TOPIC 1 VALUE CHAIN OF BUSINESS

INTRODUCTION
The value chain framework can be used as powerful analysis tool for the strategic planning and to build the organizational model ensuring an effective leadership model. The value chain concept can be applied also in the individual business unit and can be extended to the whole supply chains and distribution networks. To form a successful product for an organization it is important to add value in each activity that the product goes through during the life cycle. The best possible value can be achieved in the product development process by adding value in each stage.

DEFINITION
According to Michael Porter value is the chain of activities for accompany that operates in a specific industry. The successive stages during which value is created when producing, distributing, and servicing a product. Distinct stages in the value chain may include: (1) receiving and distributing raw materials, (2) converting raw materials into a finished product, (3) identifying customers and distributing the product, and (4) providing customer support. Identifying the value chain allows a firm to refine its operations in an effort to improve quality, add efficiencies, and increase profits.

ACTIVITIES OF VALUE CHAIN 1) PRIMARY ACTIVITIES

Primary activities are activities that are directly concerned with creating and delivering a product. The following are the primary activities Inbound logistics For the production and development activities, organizations need inputs as goods which are received from the suppliers. Inbound logistics refer to all the activities related to receive goods from the suppliers, decision about the transportation scheduling, storing the goods as inventory, managing the inventory, and make the inputs ready to use for the production of end products.

Operations The manufacture of products and services - the way in which resource inputs are converted to outputs. These include the production process, development activities, testing, packaging, maintenance, and all other activities that transform the inputs into finished product. Outbound logistics All those activities associated with getting finished goods and services to buyers. The finished products are developed using the product related activities. Now activities are required to transfer the finished products to the customers via warehousing, order fulfillment, transportation, and distribution management Marketing and sales Essentially an information activity - informing buyers and consumers about products and services. These activities include the advertising, channel selection, product promotion, selling, product pricing, retail management, etc. The activities are performed to make sure that the products are transferred to the targeted customer groups. Marketing mix can be an instrument to take the competitive advantage to the target customers. Service All those activities associated with maintaining product performance after the product has been sold. These service activities enhance the products value in the form of after sales guarantees, warranties, spare parts management, repair services, installation, updating, trainings, etc

2) SUPPORT ACTIVITIES
Support activities are those activities that are not directly involved in production, but increase effectiveness or efficiency. The following are the support activities Procurement This concerns how resources are acquired for a business. This is the purchasing activity of the inputs to transform these into finished products or services. Procurement adds value by the acquisition of appropriate goods or services at the best price, at the right time, and in the desired place with the desired quality and quantity.
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Human resource management Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business. The key roles of HR are to support the attainment of the overall strategic business plan and the objectives. As a strategic business partner HR designs the work positions by hiring, recognition, reward, appraisal systems, carrier planning, and employee development. They act as an advocate of the employees to motivate them and create a happy working environment. For the organizational changing situation, HR executes the strategic needs of the organization with minimum employee dissatisfaction and resistance to change. Technology development Activities concerned with managing information processing and the development and protection of "knowledge" in a business. This is very important in todays technological driven environment. Technology can be used in production to reduce cost, to develop new products, increase customer service facility, build up cost effective process, etc. It supports the value chain activities such as research and development, process automation, process design, etc. Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management. This includes the planning management, legal framework, financing, accounting ,public affairs, quality management, general management, etc. These are required to perform the value added activities efficiently to drive the organization forward to meet the strategic plan and the objectives.

MAPPING OF PORTERS VALUE CHAIN ACTIVITIES INTO BUSINESS FUNCTIONALITIES

The product related activities can be divided among functional units: Production performs

Operational activities, Partly Inbound Logistics, and Services activities. Software production includes the activities as product development, testing, packaging, maintenance, installation, updating, trainings, etc. Sales performs part of service activities e.g. guarantees, warranties. Inbound logistics activities can be shared between logistic department and the production function as inventory management activity. Production process and production value means
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profitability analysis is decided by production management functionality. In brief, the function of the production management is to manage the production activities to meet the strategic goals.

Market related activities can be classified as function of marketing and sales. In many organizations marketing and sales are two independent departments that work in collaboration. The decision process of marketing and sales depends on the revenue and cost element of all the marketing and sales activities. This decision making functionalities can be defined as marketing and sales management to manage the marketing and sales activities and more importantly they take the decision whether the marketing and sales add value to the products, or services, and the organization. Porter value chain model framework can be generally defined as nine major functions of business. These business functions are in brief Production (p) This is the process to produce a good or service from the inputs collected from the supplier using the resources that carry a cost determined by production factors. Production management (pm) This is the decision process about the profitability of the production activity to produce a good or service. The profitability measurement can be done by assessing the revenue and cost of the production factors. The outcomes are the management of the all the production functions as well as heartbeat day-by-day operations and integration of operations to achieve the desired strategic outcome. Quality management (qm) The quality of a product is the integral part of product itself. But maintaining the quality in all level of corporate grows the confidence that the quality requirements of the product or service will be met. To some extent, to assure the quality of the product is the part of production management functionality but in globally the quality management provides the process of quality assurance by fulfilling the requirement of quality management system like ISO 9000 for achieving the desired quality of the products, services, and the entire corporate activities.

