Value Chain and IS/IT V.T. Raja, Ph.D., Information Management Oregon State University

Value Chain Discussion questions: – What is the Value Chain (VC)? – Identify the activities of the VC – How is the “service” activity different from “marketing and sales”? (Don’t “sales” people provide “service”?) – Differentiate between “procurement” activity and “inbound logistics” – Why study about Value Chain in an IS/IT class? – Explain value chain linkages (internal and external) with the help of examples.

Value Chain Activities Inbound Logistics – Involve relationships with suppliers and include all activities required to receive, store, and disseminate inputs Operations – All activities required to transform inputs into outputs Outbound Logistics – All activities required to collect, store, and distribute output

Value Chain Activities (Continued) Marketing and Sales – Inform buyers about products/services – Induce buyers to purchase products/services and facilitate their purchase (Stimulate demand for products/services) – Collect and pass customer feed back to various units in firm – Estimate expected sales volume Service – Activities required to keep the product/service working effectively for the buyer after it is sold and delivered

Value Chain Activities (Continued) Procurement – Acquisition (actual purchase) of inputs, or resources, for the firm Human Resource Management – Activities involved in recruiting, training, developing, compensating, laying off personnel

Value Chain Activities (Continued) Technological Development – Technology purchased/adopted/developed to bear in the firm’s transformation of inputs into outputs Infrastructure (General Administration) – Activities include accounting, legal, finance, planning, public affairs, government relations, quality assurance and general management

Value Chain and IS/IT: Examples Inbound Logistics – Automated Warehousing System; – JIT inventory systems Operations – Computer-Controlled Machining Systems Outbound Logistics – Automated Shipment Scheduling Systems – Tracking Systems

Value Chain and IS/IT Examples (Continued) Sales and Marketing – On-line Ordering Systems for customer – Sales forecasting Service – Equipment maintenance systems Procurement – Computerized Ordering Systems and EDI

Value Chain and IS/IT Examples (Continued) Technology Development – Computer-Aided Design Systems Human Resource Management – Multi-media database systems – On-line recruiting – Intranet for employee benefits (retirement benefits, medical benefits etc.) Infrastructure – Electronic scheduling; financial systems, accounting systems, decision support systems etc.

Value Chain and IT Source: Laudon and Laudon (2007) Management Information Systems (10 th edition)

Value Chain Linkages Internal and External Internal Linkage: Efficiency and/or competitive advantage gains due to links between two or more VC activities of a firm – Example: (Operations and Outbound Logistics; Information exchanged – Completed order status) External Linkage: Efficiency, partnership and/or competitive advantage gains due to link between one VC activity of firm and external entity (e.g., customer, supplier etc.) – Example: Ford ‘s Supplier and Accounts Payable (Infrastructure); Information exchanged – Payment Information)

Planning, organizing, directing, and controlling flows of materials and purchased parts or services – Begins with raw materials – Continues through internal operations – Ends with distribution of finished goods Involves everyone in supply-chain – Example: Your supplier’s supplier Objective: Maximize product value and decrease waste incurred in providing it. Supply-Chain Management

Nike’s (Simplified) Supply Chain Source: Laudon and Laudon (2007) Management Information Systems (10 th edition)

Supply-Chain Costs as a Percent of Sales Source: Heizer/Render (2004) – Operations Management, 7e All industry Automobile Food Lumber Paper Petroleum Transportation 52% 67% 60% 61% 55% 79% 62% IndustryPercent of Sales

Successful Supply-Chain Management Requires: A mutual agreement with suppliers on goals Trust among all elements of the supply chain Compatible organizational cultures

The Bullwhip Effect Source: Laudon and Laudon (2007) Management Information Systems (10 th edition)

Supply Chain Management