Value Chain Framework - Essay Example

International Value Chains BUSI48343 Mohammed ALFaris N0535644 Table of Contents Value Chain Framework..................................................................................3 Open Innovation..............................................................................................3 Lean Management...........................................................................................4 Top 5 Value Chain...........................................................................................5 Example of Open Innovation and Lean Management ....................................6 Introduction.......................................................................................................6 Lean System at Distribution of Wal-Mart..........................................................7 Logistics Management ......................................................................................8 Inventory Management ......................................................................................9 Use of RFID........................................................................................................10 The Benefits Reaped..........................................................................................10 References ........................................................................................................11 Value Chain Framework The Value Model of the business is configurable — not all metrics are relevant to every business. Companies should become more familiar with the definitions of metrics before selecting the metrics to make use of under each aggregate. All metrics are not equally important once final selections are made. Strategy of business is the single largest determinant of the most important metrics. Finally, the standard metrics that are listed above need to be augmented with the custom prime metrics common to your industry. (Basu, 2012) Open Innovation Under this category of company, the sourcing distribution shape is similar to the first category. The main changes are that at this value chain sophistication level, the company’s reliance on ERP for provision of Value chain support has been reduced and has initiated the utilisation of more BOB solutions for provision of more-advanced functionality. House-sourced technology tends to have been slightly increased within the stage as well. Here, companies develop specific applications for supplementing the core ERP functionality. Within this level, the amount of outsourced technology reduces the typically reduced functionality of some SCM SaaS solutions is deemed to be too functionally light, and on-premises BOBs are preferred. (Dua et al., 2011) Despite investing for growth, companies are aware that the disruption potential at any time does not vanish. Many work towards improving their Value chains’ resiliency for this risk mitigation. The past year brought about disruptions of global-scale Value chain which impacted multiple industries, right from chemicals to semiconductors as well as electronics to automotive. Increase in demand uncertainty as well as much more complex global Value networks reliant on high-risk geographic zones placed added pressures on Value chains’ ability to deliver results that are predictable. The disruptions have even called into question if Value chains have become too lean, requiring an essential approach change. (Shoanen and Joseph, 2004) In stormy times, as well as during the face of increasing risk and complexity, leading companies need more bearable, resilient Value chains which, support profitability and as well drive industry leadership. This necessitates that managers re-evaluate their Value network designs layout to ensure that they are made more resilient to future disasters. It may as well include designing products which, allow more flexibility in manufacturing and value, increasing long-term substitute sources of raw materials and logistics capabilities, as well as expanding outsourced manufacturing capacity. Finally, with current crises fresh within management mind share, now is a prime chance to push for much more robust and funded risk management, with the inclusion of a "sense and respond" capability to recover quickly and profitably from disruptions. (Mentzer et al., 2007) Leading companies like Intel, P&G and Unilever enhanced multitier Value chain visibility as well as advanced network management abilities to be agile in the disruptions’ face. Overall, leaders have been focused all through the past year on building resiliency into their global Value chains, and it continues to be a highly valued Value chain characteristic. Segmentation of Value chain has emerged as a serious enabler for Value chain simplification, delivering only service level required by each type of customer and nothing more. Otherwise, delivering on open-ended requirements of service from a one-size-fits-all Value chain drives increased complexity and inefficiency. The segmenting concept end-to-end Value chains to address customer-driven needs, like cost efficiency, personalisation as well as speed to market, have been thre for several years. The difference in the current year is that leading companies are now seen to adopt and execute on their segmentation strategies. (Fredendall and Hill, 2001) Lean Management Manufacturers as well as retailers have long hunted ways of balancing the trade-off within their Value network designs in between global economies of scale and the demand for local responsiveness. Leading firms are reconsidering their sourcing as well as manufacturing networks, and rebalancing the strategies of their Value network in favour of multi-local design, support and Value. More precisely, they are moving from a centralized model, where such functions support international markets, to a regionalised approach, where abilities are placed close by, but architected globally. (Peng, 2011) Numerous factors are driving this tendency. Tax as well as other government incentives, joined with meaningful concessions from organised labour, are tempting manufacturers to set up or enlarge operations in mature markets. Yearly wage increases between 9% and 35% in China, combined with increasing logistics expenses, lead to higher core Value chain costs in a conventionally low-cost country. An ever-increasing demand to be responsive to local markets is fuelling the trend further, and a rising sophistication with techniques, like cost-to-serve analysis, is enabling it. In emerging markets, manufacturers are shifting volume based on