Value Chain Analysis Essay
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Value Chain Analysis
Consider the following scenario:
Miguel owns a Mexican restaurant. He has well-established relationships with local suppliers and has fresh produce delivered daily. Carefully trained cooks craft authentic Mexican food in state-of-the-art kitchen using a well-refined and systematic process. They interact seamlessly with fast, friendly wait staff who typically deliver food in fifteen minutes or less to hungry customers. Customers come in large numbers for good food at a good price. Miguel carefully tracks customer preferences to alter menus and offer specials.
Despite being a small business, Miguel has successfully coordinated various internal activities and established external relationships in ways that create value for his customers.
A well-functioning work team carefully assesses the strengths and weaknesses of each team member, assigning activities to leverage their individual strengths. However, team members also carefully coordinate tasks to ensure they combine their individual efforts in effective ways. Effective organizations do the same by carefully selecting a strategy that maximizes the strengths in performing various activities. They exploit relationships between internal activities to create a chain of activities that maximizes the value of their product or service for customers. Companies large and small can derive additional benefit from combining a strong internal value chain with those of external partners to establish a value system.
To prepare, select a company with which you are very familiar or for which you can easily obtain information. You may wish to use the organization you are thinking of proposing for the Sustainable Solutions Paper (SSP), which you will complete throughout the course. This would allow you to repurpose information from the Discussion for a portion of your SSP. If you wish to take advantage of this opportunity, please review the SSP template located in this week’s Learning Resources to ensure the organization you choose for this Discussion also satisfies the SSP requirements. Review this week’s Learning Resources, particularly Exhibit 1 in Porter and Millar’s article “How Information Gives You Competitive Advantage.” You can use this chart to guide your value chain analysis for this post.
Critique discussion #1’ analyses by identifying additional strengths and weaknesses of the analyses and offering suggestions for addressing those weaknesses.
•Offer insight into additional potential linkages among areas of the value chain in your colleagues’ organizations that they may have overlooked, and ask a question to expand their thinking on the subject.
•Offer additional insight into the potential strategic significance of the value chain in your colleagues’ organizations and ask a question to expand their thinking on the subject.
•Answer one of the questions posed by your colleagues in their posts.
Discussion #1
Peter Nanga,
Vimal Shah and his elder brother Tarun, in 1985 saw the potential value in all the goods that could be developed from cotton seeds. They started small by developing oil pressing factory where they extracted oil which they would use to produce edible oils and soap. They contracted farmers to grow the produce, cotton, sunflower and corn whose seeds were their main raw materials. As Senge (2010) explained that real innovation opportunities lies in the creation of new products that break away from the dependency on conventional oil and gas entirely. For Bidco it was to totally shift from relying on cotton for their cotton garments to edible oil manufacturing from crude palm oil. At this point, BIDCO which was previously a garment manufacturing factory shifted and became an edible oil and soap producing factory. This was a complete disruptive shift. They made their bar soap whiter and lighter and moved around the country in a van convincing farmers to stock their products and only pay after selling, Bidco has since moved from oil presses to edible oil refinery and imports its crude palm oil from Malaysia while bleaching earth and other raw material used in refinery are imported from china. They had recently acquired flagship brands from Unilever group both in edible oil and soaps after the latter could no longer be competitive In the market. The company has adopted the Japanese philosophy, Kaizen which is about continuous improvement in all areas. This has addressed the issue of wastages in the production and human resource management, procurement by adopting the best production practices and management.
Harvard Business Essentials described strategy as a deliberate search for a plan of action that will develop a business ‘s competitive advantage and compound it. By applying value chain analysis an organization is able to determine which activities within the chain gives the most value. These value generating activities results into creating competitive advantage for the firm. For the company that I have chosen Bidco, innovation in production, procurement, product differentiation and continuous research and development of new products and development of efficient distribution channels have been identified as value generating activities for the company. These three activities has set Bidco apart from its competitors. Two of its competitors are Kapa Oil Refineries and Pwani Oil Refineries.
