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Value Chains Value chain and value coalition analysis is a business design approach that defines processes based

on economic value to a customer. Six business functions of the Value Chain:


Research and Development Design of Products, Services, or Processes Production Marketing & Sales Distribution Customer Service

To illustrate the value of the approach, we can briefly compare it to two other widely used business process design approaches, 1) work activity and, 2) functional organization.

Work Activity Based A work activity based approach is a process design based purely on some set of activities supporting a workflow. An activity is defined as some effort that transforms or creates an object. For example: A work activity based process design on a purchasing workflow would include the creation of a purchase order. This approach is useful in determining the efficiency or effectiveness of a workflow process, but is not always useful in determining whether the activity should have been performed in the first place. A value chain approach or value coalition approach could have resulted in the finding that setting up a reverse auction capability would not have only streamlined the process, but would provide improved customer service and competitive advantage for the business. More often then not a well-executed pure work activity based approach will result in efficient processes, but will not be useful in determining if those processes are appropriate for the business. In other words, the enterprise could end up doing the wrong things very well. Functional Organization This approach involves the top down organization of functions based on types of activities, e.g., finance, marketing, and engineering. This approach is generally the least effective as it tends to result in disconnects across the enterprise as well as sub-optimized processes, but it is very popular due to its simplicity. A misconception by many is that processes are the lower level activities within a functional hierarchy. This is just not true. As illustrated below, you can map a functional hierarchy to a process map, but one does not flow out of the other. In fact aprocess-based design will more than likely result in different activity descriptions then a

functional organization. The theory is that the process-based activities, especially in the case of a value chain based process design, will better align your enterprise to its customers. Value Coalitions Often, a single work process can concurrently involve several units in the value chain and might be more accurately thought of as value coalitions. The value coalition model recognizes that value is often created by the simultaneous interaction of several units:

Marketing

Production

R&D

CUSTOMERS

In the above illustration, R&D, Marketing, Production and Customers all are viewed as working together to add value. Problems arising in the value coalition model thus involve several units and requires their simultaneous participation to find solutions. For example, customers in focus groups run by Marketing might communicate how yet-to-bedeveloped products/services could add value. Marketing then communicates this information to R&D. While new products are still in the concept stage, R&D and Production communicate about how different product designs could be more or less difficult to manufacture. Marketing might also be involved in this communication so that it can provide its analysis of customer reactions to modifications in the yet-to-be-developed product. The value coalition model recognizes that many issues arising in organizations are not simply problems between units sequenced in a value chain but instead require a coalition of units

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 added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. 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. [edit] Activities The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity. [edit] 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). It is based on the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-added yields total value. The French Physiocrat's Tableau conomique is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published in the 1950's, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S. economy. ADVANCED MANUFACTURING TECHNOLOGY Definition: Advanced manufacturing technology is defined as computer-controlled or micro-electronicsbased equipment used in the design, manufacture or handling of a product. They are industries that increasingly integrate new innovative technologies in both products and processes. It is advanced planning and scheduling described as a manufacturing management process by which raw materials and production capacity are optimally allocated to meet demand. Overall, the following business or management methodologies were listed as being a part of advanced manufacturing:

It is characterized by:

Products with high levels of design Technologically complex products Innovative products Reliable, affordable, and available products Newer, better, more exciting products Products that solve a variety of societys problems

Context: Typical applications include computer-aided design (CAD), computer- aided engineering (CAE), flexible machining centres, robots, automated guided vehicles, and automated storage and retrieval systems. These may be linked by communications systems (factory local area networks) into integrated flexible manufacturing systems (FMS) and ultimately into an overall automated factory or computer-integrated manufacturing system (CIM). MATERIAL RESOURCE PLANNING It is a formal computerized approach to inventory planning, manufacturing scheduling, supplier scheduling and overall corporate planning. The material requirements planning (MRP) system provides the user with information about timing (when to order) and quantity (how much to order), generates new orders, and reschedules existing orders as necessary to meet the changing requirements of customers and manufacturing. The system is driven by change and constantly recalculates material requirements based on actual forecast orders. It makes adjustments for possible problems prior to their occurrence, as opposed to traditional control systems which looked at more historical demand and reacted to existing problems. The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available for production and products are available for delivery to customers. Maintain the lowest possible level of inventory. Plan manufacturing activities, delivery schedules and purchasing activities.

MRP is a tool to deal with these problems. It provides answers for several questions:

What items are required How many are required When are they required

By use of the computer, material requirements planning is able to manipulate massive amounts of data to keep schedules up to date and priorities in order. The technological advances in computing and processing power, the benefits of on-line capabilities, and reduction in computing cost make computerized manufacturing planning and control systems such as material requirements planning powerful tools in operating modern manufacturing systems productively

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