that
you are likely to be faced with more frequent periods of transformational change during your
career. While we all need to respond to changing circumstances every day, transformational
change refers to those periods when an organization must make radical alterations in the way it
does business in order to survive and grow.
Common Models of Change
Change originates from external sources through technological advances and demographic
changes and socioeconomic pressures. Change also originates from inside the organization,
possibly as a management response to issues such as changing client needs, costs, human
resources, or performance issues. Change may affect one area or the entire organization.
Nevertheless, all change, whether from internal or external sources, large or small, involves
adopting new mindsets, processes, policies, practices, and behavior.
Category 1—Change as a Psychological Transition
The Bridges’ Transition Model provides a good understanding of what occurs to individuals
psychologically when an organizational change takes place. This model differentiates between
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change and transition. Change is situational and happens whether or not people transition
through it. Transition is a psychological process where people gradually accept the details of the
new situation and the changes that come with it.
Category 2—Change as a Process
John Kotter’s eight steps to transforming organizations are based upon the analysis of 100
different organizations going through change. This research highlighted eight key lessons, which
were converted into an eight-step model. Kotter’s change model is often referred to as a top-
down approach to change where the need for and approach to change originates at the top levels
of the organization and then is promoted down through the organization’s layers of management
to the change recipients.
Category 3—Change Represented as Systems Models
Continuous improvement is an essential survival strategy for every organization in order to be

able to adjust to higher standards and changing conditions. There is a foundational tenet that
should be addressed as an organization’s managers attempt to implement organizational project
management: Orders of Change.
Category 4—Custom Change Models
Systematic and disciplined structures for managing change have often been customized for an
organization to meet its specific needs.
Two examples of customized change models are:
1. American Express developed a change process consisting of major

change phases with key issues that were addressed in each phase:
o Scope the change.
○ Create a vision. ○ Accelerate the transition.
○ Drive commitment. ○ Sustain momentum.
2. Jack Welch, former CEO of General Electric, introduced a change

management model that has since become a change blueprint for many
organizations. The model contains six straightforward steps:
○ Clear expression of the reasons for change, articulating the “why” before getting to the “how.”
○ Establish the vision for the new state of affairs and outline what the change will achieve.
○ Provide strong leadership and obtain support from the most senior organizational level.
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○ Mobilize the workforce by engaging staff in the planning and definition of the new process.
○ Measure success and analyze outcomes using solid metrics.
○ Maintain consistency
Action to be taken in change processes
 Formulating the change by identifying and clarifying the need for change, assessing
readiness for change, and delineating the scope of change.
 Planning the change by defining the change approach and planning stakeholder
engagement as well as transition and integration.
 Implementing the change by preparing the organization for change, mobilizing the
stakeholders, and delivering project outputs.
 Managing the change transition by transitioning the outputs into business operations,
measuring the adoption rate and the change outcomes and benefits, and adjusting the plan
to address discrepancies.
 Sustaining the change on an ongoing basis through communication, consultation, and
representation of the stakeholders; conducting sense making activities; and measuring
benefits realization.
1. What are the sources of change?
Information Sheet-4
Monitoring Changes across value stream and their impacts
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What is the difference between value stream and process improvement? Many organizations are
struggling with this very question. Focusing on just one will suboptimize any continuous
improvement efforts. It is important to understand the synergies between value stream and
process improvement in order to ensure the success of improvement practitioners. Being able to
lead improvement efforts in both arenas requires knowledge of the appropriate methods and tools
to employ at the proper time.
Value stream improvement differs from process improvement in that it focuses on improving the
flow between processes while process improvement focuses on reducing the variation within
processes. This may be an over simplification but it permits the understanding of the basic
premise in both approaches. If these basic tenants are first understood, then hybrid approaches
can be applied. Many organizations and practitioners fail to understand the difference, and thus
sub optimize their improvement efforts thru lack of understanding of the core principles.
The Hierarchy of Process Discovery
There are at least three levels in the hierarchy of process discovery. The highest level is the
value stream or flow level. The value stream level focuses on examining work across
organizations, functions and processes. The goal is to optimize the flow by eliminating waste
and disconnects between the processes. This improves the effectiveness of the entire value
stream by minimizing the lead time. The core tool to document value streams is value stream
mapping.
The next level is the process level. The process level focuses on looking at work within a
process, function or department. The goal is typically to increase the efficiency and quality
within a process for better productivity of the resources within the process. The core tools to
document processes are process maps, process flow charts and process level swimlane diagrams.
The lowest level is the task level. The task level focuses on how the steps are performed within a
process. The goal is to standardize the way work is performed in order to minimize variation and
maximize process efficiency. The core tools to document tasks are standardized work, standard
operating procedures, workmanship standards, job aides and work instructions.
Process Improvement
People typically focus on the process or task level because that is the world in which they live.
They focus on what is in the area of their own influence and thus what they have control over. It
is less common to look across their processes to maximize the effectiveness of the value stream.
This is partially due to the fact that people are organized by function rather than work flow,
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trapping the work in functional silos. In a transactional environment these silos are even stronger
than in a manufacturing environment, as they are forged from education, careers and positions
that align the individuals within silos. Focusing only on the process or task level leads to an over
reliance on local utilization of resources, efficiency and productivity. This reliance, along with
batch and queue processing, leads to sub-optimization of the value stream.
Value Stream Improvement
As stated above, a value stream is a collection of cross-functional processes. Value stream