Value chain analysis is the process by which activities within the chain are analyzed and value adding activities and those associated with core competencies and capabilities identified in order to focus on them and make them perform better than those of the competitors. Continuous improvement and innovations, efficient distribution channels across the Africa Continent and continuous research and development of new products has created value and competitive advantage for Bidco. Senge (2005) likened value chains to a glue that connects disparate businesses, locally, regionally or globally. In the case of BIDCO, its suppliers are part of that chain. They determine the cost, quality and reliability of the supply. BIDCO’s value chain has potential strategic significance. From the seed suppliers, logistics providers and finally processing the final products and distribution of the same, shareholder value continue to be created as it positively affects the larger value chain.
Question to further discussion:
Since value chain reach beyond the boundaries of individual businesses, in which areas would BIDCO collaborate with other organizations as it implements its sustainability strategy?
Reference
The Harvard Business Essentials: Strategy: create and implement the best strategy for your business HD30.28.H3785 2005.
Senge, P., Smith, B., Kruschwitz, N., Laur, J., & Schley, S. (2010). The Necessary Revolution: Working Together to Create a Sustainable World.
Critique discussion #2’ analyses by identifying additional strengths and weaknesses of the analyses and offering suggestions for addressing those weaknesses.
•Offer insight into additional potential linkages among areas of the value chain in your colleagues’ organizations that they may have overlooked, and ask a question to expand their thinking on the subject.
•Offer additional insight into the potential strategic significance of the value chain in your colleagues’ organizations and ask a question to expand their thinking on the subject.
•Answer one of the questions posed by your colleagues in their posts.
Discussion #2
Value Chain Analysis
According to Covell & Walker (2013), Nike is an athletic apparel and gear company based in the United States. Nike offers athletic shoes, clothes, and other accessories worn during sporting events. The US athletic footwear industry comprises companies that manufacture and sell athletic footwear, apparel, equipment and accessories. Nike has become one of the most recognizable companies in the entire world. Nike has had a monopoly in the athletic gear industry for many years. Putsis (2013) described Nike’s main competitors as Adidas and Under Armor. Nikes major buyers are teenagers who later switched to boots and leather gain strength over its competitor.
The value chain analysis is used to see what organization can do to create an advantage over its competition. According to Porter & Kramer (2011), value chain relates to the activities through which firms develops a competitive advantage and creates shareholder value. Michael Porter introduced a generic value chain model that comprises of a sequence of activities found to be common to a wide range of firms.
The value chain analysis divides a company’s activities into primary and support activities. Primary activities are those that involve creating a product and getting the product to market for purchase. Support activities provide the infrastructure that enables the primary activities to take place. The primary activities include procurement and inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include research, technology, systems development, human resource management, and general administration (Magretta, 2012).
According to Lu, Sung, Wang, & Li (2012), the goal of the activities is to offer customers a level of value that exceeds the cost of the activities, thereby resulting in a profit margin. One linkage in the chain can affect any part of the chain. The firm will look at the activities that are most valuable and ones to improve to provide a competitive advantage over its competitors. Nike has a strong customer base and large distribution systems that produce many different products for the customers.
Information technology permeates the value chain. Information technology initially was used for accounting and record keeping purposes. Technology can affect competitive advantage by incrementally changing the activities themselves or by making possible new configurations of the value chain. Information technology has given businesses multiple ways to generate data as it performs its activities over multiple systems (Porter & Kramer (2011).
The value chain technology includes technologies in inbound logistics, operation, outbound logistics, marketing and sales, and service. Value chain activity often affects the cost or performance of one of the other activities. Technology helps in planning and collaboration, thereby improving the overall effectiveness of the process. Technology is used to track orders and delivery coordination, and monitors and coordinates shipment, ensuring delivery of the product to the consumer as scheduled. Technology improves the quality of the information, expedites transfer, and monitors the volume of transactions (Tsai, Raghu, & Shao, 2013).
Nike’s strengths include pride it takes in getting the top athletes to wear and sponsor their products. Famous athletes in basketball, football, soccer, and track wear Nike footwear and clothing. Consumers will remember the product based on the athlete and sport played by the athlete (Hall, 2013).
