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Innovative Value Chain Management_A Three Tiers Model

Innovative Value Chain Management_A Three Tiers Model

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Published by: fadi_ju on Feb 05, 2009
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05/10/2014

 
Innovative Value Chain Management: A three tiers model
Fadi N. Al-Abbadi
Industrial Engineering DepartmentFaculty of Engineering and Technology, University Of JordanE-mail: Fadi_ju@yahoo.com
ABSTRACT
This paper proposes a powerful model for managing the value chain; a three tiers model is generated toovercome the deficiencies that exist in the value chain activities; and specifically in the human resourcesmanagement activities and marketing and sales activities as well. The resulted model is built with largedependency on porter’s generic model.
INTRODUCTION
The value chain is a model developed by Porter, focusing on cross-functional orientation in the company.Porter’s value chain model is structured by primary activities such as service, marketing and sales,operations, and outbound and inbound logistics and support activities such as procurement, technologydevelopment, human resource management and company infrastructure.Value chain management (VCM) is the integration of all resources starting with the vendor's vendor. Itintegrates information, materials, labor, facilities, logistics, etc. into a time-responsive, capacity-managedsolution that maximizes financial resources and minimizes waste. In other words, efficient and effectivevalue chain management optimizes value for the customers' customer.
BACKGROUND AND LITERATURE REVIEW
During the past decades, the importance of the value chain and supply chain were arose, for the fact thatfirms are facing a strong competition locally and internationally, which force the firms to adopt a suitablemodel for increasing the pertained value and reducing the cost for the value chain activities.(Brown, 1997) has offered a concise definition of the value chain: “
The value chain is a tool todisaggregate a business into strategically relevant activities. This enables identification of the source of competitive advantage by performing these activities more cheaply or better than its competitors. Its valuechain is part of a larger stream of activities carried out by other members of the channel-suppliers,distributors and customers
”.A ``customer-centric'' approach was used by (Slywotzky and Morrison, 1997) to propose a modern valuechain in which the customer is the first link to all that follows. The task of management is to identify:
Customer needs and priorities
The channels that can satisfy those needs and priorities
The services and products best suited to flow through those channels
The inputs and raw materials required to create the products and services
The assets and core competencies essential to the inputs and raw materialsSlywotzky and Morrison concluded that, the value of any product or service is the result of its ability tomeet a customer's priorities. Customer priorities are simply the things that are so important to customersthat they will pay a premium for them or, when they can't get them, they will switch suppliers.
 
It follows that value opportunities are distinguished by understanding customers' priorities and producing,communicating and delivering the identified value. A value perspective of strategy follows:Strategy is the art of creating value, the way the company defines its business and links together with theonly two resources that really matter in today's economy knowledge and relationships on an organization’scompetencies and customers (Normann and Ramirez, 1993).Value production and coordination is based on the argument (Walters and Lancaster, 1999a, 1999b) inwhich they suggested that value is created by identifying and understanding customer benefits and costsand the combinations of organizational knowledge and learning, together with organizational structures thatfacilitate response and delivery.A modern value chain definitions were proposed by (Walters and Lancaster, 2000), in terms of it being a business system that creates end-user satisfaction and realizes the objectives of other member stakeholders.Comparisons are drawn with the current notion of supply chain management and an explanation is given asto how the supply chain fits into the wider perspective put forward. Ideas are advanced in relation to valuechain relationships and options. Models are then suggested relating to a number of well-knowninternational companies, where the authors have researched, at primary or secondary level.(Graham and Ahmed, 2000) examine the peculiar nature of buyer-supplier relations from a value chain perspective in the UK aerospace sector. A detailed examination is made of buyer strategies in terms of acquisition, management and exploitation of supplier product, process and marketing technologies. Porter'svalue chain framework was evaluated and subsequently found to be the most useful one for structuring theinitial stage of data collection.One of the most useful and structured studies that covered the key elements in value chain uncertainty wasintroduced by (McGuffog, 1997) who stated that the key elements in value chain uncertainty are bestanalyzed in terms of how they contribute to inefficiencies in both demand and supply.Accordingly, the aim of Value chain management is to systematically reduce these sources of uncertaintythrough the active co-operation of the key players in each value chain. By reducing uncertainty, totalservice is improved and overall cost is reduced (McGuffog, 1999).The efforts were continued in an attempt to get rid of the inherited complexity and the waste within thevalue chain as shown by (Schulz et al. 2007), who concluded that companies used to concentrate on themanagement within the individual functions instead of focusing on cross-functional value chainoptimization. Therefore, value chain management focuses on optimizing volumes and values based oncross-functional management concepts and integrated decision making throughout the value chain.
PORTERS’s GENERIC MODEL
To better understand the activities through which a firm develops a competitive advantage and createsshareholder value, it is useful to separate the business system into a series of value-generating activitiesreferred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced ageneric value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:
 
Firm InfrastructureProcurementTechnology DevelopmentHR ManagementInboundLogisticsOperationsOutboundLogisticsMarketingand SalesServices
M a  gi    n
Figure 1The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities,thereby resulting in a profit margin. The primary value chain activities are: 1.Inbound Logistics: the receiving and warehousing of raw materials and their distribution tomanufacturing as they are required.2.Operations: the processes of transforming inputs into finished products and services.3.Outbound Logistics: the warehousing and distribution of finished goods.
4.
Marketing & Sales: the identification of customer needs and the generation of sales.
5.
Service: the support of customers after the products and services are sold to them.These primary activities are supported by:
1.
The infrastructure of the firm: organizational structure, control systems, company culture, etc.
2.
Human resource management: employee recruiting, hiring, training, development, andcompensation.3. Technology development: technologies to support value-creating activities.4. Procurement: purchasing inputs such as materials, supplies, and equipment.The term ‚ Margin implies that organizations realize a profit margin that depends on their ability to managethe linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities inthe value chain.
THE THREE TIERS MODEL
It was noticed that porter’s generic model is a well structured model that covers the whole enterpriseactivities, and at the same time some concerns were arose through the implementation of the conventionalvalue chain management, leaving a room for further improvements and enhancements.The most obvious deficiencies in managing the value chain activities are clear in:1.Marketing and Sales activities2.HR management activities

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