Understanding the value chain for ensuring survival
Saturday, 6 October 2007
Ahmed Showkat Masud
BUYERS pay a certain sum of money to the sellers for the goods they purchase. The money paid to the sellers is the value for goods. A firm's value activities encompass different functional departments. It can be divided into different units as per activities that each department performs. Each department incurs costs to perform its respective duties.
Activities of each department that involve costs, are backed by cost drivers. Therefore, linkages between activities and each department's cost position can be traced out. It can help to find out a firm's overall cost position.
There are linkages between sellers'/ exporters' and buyers' value chains. Strategy can accordingly be fixed to maximise the value of buyers and minimise the costs of sellers/ exporters. Total value that buyers pay to the sellers/ exporters and total costs that are incurred in producing products for buyers can help find out the margin of sellers/exporters.
The initial activities of a manufacturing firm relate to production of a product, and its sale in the local market or shipment to the buyers abroad. Receiving raw materials from suppliers of sellers/ exporters and transporting the same to warehouses are activities of sellers/exporters. Procurement, packaging, maintenance and assurance of quality etc., are also initial activities of manufacturing concerns. Another area of activity relates to operations after receiving contracts/ letters of credits (LCs) from buyers and up to the shipment of consignments. Promotional activities, marketing activities, managing distribution channels etc., are also included in initial activities. Continuous improvement of products can assure enhanced value for the buyers.
Initial activities can be supported by timely procurement, production process improvement, increase of productivity and infrastructural development.
Dividing the activities of a firm depends on the nature of the industry that the firms belongs to.
Value chain requires not only desegregations of activities but also interdependence of functional department so that higher quality products can be produced as per buyers feedback.
Timely shipment can reduce the time spent as well as delivery costs by more shipment within the shortest possible time.
Determining the real buyers and direct contacts with them can reduce the cost of sellers/ exporters. If sellers / exporters depend on buying houses (brokers), the profit margin will reduce. To make direct contact with buyers, it is imperative to have skilled sales executives who will be a good negotiators.
Entrepreneurs/management personnel require to have proper knowledge about not only their own firm's value chain but also the buyers' value chain. It must be traced out by the sellers/exporters as to how the value chain fits into the industry value chain. Coordination among sellers/ exporters, raw materials, suppliers, and buyers is not a zero-sum game. Through coordination, everyone-seller/ exporter, raw material supplier and buyer -- can achieve greater value through implementing a proper value chain among all those involved in the process there of. Identification of the buyers' value sources and the capacity of sellers/ exporters to overcome the barriers to efficient operations is a must for the businesses to survive competition.
The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong
BUYERS pay a certain sum of money to the sellers for the goods they purchase. The money paid to the sellers is the value for goods. A firm's value activities encompass different functional departments. It can be divided into different units as per activities that each department performs. Each department incurs costs to perform its respective duties.
Activities of each department that involve costs, are backed by cost drivers. Therefore, linkages between activities and each department's cost position can be traced out. It can help to find out a firm's overall cost position.
There are linkages between sellers'/ exporters' and buyers' value chains. Strategy can accordingly be fixed to maximise the value of buyers and minimise the costs of sellers/ exporters. Total value that buyers pay to the sellers/ exporters and total costs that are incurred in producing products for buyers can help find out the margin of sellers/exporters.
The initial activities of a manufacturing firm relate to production of a product, and its sale in the local market or shipment to the buyers abroad. Receiving raw materials from suppliers of sellers/ exporters and transporting the same to warehouses are activities of sellers/exporters. Procurement, packaging, maintenance and assurance of quality etc., are also initial activities of manufacturing concerns. Another area of activity relates to operations after receiving contracts/ letters of credits (LCs) from buyers and up to the shipment of consignments. Promotional activities, marketing activities, managing distribution channels etc., are also included in initial activities. Continuous improvement of products can assure enhanced value for the buyers.
Initial activities can be supported by timely procurement, production process improvement, increase of productivity and infrastructural development.
Dividing the activities of a firm depends on the nature of the industry that the firms belongs to.
Value chain requires not only desegregations of activities but also interdependence of functional department so that higher quality products can be produced as per buyers feedback.
Timely shipment can reduce the time spent as well as delivery costs by more shipment within the shortest possible time.
Determining the real buyers and direct contacts with them can reduce the cost of sellers/ exporters. If sellers / exporters depend on buying houses (brokers), the profit margin will reduce. To make direct contact with buyers, it is imperative to have skilled sales executives who will be a good negotiators.
Entrepreneurs/management personnel require to have proper knowledge about not only their own firm's value chain but also the buyers' value chain. It must be traced out by the sellers/exporters as to how the value chain fits into the industry value chain. Coordination among sellers/ exporters, raw materials, suppliers, and buyers is not a zero-sum game. Through coordination, everyone-seller/ exporter, raw material supplier and buyer -- can achieve greater value through implementing a proper value chain among all those involved in the process there of. Identification of the buyers' value sources and the capacity of sellers/ exporters to overcome the barriers to efficient operations is a must for the businesses to survive competition.
The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong