2. The idea of a value chain was first suggested by
Michael Porter (1985) to depict how customer
value accumulates along a chain of activities
that lead to an end product or service.
Porter describes the value chain as the internal
processes or activities a company performs “to
design, produce, market, deliver and support its
product.”
3. He further states that “a firm’s value
chain and the way it performs individual activities
are a reflection of its history, its strategy, its
approach to implementing its strategy, and the
underlying economics of the activities themselves.”
4. Porter describes two major categories of business
activities: primary activities and support activities.
Primary activities are directly involved in
transforming inputs into outputs and in delivery and
after-sales support. These are generally also the line
activities of the organization.
5. Primary activities include:
inbound logistics—material handling and
warehousing.
operations—transforming inputs into the final
product.
outbound logistics—order processing and distribution.
marketing and sales—communication, pricing
and channel management.
service—installation, repair and parts.
6. Support activities support primary activities and other
support activities. They are handled by the organization’s
staff functions and include:
procurement—purchasing of raw materials,
supplies and other consumable items as well as
assets; technology development-know-how,
procedures and technological inputs needed in every
value chain activity;
7. human resource management—selection, promotion and
placement; appraisal; rewards; management
development; and labor/employee Relations.
firm infrastructure—general management
, planning, finance, accounting, legal, government affairs
and quality management.
8. STEPS IN VALUE CHAIN DESIGN
Value Chain Selection
Value Chain Analysis
Identification of Constraints and Opportunities
Identification of Market-Based Solutions
Selection of Market-Based Solutions
Assessment of Solutions
Identification of Interventions
Selection of Interventions
9. Value chain analysis of a motor
cycle manufacturer(Hero Honda)
It is fairly clear that Hero Honda enjoys some
competitive advantage over the competition, and for
7th year in a row make them largest two wheeler
manufacturer in the world.
By analyzing its value chain we make an effort to
ascertain competitive advantage it has.
10. Primary activities
Inbound logistics
Material components make 73% of production
cost, so Honda always tried to have close integration
with suppliers. Hence, when procuring components it is
very important to control tightly and reduce the logistical
cost. Moreover, diminution of inventory will be an added
benefit so that working capital requirements will be less.
JIT manufacturing philosophy is being adopted by the
company, and it demands close coordination among
manufacturing units, vendors and ancillary units. Efforts
are going on to broaden JIT ahead of shop floor in the
operational & strategic decisions of the vendors as well
like production planning, capacity expansion etc.
11. Online real time connectivity between the
operations and that of 72% of its 300 plus
strong vendor base has been established
and it’s a success of the company. All this
has resulted in the reduction of logistical &
transactional cost.
12. Operations
Only Indian company that has mastered the art of JIT is
Hero Honda. To ensure the high efficiency and low
inventory production, Hero Honda uses high degree of
automation and pursues lean manufacturing, with the
usual benefits of increased cash flow, reduced cash &
operating cycles and hence improved working capital
conditions. The unique tangible assets that Hero Honda
Ltd. has are these fully equipped plants where
manufacturing concepts are applied.
13. With annual production capacity of 4.5 million units the
company has three manufacturing facilities at
Haridwar, Dharuhera and Gurgaon. With workforce in
range of 4320 productivity/employee is high. To make
Haridwar plant efficient the concepts of lean
manufacturing, JIT & integrated supply chain have been
applied from very start.
Technological know-how, improving designs etc. for
two -wheelers are offered by Honda after the initial
design requirements as promoted by customers and
market trends put in structured appearance by Hero
Honda R&D team of India.
14. Outbound logistics
Through its well established delivery channels from
three plants, Hero Honda is fulfilling the demand in
India is exporting approximately 95000 bikes. The effort
is to provide for minimum waiting period or rather
filling regions as per demand forecasts and market
trends.
15. Marketing & Sales
Years ago “ Fill it, Shut it, Forget it” campaign was
started by marketing department of Hero Honda to pitch
for better fuel efficiency and hence lower owning cost. To
attract new customers, retain previous customers and
reliability of its products the marketing department of
Hero Honda strived constantly. It came up with Honda
passport program to ensure the loyalty of customers.
