Value Chain Analysis

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Value Chain Analysis
InboundLogistics
Operations
OutboundLogistics
Sales Marketing
Service

• Think about an organization as a big input/output
  process
• At one end, supplies (input) is brought into the
  system
• At the other end, goods and services are sold
  (output)

• Throughout this process are opportunities for
  people to add value to the organization
• By bringing in supplies more efficiently
• By selling more products, etc.

2
IS and Value Chain Analysis

• Value chain analysis is the process of analyzing
  an organizations activities to determent where
  value can be added
• Its important to consider the cost trade-off of
  adding the value (perhaps its too expensive to
  add)
• IS can automate many activities on the value
  chain
• IS can help integrate different parts of the
  value chain

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HOW TO DO AN INTERNAL ANALYSIS

• Value Chain Analysis
• Customers demand value from the goods and
  services they obtain
• Customer Value

• Product is unique and different
• Product is low priced
• Quick response to specific or distinctive
  customer needs
• Value Chain
• Systematic way of examining organization's
  functional activities

How well these activities create customer
value Organization's strengths and weaknesses
in these areas
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Value Chain Analysis
Firm Infrastructure

Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
MARGIN
Marketing and Sales
Outbound Logistics
Inbound Logistics

• Primary and
• Support Activities
• in the Value Chain

Operations
Service

Primary Activities
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Value Chain Analysis
Assessing the PRIMARY Activities in the Value
Chain ( from Table 4-1)
Inbound Logistics

Materials control system Inventory control
system Raw material handling and warehousing
Operations

Equipment comparison to competitors Plant
layout Production control system Level of
automation in production processes
6
Value Chain Analysis
Assessing the PRIMARY Activities in the Value
Chain (continued) ( from Table 4-1)
Outbound Logistics

Timeliness and efficiency of finished products
delivery Warehousing of finished products
Marketing and Sales

Marketing research Sales promotions and
advertising Alternative distribution
channels Competency and motivation of sales
force Organizations image of
quality Organizations reputation Brand
loyalty of customers Domination of various
market segments
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Value Chain Analysis
Assessing the PRIMARY Activities in the Value
Chain (continued) ( from Table 4-1)
Customer Service

Customer input for product improvements Handli
ng of customer complaints Warranty and
guarantee policies Employee training in
customer education service issues Replacement
parts and services
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Value Chain Analysis
Assessing the SUPPORT Activities in the Value
Chain ( from Table 4-2)
Procurement

Alternate sources for obtaining needed
resources Timeliness of resources
procurement Procurement of large capital
expenditure resources Lease-versus-purchase
decisions Long-term relationships with reliable
suppliers
Technological Development

RD activities in product and process
innovations Relationship between RD and other
departments Meeting deadlines in technological
development activities Quality of labs and
other research facilities Qualifications of lab
technicians and scientists Creativity and
innovation in organizational culture
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Value Chain Analysis
Assessing the SUPPORT Activities in the Value
Chain (continued) ( from Table 4-2)
Human Resource Management

Recruiting, selecting, orienting, and training
employees Employee promotion policies Reward
systems to motivate and challenge
employees Absenteeism and turnover Union-organ
ization relations Employee participation in
professional organizations Employee motivation,
job commitment, and satisfaction
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Value Chain Analysis
Assessing the SUPPORT Activities in the Value
Chain (continued) ( from Table 4-2)
Firm Infrastructure

Identification of external opportunities and
threats Accomplishing goals with strategic
planning system Coordination and integration of
value chain activities Low-cost capital
expenditures working capital funds IS support
for strategic and operational decisions Relation
ships with stakeholders Public image as a
responsible corporate citizen
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Example Value Chain

• Uses of information systems to add value

InboundLogistics
Operations
OutboundLogistics
Sales Marketing
Service
Product RD, Technology, and System Development
Human Resource Management
General Administration
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Value Chain Analysis A Pizza Restaurant

• PRIMARY ACTIVITIES
• Inbound Logistics
• Transport foodstuffs (e.g. dough, cheese, etc)
  from suppliers to restaurant
• Operations
• Cook pizzas, salads, wings, other menu items

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VCA Pizza restaurant

• Outbound Logistics
• No distribution channels just customers
• Marketing/Sales
• Develop advertising
• Customer Service
• Serve food to restaurant customers (on-site or
  logistics with delivery)