improvement is centered on improving the flow of product and services across these processes.
The quintessential tool in value stream improvement is value stream mapping. Value stream
mapping is the only mapping tool to focus specifically on what is transpiring between the
processes. The ground breaking book Learning to See [Rother and Shook] is appropriately titled
because it allows people to see their process in an entirely different light. Value stream mapping
promotes system thinking by focusing on what is best for the entire organization rather than just
a single process. The Complete Lean Enterprise [Keyte and Locher] outlines value stream
mapping for transactional processes. A value stream map can be the basis for the development of
a transformation plan for the entire value stream.
A swimlane diagram can be used at a value stream level if the lanes represent different processes
or departments. If the different swimlanes represent people or positions then the swimlane is on
the process level. The value stream level swimlane can serve as an entry level value stream level
mapping tool that displays the hand-offs between departments. While it can be amended to
include the lead time, it lacks detail on the reasons for the lead time between the processes that a
value stream map provides.
A hybrid mapping approach has emerged to leverage the simplicity of the swimlane but also
provide some of the details that a value stream map provides. This approach is used within
transactional value streams and is thus called Transactional Value Stream Mapping (TVSM) or
the Makigami approach [Koch]. The Makigami approach has built upon traditional hybrid
swimlane mapping to provide additional details in a structured manner for transaction processes.
Additional details include the type of information flow and the information technology systems,
the time analysis and waste and problem identification. Makigami also offers a step-by-step
approach to creating a transactional swimlane. This approach, combining the simplicity as well
as the additional details within the map, has led to its increasing use by practitioners for
transactional applications. The same recommendations to staying at a value stream level for
process discovery apply Makigami as well.
Within the value stream or flow level there are a number of different levels. The highest level
value stream is the enterprise level. The enterprise level maps the flow of work across
organizations. This typically includes the supplier, core organization and the customer.
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Value Stream vs. Process Improvement”
that describes enterprise value stream mapping. Enterprise Value Stream Mapping (EVSM)
focuses on addressing disconnects between organizations and on optimizing supply chains. In an
enterprise value stream map each of the process boxes represent an organization’s different
locations.
Next comes the high level value stream. The high level value stream is the highest level within a
single organization. It maps the flow of work between parts of the organization. In many high
level value stream maps the different parts of the organization are in different locations. In a
high level value stream map the process boxes are different functions. An example high level
value stream may span across the following functions of a single organization:  Research and
Development  Design and Engineering  Sales  Manufacturing  Distribution
Synergies Between Value Stream and Process Improvement
At first glance, process improvement and value stream improvement appear to be conflicting. As
stated above, it is easy to conceive of a situation where striving for process level efficiency leads
to overproduction, larger batching, longer lead time and overall sub-optimization of the value
stream. This occurs when process improvement is conducted in a vacuum, outside of the context
of the value stream. At the same time there are situations when value stream improvement will
halt until issues are addressed within the process. In many cases the value stream wastes
observed are symptoms of root cause issues within the process. This is the case when there is
variation in the process leading to delays, work-arounds and general interruptions in flow on the
value stream level. In these situations, flow cannot be improved until the process level variations
are addressed. There is a correlation between process variation and value stream flow. This
correlation is at the crux of the relationship between Lean and Six Sigma. Organizations need a
Lean value stream approach to assess the entire value stream and a Six Sigma type process
improvement approach to drill down the process issues inhibiting flow. If a value stream
approach alone is leveraged, a team may lack the substance to eliminate the variation with the
processes that may be the root cause of the flow issues. If a process improvement approach
alone is leveraged, a team may at best lack the direction required to make systematic
improvements and may at worst sub-optimize the value stream.
Understanding the differences between the hierarchy of process discovery is critical to

