A Project Report on Value Chain

8/2/2019 A Project Report on Value Chain

1/13

A PROJECT REPORT

ON

VALUE CHANGE STRATEGY

(A Project Report submitted in partial Fulfillment of the Requirement for B.E. in

Mechanical Engineering subject)

Submitted by

Mr. Khan Mohd Yusuf

(Mechanical Engineering)

Guided By

Honble and respected

Prof. Affaq Jamadar

Professor (Mechanical Engineering Department)

DEPARTMENT OF MECHANICALENGINEERING

ACADEMIC YEAR20010-11

ACKNOWLEDGEMENT


2/13

It is indeed a matter of great pleasure & privilege to be able to

present this Project report on Market Brokers under the valuable guidance of

Prof.Affaq Jamadar, Professor of Department (Mechanical Engineering).

I would like to express my deep sense of gratitude to my guide Mr.

Affaq for his valuable guidance, advice, & constant aspiration to my work.

I am also thankful to my all teachers & Principal ofM.H. SABOO

SIDDIKfor providing me constant support & facilities.

Lastly I would like to express my sincere gratefulness to all those

people who have helped me directly or indirectly for the completion of this work.

Thanking .

CERTIFICATE


3/13

Anjuman-I-Islam,s

M.H. SABOO SIDDIKCOLLEGE OF ENGINEERING

8, Saboo Siddik Polytechnic road, Byculla, Mumbai-400008

CLASS: T.E. Mech SEM: 6

This is to certify that

Khan Mohd Yusuf (roll no: 19)

Have satisfactorily completed the required thing for the project of the topic

name MARKET BROKERS for the year 2011-2012, part of ELECTRONIC

COMMERCE AND INDUSTRIAL FINANCE in a satisfactory manner as per

the curriculum laid down by the university of Mumbai.

HOD Lecturer in charge Principal(sign) (sign) (sign)

VALUE CHANGE STRATEGY


4/13

INTRODUCTION:

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

To better understand the activities through which a firm develops a competitive

advantage and creates shareholder value, it is useful to separate the business

system into a series of value-generating activities referred to as the value chain. In

his 1985 bookCompetitive Advantage, Michael Porter introduced a generic value

chain model that comprises a sequence of activities found to be common to a wide

range of firms. Porter identified primary and support activities as shown in the

following diagram:

Porter's Generic Value Chain

InboundLogistics

> Operations >OutboundLogistics

>Marketing&

Sales> Service >

MA

RG

IN

Firm Infrastructure

HR Management

Technology Development

Procurement

The goal of these activities is to offer the customer a level of value that exceeds the

cost of the activities, thereby resulting in a profit margin.

The primary value chain activities are:


5/13

y Inbound Logistics: the receiving and warehousing of raw materials, and theirdistribution to manufacturing as they are required.

y Operations: the processes of transforming inputs into finished products andservices.

y Outbound Logistics: the warehousing and distribution of finished goods.y Marketing & Sales: the identification of customer needs and the generation

of sales.

y Service: the support of customers after the products and services are sold tothem.

These primary activities are supported by:

y The infrastructure of the firm: organizational structure, control systems,company culture, etc.

y Human resource management: employee recruiting, hiring, training,development, and compensation.

y Technology development: technologies to support value-creating activities.y Procurement: purchasing inputs such as materials, supplies, and equipment.

The firm's margin or profit then depends on its effectiveness in performing these

activities efficiently, so that the amount that the customer is willing to pay for the

products exceeds the cost of the activities in the value chain. It is in these activities

that a firm has the opportunity to generate superior value. A competitive advantage

may be achieved by reconfiguring the value chain to provide lower cost or better

differentiation.

The value chain model is a useful analysis tool for defining a firm's core

competencies and the activities in which it can pursue a competitive advantage as

follows:

y Cost advantage: by better understanding costs and squeezing them out ofthe value-adding activities.

y Differentiation: by focusing on those activities associated with corecompetencies and capabilities in order to perform them better than do

competitors.

Cost Advantage and the Value Chain

A firm may create a cost advantage either by reducing the cost of

individual value chain activities or by reconfiguring the value chain.


6/13

Once the value chain is defined, a cost analysis can be performed by

assigning costs to the value chain activities. The costs obtained from theaccounting report may need to be modified in order to allocate them

properly to the value creating activities.

Porter identified 10 cost drivers related to value chain activities:

y Economies of scaley Learningy Capacity utilizationy Linkages among activitiesy Interrelationships among business unitsy Degree of vertical integrationy Timing of market entryy Firm's policy of cost or differentiationy Geographic locationy Institutional factors (regulation, union activity, taxes, etc.)

A firm develops a cost advantage by controlling these drivers better than

do the competitors.

A cost advantage also can be pursued by reconfiguring the value chain.Reconfiguration means structural changes such a new production

process, new distribution channels, or a different sales approach. For

example, FedEx structurally redefined express freight service byacquiring its own planes and implementing a hub and spoke system.

Differentiation and the Value Chain

A differentiation advantage can arise from any part of the value chain. For

example, procurement of inputs that are unique and not widely available to

competitors can create differentiation, as can distribution channels that offer high

service levels.


7/13

Differentiation stems from uniqueness. A differentiation advantage may be

achieved either by changing individual value chain activities to increase

uniqueness in the final product or by reconfiguring the value chain.

Porter identified several drivers of uniqueness:

y Policies and decisionsy Linkages among activitiesy Timingy Locationy Interrelationshipsy Learningy Integrationy Scale (e.g. better service as a result of large scale)y Institutional factors

Many of these also serve as cost drivers. Differentiation often results in greater

costs, resulting in tradeoffs between cost and differentiation.

There are several ways in which a firm can reconfigure its value chain in order to

create uniqueness. It can forward integrate in order to perform functions that once

were performed by its customers. It can backward integrate in order to have more

control over its inputs. It may implement new process technologies or utilize new

distribution channels. Ultimately, the firm may need to be creative in order to

develop a novel value chain configuration that increases product differentiation.

Technology and the Value Chain

Because technology is employed to some degree in every value creating activity,

changes in technology can impact competitive advantage by incrementally

changing the activities themselves or by making possible new configurations of the

value chain.

Various technologies are used in both primary value activities and support

activities:

y Inbound LogisticsTechnologieso Transportationo Material handling


8/13

o Material storageo Communicationso Testingo Information systems

y OperationsTechnologieso Processo Materialso Machine toolso Material handlingo Packagingo Maintenanceo Testingo Building design & operationo Information systems

y Outbound LogisticsTechnologieso Transportationo Material handlingo Packagingo Communicationso Information systems

y Marketing & SalesTechnologieso Mediao Audio/videoo Communicationso Information systems

y Service Technologieso Testingo Communicationso Information systems

Note that many of these technologies are used across the value chain. For example,information systems are seen in every activity. Similar technologies are used in

support activities. In addition, technologies related to training, computer-aided

design, and software development frequently are employed in support activities.

To the extent that these technologies affect cost drivers or uniqueness, they can

lead to a competitive advantage.


9/13

Linkages Between Value Chain Activities

Value chain activities are not isolated from one another. Rather, one value chain

activity often affects the cost or performance of other ones. Linkages may exist

between primary activities and also between primary and support activities.

Consider the case in which the design of a product is changed in order to reduce

manufacturing costs. Suppose that inadvertantly the new product design results in

increased service costs; the cost reduction could be less than anticipated and even

worse, there could be a net cost increase.

Sometimes however, the firm may be able to reduce cost in one activity and

consequently enjoy a cost reduction in another, such as when a design change

simultaneously reduces manufacturing costs and improves reliability so that the

service costs also are reduced. Through such improvements the firm has the

potential to develop a competitive advantage.


10/13

Analyzing Business Unit Interrelationships

Interrelationships among business units form the basis for a horizontal strategy.

Such business unit interrelationships can be identified by a value chain analysis.

Tangible interrelationships offer direct opportunities to create a synergy among

business units. For example, if multiple business units require a particular raw

material, the procurement of that material can be shared among the business units.

This sharing of the procurement activity can result in cost reduction. Such

interrelationships may exist simultaneously in multiple value chain activities.

Unfortunately, attempts to achieve synergy from the interrelationships among

different business units often fall short of expectations due to unanticipated

drawbacks. The cost of coordination, the cost of reduced flexibility, and

organizational practicalities should be analyzed when devising a strategy to reapthe benefits of the synergies.

Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest.

The extent to which a firm performs upstream and downstream activities is

described by its degree of vertical integration.

A thorough value chain analysis can illuminate the business system to facilitate

outsourcing decisions. To decide which activities to outsource, managers must

understand the firm's strengths and weaknesses in each activity, both in terms of

cost and ability to differentiate. Managers may consider the following whenselecting activities to outsource:

y Whether the activity can be performed cheaper or better by suppliers.y Whether the activity is one of the firm's core competencies from which

stems a cost advantage or product differentiation.


11/13

y The risk of performing the activity in-house. If the activity relies on fast-changing technology or the product is sold in a rapidly-changing market, it

may be advantageous to outsource the activity in order to maintain flexibility

and avoid the risk of investing in specialized assets.

y Whether the outsourcing of an activity can result in business processimprovements such as reduced lead time, higher flexibility, reduced

inventory, etc.

The Value Chain System

A firm's value chain is part of a larger system that includes the value chains of

upstream suppliers and downstream channels and customers. Porter calls this series

of value chains the value system, shown conceptually below:

The Value System

... >Supplier

Value Chain>

Firm

Value Chain>

Channel

Value Chain>

Buyer

Value Chain

Linkages exist not only in a firm's value chain, but also between value chains.

While a firm exhibiting a high degree of vertical integration is poised to better

coordinate upstream and downstream activities, a firm having a lesser degree of

vertical integration nonetheless can forge agreements with suppliers and channel

partners to achieve better coordination. For example, an auto manufacturer mayhave its suppliers set up facilities in close proximity in order to minimize transport

costs and reduce parts inventories. Clearly, a firm's success in developing and

sustaining a competitive advantage depends not only on its own value chain, but on

its ability to manage the value system of which it is a part.

Significance

The value chain framework quickly made its way to the forefront of management

thought as a powerful analysis tool for strategic planning. The simpler concept ofvalue streams, a cross-functional process which was developed over the next

decade, had some success in the early 1990s

The value-chain concept has been extended beyond individual firms. It can apply

to whole supply chains and distribution networks. The delivery of a mix of

products and services to the end customer will mobilize different economic factors,


12/13

each managing its own value chain. The industry wide synchronized interactions of

those local value chains create an extended value chain, sometimes global in

extent. Porter terms this larger interconnected system of value chains the "value

system." 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 extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many

management strategists. For example, a manufacturer might require its parts

suppliers to be located nearby its assembly plant to minimize the cost of

transportation. By exploiting the upstream and downstream information flowing

along the value chain, the firms may try to bypass the intermediaries creating new

business models, or in other ways create improvements in its value system.

Value chain analysis has also been successfully used in large Petrochemical Plant

Maintenance Organizations to show how Work Selection, Work Planning, WorkScheduling and finally Work Execution can (when considered as elements of

chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain

approach is particularly successful when used as a tool for helping Change

Management as it is seen as more user friendly than other business process tools.

Value chain approach could also offer a meaningful alternative to valuate private

or public companies when there is a lack of publically known data from direct

competition, where the subject company is compared with, for example, a known

downstream industry to have a good feel of its value by building useful

correlations with its downstream companies.Value chain analysis has also beenemployed in the development sector as a means of identifying poverty reduction

strategies by upgrading along the value chain. Although commonly associated

with export-oriented trade, development practitioners have begun to highlight the

importance of developing national and intra-regional chains in addition to

international ones.

SCOR

The Supply-Chain Council, a global trade consortium in operation with over 700member companies, governmental, academic, and consulting groups participating

in the last 10 years, manages the Supply-Chain Operations Reference (SCOR), the

de facto universal reference model for Supply Chain including Planning,

Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail;

Product and Service Design including Design Planning, Research, Prototyping,

Integration, Launch and Revision, and Sales including CRM, Service Support,


13/13

Sales, and Contract Management which are congruent to the Porter framework.

The SCOR framework has been adopted by hundreds of companies as well as

national entities as a standard for business excellence, and the US DOD has

adopted the newly-launched Design-Chain Operations Reference (DCOR)

framework for product design as a standard to use for managing their development

processes. In addition to process elements, these reference frameworks also

maintain a vast database of standard process metrics aligned to the Porter model, as

well as a large and constantly researched database of prescriptive universal best

practices for process execution.

Value Chain Strategy

The value chain categorizes the generic value-adding activities of an organization.

The "primary activities" include: inbound logistics, operations (production),

outbound logistics, marketing and sales (demand), and services (maintenance). The"support activities" include: administrative infrastructure management, human

resource management, technology (R&D), and procurement.

Management of these activities and linkages between these activities is a source of

competitive advantage. Value Chain strategy involves end-to-end, "Extended

Enterprise" planning of supply and distribution strategy. The objective of value

chain strategy is to design an upstream and downstream supply chain that provides

the right balance of flexibility and cost-efficiency while meeting the requirements

of the marketplace.

Documents

A Project Report on Value Chain