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VCA Pizza restaurant

• SUPPORT ACTIVITIES
• SUPPORT ACTIVITIES
• Procurement
• Inbound Logistics Buy trucks lease warehouse
  space (identify supplier offerings/negotiate
  terms)
• Operations Buy dough, cheese, ovens, and other
  supplies
• Marketing/Sales Buy TV time, promotional
  materials/ mailings, etc.
• Service Buy/maintain tables, chairs, silverware
  to equip restaurant buy/maintain
  automobiles/insurance, etc. for delivery

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VCA Pizza restaurant

• Technology Development
• Inbound Logistics Improve truck routing and
  warehouse methods
• Operations Develop new menu items improve
  oven/kitchen design
• Marketing/Sales Discover new promotional
  materials/methods
• Service Improve restaurant layout / routing of
  deliveries

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VCA Pizza restaurant

• Human Resource Management
• Inbound logistics Supervise drivers and
  warehouse personnel
• Operations Supervise/train kitchen personnel
• Marketing Supervise advertising personnel
• Service Supervise waiters and drivers

17
VCA Pizza restaurant

• Infrastructure
• Obtain funds, carry out accounting and payroll
  functions, and perform other administrative tasks
  for each primary activity area

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Case Study Build Value Chain

• HealthLifes Customers Define value

19
Review

• Five steps of system planning process and related
  methods
• 1. Aligning organizational goals and IT
• 2. Identifying specific process (Value Chain)
• 3. Identifying specific information
• 4. Evaluating IT system
• 5. Contingency planning

20
Review

• Value Chain views the organization as a chain
  or series of processes, each of which adds
  value to the product or service for the customer.
• Two types of value processes
• -- Primary value process
• -- Support value process
• Support value processes ensure the smooth
  operation of the primary value processes.

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Review

• Identifying processes that add value
• -- Find those processes that add the most
  value
• -- Support those processes with IT systems
• Identifying processes that reduce value
• -- Find those processes that reduce value the
  most
• -- Improve those processes with IT systems

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Background

• HealthLifes Corp. is a health maintenance
  organization (HMO).
• It is a full-service health organization with
  doctors all over the Baltimore metropolitan area.
• The firms CEO is in search of information to
  improve its customer service by examining what
  customers believe adds value and what they
  believe reduces value.

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Data Collection

• A customer survey listing HealthLifes business
  processes and asking customers to attribute
  values to these processes should form the basis
  of a value chain analysis.
• Customers identified whether value chain process
  added or reduced the value of their experience
  and then quantified how much each process added
  or reduced the value of the services they
  received.

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Data Collection

• Using a total 100 points for the value chain,
  each customer distributed those points among
  HealthLifes processes.
• The database contains 12 fields and 571 survey
  responses.

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Available Information

• Survey results from the last few months (571
  total surveys)
• An internally generated survey ID number
• Whether the survey reflects value-added or
  value-reducing figures
• The date of the survey

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Nine Value Attributed Process

• Support Value Process (4)
• Management and Accounting Process
• Human Resource Management Process
• Research Development Process
• Purchasing Process
• Primary Value Process (5)
• Receive and Greet Process
• Providing Medical Services Process
• Office Location and Convenience Process
• Sales and Marketing Process
• Customer Followup Process

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Analysis of Information

• The objective of this case is to prioritize
  improvement and IT systems development on
  processes that customers target.
• That is, either the process most valued or the
  process that reduces value the most.
• The VA/VR field in the database table is a
  logical data type.

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Analysis of Information

• The values in each survey record should total
  100, but some records total less than 100 and
  some more than 100.
• Adjustments must be made for these records.

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Data Manipulation

• Step 1 Export table data to a spreadsheet to
  perform computations
• Step 2 Normalize records
• a. compute the actual total for the record
• b. compute a normalization factor by dividing
  100 by the total for the record
• c. multiply each value a customer given to a
  process by normalization factor
• Step 3 Draw the value chain

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Value Added Chain
Management and Accounting (12.5)
Human Resource Management (2.7)
Research Development (10.2)
Value
Purchasing (7.5)
Follow up (15.6)
Receive Greet (9.8)
Provide Medical Services (23.3)
Office Locations (14.5)
Sales (4.0)
Added
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Value Reduced Chain
Management and Accounting (18.9)
Human Resource Management (2.5)
Value
Research Development (6.8)
Purchasing (6.0)
reduce
Follow up (15.4)
Receive Greet (20.8)
Provide Medical Services (9.9)
Office Locations (16.6)
Sales (3.0)