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The term “Value Chain” was coined by Michael Porter in 1985. The value chain is a chain of activities through which product passes. At each activity, value is added. The value adding activities are called “Primary Activities”. Primary activities include – inbound logistics, outbound logistics, production, sales and maintenance. Human resource, administrative activities. R&D, infrastructure management and procurement are called support activities. Support activities are behind primary activities. Support activities also add value to the organization. Value chain management is the process of managing the sequence of activities and information along the entire product chain. (Robbins, 2007)

The goal of Value chain is to maximize value at minimum cost. It enables seamless interaction among the value chain participants -customers, suppliers, management and employees. All the participants must work together to achieve the common goal. There are 6 basic requirements for effective Value chain management:

1. Coordination and Collaboration

2. Technology Investment

3. Organizational Process

4. Leadership

5. Employee/Human Resources

6. Organizational Culture and Attitudes

Value chain management is so important for a business that one can say, if you are not managing your value chain then you are not managing your business. “success in digital economy is the implementation of an integrated value chain that extends across - and beyond - the enterprise.” (Kotelnikov, 2001)

Managing value chain is more important in computer microchip industry. In this industry, product life cycle (PLC) is very short. Company needs to make huge investment in R&D to develop a new product. But once a product is launched, by the time company can make some profit on the product, its clone becomes available in market. Clone is available at lower price and has almost all the features of the original microchip. In such a market, a company can remain competitive and make profit only by reducing cost and reducing time to market. Value chain management helps the company in achieving this goal. Smart Chips needs to improve its value chain by adopting the 6 basic requirements mentioned above which will help the company in reducing cost and remain competitive.

First requirement of value chain is co-ordination and collaboration. Better co-ordination and collaboration among value chain participants saves cost, improves quality and improves productivity of the employees. The improved quality and ability to produce and market at lower cost will give competitive advantage to Smart Chips. Next requirement of value chain management is Technology Investment. Microchip industry is a technology driven industry where technology changes very fast. It requires huge investment in R&D. In order to remain competitive and gain market share, company needs to come up with better quality product at lower price. Also, product development to product launch period should be very short as technology is changing fast. Smart Chips should invest in technology to have competitive advantage. Investment in IT infrastructure is also very important as IT can improve the overall organizational process. ERP integrates all the processes of the organization and implements Best Business Practices. Investment in ERP will help Smart Chips to integrate all the processes and functions of the organization which will help in reducing cost and improving productivity.

Next basic requirement of value chain management is Leadership. A good leader can see where his organization will stand in future. A good leader helps the employees in achieving their goals and motivate them to contribute more to the organization. Good leadership improves employee’s productivity and synchronize the efforts towards right direction. Employees and Human Resources is also very important requirement for the success of value chain management. An organization performs well if it has skilled and motivated employees. It is the responsibility of HR to recruit skilled labors, assign them right job, train them with changing requirements and have best HR practices which elevates employees satisfaction level. Organizational culture plays very important role in the success of the organization. Smart Chips needs to see that supportive organizational culture is developing the organization. Healthy and supportive organizational culture motivates employees to contribute more and make them more productive and innovative which is positive for the organization.

References

Kotelnikov V. (2001). "Managing your value chain - Receiving Raw Materials As Input, Adding Value, And Selling Finished Products to Customers". Retrieved on March 11th , 2010. From:

Robbins, S.P. (2007). “Operations and Value Chain Management”. Prentice Hall Inc.

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