Steps in Value Chain Analysis:
Communications Information systems Note that many of these technologies are used across the value chain. For example, information systems are seen in every activity. Similar technologies are used in support activities.
In addition, technologies related to training, computer-aided design, and software development frequently are employed in support activities. To the extent that these technologies affect cost drivers or uniqueness, they can lead to a competitive advantage. Rather, one value chain activity often affects the cost or performance of other ones.
Linkages may exist between primary activities and also between primary and support activities. Consider the case in which the design of a product is changed in order to reduce manufacturing costs.
Suppose that inadvertantly the new product design results in increased service costs; the cost reduction could be less than anticipated and even worse, there could be a net cost increase.
Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability so that the service costs also are reduced.
Through such improvements the firm has the potential to develop a competitive advantage. Analyzing Business Unit Interrelationships Interrelationships among business units form the basis for a horizontal strategy.
Such business unit interrelationships can be identified by a value chain analysis. Tangible interrelationships offer direct opportunities to create a synergy among business units.
For example, if multiple business units require a particular raw material, the procurement of that material can be shared among the business units.
This sharing of the procurement activity can result in cost reduction. Such interrelationships may exist simultaneously in multiple value chain activities. Unfortunately, attempts to achieve synergy from the interrelationships among different business units often fall short of expectations due to unanticipated drawbacks.
The cost of coordination, the cost of reduced flexibility, and organizational practicalities should be analyzed when devising a strategy to reap the benefits of the synergies.
Outsourcing Value Chain Activities A firm may specialize in one or more value chain activities and outsource the rest.
The extent to which a firm performs upstream and downstream activities is described by its degree of vertical integration. A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions.
Managers may consider the following when selecting activities to outsource: Whether the activity can be performed cheaper or better by suppliers.
The risk of performing the activity in-house. If the activity relies on fast-changing technology or the product is sold in a rapidly-changing market, it may be advantageous to outsource the activity in order to maintain flexibility and avoid the risk of investing in specialized assets.
Whether the outsourcing of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory, etc.
Porter calls this series of value chains the value system, shown conceptually below:Value-chain analysis as a tool of strategic accounting. Introduction Value-chain cost management methodology involves the following steps: 1.
Identify the value chain, then assign • What are the problems with using traditional accounting methods in the value added chain?
Explain how. Team effort is required to get the advantages of value chain analysis Now-a-days the management accountant of a company has to collaborate with engineering, production, marketing and distribution professionals to focus on the SWOT (i.e.
strengths, weaknesses, opportunities and threats) identified in the value chain analysis results. Limitations of Value Chain Analysis Value chain analysis is still regarded as a new strategic management accounting tool and has several operational limitations: 1. human resources management and company infrastructure.
Value chain accounting is a new approach on accounting subject which is combined by the theories of value chain management, supply chain management, accounting management . A value chain is a high-level model developed by Michael Porter used to describe the process by which businesses receive raw materials, add value to the raw materials through various processes to.
Value Chain Analysis (Relevant to Paper II -- PBE Management Accounting and Finance) Dr Fong Chun Cheong, Steve, School of Business, Macao Polytechnic Institute This overcomes the criticisms of traditional management accounting, starting too late and finishing too soon in terms of the value chain.
Value chain analysis extends from.