Value Chain Concepts and Activities

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Questions and Answers

What does the value chain primarily represent in a business context?

The financial analysis of a company's profitability

The technological advancements implemented in production

The marketing strategies used to promote products

The series of steps a business takes to create and deliver a product (correct)

Which activity is NOT considered a primary activity in Porter’s value chain?

Inbound logistics

Operations

Procurement (correct)

Marketing and sales

Which of the following best defines inbound logistics?

The activities related to receiving and storing raw materials (correct)

The procedures for creating a final product from raw materials

The strategies to distribute a product to consumers

The techniques used to enhance customer experience

Which primary activity includes maintaining products and enhancing consumer experience?

Service Signup and view all the answers

What role does 'Operations' play in the value chain?

Converting raw materials into finished products Signup and view all the answers

Which of the following is a support activity in the value chain?

Human resources management Signup and view all the answers

What is the primary focus of marketing and sales in the value chain?

Enhancing visibility and targeting customers Signup and view all the answers

Which component of the value chain is most directly responsible for creating the final product?

Operations Signup and view all the answers

What is the main purpose of procurement in a firm's value chain?

Acquiring raw materials and resources Signup and view all the answers

Which of the following is NOT considered a support activity in the value chain?

Marketing and Sales Signup and view all the answers

Which driver of supply chain performance focuses on the physical locations within the network?

Facilities Signup and view all the answers

How does an efficient supply chain primarily aim to operate?

By reducing costs and improving productivity Signup and view all the answers

In the context of a supply chain, what does the term 'utilization' refer to?

The fraction of capacity currently being used Signup and view all the answers

What aspect distinguishes a value chain from a supply chain?

Emphasis on customer journey value Signup and view all the answers

Which of the following is a key component of technology development in a value chain?

Designing manufacturing techniques Signup and view all the answers

Which principle should a supply chain balance to support competitive strategy?

Responsiveness and efficiency Signup and view all the answers

What does the production cost per unit measure?

The average cost to produce a unit of output Signup and view all the answers

Which inventory-related metric refers to inventory held for unexpected demand?

Safety Inventory Signup and view all the answers

What does flow time measure in production?

The time needed to produce one unit of product Signup and view all the answers

What is indicated by the term 'level of product availability'?

The fraction of demand served on time from held inventory Signup and view all the answers

What does average replenishment batch size measure?

The average size order in natural units Signup and view all the answers

Which of the following best describes seasonal inventory?

Inventory built up to handle predictable seasonal demand variability Signup and view all the answers

Which metric measures the fraction of production orders completed on time and in full?

Production service level Signup and view all the answers

What is the main function of transportation in the supply chain?

To move inventory from one point to another Signup and view all the answers

What does the average incoming shipment size measure?

The average number of units or dollars in each incoming shipment Signup and view all the answers

What is a characteristic of push systems in supply chain management?

Starts with forecasts for creating schedules Signup and view all the answers

Which metric measures the difference between forecasted and actual demand?

Forecast error Signup and view all the answers

What does insourcing refer to in the context of sourcing?

Producing the product or service within the supply chain Signup and view all the answers

How is profit margin calculated in pricing-related metrics?

As a percentage of revenue Signup and view all the answers

What does days payable outstanding measure?

The average time between supply tasks and payment Signup and view all the answers

What does range of purchase price measure?

The fluctuation in purchase price during a specified period Signup and view all the answers

What key factor differentiates pull systems from push systems?

The reliance on real-time demand information Signup and view all the answers

What is a factor that influences the evaluation of suppliers in terms of product reliability?

Product quality Signup and view all the answers

Which strategy can help determine the reliability of a supplier during the evaluation process?

Conducting vendor visits Signup and view all the answers

What might be a significant consideration for companies needing frequent product deliveries?

Supplier flexibility Signup and view all the answers

Which criterion assesses a supplier's alignment with a company's values and community involvement?

Social responsibility Signup and view all the answers

What method provides qualitative data regarding communication effectiveness with suppliers?

Questionnaires Signup and view all the answers

What is a potential risk in relying on suppliers for customer products?

Inconsistent quality assurance Signup and view all the answers

Which procurement strategy aims to obtain goods and services in a cost-effective manner?

Trustworthy supplier partnerships Signup and view all the answers

What benefit does monitoring supplier prices provide?

Understand market demand changes Signup and view all the answers

Study Notes

Value Chain

A value chain is a series of steps or actions that a business undertakes to create a product and deliver it to a customer.
It is the series of systems that the business uses to make money.
The idea of a value chain was first described by Michael Porter, an academic in the fields of business management and economics, in his 1985 book "Competitive Advantage: Creating and Sustaining Superior Performance."
Value chains are broken into primary and support activities.

