©2004 TGVC

Every time a shipment sails to its final destination, seller and buyer have done business because the transaction represents a value for each of them.

The same applies whenever a service is delivered to a buyer

Then again, seller and buyer have different perceptions of “value”.

“The Magic Pallet” is a graphical presentation of a business transaction.

It demystifies “value” and explains the different elements that build up to those perceptions.

SELLER

For the seller, value is the sales price

of his goods minus the cost of means (fixed and variable costs); the net profit on

the transaction

BUYER

B For the buyer, value is the worth

in monetary terms

of the perceived benefits in

return for the price he pays plus the additional costs incurred,

called “total cost of ownership”.

This is the “value proposition” of the seller.

Value

SELLER BUYER

VALUE ADDED

COST OF MEANS

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The Magic Pallet uses concise

concepts with precise descriptions

to identify the elements that

constitute the value proposition

of a firm

VALUE

ADDED

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CUSTOMER VALUES

QUALITY

IMAGE

DESIGN

SPEED

CHANGECHANCE

Articulation

VALUE CHAIN

The chain of activities

performed by a single firm,

which add value

for its customer

TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT

TECHNOLOGY PRODUCTION LOGISTICS MARKETING SUPPORT TECHNOLOGY

PRODUCTION LOGISTICS MARKETING SUPPORT TECHNOLOGY

PRODUCTION LOGISTICS MARKETING SUPPORT

VALUE SYSTEM

The set of value chains that come together

including suppliers, manufacturers processors,

distributors, traders, etc.

CUSTOMER VALUE

The sum of perceived benefits – in monetary

terms- in turn for the total cost of ownership

Let us first agree on some definitions….

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The costs of means are the comparative

resources of a firm or sector.

For most, these costs are a given

- hard to improve upon

We start loading the pallet……

MINDS = Cost of people with a higher education and/or creativity. MONEY = Cost of money: own financial resources or financing MAN POWER = Cost of labor: skilled, proficient or experienced workers MACHINES = Cost of machines, infrastructure and other means. MATERIALS = Cost of raw materials, seeds, ingredients a/o

SELLER BUYER

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……..…..contains the value added; the value chain of a firm or

sector, which is the source of competitive advantages.

Not the comparative

“What do you have?”,

but

“What do you do with it?”

The second crate…….

TECHNOLOGY = Creating new, developing or adapting existing products PRODUCTION = Transformation of inputs into a final productLOGISTICS = All in-bound, in-house, out-bound movement of goods MARKETING = Attracting new and retaining existing customers SUPPORT = All pre/after sales support, personalization of processes

SELLER BUYER

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LOGISTICS MARKETING

SUPPORT

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1900 1950

1950 2000

Value, a historical perspective

Materials -fabric, button, tread, etc. $ 4,18 $ 7,54

Production –“Cut, make and trim” $ 1,40 $ 1,74

Logistics –in bound/out bound $ 0,27 $ 0,31

Taxes -quota, duties $ 0,11 $ 0,14

Sub-total $ 5,96 $ 9,73

Technology -design, fit, color, model $ ……. $ …….

Marketing –branding, promotion $ ……. $ …….

Retail price -exclusive of VAT $ 39,00 $ 89,00

ABC

The value of production

Seller’s value equals buyer’s total cost of

ownership……..

Next crate: cost of ownership

COST = Purchasing price on a DDP basisCHRONO = Time involved in purchasing, control and corrective actionsCHANGE = Change and adaptation to new products, processes or suppliers CHANCE = Number of potential suppliers, reliability, barriers, distancesCONFLICT = Disputes on incompetence, unresponsiveness, non-transparancy

SELLER BUYER

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TECHNOLOGY PRODUCTION

LOGISTICS MARKETING

SUPPORT COST

CHANGE

CHANCE

CHRONO

CONFLICT

……………..perceived benefits from the

purchase.

These benefits can be of technical, social,

economic or any other nature and are related to

the product and processes

The last crate contains the……….

SELLER BUYER

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PRODUCT = Design, shape, color, taste, feel, texture, packing ACCESS = Compliance with product and process standards and norms SPEED = Availability and/or delivery time, convenience of purchasingIMAGE = Contribution to profit by reputation supplier/country or brand SERVICE = Level of pre- and after sales service, customization of processes

Higher cost of means (MMMMM) will cause

higher cost of ownership (CCCCC) without necessary

increasing perceived benefits (PASIS)

Higher value added (TPLMS) will lead to higher benefits (PASIS) . Therefore, higher cost of means (MMMMM) need to be compensated by higher value added (TPLMS).

Competitiveness….

SELLER BUYER

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SELLER BUYER

VALUE ADDED

COST OF MEANS

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If total cost of ownership (CCCCC) is higher than the benefits (PASIS),

the buyer will not buy, postpone the purchase or look for

other suppliers.

Business or no business ……

SELLER BUYER

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VALUE ADDED

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The value proposition of a seller is composed by his cost of means –comparative advantages- plus value added –competitive advantages That value proposition should contain product, process and vendor’s benefits, which are higher than the total total cost of ownership for the buyer

Competitive advantages

Comparative advantages

The business equation

SELLER BUYER

VALUE ADDED

COST OF MEANS

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Value addition and profits

Capturing Value in Global Networks: Apple’s iPad and iPhone, Distribution of profits iPhone 2010, Kenneth L. Kraemer, Greg Linden, and Jason Dedrick, University of California, Irvine, University of California, Berkeley and Syracuse University

Though not designed to

be a mathematical

model, The Magic Pallet

serves to give indications of

value to players in

global supply

chains

ValueMagics applied….

In the SWAT analysis, we show how to use The Magic

Pallet to find the most successful road to global

markets.

See SWAT analysis on www.valuemagics.com

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