Chapter 2: The value chain The production of goods and services is the result of the efforts of many organisations – a complex web of contracts and co-operation known as the supply chain or the value system. E-Commerce ©David Whiteley/McGraw-Hill, 2000

The supply chain Manufacturing Inputs: Components (e.g. wheels, seats, etc.) Sub-assemblies (e.g. engine, gearbox, etc.) Sales and Distribution: Wholesale (e.g. import agent) Retail (e.g. local main dealer) E-Commerce ©David Whiteley/McGraw-Hill, 2000

Logistics chains Transport Storage Paperwork (Orders, Invoices, etc) Each supply chain transaction adds cost without adding intrinsic value. e-Commerce can be applied to the supply chain to reduce costs or improve service. E-Commerce ©David Whiteley/McGraw-Hill, 2000

Porter’s value chain model Primary Activities: Inbound Logistics Operations (Production) Outbound Logistics Marketing and Sales Service E-Commerce ©David Whiteley/McGraw-Hill, 2000

Porter’s value chain model Support Activities: Procurement Technology Development Human Resources Management Firm Infrastructure E-Commerce ©David Whiteley/McGraw-Hill, 2000

Linked value chains Inbound Logistics —from Suppliers Outbound Logistics —from Customers E-Commerce ©David Whiteley/McGraw-Hill, 2000

Porter’s value system Overall organisational competitive advantage: (Inter-organisational value chain) Overall organisational competitive advantage: efficiency of the company quality of its products plus efficiency and quality of suppliers efficiency of wholesalers (Channel) efficiency of retailers The analysis of overall supply chain is called value system E-Commerce ©David Whiteley/McGraw-Hill, 2000

Automotive assembly value system Inbound Logistics: Large number of suppliers Vast number of components Process: Just-in-time (JIT) manufacture Outbound Logistics: Limited number of Main Dealers E-Commerce ©David Whiteley/McGraw-Hill, 2000

Food supermarkets value system Inbound Logistics: Large number of suppliers Vast number of products Process: Retail Outbound Logistics: Vast number of Consumers E-Commerce ©David Whiteley/McGraw-Hill, 2000

Insurance value system E-Commerce ©David Whiteley/McGraw-Hill, 2000

Insurance value system Inbound Logistics: No significant suppliers (financial / re-insurance partners) Process: Administrative Outbound Logistics: Sales through agents Sales through brokers Direct sales E-Commerce ©David Whiteley/McGraw-Hill, 2000

e-Commerce in the value chain Electronic Value Chain: Reduced time frame Changed cost structures Re-engineered Value Chain: Just-in-time manufacture Quick response supply Efficient document processing Competitive advantage E-Commerce ©David Whiteley/McGraw-Hill, 2000

Chapter 2 – Exercise 1 Consider the value system of the insurance industry, for sales to the public, and comment on the advantages and disadvantages of the three sales channels that are outlined. E-Commerce ©David Whiteley/McGraw-Hill, 2000

Chapter 2 – Exercise 2 Outline the value system of an organisation you know. Identify linkages where e-Commerce might be usefully applied. E-Commerce ©David Whiteley/McGraw-Hill, 2000