optimizing continuous improvement efforts. The value stream level focuses on looking at work
across organizations, functions and processes. The process level focuses on looking at work
within a process, function or department. The task level focuses on looking at how the steps are
performed within a process.
Selecting Value Streams
If your customer has not defined the value stream for you, there are two reliable methods you can
employ to help you decide which value stream(s) to target for improvement:
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1. Product-quantity (PQ) analysis. Start with PQ analysis first to see if some part
numbers are run in volumes high enough to make the choice an obvious one.
2. Product-routing (PR) analysis. Use product-routing analysis if results from PQ
analysis are inconclusive.P-Q Analysis List (Pareto)
Kanbans
The team decides that the value stream requires the following types of kanbans in the following
locations:
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1. Withdrawal kanbans that will tell the runner (material handler) how many units
should be pulled from the finished-goods supermarket and staged in shipping.
2. Production kanbans that tell operators in the crimping/testing/marking cell how
many units must be produced to replenish those pulled from the finished-goods
supermarket.
3. Signal kanbans at the in-process supermarket between machining and the
crimping/testing/marking cell that tell the machining operator how many units
have been pulled from the supermarket
4. Signal kanbans just upstream of machining that tell the supplier how many units
have been pulled from raw material inventory.

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NTQF Level IV
Learning Guide #41

Oriented Products
Products
LO: 3 Implement and review value stream members

Information sheet-1
Undertaking the regular review of

value stream relationship
The Lean philosophy is fundamentally about creating value for the customer/client while using
the fewest resources possible. It’s about getting the right service in the right amount to the right
person at the right time, while minimizing waste and being flexible and open to change and
improvement. It is, at its heart, essentially a disciplined thought process about the work we do.
It describes a dynamic process governed by a systemic set of principles, methods, and practices
that embrace all aspects of our work.
Lean is, therefore, a way of thinking to adapt to change, eliminate waste, and continuously
improve. It does not expect us to arrive at perfection. Instead, it stresses an evolutionary process
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of change and adaptation. It provides a number of tools and techniques to help each of us
maximize the effort of our workforce and to operate as a lean government.
There are several key principles that are at the core of Lean philosophy:
1) Know your customer/client – who they are and what they want and when.
2) The customer defines value.
3) Keep the process simple (and eliminate waste).
4) Do “it” right the first time.
5) Involve and empower employees.
6) Continually improve in pursuit of perfection.
These principles probably appear to be common sense and straightforward and yet are often very
difficult to make a reality. The principles assume that an individual, team, or an organization is
consistently operating with a PROCESS MINDSET. Having a process mindset means that the
notion of “process” is so imprinted into our worldview that it is an automatic filter through which
we view reality. So much so, that when asked, “What do you do for work?” we see a process,
not simply a task or an event. And, not only do we see a process but also many processes,
weaving together, as well as many levels of process.
With a process mindset, it also becomes easier to identify those things that do not add value from
the customer’s perspective, such as WASTE. Waste, or non value-added tasks/steps, is
something a customer/client would not be willing to “pay” for. In the Toyota system, waste is
defined as “anything other than the minimum amount of equipment, materials, parts, space, and
worker’s time which are absolutely necessary to add value to the product [services].” When we
do things right the first time, there is less waste and more value to our customer(s)/client(s).
The Eight Wastes
Lean = Eliminating the 8 Wastes
Recognizing waste leads to identifying the root cause of problems. Waste within a process is a
systemic flaw. All non-valued activity can be categorized into the 8 wastes below. Examples are
given below for each category.
1. Overproduction
 Generating more information than the customer needs right now.
 Generating more information than the next process needs.
 Creating reports that no one reads.
 Making extra copies.
 Duplicate data sources.
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2. Waiting
Idle time created when material, information, people, or equipment is not ready.
 Waiting for the computer system to come back up.
 Waiting for a handed-off file to come back.
 Waiting for customer response.
 Waiting for copy machine.
 Waiting for faxes.
 Excessive Login or response times.
 Waiting for hard copy printouts.
3. Transportation
Movement of information that does not add value.
 Retrieving or storing files.
 Carrying documents to and from shared equipment.
 Taking files to another person.
 Going to get signatures.
 Moving work over long distances.
4. Non–Value-Added Processing
Efforts that add no value from the customer’s viewpoint.
 Creating reports.
 Repeated manual entry of data.
 Redundant reviews/approvals.
 Use of outdated standard forms.
 Use of inappropriate software.
 Data entry not performed at the source.
 Information for decision-making not real time.
5. Excess Inventory
More information, projects, material on hand than can be worked on or the customer
needs right now.
 Files waiting to be worked on.
 Unused records in the database.
 Open projects.
 Office supplies, piles and shelves of supplies.
 E-mails waiting to be read.
 Requests for services.
6. Errors
Work that contains errors, lacks something necessary, or needs other rework.
 Data entry error.
 Pricing error.
 Missing information.
 Missed specifications.
 Lost records.
 Collect wrong or incorrect data.
 Equipment breakdowns/malfunctions.
7. Excess people motion

