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VALUE CHAIN ANALYSIS

Prepared by:

Ayushi Gupta C013Prasham Jain C015Shreya Khare C018Akshay Khatri C019Apurve Paharia C027

(Group-7)

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WHAT THE BOOK SAYS…First Key to effective cost management.

Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers

Chain of activities adding value at each step In a company.

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VALUE-CHAIN ANALYSIS-essential components

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PRIMARY ACTIVITIES

contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale.

inbound logistics, operations, outbound logistics, marketing and sales, and service

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SUPPORT ACTIVITIES

• activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities

• These activities include procurement, technology development, human resource management, and general administration.

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CASE OF :

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6 STAGES-implementing Strategic Cost Management

1. Identify the value chain activities and disaggregate the firm into separate activities.

2. Establish the relative importance of different activities in the total cost of the product.

3. Compare costs by activity.4. Identify cost drivers.5. Identify linkages and interrelationships in the value chain.6. Identify opportunities for reducing costs and/or improving value.

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WHY VALUE CHAIN ANALYSIS ??

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Cost advantage

This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs. Step 1. Identify the firm’s primary and

support activities. Step 2. Establish the relative importance

of each activity in the total cost of the product.

Step 3. Identify cost drivers for each activity.

Step 4. Identify links between activities. Step 5. Identify opportunities for

reducing costs.

Sourcing coffee from diverse coffee beans producers and maintaining relationship with them.

Company-operated restaurants, foodservice, Licensed stores

Its price per pound of coffee beans, which Starbucks sources from numerous continents 

Sourcing beans and transforming them into coffee cup , providing customer a good ambience in locations.

closing unprofitable stores, eliminating corporate jobs, reduce milk wastage.

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Differentiation advantage

The firms that strive to create superior products or services use differentiation advantage approach.

Step 1. Identify the customers’ value-creating activities.

Step 2. Evaluate the differentiation strategies for improving customer value.

Step 3. Identify the best sustainable differentiation.

makes customers feel at home , forming a strong emotional attachment, great ambiance in mind in accessible locations

Starbucks Rewards Card, Finest Coffee Beans

well trained staff, more welcoming decor with friendlier baristas, premium product mix

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A different PERSPECTIVE

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Welcome to the court of Emperor

Jalaluddin Muhammad Akbar

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Noble men! There is a very

important matter before

the court today.

The raw material price is shooting up. The material cost of a sword has gone up by

Rs.10 . And …. We are adding 50,000

soldiers to our army this year.

I want to handle this situation without

increasing the taxes. Please

give your valuable

suggestions as to how we should face

this situation.

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!?!!

??

Why everyone’s quiet?

Birbal! I am surprised that you too have

become silent!!

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!?!!

??

Your Majesty, I have six ideas

which can reduce the cost of a

sword by atleast Rs.20 without

compromising the functional

requirements.

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!?!!

??Brilliant!.

Tell us those ideas.

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Presently, the hilt has 7

parts. The proposed

design will have 4 .

Existing Design

7 parts

New Idea

4 parts

Part Count Reduction

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For the new hilt,instead of

designing exclusive rivets, we can use

the rivets of daggers.

Part Commonisatio

n

x

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When the Shah of Persia was our

Guest last month ,I observed that the

hilt in his sword does not have a

curved portion. We can design similar

hilts for our experienced

soldiers.

Benchmarking

New IdeaExisting Design

Curved portion

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Alternate Material

Blade

Sheath

Copper Steel

The sheath which houses the blade is

made of copper now.

We can switch over to Alloy steel which is

cheaper.

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Weight Reduction

Blade

Sheath

Since alloy steel is stronger than copper, we can

reduce the thickness by 0.5 mm which will save material

2 mm 1.5 mm

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Yield ImprovementThe curved blade

design is yielding only 2 pieces per die. If a straight

blade is designed, we can extract 3 pieces

per die.

2 Blades 3 Blades

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Your majesty. The present design is

being used since the time of Babur

without any failure. We should not risk any design change.

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Saheb, there is no doubt that the present sword

designed by you for my Grandfather’s army is superior.

However, let us test this new design in

our barracks.If they pass the tests, we will deploy them in

the battle field.

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If the ideas pass the test, we can save at least Rs. Ten Lakhs this

year, thus serving the purpose of cost reduction.

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There is an advantage also. I do not have to increase the

tax.

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Birbal! I wonder how you developed

these ideas! Is there a systematic

way by which others can also be trained to generate

such ideas.

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Yes, your Majesty. With the help of Functional

Analysis System Technique(FAST) any body can generate such ideas. FAST is a powerful tool

used in Value Engineering (VE) which is an extremely

effective system to improve products and services for cost and

productivity improvement.

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If six ideas for the sword itself can

save Rs. Ten lakhs , imagine how much

money we can save on other weapons like

spears, arrows and cannons etc.

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Birbal! There are four divisions in my army – Infantry,

Cavalry,Artillery and Elephant brigade. I want you to teach the

engineers in each of these divisions the application of Value Engineering (VE). Each division should release Armoury Change Requests (ACRs) for the worth of

Rs.25 lakh.

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Yes, your Majesty.

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From the textbook…The main aim of value engineering is to achieve a product's target cost, by:

* Identifying improved product designs that reduce the product's cost without sacrificing its functionality

* Eliminating unnecessary functions that increase the cost of product.

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Phases of Value Engineering

Information phase

Function analysis phase

Creative phase

Evaluation phase

Development phase

Presentation phase

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VE: a holistic approach

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