Marketing and sales (m&s) Marketing is the social process by which individuals and groups obtain what they need through creating and exchanging products and value with others. In brief, according to the chartered institute of marketing (CIM), marketing is the process that identifies, anticipates, and satisfies the customer requirements profitability. Sales perform all the exchange process of goods or services to the customers in return of money or its equivalent. General management (gm) GM has overall responsibility for the organization. He has profit and loss responsibility of the company. In general, GM oversees all the firms functions as well as day-to-day operations to sustain the companys integrity and growth. Marketing & sales (m&s) management This is the decision process about the profit and loss elements related to marketing and sales activities. It also oversees the production functions including day-to-day operations to synchronize the marketing and sales activities with the production activities. Accounting and finance (a&f) Finance creates value from the companys capital budgeting, financing, and net working capital activities. Accounting is the process for analyzing, summarizing the financial activities as well as interpret, and communicate the financial results to internal and external stakeholders.

Research and development (r&d) This comprises the creative activity in a systematic way for the creation of new business, to improve the knowledge for the efficient usage of the existing resources, and in general to diversify the applications of the stock of knowledge.

Human resource (hr) management This is the workforce management process of the organization to build up the desirable working environment and the competence to achieve the strategic goals of the company.

STEPS IN VALUE CHAIN ANALYSIS

Value chain analysis can be broken down into a three sequential steps: (1) Break down a market/ organization into its key activities under each of the major headings in the model; (2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage; (3) Determine strategies built around focusing on activities where competitive advantage can be sustained.

TYPES OF VALUE CHAIN

Demand chain A demand chain is composed of the enterprises that sell a business's goods or services. For example, a demand chain may be composed of buyers who initiate the sales transaction, the resellers who sell the manufacturer's goods, and the manufacturer who creates the goods. Or a demand chain may be composed of the resellers who sell a manufacturer's goods, the manufacturer who makes the goods, and the distributors who supply the manufacturer's goods to the resellers. Demand chains also support direct sales channels, in which the demand chain owner sells directly to consumers or business partners. Supply chain A supply chain is composed of the enterprises that provide services to a business. supply chains that take the form of a private marketplace, as well as through supplier . A private marketplace provides a forum for vendors to offer their goods and services for sale. Buyers enter this forum and after browsing through the available options, select the appropriate goods or services.

CONTENTS OF VALUE CHAIN BUSINESS

1 Firm level 2 Requirements of value chain 3 Industry level 4 Significance 5 Scor 1. Firm level A value chain is a chain of activities for a firm operating in a specific industry .The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity's value. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter as a profession, can be used to illustrate the difference of cost and the value chain. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001. 2. Requirements of value chain Coordination and collaboration; Investment in information technology; Changes in organizational processes; Committed leadership; Flexible jobs and adaptable, capable employees; A supportive organizational culture and attitudes. Flintstone Example: Without the dinosaur, Fred couldn't complete his daily tasks quickly. This was because the dinosaurs had more strength than poor Freddy, therefore, making the process more efficient, which added value to the final result. The value chain categorizes the generic value activities of an organization.. The "primary activities" include: inbound logistics, operations production, outbound logistics,
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marketing and sales demand, and services maintenance. The "support activities" include: administrative infrastructure management, human resource management, technology R&D, and procurement. The costs an value drivers are identified for each value activity 3. Industry level An industry value chain is a physical representation of the various processes that are involved in producing goods and services, starting with raw materials and ending with the delivered product also known as the supply chain 4. Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning 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, 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, the firm itself, the firm distribution channels, and the firm's buyers. 5. Scor The Supply-Chain Council, a global trade consortium in operation with over 700 member 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, 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.

CONCLUSION
To form a successful product for an organization it is important to add value in each activity that the product goes through during the life cycle. The best possible value can be achieved in the product development process by adding value in each stage. The product related activities can be divided among functional units: Production performs Operational activities, Partly Inbound Logistics, and Services activities. Software production includes the activities as product development, testing, packaging, maintenance, installation, updating, trainings.

REFERENCE.
1) Philip Kotler Northwestern university, Kevin Lane Keller Dartmouth College, marketing management, Pearson Education 2) en.wikipedia.org/wiki/Value_chain 3) tutor2u.net/business/strategy/value_chain_analysis.htm 4) www.netmba.com/strategy/value-chain/