Movement of people that does not add value.
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 Searching for files.
 Extra clicks or key strokes.
 Clearing away files on the desk.
 Gathering information.
 Looking through manuals and catalogues.
 Handling paperwork.
8. Underutilized people
 People that are needed, but not enough work to keep them busy all day – could be
helping others – unbalanced workloads.
 Poor or neglected user training and user documentation on existing/new
processes.
 People watching equipment work (e.g. watching while copier prints).
 People with training and skills beyond that needed to do the work.
Lean Concepts
Using these Lean concepts can help you to transform your Current State to your Future State:
1. Eliminate non-value-added activities, tasks, steps

• Evaluate every activity, task, and step from the customer’s point of view and ask if this
action is adding form or function to the service. If it is not, try to eliminate as much of
the non-value-added time as possible. Remember that customers can be internal,
external, direct or indirect -- some one is paying for the services.
2. Implement low-cost / no-cost solutions first
• Use simple, grass-roots level suggestions to eliminate waste. Carry out easy decisions
and make low-cost decisions. This is the test phase -- you can make permanent changes
later.
3. Simplify the process
• Ask why the step or action is being done. Most of the time, the customer’s
requirements change over time and the process is never re-evaluated to match the current
needs of the customer. Applying Lean can be a real “up-hill battle” if key business
processes are no longer appropriate or even out of date.
4. Integrate the processes or steps in the process
• The process should be reviewed to reduce or combine steps in order to eliminate
duplication, inconsistencies, conflicts, and redundancies across processes, functions, or
offices/departments.
5. Do things only once
• Eliminate error and rework. They waste resources -- human, financial, and time – and
do not meet the needs of the customer. For example, try to capture required data as
needed and as close to the source as possible to eliminate loops (going back to source for
data) in the process. Current States with an action, data, or information path that moves
backwards should be strictly scrutinized.
6. Look at process from the customer point of view
• At every step, determine the receiver of the generated output(s) and know the required
outcome. Remember that there can be, and are, many customers within a value stream.
7. Implement visual systems
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• Visual systems are a form of communication and can be used to direct flow with
minimal interaction from a person. Typically these can be no or low-cost solutions and
can be quickly implemented to improve people, information, and documents flows.
Simple signals that provide an immediate understanding of a situation or condition. They
are efficient, self-regulating, and worker-managed.
8. Create value based on customer demands and needs (define the customer)
• Perform tasks that increase the value of the service for the customer -- anything else
that is not necessary is waste.
9. Reduce batch size
• Analyzing the amount of inventory (or work) before and after a step in the process can
help identify bottlenecks or capacity constraints in the system. Only one client, couple,
case file, etc. can be addressed at a time, so question the practice of stacking or batching
work and pushing batches forward to the next step in the process.
10. Improve quality – do it right the first time !

