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7/31/2019 2 Valuechain Note
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LECTURE 2
VALUE CHAINS IN
GLOBAL OPERATIONS
JMP 5023 OPERATIONS & TECHNOLOGY
MANAGEMENT
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Discussion
What is your opinion of companies that move
operations to other countries with cheaper
labor rates? In the long run, do you think that such
decisions help or hurt business
competitiveness and national economies?
Should government influence or legislate
such decisions?
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VALUE & SUPPLY CHAINS
The underlying purpose of every
organization is to provide value to its
customer and stakeholders.
Value is the perception of the benefitsassociated with a good, service, or bundle
of goods and services (i.e., the customerbenefit package) in relation to what buyers
are willing to pay for them.
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Value and Supply Chains
The decision to purchase a good or service or
a customer benefit package is based on an
assessment by the customer of the perceivedbenefits in relation to its price.
The customer's cumulative judgment of the
perceived benefits leads to either
satisfaction or dissatisfaction.
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One of the simplest functional forms of value is:Value = Perceived benefits/Price (cost) to
the customer
If the value ratio is high, the good or service is perceivedfavorably by customers, and the organization providing it ismore likely to be successful.
To increase value, an organization must(a) increase perceived benefits while holding price or costconstant,
(b) increase perceived benefits while reducing price or cost, or(c) decrease price or cost while holding perceived benefits
constant.
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VALUE CHAINS
A value chain is a network of facilities andprocesses that describes the flow of goods,
services, information, and financialtransactions from suppliers through the
facilities and processes that create goods
and services and deliver them to customer.
A value chainis a cradle-to-grave modelof the operations function
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Values?
Tesco, Giant, Carrefour
Dell, HP, Acer
Yahoo, Google, TM net
CIMB, Bank Islam, Maybank
Hilton, Seri Malaysia, Berjaya
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VALUE CHAINS
The value chain begins with suppliers.Suppliers might be distributors, employment
agencies, dealers, financing and leasingagents, information and Internet companies,
field maintenance and repair services,
architectural and engineering design firms,
and contractors, as well as manufacturers ofmaterials and components.
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VALUE CHAINS
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VALUE CHAINS
Inputs are transformed into value-added
goods and services through processes or
networks of work activities, which aresupported by such resources as land, labor,
money, and information.
The value chain outputs goods and services
are delivered or provided to customers and
targeted market segments.
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Pre- and Post service View of the Value Chain
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Who is This Guy?
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The History of Value Chain
Value Chain is populated by Michael
Porter, in his book Competitive
Advantage: Creating and SustainingSuperior Performance in 1985.
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The Book
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What is Value Chain
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SUPPLY CHAINS
A supply chain is the portion of thevalue chain that focuses primarily on
the physical movement of goods andmaterials, and supporting flows of
information and financial transactions
through the supply, production, anddistribution processes.
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VALUE vs SUPPLY CHAINS
A value chain is broader in scope than asupply chain, and encompasses all pre- andpost- production services to create anddeliver the entire customer benefit package.
A value chain views an organization from
the customer's perspective the integrationof goods and services to create value whilea supply chain is more internally-focused onthe creation of physical goods.
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Value Chain Design and
Management Vertical integration refers to the process of
acquiring and consolidating elements of a
value chain to achieve more control.
Outsourcing is the process of having
suppliers provide goods and services that
were previously provided internally.
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Value Chain Design and
Management Outsourcing is the opposite of vertical
integration in the sense that theorganization is shedding (not acquiring) apart of its organization.
Offshoring is the building, acquiring, or
moving of process capabilities from adomestic location to another countrylocation while maintaining ownership andcontrol.
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Value Chain Design and Management
Backward integration refers to acquiringcapabilities at the front-end of the supplychain (for instance, suppliers), whileforward integration refers to acquiring
capabilities toward the back-end of thesupply chain (for instance, distribution oreven customers).
Companies must decide whether to integratebackward (acquiring suppliers) or forward(acquiring distributors), or both.
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Value chain integration is the
process of managing information,
physical goods, and services to ensure
their availability at the right place, at
the right time, at the right cost, at the
right quantity, and with the highest
attention to quality.
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Example Issues to Consider
When Making Offshore Decisions
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Example Advantages and Disadvantages of
Global Offshoring and Outsourcing
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Value Chains in Global
Operations Complex global value chains are more difficult to
manage than small domestic value chains. Some
of the many issues include the following:
Global supply chains face higher levels of risk anduncertainty, requiring more inventory and day-to-day monitoring to prevent product shortages.
Workforce disruptions such as labor strikes andgovernment turmoil in foreign countries can createinventory shortages and disrupting surges in orders.
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Some of the many issues include the following:
Transportation is more complex in global value
chains. For example, tracing global shipmentsnormally involves more than one mode oftransportation and foreign company.
The transportation infrastructure may vary
considerably in foreign countries. The coast ofChina, for example, enjoys much bettertransportation, distribution, and retailinfrastructures than the vast interior of the country.
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Value Chains in Global Operations
Global purchasing can be a difficult process tomanage when sources of supply, regionaleconomies, and even governments change. Dailychanges in international currencies necessitatecareful planning and in the case of commodities,consideration of futures contracts.
International purchasing can lead to disputes andlegal challenges relating to such things as price
fixing and quality defects.
Privatizing companies and property is another formof major changes in global trade and regulatoryissues.