Primary Activities

Inbound logistics: receiving, warehousing, and inventory control of raw materials, including supplier relationships.
Operations: procedures for converting raw materials into a finished product or service, including changing inputs to outputs.
Outbound logistics: all activities to distribute a final product to a consumer, including delivery, storage, and distribution systems.
Marketing and sales: enhancing visibility and targeting customers through advertising, promotion, and pricing.
Service: maintaining products and enhancing consumer experience through customer service, maintenance, repair, refund, and exchange.

Support Activities

Procurement: acquiring inputs (resources) for the firm, involving finding and negotiating with suppliers and vendors.
Human Resources (HR) Management: hiring and retaining employees to fulfill business strategy, design, market, and sell the product.
Firm Infrastructure: supporting systems and functions for maintaining operations, including accounting, legal, and administrative functions.
Technology Development: designing and developing manufacturing techniques, automating processes, and incorporating equipment, hardware, software, procedures, and technical knowledge.

Value Chain vs Supply Chain

Supply chain: sourcing materials and delivering goods to the customer.
Value chain: goes beyond selling goods and products, aiming to offer value throughout the customer journey from marketing to after-sales support.

SCM Drivers: Efficient vs Responsive Supply Chain

Efficient supply chain: strives to do more with less.
Responsive supply chain: flexible and adapts to changes in the environment.
A company's supply chain should balance responsiveness and efficiency to support its competitive strategy.

Drivers of a Supply Chain

Facilities: physical locations for storage, assembly, or fabrication.
Inventory: all types of raw materials and finished commodities.
Transportation: moving inventory from point A to point B using various routes and modes.
Information: analyzed data on facilities, inventory, transportation, costs, prices, and clients.
Sourcing: purchasing goods and services, with insourcing (produced within the supply chain) or outsourcing (bought).
Pricing: determining product and service prices.

Capacity: maximum amount a facility can process.
Utilization: fraction of capacity currently used.
Processing/setup/down/idle time: measures time spent processing, setting up, down, or idle.
Production cost per unit: average cost to produce one unit.
Quality losses: fraction of production lost due to defects.
Flow time: time needed to produce one unit of product.
Product variety: number of different products available.
Stock Keeping Unit (SKU): a specific product with its own barcode.
Average production batch size: average amount produced in each batch.
Production service level: fraction of orders completed on time and in full.

Cycle inventory: average amount of inventory used to satisfy demand between shipments.
Safety inventory: inventory held to cover demand exceeding expectations.
Seasonal inventory: built up to counter seasonal demand variability.
Level of product availability: fraction of demand served on time from inventory.
Average inventory: average amount of inventory carried (measured in days or financial value).
Products with more than a specified number of days of inventory: identifies products with high inventory levels.
Average replenishment batch size: average size of orders.

Average inbound transportation cost: cost of bringing product into a facility.
Average incoming shipment size: average number of units or dollars in each incoming shipment.
Average outbound transportation cost: cost of sending product out of a facility to the customer.
Average outbound shipment size: average number of units or dollars in each outbound shipment.

Forecast horizon: how far in advance a forecast is made.
Frequency of update: how often a forecast is updated.
Forecast error: difference between forecast and actual demand.

Days payable outstanding: time between a supplier's task and payment.
Average purchase price: average price of a good or service purchased.
Range of purchase price: fluctuation in purchase price over a period.
Supply quality: measures the quality of products supplied.

Profit margin: profit as a percentage of revenue.
Days sales outstanding: average time between a sale and collecting cash.
Incremental fixed cost per order: any fixed cost added to the price.

Supplier Evaluation Criteria

Price: price ranges offered by suppliers.
Quality: durability and effectiveness of a supplier's product.
Service: friendliness, responsiveness, and understanding of company needs.
Social responsibility: supplier's values and mission aligned with the company's, including community involvement and charitable contributions.
Convenience: ease of ordering, delivery speed, and accommodation of needs.
Flexibility: ability to scale deliveries based on business needs.
Risk: understanding the risk of relying on a supplier.

Types of Supplier Evaluation

Scorecards: numerical rating system for each criterion to compare suppliers.
Questionnaires: qualitative data on quality, communication, and processes.
Discussions: informal conversations to discuss options.
Vendor visits: meeting with a supplier to learn about their company and production methods.

Procurement Strategy

An organization's plans and methods for acquiring goods and services efficiently and cost-effectively.
Companies use procurement strategies to:
- Partner with trustworthy suppliers
- Take advantage of pricing benefits
- Lower their risk profile
- Manage the overall procurement process

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Description

Explore the fundamental concepts of the value chain, a crucial business framework introduced by Michael Porter. This quiz covers the primary and support activities that contribute to a company's efficiency in delivering products to customers. Test your knowledge of inbound logistics, operations, outbound logistics, and more.