• Strive for perfection at the source of the work, always. People must be certain that the
work/information they are passing to the next work step/area is of accepted quality.
11. Reduce transportation and/or motion
• Analyze the amount of movement of people and documents in performing a step. Much
time can be wasted in unnecessary movement.
12. Standardize the work
• Documented, standardized work reduces cross-training time, improves efficiency,
reduces searching times, and creates a work area and/or processes that produce replicable
and reliable outcomes. Standardized work minimizes variation in process and process
result(s).
13. Implement 5 S – Sort, Set in order, Shine, Standardize, Sustain
• Sort: Eliminate the Clutter – “When in Doubt, Throw it Out.”
• Set in Order: Organize and label, set boundaries and limits – “A place for everything
and everything in its place.”
• Shine: Clean everything, inside and out – “Inspection through cleaning.”
• Standardize: Keep procedures, checklists, charts, etc. and make them visual –
“Everything in a state of readiness and service”
• Sustain: Maintain discipline through the implementation of continual improvement
systems and culture
14. Reduce setup or changeover time
• Changeover activity is considered non-value-added and detracts from available
productive time. Reducing setup is critical to increasing customer responsiveness and
effectively reducing “lot” size.
15. Implement Pull vs. Push Systems
• A Pull System is a method of controlling the flow of resources (people, information)
based on pre-established rules, and the actual status of the system at any time. A Pull
System is a flexible and simple method of controlling/balancing the flow of resources. It
eliminates waste of handling, storage, expediting, obsolescence, rework, facilities,
equipment, and excess paperwork.
• A Pull System consists of:
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 Processing/delivery of services based on actual consumption/demand of the
customer.
 Low and well-planned work in process (paperwork)
• Management by sight, improved communication.
16. Complete small incremental changes
• Strive for transition to the Future State with incremental and monitored (measured)
changes. Effective vs. ineffective changes can quickly be recognized and continuous
improvement will be achieved more efficiently.
17. Establish appropriate measurements to determine improvements in quality, customer
service, and cost.
• Check measurements on impact of Bend the Curve goals
• Check metrics against project selection criteria:
 Number of customers impacted (future state should positively impact

more),
 Intradepartmental coordination improvement (reduction of duplication or
redundancy),
 Improved service (increased capacity, better quality, services delivered
more quickly),
 Dollars saved (reduced time, materials, processing),
 Improved efficiency
Value stream mapping (VSM) is a method for illustrating and analyzing the logic of a
production process.
A value stream map gives a graphical overview of the flow of material and information in
a production process. This is a good foundation for understanding how activities and
operations are connected and forms a basis for analyses of the process. However, the
graphical representation alone is not enough. It is important to note that the whole point
of doing VSM is improvement.
We can describe the VSM methodology as a sequence of five steps, in which the initial
four are all leading up to the actual improvement of the process.
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Value Added:-Any activity that increases the form or function of the product or service. Any
activity that the customer would be willing to “pay” for.
Non-Value-Added:- Any activity that consumes resources but creates no value for the customer
or any activity that does not add form or function, or is not necessary.
A commonly used Lean technique is value stream mapping (VSM). This technique, which takes
a broader view of total value flow with less focus on the individual sub-processes, can be used
to identify wasteful activities, reduce the length of process cycles, and make process
improvements. VSM can also be used to identify the causes of waste and to illustrate the
relationship between materials and information flow (Rother and Shook, 1998). Thus, VSM has
three basic steps:
1. The generation of a current state map

