Value Chain and IS/IT

V.T. Raja, Ph.D.,

Information Management

Oregon State University

Value Chain

Discussion questions:– What is the Value Chain (VC)?– Identify the activities of the VC– How is the “service” activity different from “marketing and

sales”? (Don’t “sales” people provide “service”?)– Differentiate between “procurement” activity and “inbound

logistics”– Why study about Value Chain in an IS/IT class?– Explain value chain linkages (internal and external) with the

help of examples.

Value Chain Activities

Inbound Logistics– Involve relationships with suppliers and include all activities

required to receive, store, and disseminate inputs

Operations– All activities required to transform inputs into outputs

Outbound Logistics– All activities required to collect, store, and distribute output

Value Chain Activities (Continued)

Marketing and Sales– Inform buyers about products/services– Induce buyers to purchase products/services and facilitate

their purchase

(Stimulate demand for products/services)– Collect and pass customer feed back to various units in firm– Estimate expected sales volume

Service– Activities required to keep the product/service working

effectively for the buyer after it is sold and delivered

Value Chain Activities (Continued)

Procurement – Acquisition (actual purchase) of inputs, or

resources, for the firm

Human Resource Management– Activities involved in recruiting, training,

developing, compensating, laying off personnel

Value Chain Activities (Continued)

Technological Development– Technology purchased/adopted/developed to

bear in the firm’s transformation of inputs into outputs

Infrastructure (General Administration)– Activities include accounting, legal, finance,

planning , public affairs, government relations, quality assurance and general management

Value Chain and IS/IT: Examples

Inbound Logistics– Automated Warehousing System; – JIT inventory systems

Operations– Computer-Controlled Machining Systems

Outbound Logistics– Automated Shipment Scheduling Systems– Tracking Systems

Value Chain and IS/IT Examples (Continued)

Sales and Marketing– On-line Ordering Systems for customer– Sales forecasting

Service– Equipment maintenance systems

Procurement– Computerized Ordering Systems and EDI

Value Chain and IS/IT Examples (Continued)

Technology Development– Computer-Aided Design Systems

Human Resource Management– Multi-media database systems– On-line recruiting– Intranet for employee benefits (retirement benefits, medical

benefits etc.)

Infrastructure– Electronic scheduling; financial systems, accounting

systems, decision support systems etc.

Value Chain and IT

Source: Laudon and Laudon (2007)Management Information Systems (10th edition)

Value Chain LinkagesInternal and External

Internal Linkage: Efficiency and/or competitive advantage gains due to links between two or more VC activities of a firm

– Example: (Operations and Outbound Logistics; Information exchanged – Completed order status)

External Linkage: Efficiency, partnership and/or competitive advantage gains due to link between one VC activity of firm and external entity (e.g., customer, supplier etc.)

– Example: Ford ‘s Supplier and Accounts Payable (Infrastructure); Information exchanged – Payment Information)

Planning, organizing, directing, and controlling flows of materials and purchased parts or services

– Begins with raw materials– Continues through internal operations – Ends with distribution of finished goods

Involves everyone in supply-chain– Example: Your supplier’s supplier

Objective: Maximize product value and decrease waste incurred in providing it.

Supply-Chain Management

Nike’s (Simplified) Supply Chain

Source: Laudon and Laudon (2007)

Management Information Systems (10th edition)

Supply-Chain Costs as a Percent of Sales

Source: Heizer/Render (2004) – Operations Management, 7e

All industry Automobile Food Lumber Paper Petroleum Transportation

52% 67% 60% 61% 55% 79% 62%

Industry Percent of Sales

Successful Supply-Chain Management Requires:

A mutual agreement with suppliers on goals Trust among all elements of the supply chain Compatible organizational cultures

The Bullwhip Effect

Source: Laudon and Laudon (2007)

Management Information Systems (10th edition)

Supply Chain Management