Tag Archives | supply chain

Value Chain

See Also:
Valuation Methods
Value Drivers: Building Reliable Systems to Sustain Growth
Porters Five Forces of Competition
Responsibility Center
Cost Driver

Value Chain Definition

Value chain refers to the functional activities of a business that add value to its customers. The concept was created around 1985 by Michael Porter, Harvard Business School professor. According to Porter, it consists of primary activities and support activities, all of which add value to the products or services offered by the business. Ideally, the company’s products pass through the activities of the value chain and along the way each activity adds value to the products.

When managing the value chain system, the idea is to optimize the chain so as to maximize value while minimizing cost. A business must use its value chain activities to create value, and then capture that value. The value created by this chain should exceed the sum of the values added by each individual activity.


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Porters Value Chain Analysis

Value chain analysis is an important strategic tool for business management. This model allows a business manager to identify the activities that add value to the business and those that do not.

The idea is to divide the activities into primary activities (those activities that relate to core operations, sales, marketing, and customer service), and support activities, which are activities related to human resource management, firm infrastructure management, information technology and technology development, and procurement. And then to identify which activities add value and which don’t. Presumably each activity adds some value.

For the activities that add value, the business manager must identify the costs associated with each activity as well as the value drivers for that activity. Furthermore, the purpose of the analysis is to ensure that the value created by the activities exceeds the cost to perform those activities. Improving the performance of the functional activities involves trying to maximize the value created by the activities while minimizing the cost to do so. For each activity, and for the value chain as a whole, the objective of the value chain analysis is to find ways to create and capture value.

Typical Primary and Support Activities Include:

Primary Activities

Typical primary activities include the following:

Support Activities

Typical support activities include the following:

Value Chain and Competitive Advantage

When analyzing a value chain in terms of competitive advantage, the idea is to compare the aspects of the business’s chain to the aspects of the value chains of competitors. The value-creating activities in a company’s value chain contribute to competitive advantage when they meet one of two criteria.

  1. The activity is not performed by competitors
  2. The activity is performed superiorly than similar activities performed by competitors

Value Chain and Supply Chain

See the supply chain as a system of interconnected value chains. Each business along the supply chain contributes value to the supply chain via its value chain. According to Michael Porter, a value system is the interconnected system of value chains along a supply chain. Participating in a strong value system can increase the competitive advantage of a business.

The concept of the value system is similar to the value chain but on a broader scale. The idea is to maximize value created by the value system while minimizing costs. Therefore, analyze the entire system with the objective of creating and capturing value throughout the entire system. Optimizing a value system for increased efficiency and lower cost makes the overall system more valuable than the sum of its contributing value chains and adds value to the end consumer of the products.

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value chain, value chain analysis

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value chain, value chain analysis

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Supply Chain and Logistics

Supply Chain and Logistics Definition

A supply chain is a network of businesses and activities that takes a product from raw material suppliers to end consumers. By definition, logistics refers to the processes of acquiring, transporting, and storing resources along the supply chain and logistics. A supply chain, which relies heavily on information technology, logistics and transportation, may involve numerous different businesses that comprise the various links along the supply chain, or a single company may oversee the majority of the supply chain and logistics for its products.

For example, a supply chain for coffee may begin with Central American farmers. The product (coffee) would then move along the supply chain from the farmers to the facilities that process. Then, they package the coffee beans. Then, they would move to distributors that transport the product to wholesalers. These wholesalers might then deliver the product to retailers and neighborhood coffee shops for sale to end customers.

In this example, the supply chain and logistics would be the entire network of businesses that carry the product from its source – the coffee farmers in Central America – to where the finished product is consumed by customers at the neighborhood coffee shop.

Supply Chain and Logistics Activities

Consider supply chain business processes vertical systems. A typical supply chain consists of manufacturers, wholesalers, distributors, and retailers. A supply chain can be seen as a system connecting the value chains of the companies within that system. Consider the activities closest to the source of raw materials upstream activities. Then consider the activities closest to the finished product and the end consumer downstream activities. A company is considered upstream or downstream in relation to other companies in the supply chain depending on its relative position in the supply chain network.

Supply Chain Links

A company will typically participate in a supply chain business process at the point where it can employ its particular functional area of expertise. For example, a trucking company will focus on the transport link of a supply chain, while a mining company will focus on finding and extracting raw natural resources, and retailers will focus on selling the end product to consumers.