2. The generation of a future state map
3. The development of an action plan.
1. Creating the current state map:

When creating a Value Stream Map (VSM), it is usually recommended to do this by hand.
It is of course possible to do this with the help of computer software, but the downside to
this is that the maps can become rather ‘sterile’ and give the impression of a finished
product. The main risk is that the map becomes an ‘objective’ account of the process and
tends to make people hesitant to suggest changes.
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Step 1 – Create an outline of the process In this first step, we create the ‘backbone’ of the VSM.
We identify the operations and draw them in a straight line. Then we add the external sources;
customers to the upper right and suppliers to the upper left.
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Step 2 – Draw the flow of information and materials. In the second step, we add information
about how materials and information flow through the value stream. Also, we need to visualize
where materials are stored. Information about shipment is also added.
Adding all this information to the VSM gives us a map as illustrated below.
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Step 3 – Add process data When adding process data, it is important to recognize what is useful
for the given situation and purpose. In some cases, the purpose may not be entirely clear before
the analysis is done, which leads us to add all the known data about the process.
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The list below gives an overview of process data and abbreviations that may be of use for a
VSM.
 Customer demand  Available time
 Cycle time (C/T)  Uptime/downtime
 Process time (P/T)  Quality or defects rate (Q)
 Changeover time (C/O)  Number of product variations
 Number of operators (Op. or the symbol)  Batch size
 Capacity (Cap.)  Inventory levels
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Step 4 – Add timeline and calculations In this final step, we need to calculate the takt time, the
process times and waiting times (inventory lead times) and add these to our VSM. These will be
used for estimating the total lead time, process time and process efficiency.
The takt time is the production pace that we need to be able to maintain in order to meet
customer demand. This is calculated by the following formula. Equation 2-1 Takt time =
Available time Customer demand For the Lean game, we play for 12 minutes, and the customer
demand for that period is 48 units. Therefore the takt time is 15 seconds. 𝑇𝑎𝑘𝑡 𝑡𝑖𝑚𝑒 = 12∙60 𝑠
48 𝑢𝑛𝑖𝑡𝑠 = 15 𝑠/𝑢𝑛𝑖𝑡
The takt time is then used to calculate the waiting time (inventory lead time). This is done by
using Little’s law, which states that the average inventory (I) equals throughput rate (R) times
average flow time (T). For our purposes, this translates to the following expression.
Equation 2-2 Inventory lead time = Inventory level ∙Takt time
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If we take the assembly as an example, we can see that we have an estimated average inventory
of 10 units before the operation and 8 units after the operation. Using Little’s law, we calculate
the following waiting times.
𝑊𝑎𝑖𝑡𝑖𝑛𝑔 𝑡𝑖𝑚𝑒𝑏𝑒𝑓𝑜𝑟𝑒 = 10 𝑢𝑛𝑖𝑡𝑠 ∙15𝑠/𝑢𝑛𝑖𝑡 = 150 𝑠
𝑊𝑎𝑖𝑡𝑖𝑛𝑔 𝑡𝑖𝑚𝑒𝑎𝑓𝑡𝑒𝑟 = 8 𝑢𝑛𝑖𝑡𝑠 ∙15 𝑠/𝑢𝑛𝑖𝑡 = 120 𝑠
For simple processes such as this, the process time is equivalent to the cycle time, which makes
it easy to handle. For more complex processes or processes that handle several products
simultaneously, the process time may differ significantly from the cycle time. What is important
to keep in mind in this step is therefore that we are looking for the value adding time in the
process. Also, we want to know the total process lead time, which is the estimated time for a
single product to pass through the entire process from start to finish. Keeping these principles in
mind tends to facilitate a correct selection of time parameters for the map.
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2. Creating the future state map
When we have done our analyses of the current state map, we will have a number of
improvement ideas that we would like to implement. Before we do this, it is useful to illustrate
what the process would look like after we make these changes. Sometimes this can help to avoid
mistakes and also generate even better ideas for improvement.
When creating the future state map, there are some useful principles and methods that can be
applied. These are discussed in the following sections.
4.1 Move towards continuous flow One of the most important principles of Lean and the key to
an efficient value stream is the goal of continuous flow. The most efficient mode of operation is
continuous production without inventory or waiting between operations. This requires a lot of
work and is a state that is rarely reached in practice. However, it is important to recognize this as
an end goal for the VSM methodology.
Since continuous flow is difficult to achieve, the principle of pull production has received more
attention – most likely because this is more attainable. Therefore, you should always aim to
create continuous flow if you can, and use pull as an alternative, which is captured in this well-
established dictum:
Flow where you can,
pull where you must.
As suggested in the previous paragraphs, flow should not be seen as a binary characteristic; there
are degrees of flow that can be mapped out in a continuum ranging from continuous flow
through sequenced flow to pull and finally push production.
Continuous flow is often associated with a moving production line, but this does not have to be
the case. A more general way of achieving continuous flow is to use a fixed production pace or
takt. When this principle is applied, we need to distinguish between the production takt and the
customer takt. Optimally, these are the same, but this is not always the case. The takt is the time
allocated for completing one cycle of work in each operation, and any remaining time is idle.
This ensures that we will even out the production throughout the process and avoid over
production.
An example of sequenced pull is a method known as CONWIP, which aims to maintain the WIP
at a constant level (CONstant Work In Process). The idea is that the pacesetter (bottle neck or the
last operation) in the process sends a signal to the beginning of the process each time there is a
need for a new product. No production is initiated at the beginning of the process unless there is
a need upstream.
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Kanban applied to the lean game
Kanban is probably the most well-known method for pull production. The principle is the same
as for CONWIP, but signals are sent from each operation to the previous operation and not only
from the pacesetter. This is illustrated with the Kanban symbol and arrows that go upstream
between each operation. There are many variations of Kanban, and the example in Figure 10 is a
quite simplified application in which the cards are sent directly to the previous operation. In
some cases, the cards are placed in the supermarket (withdrawal Kanban) and are then taken or
sent from the supermarket to the operation (production Kanban).
3. Implementation Plan
The purpose of this task is identify those activities necessary to move from the Current State to
the Future State that you just mapped. Here, Lean principles are applied directly to the wastes
