Value Chain Analysis

1. InboundLogistics Operations OutboundLogistics Sales &Marketing Service Value Chain Analysis • 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 organization’s 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

3. 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

4. Value Chain Analysis Firm Infrastructure { Human Resource Management Primary and Support Activities in the Value Chain Support Activities MARGIN Technological Development Procurement MARGIN Marketing and Sales Outbound Logistics Inbound Logistics Operations Service { Primary Activities

5. 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 Organization’s image of quality Organization’s reputation Brand loyalty of customers Domination of various market segments

7. Value Chain Analysis Assessing the PRIMARY Activities in the Value Chain (continued) ( from Table 4-1) Customer Service • • • • • Customer input for product improvements Handling of customer complaints Warranty and guarantee policies Employee training in customer education & service issues Replacement parts and services

8. 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 • • • • • • R&D activities in product and process innovations Relationship between R&D 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

9. 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-organization relations Employee participation in professional organizations Employee motivation, job commitment, and satisfaction

10. 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 Relationships with stakeholders Public image as a responsible corporate citizen

11. Customer Service Response System Electronic Data Interchange Link between Suppliers and Dealers Website with Online Ordering, etc Project Management Software Accounting/Financial Decision Support Software Computer AidedSoftware Engineering Computer Aided Manufacturing Example Value Chain • Uses of information systems to add value InboundLogistics Operations OutboundLogistics Sales &Marketing Service Product R&D, Technology, and System Development Human Resource Management General Administration

12. 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

13. 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)

14. 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

15. 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

16. 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

18. Case Study: Build Value Chain HealthLife’s 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.

21. 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

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

23. Data Collection • A customer survey listing HealthLife’s 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.

24. Data Collection • Using a total 100 points for the value chain, each customer distributed those points among HealthLife’s processes. • The database contains 12 fields and 571 survey responses.

25. 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

26. 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

27. 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.

28. 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.

29. 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

30. 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

31. 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%)