Because you can specialize each supply chain link in its own functional area, they may not know about the links directly upstream and downstream from them. That’s why supply chain communication and supply chain coordination, both of which require reliable information technology systems across different businesses, are vitally important to the functioning of a supply chain.

If, however, one link in the supply chain process feels it can expand its responsibilities in the network, either because it can complete a process more efficiently or at a lower cost, then that company can become vertically integrated, by forward integrating or backward integrating. A company that takes over a downstream activity from a customer is forward integrating. In comparison, a company that takes over an upstream activity from a supplier is backward integrating. A company that oversees several consecutive links in the supply chain of its product is vertically integrated.

Supply Chain Management

Supply chain management refers to the process of overseeing and optimizing the overall supply chain network from raw material suppliers to finished product retailers. The goal of supply chain management is to make the supply chain process as efficient as possible by enhancing product and information flows among participating businesses.

Improving your supply chain can involve supply chain communication, or enhance the flow of information among businesses along the supply chain. Furthermore, the logistics and transportation systems will run optimally. But this only happens if all members of the chain have access to all relevant market data and operations information. All other members of the chain provide this information.

Supply chain improvement can also involve supply chain coordination, or optimizing the logistics and transportation activities for maximum efficiency. This may include the following:

  • Improving information flows and inter-business communication
  • Optimizing manufacturing processes
  • Implementing just in time (JIT) production systems
  • Optimizing vehicle distribution routes
  • Eliminating bottlenecks in the process
  • Allocating resources to maximize efficiency

An efficient and optimized supply chain can benefit all the businesses in the supply chain. Therefore, it adds value to the end consumer.

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supply chain and logistics, Supply Chain Management

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supply chain and logistics, Supply Chain Management

See Also:
Supply and Demand Elasticity
How to Manage Inventory
Perpetual Inventory System
Days Inventory Outstanding Analysis
Inventory Turnover Ratio Analysis

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Logistics Chain

See Also:
Supply Chain and Logistics
Value Chain
Porter’s Five Forces of Competition
Indemnity Clause
Commercial Agents

Logistics Chain Definition

The logistics chain, defined as the path of goods and information from a creator to an end user, enables any business to turn product into sales. Involving either tangible or intangible goods or services, it is the entire path which results in revenue for a company. Due to this fact, a firm must make sure to maintain a logistics chain which efficiently moves important materials from one place to another.

Logistics Chain Explanation

The logistics chain, explained by some as a simple function of modern logistics software, is a far deeper concept. Its management involves many essential sides to business: accounting, warehousing, packaging, handling, distribution, and even security. Due to the fact that many businesses entire operations can be summed into part of or the entire of the logistics chain, a profession has been created to complete the needs of these businesses. It is called logistics or supply chain management.

Essential to the process of logistics chain management is an understanding of the plan, materials, and employees needed to bring the logistics from beginning to end. This plan must be a part of all of the employees of a company: from the CEO, to an accountant, mailroom staff, and even the IT security specialist. Each of these players must understand the plan, their place in it, and the single goal of any logistics chain: turning materials into products which are eventually sold to a customer.

A complete business has 2 major departments: marketing/sales and operations. All-in-all, operations is another way to say logistics. So, the logistics chain comprises about 50% of almost any business.

Example

Alejandro is a supply chain management professional. Though his work is taxing, he loves completing the cycle which ends with a happy customer. Alejandro knows the power of the logistics chain because it brings him and everyone he cares about the tools needed to have a happy and successful life.

Alejandro, a consultant who resolves weak links in the logistics chain of businesses, has a large task ahead of him. His client, a food packaging plant, relies entirely on the chain of logistics. They need Alejandro to simplify the cycle they have created. This will be no simple feat.

First, Alejandro uses his logistics chain software to create a layout for the warehouse. The layout maximizes efficiency by placing items where they will be used the most.

He then prepares a training manual for all of the employees. Alejandro knows that he will encounter some resistance but is ready and willing to persuade employees that his method is most efficient.

Alejandro wraps up his work and prepares to meet with the company. He knows he can not change everything, so he resolves to work hard until he can make a significant change in the business.

Logistics Chain

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Logistics Chain

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