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CSCM Chapter 3 strategic procurement and value chain cscm

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CSCM Chapter 3 strategic procurement and value chain cscm

  1. 1. Strategic Procurement & Value Chain CONSTRUCTION SUPPLY CHAIN MANAGEMENT (MGT60803/QSB 2433)
  2. 2. Objectives Today • Strategic Procurement • What is Value Chain? • Porter’s Value Chain 2
  3. 3. Strategic Procurement • Procurement is the process of obtaining goods and services from another while a strategic procurement objective is to facilitate added- value. • Procurement has been seen as a function for reducing costs instead of adding value. 3
  4. 4. Strategic Procurement • Procurement strategies, however, cannot be developed in isolation, they need to be integrated with corporate strategy to succeed. • Hence, a strategic procurement does not only add values to the procurement process but the entire value chain. 4
  5. 5. What is Value Chain? • A value chain is a set of activities that an organization carries out to create value for its customers. (E.g. Paper  Birthday Card) • Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they are connected. 5
  6. 6. What is Value Chain? • The way in which value chain activities are performed determines costs and affects profits. • This tool can help you understand the sources of value for your organization. 6
  7. 7. How Value is Created Within Organizations? • How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs? • Example, manufacturing companies create value by acquiring raw materials and using them to produce something useful. • Example, a company create value by using the raw materials to build a hotel. 7
  8. 8. Value Created • The value that's created and captured by a company is the profit margin: • Value Created and Captured – Cost of Creating that Value = Margin Example: Selling Price of a birthday card is RM 4.90 – Cost of creating a card is RM 0.50 = Profit Margin is RM 4.40. 8
  9. 9. Value Created • The more value an organization creates, the more profitable it is likely to be. • When you provide more value to your customers, you build competitive advantage. 9
  10. 10. Value Chain • The value chain displays total value, and consists of value activities and margin. • Value activities are the physically and technologically distinct/unique activities a firm performs to create valuable products to buyers. • Example, a company uses IBS to build wall panel (increase value – T,C,Q) and BIM is a technology advancement in building information (increase value – T,C,Q). 10
  11. 11. Value Chain • Margin is the differences between total value and the collective cost of performing the value activities. • Value Created and Captured – Cost of Creating that Value = Margin 11
  12. 12. Porter’s Value Chain • Porter's Value Chain focuses on how inputs are changed into the outputs purchased by consumers. • Porter described a chain of activities common to all businesses, and he divided them into primary and support activities. • Called value activities. 12
  13. 13. Porter’s Value Chain 13
  14. 14. Porter’s Value Chain 14 Five Primary Activities Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. •Inbound logistics: These are all the processes related to receiving, storing, and distributing inputs internally. Your supplier relationships are a key factor in creating value here.
  15. 15. Porter’s Value Chain • Operation: These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value. • Outbound logistics: These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization. 15
  16. 16. Porter’s Value Chain • Marketing and sales activities: These are the processes you use to persuade clients to purchase from you instead of your competitors. • The benefits you offer, and how well you communicate them, are sources of value here. • Building customer’s relationships. 16
  17. 17. Porter’s Value Chain • Service activities: These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased. • Such as installation, spare parts delivery, maintenance and repair, technical assistance, buyer’s enquires and complaints. 17
  18. 18. Porter’s Value Chain Support activities These activities support the primary functions above. •Procurement – This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices. 18
  19. 19. Porter’s Value Chain • Human resource management (HRM) – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. • People are a significant source of value, so businesses can create a clear advantage with good HR practices. 19
  20. 20. Porter’s Value Chain • Technological development – These activities relate to managing and processing information, as well as protecting a company's knowledge base. • Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation. 20
  21. 21. Porter’s Value Chain • Infrastructure – These are a company's support systems, and the functions that allow it to maintain daily operations. • Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage. 21
  22. 22. Porter’s Value Chain • Companies use these primary and support activities as "building blocks" to create a valuable product or service. 22
  23. 23. Porter’s Value Chain 23
  24. 24. Value Added What is value? •In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. (worth) •Value is measured by total revenue, a reflection of the price a firm’s product commands and the units it can sell. 24
  25. 25. Value Added • A firm is profitable if the value it commands exceeds the costs involved in creating the product. (E.g. Taylor’s University) • Creating value for buyers that exceeds the cost is the goal of any strategy. • Value must be used in analyzing competitive position, instead of cost. 25
  26. 26. Conclusion • Firms in the same industry may have similar chains, but the value chains of competitors often differ. • Differences among competitor value chains are the key source of competitive advantage. • To diagnose competitive advantage, it is necessary to define a firm’s value chain for competing in a particular industry. 26

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