regional wage as well as logistics expense differentials. Top 5 Value Chain Apple is maintaining its record as No. one, a master in the delivery of total solutions to customers through tightly integrated design of hardware components, a proprietary operating system, firmware, and an ecosystem of applications, which run on top of that platform. Stellar financials further improved within the year, with support from the highest voting scores point to its combination of innovation and operational excellence, a zealous focus on starting with the consumer experience as well as working back through its Value network design, as well as mastery in orchestrating its end-to-end value network. (Shoanen and Joseph, 2004) The subsequent two firms were newcomers to the ranking in year 2010, and have moved up steadily since then. Jumping three spots to No. 2 this year, Amazon is a great example of an "orchestrator" that drives beyond simply borrowing as well as adapting the others best practices and consistently challenges conventional wisdom. With a three-year weighted revenue growth of 38%, the online transacting juggernaut has led in offering of services where the profit potential was quite uncertain, for instance cloud computing services, intraday delivery for major markets as well as use of pickup lockers at selected 7- Eleven stores, all demanding robust demand management and Value delivery abilities. Moving into the media tablet commercial with the Kindle Fire, Amazon shifted its model so that 9 of its top 10 offerings are digital content now, augmenting its vast physical Value chain. (Harrison and John, 2007) Next is the McDonalds, rising five spots to No. 3 this year on robust financials as well as peer opinion votes. The ubiquitous restaurant chain managed the fine balance in between new product growth, and the resultant complexity in Value chain planning and execution. In actual, it was a great success with the launch as well as expansion of its McCafe product line to contest in the specialty beverage business, while preserving leadership in traditional food categories. (Shoanen and Joseph, 2004) At No. 4, Dell happens to be a respected Value chain leader, whose signature Value chain capability evolved from blazing-fast, configure-to-order capability to segmenting fit-for-purpose Value chains to the desires of its varied customers across,Government, consumer, large enterprises, educational institutions and small businesses. This computing OEM has come to evolve into a solutions company, all while meaningfully improving the performance of its physical Value chain in the past few years in relation to end-to-end cycle time, order fulfilment rate and total Value chain expenses. Dell is as well employing design-to-value techniques so as to maximize product offerings value, and has reducing complexity in its product portfolio steadily. (Harrison and John, 2007) At No. 5 is P&G, a returning winner in Value Chain, a Value chain thought leader also a standard bearer of brand management. Its capability to optimize choices across the Value network enables it to orchestrate demand as well as connect the Value chain to the shelf. Using its world-class, open novelty platform, combined with an inspiring new product organisational capability, which is tightly combined with Value chain, it taps a profound well of understanding its customers "moments of truth" to remain delivering new products, like the highly popular Tide Pods. (Harrison and John, 2007) Of course, working excellence has worth only if consumers want what is being made and shipped. To address this, we look at innovation excellence. Even though far harder to reliably measure, this measurement may also be managed with metrics hierarchy, in this case, topped by time to value as well as return on new product development and launch (NPDL). The key will be to find the right balance on the both dimensions. A lot of emphasis on one at the other’s expense either squashes innovation or hampers growth. (Dua et al., 2011) Example of Open Innovation & Lean Management Introduction Wal-Mart, the United States based company is ranked first in the fortune 500 globally. In year 2001-02 the company’s earning revenue was $219.81 billion. Wal-Mart has maintained to be a largest retailing company globally. The company is way much bigger compared to its competitors in the United States- K-mart, Sears Roebuck, JC penny and Nordstrom combined. It operated in over 3500 discount stores, supercentres and Sam’s Clubs in the United States in year 2002. Wal-Mart had over 1,170 stores within the major countries of the world. It also sells its products through a corporate website, (walmart.com). Wal-Mart happens to be also one of the largest private sector employers internationally, with the employee strength of about 1.3 million. The company’s founder, Sam Walton always did focus on costs reduction consistently, improvement of sales, adopting efficient techniques of distribution and logistics management system along with using information technology tools. (Matos et al., 2006) In accordance with analysts, Wal-Mart successfully achieved leadership status in the retail sector because of the company’s efficient and effective practices of Value chain management. It was said that SCM is moving the right items to the right consumers with the right time and through the most efficient and effective means. No-one did them better than Wal-Mart. The company emphasised on the need to reduce its purchasing costs for offering best prices to its consumers always. Wal-Mart acquired its products from manufacturers directly, by passing all intermediaries involved. Wal-Mart remained a tough negotiator for prices always, finalising deals only if it feels confident that the goods it bought are not available at lower prices anywhere else. The company also spent its significant time in meeting its vendors an understanding different cost structures if their businesses. By this process of transparency, the company was certain that the manufactures are doing their best to cut down costs. Wal-Mart always believed in building long-term relationships with their manufacturers, once they are satisfied with them. The company did not spared even big manufacturers like P&G (Procter & Gamble). Lean System at Distribution of Wal-Mart In 1998, the company had developed more that 40 distribution centres, at different geographical location in the United States. Company’s own ware-houses supplied almost 85% of the inventory, compared to the level of 55-65 percent for its competitors. Wal-Mart also provided replenishment for its