Value Chain
Discussion questions:– What is the Value Chain (VC)?– Identify the activities of the VC– How is the “service” activity different from “marketing and
sales”? (Don’t “sales” people provide “service”?)– Differentiate between “procurement” activity and “inbound
logistics”– Why study about Value Chain in an IS/IT class?– Explain value chain linkages (internal and external) with the
help of examples.
Value Chain Activities
Inbound Logistics– Involve relationships with suppliers and include all activities
required to receive, store, and disseminate inputs
Operations– All activities required to transform inputs into outputs
Outbound Logistics– All activities required to collect, store, and distribute output
Value Chain Activities (Continued)
Marketing and Sales– Inform buyers about products/services– Induce buyers to purchase products/services and facilitate
their purchase
(Stimulate demand for products/services)– Collect and pass customer feed back to various units in firm– Estimate expected sales volume
Service– Activities required to keep the product/service working
effectively for the buyer after it is sold and delivered
Value Chain Activities (Continued)
Procurement – Acquisition (actual purchase) of inputs, or
resources, for the firm
Human Resource Management– Activities involved in recruiting, training,
developing, compensating, laying off personnel
Value Chain Activities (Continued)
Technological Development– Technology purchased/adopted/developed to
bear in the firm’s transformation of inputs into outputs
Infrastructure (General Administration)– Activities include accounting, legal, finance,
planning , public affairs, government relations, quality assurance and general management
Value Chain and IS/IT: Examples
Inbound Logistics– Automated Warehousing System; – JIT inventory systems
Operations– Computer-Controlled Machining Systems
Outbound Logistics– Automated Shipment Scheduling Systems– Tracking Systems
Value Chain and IS/IT Examples (Continued)
Sales and Marketing– On-line Ordering Systems for customer– Sales forecasting
Service– Equipment maintenance systems
Procurement– Computerized Ordering Systems and EDI
Value Chain and IS/IT Examples (Continued)
Technology Development– Computer-Aided Design Systems
Human Resource Management– Multi-media database systems– On-line recruiting– Intranet for employee benefits (retirement benefits, medical
benefits etc.)
Infrastructure– Electronic scheduling; financial systems, accounting
systems, decision support systems etc.
Value Chain LinkagesInternal and External
Internal Linkage: Efficiency and/or competitive advantage gains due to links between two or more VC activities of a firm
– Example: (Operations and Outbound Logistics; Information exchanged – Completed order status)
External Linkage: Efficiency, partnership and/or competitive advantage gains due to link between one VC activity of firm and external entity (e.g., customer, supplier etc.)
– Example: Ford ‘s Supplier and Accounts Payable (Infrastructure); Information exchanged – Payment Information)
Planning, organizing, directing, and controlling flows of materials and purchased parts or services
– Begins with raw materials– Continues through internal operations – Ends with distribution of finished goods
Involves everyone in supply-chain– Example: Your supplier’s supplier
Objective: Maximize product value and decrease waste incurred in providing it.
Supply-Chain Management
Nike’s (Simplified) Supply Chain
Source: Laudon and Laudon (2007)
Management Information Systems (10th edition)
Supply-Chain Costs as a Percent of Sales
Source: Heizer/Render (2004) – Operations Management, 7e
All industry Automobile Food Lumber Paper Petroleum Transportation
52% 67% 60% 61% 55% 79% 62%
Industry Percent of Sales
Successful Supply-Chain Management Requires:
A mutual agreement with suppliers on goals Trust among all elements of the supply chain Compatible organizational cultures
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