identified, and specific actions are planned and assigned. Activities included on the Plan should
be able to be accomplished in a minimum of time (preferably within a few weeks).
Develop an Implementation Plan that includes:
 Specific recommendations/actions.
 Completion dates.
 Responsible individuals.
 Measures for improvement.
 Perceived barriers or challenges
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Information sheet-8 Reviewing the benefits obtained and costs incurred by value
stream members
Benefits of process improvement
Process improvement can be an extremely potent tool for law departments and law firms
competing in “the new normal.” The dialogue and collaboration across the legal team is in and of
itself a valuable experience, one that can crystallize the department’s strategic goals and
priorities as well as constraints that are specific to the company and legal team.
The business case for process improvement is simple and straightforward. Process improvement
techniques provide a varied, robust repertoire of tools to help law departments and firms enhance
the overall value delivered to clients by:
o Streamlining workflow
o Managing and reducing cycle time
o Capturing and managing years of knowledge
o Eliminating hidden costs and barriers to quality
o Improving internal and external team communications
o Implementing process controls to ensure improvements are adopted
When done right, process improvement can result in best practices that help legal teams optimize
staffing, sequence of work, duration of matters, efficiency, cost predictability, and ultimately,
value to their internal clients. Further, law departments with robust process improvement
capabilities are better positioned to set expectations and manage service delivery to elicit process
excellence from their outside counsel.
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developed
Solution
Customer segments
Customer segments
servedBudget
Budget for people and
resource allocated to the
value stream
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Steps supported in operational value stream
Systems, products, services
for
Solution context
each customer segment
Channels
Paths used to reach each
KPIs/Revenue
customer
delivery
segment
Key performance indicators
measuring value
People and locations
Context in which the Estimated number of people,
solution will operate for by geography, in the
development value stream
Customer relationships
TypeEconomic
of relationship
customer
framework
segment
Set decision
the everyone
each
expects
rules
x
i
s
that align
business toto establish
and maintain
the financial
objectives of the solution
Value Chain Development on business level related objectives:
Chain Development on sector level related objectives:
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Information sheet- 10 Reviewed Benefit stained by customer/value stream are as a
whole
VALUE STREAM
The model presented in the paper aims at linking production process with its cost structure. Its
conceptual framework has been presented in Figure 1.
Figure 1. Conceptual framework for managing costs in a value stream
The horizontal arrow indicates process steps as defined by Value Stream Mapping methodology.
The vertical arrow indicates the structure of costs incurred by a given production value stream.
The analytical result is twofold:
1. One can see what costs are incurred by any of the production processes identified in the value
creation process. This leads to considering all cost categories that affect financial behaviour of
the process (including indirect resources).
2. One can clearly visualize overhead cost pools that influence financial performance of the
value stream (i.e. some costs can be directly assigned to a process whereas some are shared by
several processes). This facilitates the investigation into consumption of shared and overhead
resources. The next sections explain the concepts used in the creation of the model
Cost objects and cost pools
In order to match cost data with manufacturing process model as depicted by value stream,
appropriate cost pools must be defined. Classification of cost pools for the purpose of value
stream financial performance analyses has been presented in Table 1.
67 | P a g e
Classification of cost pools
Value stream cost hierarchy
68 | P a g e
All cost pools have been described in relation to the cost objects identified in a value stream.
Since no allocation is being made to the costs of shared resources (expressed by group of
processes cost pools and value stream cost pools) hierarchical structure must support the cost
model. The structure has been visualised in Figure 3.
Hierarchical structure of costs pools in a value stream
REFERENCE
69 | P a g e
 Bank for International Settlements. 2006. Sound Credit Risk Assessment and Valuation for
Loans.
Basel Committee on Banking Supervision. Basel, Switzerland.
 Bhattacharya, H. 1996. Banking Strategy, Credit Appraisal and Lending Decisions: A Risk-
Return
Framework. New Delhi, India: Oxford University Press.
 Caoutte, J. B., E. I. Altman and P. Narayanan. 1998. Managing Credit Risk: The Next Great
Financial
Challenge. New York: John Wiley and Sons, Inc.
 Christen, R. and D. Pearce. 2005. Managing Risks and Designing Products for Agricultural
Microfinance
 Christian Henckes, (2009). Value Chain Promotion in Agriculture. GTZ.
 Cooper, Martha C., Douglas M. Lambert and Janus D. Pagh, “Supply Chain Management:
More Than a New Name for Logistics,” The International Journal of Logistics Management,
Vol. 8, No. 1 (1997), pp. 1-14.
 M. Porter (1985), Competitive Advantage, Creating and Sustaining Superior Performance,
Mike Coates, Richard Kitchen, Geoffrey Kebbell, Catherine Vignon, Claude Guillemain and
 Robin Hofmeister (2011), Financing Agricultural Value Chains in Africa, - Focus on Coffee
and Sesame in Ethiopia, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
GmbH, Eschborn, Germany Olaf Van Kooten, 2011. Value chain Management in Horticulture
Lecture Note.
 RTRS International Technical Group (ITG), 2010. RTRS Standard for Responsible Soy
Production. As an output of their meeting to review the RTRS Principles and Criteria for
Responsible Soy: Field Testing Version 1.0. (Sao Paulo, Brazil 24-27 March 2010).
 Ruth Cambell, (2010). Implementation Best Practices for Value Chain Development Projects.
 Sebastiaan Hetterschijt, 2011. Lecture note on Sustainability: An Introduction.
70 | P a g e
 Sergio G. Lazzarini1, Fabio R. Chaddad & Michael L. Cook, (2001). Integrating supply
chain and network analyses: The study of net chains. Chain and network science.
 SNV, (2010). Private Sector Development in Ethiopia: SNV takes up the challenge in the
value chains. The Netherlands Development Organization (SNV): http://www.business-
ethiopia.com.
 Timothy J. Sturgeon (2008). From Commodity Chains to Value Chains: Interdisciplinary
Theory Building in an Age of Globalization. In: Frontiers of Commodity Chain
 UNIDO (2009), AGRO-VALUE CHAIN ANALYSIS AND DEVELOPMENT, The UNIDO
Approach. A staff working paper. UNITED NATIONS INDUSTRIAL DEVELOPMENT
ORGANIZATION , Vienna.
 Vijayender Reddy, 2011. Lecture Note on Value Chain Finance and on Value Chain Marketing.
 Vorst, Van der J.G.A.J., A.J.M. Beulens and P. van Beek (2005), Innovations in Logistics
and ICT in food supply chain networks, in: Innovations in Agri-Food sysyems, (Eds) W.M.F.
Jongen & M.T.G. Meulenberg, Wageningen Academic publishers, Wageningen,
71 | P a g e