products within 2 days against the level of 5 days for its competitors. Shipping costs for the company was almost 3% compared to the 5% of its customers. Each distribution centre of the company was divided into multiple sections on the basis of quantity of goods received and managed the same way for both the cases and palletized goods. Inventory turnover rate for the company was quite high almost once in every two weeks for most of the items. Products for distribution in US arrived in pallets and imported products arrived in re-usable cases. About 85% of the goods that were available in the stores passed through the distribution centres. The company’s distribution centres ensured consistent and steady flow of products in supporting the Value function. As the company used sophisticated technology of barcode and hand held computer systems, management of the centre became easier and even more economical. Real time information regarding the levels of inventory was accessed by every employee for all the products within the centre. Different barcodes were used for labelling different product, bins and shelves in the centre. Hand-held computer system guided the employee in regard to the location of the location of any particular product in the centre. The quality of product required was entered in the hand-held computer by the employee and the computer system updated the information about it on the main server. (Krafft and Mantrala 2009) Logistics Management Primary feature of Wal-Mart’s logistics infrastructure is its responsive and fastest transportation system. Distribution centres of the company were serviced more than 3,600 company owned trucks. These truck fleets allowed Wal-Mart to ship goods from distribution centres to its stores within 2 days and allowed replenishment of the store shelves 2 times a week. Truck fleet showed visible link between distribution centres of the company and its stores. The company believed that drivers that are committed and dedicated towards customer service are needed. The drivers hired were experienced and had driven at least 300,000 accident free miles and with no major traffic violation. (Krafft and Mantrala 2009) Truck drivers of the company moved the trailers that were merchandise loaded from the company’s distribution centre to its retail stores that was services by each distribution centre. The distribution centres considered these retail stores as their customers. The coordinator took daily report of the service hours by the driver. All the dispatches were scheduled by the coordinator depending upon the available driving time and estimated time of travel between the retail stores and the distribution centres. Drivers were usually advised to take the loaded trailer to the retail store and come back with the empty trailer. Gap of two hours was necessary between the unloading of each trailer. The trailers were secured by the drivers, unless the store personnel took charge of them. (Eyob and Tetteh, 2012) For making the process of distribution more efficient, the company also used a Value chain technique known as cross-docking. According to this technique, the finished goods were picked directly from the supplier’s manufacturing plant where it was sorted out and then supplied directly to the customers. This system helped in reducing the storage and handling costs of the final goods, and virtually eliminating the role of stores and all distribution centres. The company use five type of cross-docking referred to as follows: 1. Opportunistic Cross docking 2. Flow-through Cross docking 3. Distributor Cross docking 4. Manufacturing Cross docking 5. Pre-Allocated Cross docking All these cross docking techniques used by the company helped its aim of efficient logistics management. Also to gain maximum out of above referred docking techniques, company made fundamental changes in its approaches in its managerial controls. The system also shifted the focus from Value chain towards demand chain. It meant that consumers will pull the products wherever needed, instead of retailers pushing products in the systems. (Eyob and Tetteh, 2012) Inventory Management Wal-Mart developed the ability of catering the individual needs of all its stores. Stores chose from a number of delivery plans. The company invested heavily in the stores across the US. Along with the rapid expansion of stores within the country, it became essential to quip itself with the good communication system. The company set up its own satellite communication system in 1984. The company also allowed stores to manage their own inventory, reducing sizes across major product categories along with timely price markdowns. This helped the company in reducing un-productive inventory. Wal-Mart also made use of it information technology capabilities for making inventories available in the situation of high demand towards certain products, further reducing the overall inventory levels. The suppliers of the company were also networked through computers. The system at the company identified the item which was low in stock and accordingly signal was sent to P&G. The collaboration between P&G and the company was win-win proposition for both the companies as Wal-Mart could monitor stock levels in its stores constantly and could also identify the items that are moved out fast as the result of high demand. (Dua et al., 2011) Use of RFID RFID tags were attached to manufactured products. The tags emit signals that were read using transmitters. These transmitters were connected to the ERP systems in the company. When the product with the RFID tag passed through an electro-magnetic zone, the tag responded to the reader’s signal and transmitted the information back to its reader. The accurate information regarding the movement of goods from the supplier’ plants to the distribution centre of Wal-Mart and finally to the retail stores of the company, is captured in real-time. (Al-Hakim, 2002) The Benefits Reaped The company strongly emphasized on strengthening its relations with its employees and all the suppliers and customers. The company remained very vigilant in sensing the smallest of changes within merchandising techniques and store layouts for improving performance and value for the customers. Wal-Mart always made an initiative to capitalise on cost saving opportunities. The cost savings were further passes on to customers, thereby adding value at each and every stage and process. References: Al-Hakim, L., (2002). Issue and Trends of IT management in Contemporary Organizations. 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