Chapter 4 Value Chain

CHAPTER 6:
VALUE CHAIN
VALUE CREATION
 Necessarily processing, converting, improving or
adding value to a particular product (from its original
state) thereby giving more appeal, utility or value to a
new product that promises a level of satisfaction to
prospective clients or customers.
Service of value - kind of service rendered by the firm

that is being paid for by the clients.
Value creation process – doing or rendering the service

itself.
VALUE CHAIN SYSTEM
 the series of activities and process as well as the
supply of raw materials or needed inputs involved in
producing a product or delivering a service.
C
U
Raw materials
S
Backward Business
Forward channel T
channel Organization
O
M
Supply Chain Distribution chain E
R
S
Value chain system

SUPPLY CHAIN
 Series of activities involved in the production or
processing of a product or of a service
 Set of activities involved before the creation or
production of a product or the kind of services to be
rendered by the business firm to the public at large,
or the specific market it wants to serve.
 According to Chase, Jacobs and Aquilano, et al it is
how organizations (suppliers, manufacturers,
distributors, and customers) are linked together.
 Evolving supply process
SUPPLY CHAIN MANAGEMENT
 Total system approach to managing the entire flow
of information, materials, and services from raw-
material suppliers through factories and
warehouses to the end customer. (Chase, Jacobs,
and Aquilano)
 Strategic management of distribution channels and
processes that support the entire business process.
DISTRIBUTION CHAIN
 Parties involved in moving the products from the
confines or perimeters of business producing the
product ( downstream activities)
 Covers all the other parties with direct and indirect
roles in moving or causing the transfer of the
product from its origin to various places or countries
and all the way to final consumption or user stage
VALUE CHAIN
 Process involved in converting a product from raw
material to its finished, saleable and consumable
stage.
 Way of organizing the activities of a business so
that each activity adds value (value added activity)
or productivity to the total operation of the business.
 Sum total of the supply and distribution chain.
VALUE CHAIN
 Covers all the areas directly and indirectly involved
in doing the business of value creation from the
stage of procuring the basic raw material all the
way to delivery of the finished product to the
customer;
 Linked set of value-creating activities beginning
with basic raw materials coming from suppliers,
moving on to a series of value added activities
involved in producing and marketing product or
service, and ending with distributors getting the final
goods in the hands of the ultimate consumers.
(Wheelen and Hunger)
CENTER OF ACTIVITY
 Assembling the product or doing a series of
activities to come up with a final product will be the
opportunity for the firm to do its best.
 Core activities
 The raison d’etre of the business or reason for
being so to speak.
 The area where trade secrets of the company lie
upon.
GENERAL COMPONENTS OF A VALUE CHAIN
 Primary activities – operations in the business
organization where most of the value creation
efforts are made or done.
 Secondary activities- support activities that are

undertaken to support the value creation activities
both at the level of supply and distribution chain or
the entire value chain system.
PRIMARY ACTIVITIES
1. Inbound logistics
 Activities associated with raw materials or inputs
procurement activities covering vendor selection,
comparative shopping, negotiating supply contracts,
and just-in-time arrival of goods.
 They form part of the backward channel or supply side
of the business.
PRIMARY ACTIVITIES
2. Operations
 activities involve the actual conversion of raw
materials into a finished product.
3. Outbound logistics
 activity sequel to the inbound and processing activities
particularly such aspects as storage, distribution and
shipping of the finished product.
PRIMARY ACTIVITIES
4. Marketing and sales
 Activity deals with prospective clients including the
ultimate customers or end-users.
5. Services
 Activity focuses on after-sales services to the customer
whether end-user, a processor or secondary producer.
SECONDARY ACTIVITIES
1. Corporate infrastructure
 The support backbone activities of the business
operation.
2. Human resources
 Unique activity of matching the right people to the job
expected.
3. Research and technology development
 Adds value in a way it improves the product and the
business processes in the primary activities.
IMPORTANCE OF VALUE CHAIN
Backward channel
 Composed of the companies or organization providing
raw materials or other forms of inputs for the company
to undertake its value creation process.
 Suppliers of the business concern
Forward channel
 Distribution side of the business or parties involved
beyond the production and storage line.
 This group includes organizations acting as distributors,
dealers, agents, indentors, importers, transport/delivery
firms and other organizations closing in to the ultimate
users
REVAMPING THE VALUE CHAIN
a. Abandon traditional business methods and shift to
e-business technologies and use of the Internet;
b. Use direct-to-end-user sales/marketing methods;
c. Simply product design;
d. Offer basic, no frills product/service;
e. Shift to a simpler, less capital-intensive, or more
flexible technological process;
REVAMPING THE VALUE CHAIN
f. Find ways to bypass use of high-cost raw materials;
g. Relocate facilities closer to supplier or customers;
h. Drop “something for everyone” approach and focus
on a limited product/service; and
i. Reengineer core business processes.
INFORMATION SUPPORT SYSTEM
Support activities
Organization: office automation
Human resource: skills database
Technology: computer-aided design and manufacturing

Purchasing: online link to suppliers
Marketing
Inbound Outbound
Operations and sales Services
logistics logistics
Automated Process Market Remote

Online
warehousing Controlled analysis machine
Manufacturing order entry
system product diagnostic
system
profitability
Primary activities
VALUE CHAIN IN THE E-COMMERCE ERA
 Allows the so called seamless chain scenario or
one that electronically connects various
organization either in the supply or distribution
chain side thereby ensuring timely information
sharing and efficient logistical operations both at
the supply and distribution aspects of the business.
 Expediency and efficiency both in the backward
and forward channel of the business
INTERNET TECHNOLOGY BENEFITS:
a. Powerful tool for better supply chain management;
b. Critical to internal operation
c. Extremely useful for collaborative data sharing
with distribution channel partners – online systems
reduce transactions costs.
CUSTOMER-ORIENTED VALUE CHAIN
 It takes the form of a circular model to emphasize
the philosophy that the customer – and not the
business organization itself- is the focus to which all
the other activities are directed to.
 Central to this kind of value chain model is that
there exists an information system directly
connecting the various functional unit thereby
allowing a scheme somehow assuring that
customer’s needs and wants are addressed by all
functional units and in a way, competitiveness is
assured.
Sales and
marketing
Information system
Customer
Customer – oriented value chain

THE END…
MEMBERS:
Malunes, Kaysee
Moster, Marijoe
Velasco, Rogelyn
De Castro, Janice
Sorezo, Shiela

Chapter 4 Value Chain

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Chapter 4 Value Chain

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CHAPTER 6:

Service of value - kind of service rendered by the firm

Value creation process – doing or rendering the service

Value chain system

 Secondary activities- support activities that are

Technology: computer-aided design and manufacturing

Automated Process Market Remote

Customer – oriented value chain

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