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Operation Management and the Value Chain

Describe a value chain that you have participated in. Point out some of the obvious non-value-adding wastes and comment on how they affect final customer.

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Interesting question, indeed. Please refer to attached response, which is also presented below. I hope this helps and take care.



Interesting question! Let's take a closer look, moving from definition to important concepts to general and specific examples:

1. Describe a value chain that you have participated in. Point out some of the obvious non-value-adding wastes and comment on how they affect final customer.


The question is fairly straightforward, and is asking you to share a personal experience e.g., value chain that you have participated in. Have you experienced this?

Let's look at some general information about value chains and then some examples: Example: A value chain is defined as the sequential set of primary and support activities that an enterprise performs to turn inputs into value-added outputs for its external customers. For example, an IT value chain is that subset of enterprise activities that pertain to IT operations, both to add value directly for external customers and to add indirect value by supporting other enterprise operations.

Things to consider in the value chain of IT operations:

a. VALUE ACTIVITY - an activity performed by the firm that is technologically and strategically distinct from any other (as opposed to accounting classifications, like "overhead," which group together activities with disparate technologies). Primary Activities include: Inbound Logistics; Operations; Outbound Logistics; Sales and Marketing; and Customer Service. Support Activities include: Firm Infrastructure; Human Resource Development; Technology Development; and Procurement. [Source: M. Porter].

Waste or non-value events would be such things as the HR and Tech Departments lack of communication and doubling up on work instead of designating the project to one department or the other.

b. VALUE ADDED - is selling price less the cost of purchased raw materials. Value added is not a sound basis for cost analysis because it incorrectly distinguishes raw materials from the many other purchased inputs used in a firm's activities. Value added fails to show the linkages between a firm and its suppliers that can reduce cost or enhance differentiation. [Source: M. Porter]

c. VALUE CHAIN - disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. All of a firm's activities can be represented in a value chain. The value chain displays total value, and consists of value activities and margin. Value activities are the physically and technologically distinct activities a firm performs. Value chains should be drawn at the business-unit level. A company-wide or sector-wide chain is too broad because it obscures important sources of competitive advantage. [Source: M. Porter]

d. VALUE CHAIN COST ANALYSIS - a cost analysis methodology which starts with assigning human resource costs, operating costs and fixed asset costs to value activities, and then studies the cost behavior of each activity as affected by the cost drivers. [Source: M. Porter]

e. VALUE CHAIN LINKAGES - are relationships between the way one value activity is performed and the cost of performance of another (i.e., the link between market research and product design; between quality control and customer service; between computer maintenance and computer downtime servicing). Linkages lead to competitive advantage in two ways: optimization and coordination. [Source: M. Porter]

f. VALUE DRIVERS - the basic shareholder valuation parameters, including: sales growth rate, operating profit margin, income tax rate, working capital investment, fixed capital investment, cost of capital, and value growth duration. [Source: Alfred Rappaport, Creating Shareholder Value, New York: The Free Press, 1986]

g. VALUE SYSTEM - (usually shown graphically) describes the activity links between the ...

Solution Summary

This solution describes a value chain and then identifies some of the obvious non-value-adding wastes and how they affect final customer. Examples are also provided.