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ARDAITA ATVET College

Learning Guide #39

Unit of Competence: Develop Value Chain for Market

LG Code: AGR CMT4 11 LO1-39

LO 1. IDENTIFY VALUE CHAIN MEMBERS

Instruction Sheet-1 Learning Guide #39

1. Read the specific objectives of this Learning Guide.

1. Introduction to identify the value chain members

1.2. Origin and Evolution of the Value Chain Approach

Origin and Evolution of the value chain approach

Mid 1980s 1990s 2002/2003 Mid-2005s

Figure 1: Evolution of Value Chain

Self-Check 1 Written Test

1. Explain the concept of value and value chain?

Answer Sheet Score = ___________

Name: _________________________ Date: _______________

Short Answer Questions

Developing the Position of own organization with regard to

1.3. Value stream

Figure 2 VRM Framework

Figure 3 Value Net Schemes - Bovet

1. What the difference between value chain and value stream?

Note: Satisfactory rating - 25 points Unsatisfactory - below 25 points

Answer Sheet Score = ___________

Name: _________________________ Date: _______________

Short Answer Questions

2.1 Steps in Value Chain Analysis

Figure 2: A comprehensive value chain map

What arrangements? What is the level of integration of processes?

Chain objectives Chain performance

Figure 3: Value chain framework

Step Four: Vetting Findings of Chain Analysis through Stakeholder Workshops

Self-Check 4 Written Test

1. List the value chain steps.

Note: Satisfactory rating - 25 points Unsatisfactory - below 25 points

Name: _________________________ Date: _______________

Short Answer Questions

Figure 4: Linkages between Value Chain operators and levels of cooperation

1. Write the importance of value chain governance.

Note: Satisfactory rating - 25 points Unsatisfactory - below 25 points

Name: _________________________ Date: _______________

Short Answer Questions

Learning Guide #40

Unit of Competence: Develop Value Chain for Market

LG Code: AGR CMT4 11 LO2-40

TTLM Code: AGR CMT4 TTLM 0920v1

LO-2 Develop value chain stream members

Change: Change is an alteration of a company’s strategy, organization or culture as a result of

Reasons for change

Types of value streams

 Operational value streams

Why organize people in value streams?

 To accelerate the time to value (market).

Understanding the value chain and changing circumstances

Input Agricultural First Level

Figure. A typical value chain for agricultural products.

Value Stream Process

Self-Check 1 Written Test

Note: Satisfactory rating - 25 points Unsatisfactory - below 25 points

Name: ___________ Date: _

Name: ___________ Date: _

Name: ___________ Date: _

Name: ___________ Date: _

Name: ___________ Date: _