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Fadi N. Al-Abbadi
Industrial Engineering Department Faculty of Engineering and Technology, University Of Jordan E-mail: Fadi_ju@yahoo.com
This paper proposes a powerful model for managing the value chain; a three tiers model is generated to overcome the deficiencies that exist in the value chain activities; and specifically in the human resources management activities and marketing and sales activities as well. The resulted model is built with large dependency on porter’s generic model.
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, technology development, human resource management and company infrastructure. Value chain management (VCM) is the integration of all resources starting with the vendor's vendor. It integrates information, materials, labor, facilities, logistics, etc. into a time-responsive, capacity-managed solution that maximizes financial resources and minimizes waste. In other words, efficient and effective value 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 that firms are facing a strong competition locally and internationally, which force the firms to adopt a suitable model 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 to disaggregate 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 value chain 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 value chain 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 materials
Slywotzky and Morrison concluded that, the value of any product or service is the result of its ability to meet a customer's priorities. Customer priorities are simply the things that are so important to customers that 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 the only two resources that really matter in today's economy knowledge and relationships on an organization’s competencies and customers (Normann and Ramirez, 1993). Value production and coordination is based on the argument (Walters and Lancaster, 1999a, 1999b) in which they suggested that value is created by identifying and understanding customer benefits and costs and the combinations of organizational knowledge and learning, together with organizational structures that facilitate 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 as to how the supply chain fits into the wider perspective put forward. Ideas are advanced in relation to value chain relationships and options. Models are then suggested relating to a number of well-known international 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's value chain framework was evaluated and subsequently found to be the most useful one for structuring the initial stage of data collection. One of the most useful and structured studies that covered the key elements in value chain uncertainty was introduced by (McGuffog, 1997) who stated that the key elements in value chain uncertainty are best analyzed 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 uncertainty through the active co-operation of the key players in each value chain. By reducing uncertainty, total service 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 the value chain as shown by (Schulz et al. 2007), who concluded that companies used to concentrate on the management within the individual functions instead of focusing on cross-functional value chain optimization. Therefore, value chain management focuses on optimizing volumes and values based on cross-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 creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic 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:
Operations Outbound Logistics
Marketing and Sales
Firm Infrastructure HR Management Technology Development Procurement
Figure 1 The 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. 2. 3. Inbound Logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required. Operations: the processes of transforming inputs into finished products and services. Outbound Logistics: the warehousing and distribution of finished goods. Marketing & Sales: the identification of customer needs and the generation of sales. 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, and
3. 4. compensation. Technology development: technologies to support value-creating activities. 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 manage the 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 in the value chain.
THE THREE TIERS MODEL
It was noticed that porter’s generic model is a well structured model that covers the whole enterprise activities, and at the same time some concerns were arose through the implementation of the conventional value chain management, leaving a room for further improvements and enhancements. The most obvious deficiencies in managing the value chain activities are clear in: 1. 2. Marketing and Sales activities HR management activities
To get rid of those deficiencies, enhance the performance of the value chain and to manage it properly, a three tiers model is proposed; this model is an attempt to reconfigure the value chain activities in order to create uniqueness and excellence in managing the value chain. The proposed model consists basically of the following three tiers:
1. Generic tier: the activities that already exist in porter’s generic model 2. Intellectual capital tier : a tier that focuses on the knowledge of the human beings within the value
3. Marketing excellence tier: a tier that ensures the excellence of the chain in conceiving the
internal/external customers’ needs and providing them with an outstanding output
Marketing and Sales
Firm Infrastructure HR Management Technology Development Procurement
The power of this model appears in consolidating the effect of the HR management and the marketing and sales activities that already exist in the generic tier with the intellectual capital and marketing excellence tiers, which will emphasize there effects on managing the value chain. Intellectual capital is knowledge that can be exploited; the term combines the idea of the intellect or brainpower with the economic concept of capital, the saving of entitled benefits so that they can be invested in enriching the value chain by generating an excellent output. Intellectual capital can include the skills and the knowledge that an enterprise has developed about how to make its goods or services; individual employees or groups of employees whose knowledge is deemed critical to a firm's continued success; and its aggregation of documents about processes, customers, research results, and other information. The intellectual capital tier will assist in cumulating people’s knowledge within the value chain ensuring the consistency of the activities through over the value chain, proper transferring for the knowledge among the value chain players and effective learning.
Marketing basic idea is to align the company with market needs, and is applied at most companies across industries. Markets and customers are constantly evolving, which forces companies to review their goals and strategies on a regular basis. Companies must therefore create suitable structures, processes and tools and be able to implement new strategies. This is where many companies often run into trouble – and where marketing excellence can play a significant role. The marketing excellence tier will ensure the excellence of the value chain by offering approaches and tools to optimize all relevant marketing issues. These range from marketing target setting, marketing strategy, marketing organization and processes to overall marketing and brand management and support processes.
In this paper, porter’s generic model for managing the value chain was introduced and discussed, and accordingly a three tiers model was proposed to overcome the inherited deficiencies within the value chain activities; specifically the HR management activities and marketing and sales activities. This model can play a significant role in improving the value chain management practice through reducing the waste within the value chain and the cost as well. This privilege is enabled by giving some attention to the employees within the value chain, and adopting marketing excellence strategies that bring excellence to the value chain.
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