Company has also faced complaints of the customers
like company don’t present powerful bikes like
competitor Bajaj is doing, there is no product
differentiation to justify price differences etc. To make its
offerings well accepted Hero Honda improved its 4Ps
and paid attention to customers’ needs.
Dealers, authorized representatives, stockers etc
together form distribution network of Hero Honda and
use conscious strategies to penetrate new markets and
unrepresented territories.
16. The distribution network of Hero Honda is wide & deep
rooted; it is based on mutual trust and relationship
between company and its distributors and its philosophy
to ensure growth of partners with its own growth. It has
unique intangible resources in the form of strengthened
supply chain and distribution networks. And the
outcomes of it are its superior brand image and reliability
of its brand.
17. Services
Hero Honda comprised one of the best after-sales
services network in the industry. In addition to providing
better quality service and trouble-free availability of
spare parts, company also paid attention to tidiness and
other aesthetics of service stations and added facilities
like air conditioned waiting rooms, coffee shops etc.
To provide service stations at every nook and corner of
the country is almost impossible for the company, so it
introduced mobile service stations to ensure the
customers in rural areas. In this way increased loyalty of
customers is ensured
18. Airline Industry Value Chain
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
PROCUREMENT
TECHNOLOGY
DEVELOPMENT
HUMAN
RESOURCE
MANAGEMENT
FIRM
INFRASTRUCTURE
-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs
Pilot Training
Safety Training
Agent
Training
In-flight
Training
Baggage Tracking
System
•Promotion
•Advertising
•Advantage
Program
•Travel Agent
Programs
•Group Sales
•Ticket Counter
Operations
•Gate Operations
•Aircraft
Operations
•On-board Service
•Baggage Handling
•Ticket Offices
•Route Selection
•Passenger Service
System
•Yield Management
System (Pricing)
•Fuel
•Flight Scheduling
•Crew Scheduling
•Facilities Planning
•Aircraft Acquisition
Information Technology
Communications
Product
Development
Market Research
•Lost Baggage Service
•Complaint Follow-up
•Baggage System
•Flight
Connections
•Rental Car and
Hotel Reservation
System
Computer Reservation System, In-flight System
Flight Scheduling System, Yield Management System
Baggage Handling
Training
Flight, route and
yield analyst
training
19. Computer Maker (DELL) Value
chain
Primary Activities
Purchased Supplies and Inbound Logistics
Suppliers
Long-term partnerships
Brand name components
Suppliers part of Dell’s Design team
valuechain.dell.com
Logistics
Just-in-Time delivery
Low inventory ratio – 6 days vs. Gateway at 14
days, Compaq with 23 days
20. Operations
Customized Assembly
Cell Manufacturing with Groups vs. Traditional
Individuals at a single station (75% reduction in
assembly time and 100% increase in productivity)
Quality Control Programs
Distribution and Outbound Logistics
Direct Sales
Simultaneous shipping of PC and monitors
21. Sales and Marketing
Direct sales provided immediate feedback about
customer preferences
8 Market Segments
Sales representatives for large corporate and
institutional accounts
Internet, phone, and fax sales
22. Service
Repairs through local contractors
Customer and technical support via a toll free
number, fax, or e-mail
Customer Software added at the factory
Premier Pages for corporate accounts
On-site Service
On-site Support
Customer Forums
Online order Inquiries
23. Dell’s Value Chain – Support
Activities
General Administration
Strategic partnerships with Microsoft
and Intel
Human Resource Management
Training for Sales-account managers
Profit-sharing for Compensation
360-degree performance appraisal
Research and Development
Product Development - 1% of sales
annually to improve customers’
experience with product
Efforts to improve users’ experience
24. Research and Development
Direct sales provided immediate
feedback about customer preferences
8 Market Segments
Sales representatives for large
corporate and institutional accounts
Internet, phone, and fax sales