According to Covell (2013), the majority of Nike’s income comes from selling its product to retailers who in turn sell the product to the consumers. The market that Nike participates is very price sensitive. Many consumers try to find the lowest price when shopping for Nike products. Nike continues to receive negative publicity regarding poor working conditions for workers in their overseas factories. Workers are underage and paid way less than minimum wage. Nike must improve the firms weaknesses to stay ahead of its competition.
Questions:
Nike has dominated the athletic retail business in all categories. How can other companies such Adidas improve to compete with Nike?
Nike achieved a cost advantage by controlling the cost drivers out of its supply chain. What can other firms do to help improve their advantage?
References
Covell, D., & Walker, S. (2013). Managing sport organizations: Responsibility for performance. London, UK: Routledge.
Hall, R. (2013). Brilliant marketing: What the best marketers know, do and say. London, UK: Pearson UK.
!!!!! please answer discussion 1 & 2 Seperately !!!! also list two references for each.
SAMPLE ANSWER
Since value chain reach beyond the boundaries of individual businesses, in which areas would BIDCO collaborate with other organizations as it implements its sustainability strategy?
BIDCO should partner with research market companies such as Nielsen and IRI for research and development of the company. Although the company conducts basic research that benefits numerous customers, the primary goal should focus on applied research. Applied research looks at short-term programs such as successfully building new product lines. This proves to be the strength of these research firms in that this method of research is less costly than the basic research, and less dangerous due to the short-term nature. Moreover, research market companies such as Nielsen provide the needed information from the market and customers, which assist the management to avoid risk and invest in necessary places.
The firm should also have a good partnership with other companies that produce its raw materials, especially in near places to avoid excess production costs. These are inbound logistics that ensure there is a constant supply of raw materials to maintain the production. The company has been importing its crude oil from Malaysia, a situation that reveals there is little of its raw material in Africa. In this manner, the company should partner with some agricultural firms within its locality to produce the raw materials. When this is done, there will be an enormous reduction of production cost.
Lastly, just like other big companies, BIDCO should collaborate with big bodies that host global events. For example, Coca-Cola Company sponsors several events such as Big Brother Africa, world cup, and many others. It is time for the company to collaborate with bodies such as FIFA, WHO to sponsor some of the activities. Hall (2013) says that the only way to penetrate through this tough business competition, one has to locate the prominent customers.
References
Hall, R. (2013). Brilliant marketing: What the best marketers know, do and say. London, UK: Pearson UK.
Petkus, E. (2013). Value-Chain Dynamics of the West Point Foundry, 1817-1911: A Historical Case Analysis in Marketing. Marketing Education Review, 23(3), 275-280
Nike has dominated the athletic retail business in all categories. How can other companies such Adidas improve to compete with Nike?
Other companies such as Adidas should obtain many suppliers in the industry to neutralize the effect of Nike in the market. According to Aaker (2011), very little suppliers in the market make bargaining power non-existent. Rubber, leather, and cotton commodities should be abundant in the market with the brand name of other companies. The firms should also be able to switch between the available suppliers cheaply and quickly hence the suppliers will become dependent on the company for their survival.
The firm should put a lot of emphasis on the 4Ps, which are the product, price, promotion, and place. These are very vital components of dominating the market according to Aaker (2011). For a product, the companies should provide good quality and comfortable shoes and outfits that fit the players through research and development. For the price, Nikes competitors should have a pricing strategy for every group of consumer. The price of the items varies depending on the design and edition of the sports gears. For the place, they should open discount outlet stores in rural areas and retail shops where they are less known. Selling in different places will assist them to handle the different needs of the customers. For the promotion, they should not only cut the discounts but also participate in the sporting activities by rewarding and sponsoring those events.
Just like Nike, other companies should have both management and independent directors. The combination of the directors will benefit the companies in that there will be a presence of managers who are directly and indirectly involved with the company. The indirectly involved managers bring outside experiences that provide another frame of reference. The directly involved board is classified as an oversight board, engaging in active roles with strong regards to the management in point of strategy formulation. They also check market trends based on research work and development (Ahenkora, 2012)
References
Aaker, D. A. (2011). Developing Business Strategies
Ahenkora, K. (2012). Qualitative Value Chain Analysis and Strategic Choices. International Journal Of Business Management & Economic Research, 3(1), 429-431
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